481 F.Supp.3d 514
D. Md.2020Background
- The Karps purchased a Unitrin homeowner policy (July 6, 2016–July 6, 2017) that includes an absolute pollution exclusion defining “pollutants” broadly (smoke, vapor, soot, fumes, acids, chemicals, waste, etc.).
- On June 2, 2017 a copper feed line leaked home heating oil into the Karps’ basement; Unitrin undertook remediation and paid approximately $86,989 (about $57,199 for residence remediation) and later issued a coverage denial invoking the pollution exclusion.
- The Karps vacated the home due to health effects; PennyMac (mortgagee) stopped receiving payments and filed an MIA complaint; both the Karps’ and PennyMac’s MIA complaints were decided for Unitrin (PennyMac’s final MIA order issued after PennyMac filed its federal counterclaim).
- Procedurally: Unitrin sued for declaratory relief that the exclusion bars coverage; PennyMac counterclaimed for declaratory relief, breach of contract, and bad faith. The parties filed cross-motions for summary judgment; Unitrin also moved for default judgment against the Karps and to strike PennyMac’s reply.
- On summary judgment the court held that, under Maryland law and relevant precedent, the absolute pollution exclusion is ambiguous as applied to home heating oil and must be construed against Unitrin; the court denied Unitrin’s motion and granted PennyMac partial summary judgment declaring the exclusion does not bar coverage for the leak.
- The court dismissed PennyMac’s bad-faith claim (Count III) without prejudice for lack of subject-matter jurisdiction (PennyMac had not obtained a final MIA order before filing the counterclaim), denied Unitrin’s default-judgment and motion-to-strike motions, and left other claims for further proceedings.
Issues
| Issue | Unitrin's Argument | PennyMac's Argument | Held |
|---|---|---|---|
| Whether the absolute pollution exclusion bars coverage for the home heating oil leak | Heating oil is a pollutant/contaminant within the policy; exclusion unambiguous | Heating oil has lawful, useful purpose in the home; ambiguity exists so exclusion must be construed against insurer | Exclusion is ambiguous as applied to home heating oil; construed against Unitrin; exclusion does not bar coverage (Unitrin's SJ denied; PennyMac partial SJ granted on this point) |
| Whether MIA decision precludes PennyMac’s federal claims (collateral estoppel) | MIA resolution favors Unitrin and should preclude contradictory federal claims | MIA decision is not binding in federal court once an action is filed | MIA decision is not binding here; collateral estoppel does not bar PennyMac’s claims |
| Breach of contract (Count Two) — whether Unitrin entitled to summary judgment | No coverage owed due to exclusion; thus no breach | Coverage is available to PennyMac; factual issues remain about amounts sought | Unitrin’s SJ denied; PennyMac’s partial SJ on breach denied (record doesn’t show PennyMac expressly sought all contested monies) |
| Bad faith claim (Count Three) — whether claim is jurisdictionally viable and merits | (Unitrin raised subject-matter jurisdiction) PennyMac lacked final MIA order before filing, so claim not ripe | PennyMac contends MIA complaint and later final order suffice; insurer acted in bad faith | Count Three dismissed without prejudice for lack of subject-matter jurisdiction (PennyMac lacked final MIA order when it filed counterclaim); court noted bad-faith claim likely difficult to prove on merits given close legal issues |
Key Cases Cited
- Bernhardt v. Hartford Fire Ins. Co., 102 Md. App. 45 (Md. Ct. Spec. App. 1994) (applied absolute pollution exclusion to carbon monoxide; held exclusion clear in that factual context)
- Sullins v. Allstate Ins. Co., 340 Md. 503 (Md. 1995) (held terms like “pollutant/contaminant” ambiguous as applied to lead paint; construed ambiguity against insurer)
- Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997 (4th Cir. 1998) (reconciled Bernhardt and Sullins and applied Bernhardt to carbon monoxide; recognized case-specific inquiry)
- Clendenin Bros. v. U.S. Fire Ins. Co., 390 Md. 449 (Md. 2006) (held pollution exclusion ambiguous for manganese welding fumes and cautioned against extending exclusion beyond traditional environmental pollution situations)