120 A.3d 1160
Vt.2015Background
- Energy Wise Homes (insulation contractor) purchased a surplus-lines commercial general liability (CGL) policy from Cincinnati Specialty Underwriters for 3/1/2010–3/1/2011.
- Energy Wise applied spray-foam insulation at a school; school employee Shirley Uhler sued for bodily injury allegedly caused by exposure to airborne chemicals/residues from the insulation.
- Insurer defended under a reservation of rights and sought declaratory judgment that the policy’s Total Pollution Exclusion bars coverage for the Uhlers’ claims.
- The policy’s exclusion disclaims 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,” and defines “pollutants” broadly to include gaseous irritants, chemicals, fumes and anything recognized by industry or government as harmful to persons, property or the environment.
- The trial court granted summary judgment for the insureds, finding ambiguity in the exclusion and following decisions limiting pollution exclusions to traditional environmental pollution; insurer appealed.
- The Vermont Supreme Court reversed, holding the exclusion’s language unambiguous as written and enforcing it against the insured (limited, however, to surplus-lines policies by operation of Vermont regulation).
Issues
| Issue | Plaintiff's Argument (Insurer) | Defendant's Argument (Insured/Energy Wise) | Held |
|---|---|---|---|
| Whether the Total Pollution Exclusion unambiguously bars coverage for injuries allegedly caused by airborne chemicals from spray-foam insulation | Exclusion’s plain language (broad definition of “pollutant” and no limiting geographic/"environment" requirement) excludes all injuries caused by pollutants, including indoor exposures | Exclusion is ambiguous; historically intended to bar traditional environmental contamination, not ordinary business negligence or localized indoor exposures | Yes. Court held exclusion unambiguously applies and bars coverage for the alleged injuries (reversed trial court) |
| Whether the policy’s definition of “pollutant” is ambiguous because it covers virtually any irritant/contaminant | Definition expressly includes substances recognized by industry or government as harmful to persons (broad but clear) | Definition is overbroad and ambiguous; it would eviscerate coverage and render other specific exclusions redundant | Court held the definition unambiguous for purposes of this surplus-lines policy and enforceable as written |
| Whether the terms “discharge, dispersal, release or escape” require a traditional environmental release (outdoors/long-term) | Plain meaning covers dispersal into the air (including indoor airborne release) and thus applies here | Those terms connote environmental mechanisms and not routine, confined use of products in a workplace; ambiguity favors insured | Court applied common-sense reading that airborne dispersal qualifies and concluded the causal mechanics fit the exclusion |
| Whether the insured’s reasonable expectations or policy non-illusoriness affect construction | Reasonable-expectations doctrine does not override clear, unambiguous policy language; policy still covers many non-pollution risks | Enforcement defeats insured’s reasonable expectations for a CGL policy covering business operations | Court held reasonable-expectations doctrine irrelevant to unambiguous terms and found the policy not illusory (still covers other risks) |
Key Cases Cited
- MacKinnon v. Truck Ins. Exch., 73 P.3d 1205 (Cal. 2003) (limits pollution exclusion to injuries from environmental pollution; finds ambiguity for indoor/ordinary-negligence exposures)
- Quadrant Corp. v. Am. States Ins. Co., 110 P.3d 733 (Wash. 2005) (reads absolute/total pollution exclusion according to plain language to bar coverage for injuries from release of toxic fumes)
- Am. States Ins. Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997) (historical purpose of exclusion was to avoid environmental-liability exposure; decline to extend exclusion beyond traditional environmental contamination)
- Cincinnati Ins. Co. v. Becker Warehouse, 635 N.W.2d 112 (Neb. 2001) (holds a definition including harm to persons or the environment expands exclusion beyond traditional environmental pollution)
- Midwest Family Mut. Ins. Co. v. Wolters, 831 N.W.2d 628 (Minn. 2013) (concludes a slim majority of jurisdictions limit pollution exclusion to traditional environmental pollution and analyzes ambiguity issues)