CGL Pollution Exclusion Bars Coverage for Insulation Injuries
Kent Holland | August 14, 2015
A total pollution exclusion endorsement on a surplus lines commercial general liability (CGL) insurance policy was enforced in Vermont to bar coverage for injuries claimed to arise out of insulation installed in a building. The Vermont Supreme Court held that bodily injury from claims arising out of toxic chemicals that allegedly became airborne as a result of the application of spray-foam insulation in a school building were excluded from coverage under the installer's CGL policy.
The court in In Cincinnati Specialty Underwriters Insurance Company v. Energy Wise Homes, Inc., 2015 VT 52, WL 1524206, 2015 Vt. LEXIS 33 (2015), therefore reversed a trial court decision that granted summary judgment to the installer on the question of whether there was coverage under the policy.
The Policy
The policy contained a "Total Pollution Exclusion Endorsement" that excluded coverage for "bodily injury … [that] would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time." The term "pollutants" was defined with the standard definition for that term found in CGL policies. In addition, the policy specifically excluded coverage for "bodily injury" arising out of "the installation or application of any exterior insulation finishing system or any substantially similar system, including application or use of conditioners, primers, accessories, flashings, coatings, caulking, or sealants in connection with such system."
The insurer argued that, given the fact that the broad language used in the exclusion, and the fact that the policy included additional exclusions for actual or alleged bodily injury arising out of, or caused by, other potential toxins, the policy did not provide any coverage for bodily injuries related to "toxins, chemicals, or pollutants." In opposition to this argument, the plaintiff argued that the pollution exclusion was intended only to protect against liability for "traditional environmental hazards" and that the insurer's interpretation was so overbroad as to make the policy meaningless.
Finding the policy language ambiguous, the trial judge concluded that the purpose of the pollution exclusion was to protect insurers against traditional environmental liabilities, and that here the term "pollutants" was ambiguous because it was capable of such broad interpretation as to frustrate any reasonable purpose of the policy.
On appeal, the Vermont Supreme Court stated that it recognized that courts are split on the question of whether the absolute pollution exclusion bars coverage for all injuries caused by pollutants, or whether the exclusion applies only to injuries caused by traditional environmental pollution. The court stated, "We recognize that the 'broad nature of the pollution exclusion may cause the commercial client to question the value of portions of its commercial general liability policy.' Our role on review, however, is not to rewrite the policy."
Just because the policy did not cover pollution did not mean it was rendered meaningless or valueless. "As the insurer points out, the policy does provide coverage for other liability risks, such as slip and fall injuries." "That the policy does not cover the type of claims that one might reasonably expected to arise in the course of Energy Wise's business does not render the policy unenforceable."
Comment
A different result may have occurred if the policy in question had been on admitted paper. The court made a point of noting the limited nature of its holding. It explained that, "The Vermont Department of Financial Regulation requires all insurers issuing liability policies in Vermont to provide coverage for pollution by endorsement unless the Department approves a 'consent to rate' application. Thus, our decision today applies only to surplus lines insurers."
Risk Management Note
It seems surprising that a company in the business of installing spray foam insulation would not maintain a contractor's pollution liability policy to protect against a bodily injury claim allegedly resulting from inhalation of pollutants allegedly released during installation. One might also expect a school system to require such a firm to evidence and maintain pollution liability as a condition for entering into a contract.
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