The pollution exclusion of a commercial general liability (CGL) policy was enforced to exclude coverage for injuries allegedly caused from carbon monoxide that was emitted from a propane-powered grinder that was being used to grind terrazzo floors while another contractor's worker was working in the same area installing drywall.
The worker filed suit in state court against the owner of the grinder, alleging the company was negligent in failing to provide proper ventilation when operating its grinders and that it failed in its duty to properly monitor the work environment for carbon monoxide gas.
The insurance companies filed a separate declaratory judgment action in federal court, contending that the absolute pollution exclusion bars coverage. The court granted summary judgment in favor of the insurance companies, and this was affirmed by the federal circuit court on appeal, holding carbon monoxide is an "irritant" that was "dispersed" throughout the work site by the insured contractor. Moreover, the court held that this was a pollutant "brought on" to the premises by the contractor and therefore excluded from coverage.
The Insurance Policies
In Continental Casualty Co. v. Advance Terrazzo, 462 F.3d 1002 (8th Cir. 2006), two insurance policies were at issue. The first, by Transportation Insurance was issued to the floor contractor, Advance Terrazzo, as the primary CGL policy. It is this contractor that was operating the grinder at the job site. In addition to this policy, Advance Terrazzo had an umbrella policy from Continental Casualty. Both policies contained absolute pollution exclusions—that applied to exclude coverage whether the pollution was gradual or sudden and accidental.
The language of the absolute pollution exclusion stated that coverage was excluded for:
(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:… (d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations…. ( ) If the pollutants are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor….
"Pollutant" is defined under the policy as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."
The federal district court granted the insurance companies' motion for summary judgment, finding that the absolute pollution exclusion barred coverage for the worker's claims for injuries arising out of the carbon monoxide that was exhausted from the grinder. Advance Terrazzo, on appeal, argued that the absolute pollution exclusion is ambiguous when applied to routine business hazards such as the release of carbon monoxide from the grinders.
Courts in other states have found the clause to be susceptible to more than one reasonable interpretation, and therefore ambiguous when it comes to applying it to a situation like this one, where the pollutant is such a common one that it may not readily be considered by some people to be a pollutant within the meaning of the policy exclusion. Courts in Minnesota, however, whose law is applicable here, have previously found the exclusion to be unambiguous when applied to pollutants occurring in the normal course of business activities. This includes indoor pollution.
In particular, the Minnesota Court of Appeals, in the case of Auto-Owners Insurance Co. v. Hanson, 588 N.W.2d 777 (Minn. App. 1999), applied the absolution pollution exclusion in a situation where an individual was injured from ingestion and absorption of lead in paint chips at a rental property. As additional precedent for applying the exclusion to the facts of this matter, the court cited League of Minn. Cities Insurance v. City of Coon Rapids, 446 N.W.2d 419 (Minn. App. 1989), which held that the pollution exclusion applied to bar coverage for lung injuries suffered by individuals inside an ice rink that resulted from nitrogen dioxide, a toxic by-product of a Zamboni ice-cleaning machine. In that case, the court held that "merely bringing a Zamboni machine on the premises merits exclusion under [the policy]."
In the Advance Terrazzo case, the federal circuit court found no discernable distinction between the release of nitrogen dioxide from a Zamboni and the release of carbon monoxide from a terrazzo grinder. The court rejected Advance Terrazzo's argument that it did not bring the pollutant (carbon monoxide) onto the premises but instead merely brought on the machine which contained LP gas which is not a pollutant. The court declined to make a distinction between bringing on the machine with LP gas and the carbon monoxide that was directly emitted by using the machine. As explained by the court, because the contractor brought on to the premises the machine that produced the carbon monoxide, "it falls squarely into the policy language triggering the absolute pollution exclusion."
This case once again demonstrates that courts in different states have widely different views of the pollution exclusion. Whether the exclusion will be applied to virtually identical facts will often depend on the jurisdiction. Rather than taking a chance of having no coverage for injuries such as those alleged in this case, contractors that are performing services that have any significant chance of creating a pollutant in the course of their operations should consider purchasing a contractor's pollution liability (CPL) policy to cover that risk.
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