Century Sur. Co. v. Casino W., Inc.Century Sur. Co. v. Casino W., Inc.
Burton Bartlett & Glogovac, Ltd., and Scott A. Glogovac and Gregory J. Livingston, Reno, for Respondent.
Armstrong Teasdale, LLP, and Kevin R. Stolworthy, Las Vegas, for Amicus Curiae Complex Insurance Claims Litigation Association.
OPINION
By the Court, DOUGLAS, J.:
In this case, we consider two certified questions from the United States Court of Appeals for the Ninth Circuit regarding the interpretation of a commercial general liability policy. The first question asks whether the “pollution exclusion” in a commercial general liability policy, which excludes “bodily injury” or “property damage” arising out of the “discharge, dispersal, seepage, migration, release or escape of ‘pollutants,‘” excludes coverage for “bodily injury” caused by indoor carbon monoxide exposure. We conclude that the exclusion does not apply to carbon monoxide that is not acting as a “pollutant” within the meaning of the exclusion, and that we must examine the exclusion in the context of the policy as a whole. Under the facts of this case, we conclude that the exclusion is ambiguous and must be construed in favor of the insured. The second question asks whether the “indoor air quality” or “biological molecules” exclusions in the commercial general liability policy exclude coverage for “bodily injury” caused by indoor carbon monoxide exposure. We conclude that they do not.
FACTS AND PROCEDURAL HISTORY
Respondent Casino West, Inc., owns a hotel and casino in Yerington, Nevada. On the night of January 25, 2005, four people were found dead in a room at the Casino West hotel. Post-mortem examinations revealed that they died of carbon monoxide poisoning. The investigation into the deaths discovered that the hotel rooms were heated by wall heaters and that a swimming pool water heater was located in the room directly below the room where the deceased individuals were found. An inspection of the pool heater revealed that its venting system was substantially blocked by soot and other debris. The investigation concluded that the pool heater was malfunctioning, causing it to produce excessive carbon monoxide and preventing the exhaust from being properly vented to the outside. Instead, the carbon monoxide leaked into the hotel room through the floor and walls.
At the time of the incident, Casino West was insured under a commercial general liability policy issued by appellant Century Surety Company. The policy provided coverage for “bodily injury” and “property damage” but contained several exclusions, including a pollution exclusion, an indoor air quality exclusion, and a biological molecules exclusion.
The heirs of the deceased individuals filed a wrongful death lawsuit against Casino West. Century Surety initially defended Casino West under a reservation of rights but later filed a declaratory relief action in the United States District Court for the District of Nevada, seeking a determination that the policy exclusions barred coverage. The district court granted summary judgment in favor of Casino West, concluding that the pollution exclusion was ambiguous as applied to indoor carbon monoxide exposure and that the other exclusions did not apply. Century Surety appealed to the Ninth Circuit, which certified the two questions to this court.
DISCUSSION
The pollution exclusion
The first certified question asks:
Does the “pollution exclusion” in a commercial general liability insurance policy, which excludes from coverage “bodily injury” or “property damage” which 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, exclude coverage for “bodily injury” caused by carbon monoxide exposure when the carbon monoxide was released into a room as the result of a malfunctioning water heater?
The policy defines “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Century Surety argues that carbon monoxide is a “gaseous irritant or contaminant” and that its release from the water heater was a “discharge, dispersal, seepage, migration, release or escape.” Therefore, Century Surety contends that the plain language of the exclusion bars coverage.
Casino West argues that the pollution exclusion is intended to apply only to traditional environmental pollution and that its application to indoor carbon monoxide exposure is at least ambiguous. Casino West points out that many courts have held that the pollution exclusion does not apply to “non-traditional” pollution such as indoor carbon monoxide leaks.
In Powell v. Liberty Mut. Fire Ins. Co., 127 Nev. 156, 162 (2011), we stated that “this court interprets an insurance policy as a whole and ‘from the perspective of one unused to every facet of the interpretation of policy language.‘” (quoting Richfield Cas. Co. v. Vigil, 121 Nev. 116, 121 (2005)). We also noted that “any ambiguity or uncertainty in an insurance policy must be construed against the insurer and in favor of the insured.” Id.
The debate over the scope of the “absolute pollution exclusion” has divided courts across the country. One group of courts has followed the “plain language” approach, concluding that the definition of “pollutant” is broad enough to include any substance that can cause injury, including carbon monoxide. See, e.g., Reliance Ins. Co. v. Moessner, 121 F.3d 895 (3d Cir. 1997). Another group of courts has adopted the “environmental-pollution” approach, holding that the exclusion is limited to traditional environmental pollution and does not apply to indoor air quality issues. See, e.g., Am. States Ins. Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997); Nav-Its, Inc. v. Selective Ins. Co. of Am., 869 A.2d 929 (N.J. 2005).
We agree with those courts that have found the pollution exclusion to be ambiguous when applied to facts such as these. While carbon monoxide can be a “pollutant” in certain contexts, a reasonable insured would not necessarily expect that carbon monoxide leaking from a residential-style water heater would be considered “pollution.” The terms “discharge, dispersal, seepage, migration, release or escape” are terms of art used in environmental law. Applying these terms to the everyday functioning (or malfunctioning) of a water heater stretches the language of the exclusion beyond the reasonable expectations of an insured.
Furthermore, if we were to adopt the literal “plain language” approach urged by Century Surety, the exclusion would virtually swallow the coverage. Almost any substance could be considered an “irritant or contaminant” under certain circumstances. As the Seventh Circuit has noted, “it is hard to give ‘pollutant’ a ‘plain meaning’ because the word can be defined so broadly that it includes almost anything.” Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1043 (7th Cir. 1992).
Because the pollution exclusion is susceptible to more than one reasonable interpretation in this context, it is ambiguous. Following our well-established rule, we must construe the ambiguity against the insurer. Therefore, we answer the first certified question in the negative: the pollution exclusion does not bar coverage for bodily injury caused by indoor carbon monoxide exposure under these facts.
The indoor air quality and biological molecules exclusions
The second certified question asks:
Does the “indoor air quality” exclusion or the “biological molecules” exclusion in a commercial general liability insurance policy exclude coverage for “bodily injury” caused by carbon monoxide exposure when the carbon monoxide was released into a room as the result of a malfunctioning water heater?
The “indoor air quality” exclusion in the Century Surety policy applies to injury arising out of “the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of ‘biological molecules’ in the air within a building or structure.” The policy defines “biological molecules” as “any ‘bacteria,’ ‘fungi,’ including mold or mildew, and any ‘mycotoxins,’ ‘spores,’ ‘scents’ or ‘byproducts’ produced or released by ‘fungi.‘”
Carbon monoxide is a chemical compound consisting of one carbon atom and one oxygen atom. It is not a “biological molecule” as defined by the policy. It is not bacteria, fungi, mold, mildew, mycotoxins, spores, or a byproduct of fungi. Century Surety argues that carbon monoxide might be a “scent” or a “byproduct” in a general sense, but the definition of “biological molecules” clearly limits these terms to those “produced or released by ‘fungi.‘” Carbon monoxide is produced by the incomplete combustion of fuels, not by fungi.
Because carbon monoxide does not fall within the definition of “biological molecules,” neither the indoor air quality exclusion nor the biological molecules exclusion applies. We answer the second certified question in the negative.
CONCLUSION
The pollution exclusion in the commercial general liability policy is ambiguous as applied to indoor carbon monoxide exposure resulting from a malfunctioning water heater and must be construed in favor of the insured. The indoor air quality and biological molecules exclusions do not apply to carbon monoxide. Accordingly, we answer both of the Ninth Circuit‘s certified questions in the negative.
DOUGLAS, J.
WE CONCUR:
GIBBONS, C.J.
PICKERING, J.
HARDESTY, J.
PARRAGUIRRE, J.
CHERRY, J.
SAITTA, J.