Are sick building syndrome claims covered under your insurance policy? Check the language. But what conclusion do you reach when the conditions, definitions, and exclusions don't jibe? This article examines the quandary.
"It isn't pollution that's harming the environment. It's the impurities in our air and water that are doing it."—Dan Quayle
We normally think that a definition explains the meaning of a word or phrase we may not understand. But a definition can serve other purposes, such as excluding coverage or delineating a new concept. The result may be a definition that conflicts with the obvious or natural meaning of the defined term.
Analysis of a definition in a pollution insurance policy demonstrates why a "strained" or obscure definition breeds misunderstanding and coverage litigation. The insurance policy defined "Pollution Conditions" as follows:
Pollution Conditions means the discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, fumes, alkalis, toxic chemicals, medical waste and waste products into or upon land, or any structure on land, the atmosphere or any watercourse or body of water, including groundwater, provided such conditions are not naturally present in the environment.
The Pollution Exclusion
The abstruse wording is partly a legacy of terminology first used in environmental protection legislation and subsequently carried over to property and casualty insurance policy exclusions. The main part of the "Pollution Conditions" definition copies a portion of a version of the pollution exclusion in a typical general liability policy.
The use of "mirror" wording may seem to be a simple and effective way of achieving coverage coordination But the realty is different because the legacy includes a body of law interpreting different pollution exclusions. From the point of view of our client, a large real estate management firm, the definition raises many questions.
The principal reason our client is interested in pollution insurance is the risk of sick building syndrome (SBS) claims. Courts have reached different conclusions about whether certain versions of the pollution exclusion apply to certain types of SBS claims.
In my home state of Michigan, two courts have held there must be a release of pollutants into the environment in order for the qualified pollution exclusion to apply. [See Center for Creative Studies v Aetna Life and Casualty Company, 871 F Supp 941 (ED Mich 1994) (Student alleged she became ill from exposure to a "photographic chemical" used during a photography class); and Meridian Mutual Insurance Company v Kellman, 197 F3d 1178 (6th Cir 1999) (Teacher alleged that chemicals used by the insured to seal the floor in a room above her class caused the teacher to suffer disabling respiratory injuries).]
On the other hand, another court ruled that coverage did not apply to a claim arising out of collection of sewer gas and carbon dioxide inside and under a mobile classroom building. [Bituminous Casualty Company v RJ Taylor Corporation, No. 20334 (Mich App 1998).] As of this writing, there are no reported Michigan decisions on such issues as whether the absolute pollution exclusion applies to long-term toxic mold contamination. In a few states, a more definitive statement can be made about coverage (or lack thereof) of some types of sick building syndrome claims. For the most part, however, the application of the wording to SBS claims is uncertain.
Additional questions arise because there are many different versions of the pollution exclusion in property and casualty insurance policies. Each version may present different coverage coordination issues.
Consider a claim alleging injury or damage from lack of proper ventilation (not pollution), moisture accumulation (probably not pollution), and black mold (pollution). If the insurance policy excludes any claim "arising out of" pollution, then, depending on state law, a court may find that the entire claim is covered under the concurrent, efficient or dominant causation doctrines. (These doctrines and their application to multiple cause and effect situations are discussed in my book How to Draft and Interpret Insurance Policies.)
On the other hand, if the insurance policy excludes any claim "arising directly or indirectly out of, caused by, in any sequence, or connected with" pollution, the same court may well find that the claim is either partly covered or not covered at all.
Another issue is whether an allegation or threat of pollution triggers coverage. Sick building syndrome claims result from a combination of at least two factors: (1) the possibility of pollution, and (2) the belief that pollution has caused or may cause injury or damage. The litigants may spend considerable sums of money to prove or disprove a causal link. Sometimes, no specific illness or pollutant is identified. Accordingly, it is worthwhile to note that one part of a typical general liability insurance pollution exclusion that is not part of the "Pollution Conditions" definition is the following prefatory language:
"Bodily injury" or "property damage" arising out of the actual, alleged or threatened . . . (Emphasis added.)
The use of technical terminology such as "discharge, dispersal, release or escape" and "solid, liquid, gaseous or thermal" complicates the definition. Such wording is justified if a fit to the language of environmental protection statutes and regulations is important. For instance, the insurance may be required to satisfy financial responsibility laws. However, from the point of view our client, this verbiage is superfluous. By defining a noun ("Pollution Conditions") in terms of nominalization of the verbs "discharge," "disperse," "release," and "escape," the drafters have come up with an awkward sentence structure. The proviso (see below) weakens the coherence of the definition.
The "Pollution Conditions" definition is not just arcane, ambiguous, and convoluted. Arguably, it is unnecessary. "Pollution" is a word we use and understand in everyday speech. So are the words "irritant" and "contaminant," the two synonyms in the definition.
There is little room, if any, for misinterpretation of the word "pollution" in the context of an insurance policy covering cleanup costs and third-party claims for bodily injury and property damage resulting from pollution. As an explanation of the meaning of the term "pollutants" or "pollution conditions," the definition is, at best, a tautology. We learn about tautologies as children when asked this question, "If a tree falls in the forest where no one can hear it, does it make a sound?"
The answer depends on how we define sound—as a vibration in the air or as a vibration in the air recorded by human ears. It is sufficient to know that under a pollution insurance policy a substance is a "pollutant" if the presence of the substance results in cleanup costs or a third-party claim. We do not need a definition repeating information we know from other insurance policy provisions.
Sometimes an example helps clarify meaning. The "Pollution Conditions" definition contains the following exemplars:
including smoke, vapors, fumes, alkalis, toxic chemicals, medical waste and waste products into or upon land, or any structure on land, the atmosphere or any watercourse or body of water, including groundwater
Do the exemplars help us determine whether pollution associated with sick building syndrome falls into the definition? An argument can be made that listing of medical waste and waste products implies that the both organic and non-organic substances fall within the definition. In addition, the provision clarifies that the defined term applies to pollution into a "structure" as well as into the environment. Otherwise, the exemplars do not shed light on coverage for sick building syndrome claims.
The definition would be somewhat more relevant if the words "existence" or "presence" were added to "discharge, dispersal, release or escape" and the word "within" were added to "into or upon land, or any structure on land." As written, we are left to wonder whether the insurance covers claims alleging the presence of pollution within a building.
Perhaps the most troublesome part of the "Pollution Conditions" definition is the proviso:
provided such conditions are not naturally present in the environment.
This clause calls into question whether the proposed insurance covers SBS claims resulting from contaminants that are "naturally present in the environment." In many SBS cases, the concentration of contaminants is higher outside the building than inside the building. In Donaldson v Urban Land Trust, Inc., the Wisconsin Supreme Court held that sick building syndrome claims did not fall within the CGL pollution exclusion. Thus, the insurance company was obligated to provide defense and indemnity. There, the bulk of the SBS claims arose because of accumulation of carbon dioxide within the building. The court reasoned that carbon dioxide was not a "pollutant" because carbon dioxide is present in natural levels in any building.
There are three obvious readability problems that result from insertion of the proviso in the definition:
The definition is "strained" to the extent it conflicts with the obvious or natural meaning of the word "pollution."
The addition of this substantive provision exacerbates an already unduly complicated provision.
The coverage restriction is out of its normal place, in the Exclusions section of the policy.
Occasionally, a court will refuse to enforce a "rule buried in a definition." See, e.g., Maryland Casualty Company v Turner, 403 F Supp 907 (WD Okla 1975) (Definition excluded coverage for personal injury and property damage arising out of a joint venture); C&J Fertilizer v Allied Mutual Insurance Company, 227 NW2d 160 (Iowa 1979) (Definition of "burglary" in a crime policy conflicted with the insured's reasonable expectations).
My linguistic criticisms of the "Pollution Conditions" definition are severe. Fairness requires that I point out a fact known to anyone who has ever tried to interpret an insurance policy: insurance contracts are difficult to understand. The other pollution insurance policy forms we reviewed are not exactly models of clear expression.
We in the insurance industry can and should do a better job of communicating insurance contract terms and conditions to policyholders. Three steps toward this goal are using plain language, avoiding strained definitions, and placing exclusions in the exclusion section of the policy.
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