Cinсinnati Specialty Underwriters Insurance Co. v. Energy Wise Homes, Inc., Uhler and Poulos Insurance, Inc. (2014-165)
[Filed 03-Apr-2015]
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.
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No. 2014-165 |
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Cincinnati Specialty Underwriters Insurance Company |
Supreme Court |
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On Appeal from |
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Superior Court, Bennington Unit, |
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Civil Division |
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Energy Wise Homes, Inc., Shirley A. Uhler, Michael D. Uhler and Poulos Insurance, Inc. |
October Term, 2014 |
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John P. Wesley, J. |
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Shapleigh Smith, Jr. and Sophie E. Zdatny of Dinse, Knapp & McAndrew, P.C., Burlington, for
Plaintiff-Appellant.
Joel P. Iannuzzi of Cleary Shahi & Aicher, P.C., Rutland, and Jennifer Deck Samuelson
(On the Brief) of Samuelson Law Offices, Manchester Center, for Defendants-Appellees.
PRESENT: Dooley, Skoglund and Robinson, JJ., and Morris, Supr. J. (Ret.),
Specially Assigned
¶ 1. SKOGLUND, J. Insurer Cincinnati Specialty Underwriters Insurance Company appeals from the trial court’s order granting summary judgment to defendants Energy Wise, Inc. and Michael D. and Shirley A. Uhler in this declaratory-judgment action. It argues that the court should have granted summary judgment in its favor because the “total pollution exclusion” in its policy plainly and unambiguously precludes coverage in this case. We agree with insurer, and therefore reverse the trial court’s decision and remand with instructions to enter judgment in insurer’s favor.
¶ 2. The facts are undisputed. Energy Wise is a Vermont corporation that specializes in insulating buildings and homes. It purchased a commercial general liability (CGL) policy from insurer, effective March 1, 2010 to March 1, 2011. As insurer notes, this was a “surplus lines” policy.[1] See 8 V.S.A. § 5022(b)(8) (defining “surplus lines insurance” as “coverage not procurable from admitted insurers”); id. § 5022(b)(1) (defining “admitted insurer” as “an insurer possessing a certificate of authority to transact business in [Vermont] issued by the Commissioner [of Financial Regulation] pursuant to [8 V.S.A. § 3361]”).
¶ 3. In late 2010, Energy Wise installed spray-foam insulation at the Shrewsbury Mountain School. A school employee, Shirley Uhler, and her husband later filed suit against Energy Wise. Ms. Uhler asserted that she was “exposed to and encountered airborne chemicals and airborne residues” from the spray-foam insulation and suffered bodily injury as a result.[2] The Uhlers raised claims of negligence, res ipsa loquitur, and loss of consortium. Energy Wise requested coverage under its CGL policy, and insurer agreed to defend Energy Wise under a bilateral reservation of rights.
¶ 4. In September 2012, insurer filed a complaint for declaratory judgment, asserting that its policy did not cover the claims at issue. Insurer cited the “Total Pollution Exclusion Endorsement” in its policy, which excluded coverage for “[b]odily 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.”
¶ 5. The policy defined “pollutants” as:
any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, petroleum, petroleum products and petroleum by-products, and waste. Waste includes materials to be recycled, reconditioned or reclaimed. “Pollutants” include but are not limited to, that which has been recognized in industry or government to be harmful or toxic to persons, property or the environment, regardless of whether the injury, damage, or contamination is caused directly or indirectly by the “pollutants” and regardless of whether: (a) The insured is regularly or otherwise engaged in activities which taint or degrade the environment; or (b) The insured uses, generates or produces the “pollutant.”
The following specific pollutants were expressly excluded: respirable dust, miсroorganisms, fungi, bacteria, sulfuric acid, tainted drywall, chromated copper aresante, fluorine, beryllium, benzene, formaldehyde, and manganese.
¶ 6. The policy also excluded coverage for “bodily injury” arising out of “the installation or application of any exterior insulation and finish system or any substantially similar system, including the application or use of conditioners, primers, accessories, flashings, coatings, caulking or sealants in connection with such system.” (Quotation marks omitted.)
¶ 7. Insurer argued that given 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, it was clear that the policy “d[id] not provide any coverage for bodily injuries related to toxins, chemicals, or pollutants.” Thus, insurer argued, the Uhlers’ underlying claim, which was based on exposure to toxic “airborne chemicals” and “airborne residues,” was not covered.
¶ 8. The Uhlers opposed insurer’s motion for summary judgment. They argued that the pollution exclusion was intended only to protect against liability for traditional environmental hazards, and that insurer’s interpretation was so overbroad as to make the policy meaningless.
¶ 9.
In a January 2014 decision, the court indicated its intent to grant
summary judgment to defendants. It recognized that many other courts had
interpreted total pollution exclusions like the one at issue, and it identified
two cases that helped frame the debate: MacKinnon v. Truck Insurance
Exchange,
¶ 10. After considering these and other cases, the court found MacKinnon persuasive. It concluded that the purpose of the total pollution exclusion was and remained to protect insurers against traditional environmental liabilities. As applied to the facts here, the court found the term “pollutants” ambiguous because it was capable of such broad interpretation as to frustrate any reasonable purpose of the policy. It found that insurer’s definition admitted to no limiting principle that would provide a business such as Energy Wise with any assurance that any aspect of its business operations would be covered.
¶ 11. The court found that a similar ambiguity afflicted insurer’s broad definition of the term “discharge.” Energy Wise sprayed insulation into buildings as the fundamental aspect of its business operations. It did not spray the insulation into the air, water, or earth in way that was consistent with traditional environmental liability. Under insurer’s argument, the court reasoned, almost any use of the products of Energy Wise’s business that harmed a third party might be excluded. Seen in this light, the court concluded that the term “discharge” was ambiguous and insurer could not rely on the exclusion to relieve it of its duty to defend and indemnify Energy Wise.
¶ 12.
The court disagreed with the reasoning of the Washington Supreme Court,
finding its resort to plain-language analysis facile. It concluded that
the Washington decision did not sufficiently accоunt for the historical purpose
and development of the pollution exclusion, or for the reasonable expectations
of an insured business that the pollution exclusion should be subject to a
limiting principle that preserved the meaning and value in a CGL policy.
The court considered insurer’s argument an “opportunistic afterthought inimical
to the expectations of coverage reasonably associated with the sale of a [CGL]
policy to a company engaged in the business of spraying insulation.”
(Quoting Quadrant Corp.,
¶ 13.
Thus, given the ambiguities in the policy, and the rule that all
ambiguities must be read in favor of the insured, Vt. Mut.
Ins. Co. v. Parsons Hill P’ship,
¶ 14. Insurer argues on appeal that its policy plainly bars coverage. According to insurer, its policy goes beyond excluding coverage for traditional environmental risks because its definition of “pollutants” includes “that which has been recognized in industry or government to be harmful or toxic to persons, property or the environment.” (Emphasis added and quotation marks omitted.) Insurer asserts that this language broadens the scope of the pollution exemption beyond traditional environmental claims and distinguishes this case from the cases relied upon by the trial court. Insurer maintains that it is entitled to have the policy enforced as written, that the reasonable expectations doctrine is irrelevant given the plain language of the policy, and that enforcement of the exclusion does not render coverage illusory.
¶ 15.
We review the trial court’s decision “de novo, applying the same
standard as the trial court.” Progressive Cas.
Ins. Co. v. MMG Ins. Co.,
¶ 16.
We apply well-established legal principles to this dispute. An
insurance policy is construed according to “its terms and the evident intent of
the parties as expressed in the policy language.” Sperling v. Allstate
Indem. Co.,
¶ 17.
We begin with the “well-documented and relatively uncontroverted” events
that led to the insurance industry’s adoption of the pollution exclusion.
Am. States Ins. Co. v. Koloms,
¶ 18. Meanwhile, changes in federal environmental protection laws and a series of high-profile environmental disasters “imposed greater economic burdens on insurance underwriters, particularly those drafting standard-form CGL policies.” Id. Following these events, the insurance industry drafted what eventually became thе pollution exclusion. Id. at 80.
¶ 19. In 1970, an endorsement to the standard-form CGL policy provided in relevant part that:
[This policy shall not apply to bodily injury or property damage] arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
Id. (alteration in original) (quotation omitted). “[I]n 1973, the insurance industry incorporated [this] endorsement directly into the body of the policy as exclusion ‘f.’ ” Id. This exclusion is referred to as the total pollution exclusion.
¶ 20. Over “the next 13 years, various courts labored over the exact meaning of the words ‘sudden and accidental.’ ” Id. “Not surprisingly, insurance companies responded by drafting a new version of the exclusion, which, first appearing in 1985, is now commonly known as the ‘absolute pollution exclusion.’ ” Id. at 81. As one court explained:
The two most notable features of this latest version are (i) the lack of any exception for the “sudden and accidental” release of pollution, and (ii) the elimination of the requirement that the pollution be discharged “into or upon land, the atmosphere or any watercourse or body of water.” Significantly, the purpose of the current exclusion, like its predecessor, is “to exclude governmental clean up costs from the scope of coverage.”
Id. (alteration omitted).
¶ 21. Many courts have considered this historical background significant in deciding the circumstances under which the exclusion should bar coverage. In Koloms, for example, the court held:
Our review of the history of the pollution exclusion amply demonstrates that the predominate motivation in drafting an exclusion for pollution-related injuries was the avoidance of the enormous expense and exposure resulting from the explosion of environmental litigation. Similarly, the 1986 amendment to the exclusion was wrought, not to broaden the provision’s scope beyond its original purpose of excluding coverage for environmental pollution, but rather to remove the sudden and accidental exception to coverage which, as noted above, resulted in a costly onslaught of litigation. We would be remiss, therefore, if we were to simply look to the bare words of the exclusion, ignore its raison d’etre, and apply it to situations which do not remotely resemble traditional environmental contamination. The pollution exclusion has been, and should continue to be, the appropriate means of avoiding the yawning extent of potential liability arising from the gradual or repeated discharge of hazardous substances into the environment.
Id. (citation and quotations omitted). The Koloms court found “it improper to extend the exclusion beyond that arena.” Id. Thus, it held that the accidental release of carbon monoxide due to a broken furnace did not constitute the type of environmental pollution contemplated by the exclusion. Id. at 82.
¶ 22.
Other courts have found the historical background of this exclusion less
significant. The Quadrant court held that it could not look to the
drafting history to find the exclusion ambiguous; the drafting history
was relevant only in determining a reasonable construction after the
court had found an ambiguity.
¶ 23.
As noted, insurer here argues that its pollution exclusion is even
broader than the “absolute” or “total” pollution exclusion. At least one
court has credited this argument. See Cincinnati Ins. Co. v. Becker
Warehouse, Inc.,
¶ 24.
We recognize that courts are split on the question of whether the
absоlute pollution exclusion bars coverage for all injuries caused by
pollutants or whether the exclusion applies only to injuries caused by
traditional environmental pollution. Compare Becker Warehouse, 635
N.W.2d at 118 (recognizing split and concluding that “[a] majority of state and
federal jurisdictions have held that absolute pollution exclusions are
unambiguous as a matter of law and, thus, exclude coverage for all claims
alleging damage caused by pollutants” (citing cases)), and Quadrant, 110
P.3d at 738 (finding that “a majority of courts has concluded that absolute
pollution exclusions unambiguously exclude coverage for damages caused by the
release of toxic fumes” (citing cases)) with MacKinnon,
¶ 25. The policy here excludes coverage for “[b]odily 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” includes gaseous irritants or contaminants, including chemicals, vapor, and fumes. It encompasses “that which has been recognized in industry or government to be harmful or toxic to persons, property or the environment, regardless of whether . . . the insured uses, generates or produces the ‘pollutant.’ ”
¶ 26.
The Uhlers claimed in their complaint that Ms.
Uhler suffered bodily injury after being exposed to
and encountering “airborne chemicals and airbоrne residue.” They alleged
that, as part of its work at the school, Energy Wise “would be using products
and materials that were known to be severely toxic with significant risk of injury
and/or illness to humans who may be exposed to them.” There appears to be
no dispute that the airborne chemicals and residues at issue “ha[ve] been recognized in industry or government to be harmful
or toxic to persons, property or the environment.” Insurer cites numerous
authorities in support of this contention, and defendants do not argue
otherwise. These toxic chemicals allegedly became airborne, and were
inhaled, as a result of Energy Wise’s application of spray-foam
insulation. This represents a “dispersal” or “release” of such chemicals
under a common-sense reading of those terms. See Becker Warehouse,
¶ 27.
We recognize that the “broad nature of the pollution exclusion may cause
a commercial client to question the value of portions of its commercial general
liability policy.” Becker Warehouse,
¶ 28. Finally, we note the limited nature of our holding. As indicated above, 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.
Reversed and remanded.
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FOR THE COURT: |
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Associate Justice |
¶ 29. MORRIS, Supr. J. (Ret.), Specially Assigned, dissenting. Energy Wise bought a general commercial liability policy for its insulation business. As the majority interprets the policy’s pollution exclusion, Energy Wise essentially purchased nothing. Under the plain-language construction adopted by the majority, Energy Wise is not covered for any injury or damage connected to the compounds used in its insulation business. The majority’s construction is not, however, the only reasonable interpretation of the pollution exclusion. An insured purchasing this policy could have reasonably understood the tеrms “discharge” and “pollutant” in the exclusion as limited to the mechanisms and substances involved in traditional pollution and not excluding injury caused by ordinary negligence in the course of business. Given that more than one interpretation of the terms is reasonable, the policy is ambiguous. I would resolve this ambiguity in favor of the insured and affirm.
¶ 30. As explained by the majority, the facts are undisputed. Defendant Energy Wise is a company that insulates buildings. It purchased a general liability policy from plaintiff. In late fall 2010, Energy Wise contracted to install spray insulation at a Rutland-area school. One of the employees of the school, Shirley Uhler, alleged she suffered respiratory illness and other medical injuries as a result of the spray insulation. Shirley and her husband Michael sued Energy Wise, claiming that she was exposed to chemicals and airborne residue from the application. She asserted, among other things, that Energy Wise failed to exercise due care and perform in a workmanlike manner. Insurer filed this suit seeking a declaration that it has no duty to defend or indemnify defendant Energy Wise in the personal-injury suit.
¶ 31. Insurer filed for summary judgment, claiming that under the plain language of the policy’s “Total Pollution Exclusion” the alleged injury was excluded because the policy did not provide “any coverage for bodily injuries related to toxins, chemicals, or pollutants.” The court concluded that the language of the exclusion was ambiguous because the terms pollutant and discharge were capable of such broad interpretations as to render them meaningless. The court further noted that the purpose of the pollution exclusion was to protect against traditional environmental liabilities, and not ordinary negligence. The court resolved the ambiguity in favor of the insured, denied insurer summary judgment, and granted judgment for insured.
¶ 32. The trial court properly determined that the policy in this case is ambiguous because the policy terms do not have a clear meaning. Insurer has not met its burden of demonstrating that the claims fall within the exclusion for two main reasons. First, it is not evident that the рrocess that caused the injury in this case—spraying foam insulation into a building—resulted from one of the actions identified in the policy exclusion—discharge, dispersal, seepage, migration, release or escape—or that this action was the “but-for” cause of the injury. Second, there is insufficient evidence to show that the injury was caused by a pollutant, or that pollutant as used in the policy covers the work performed by Energy Wise.
¶ 33.
The legal framework is important. Insurer sought a declaration
here that it was not obligated to indemnify or defend insured. The duty
to indemnify arises when there is a loss or injury that falls within the
coverage provisions and is not removed from coverage by an exclusion. Coop.
Ins. Cos. v. Woodward,
¶ 34.
To determine the scope of coverage, thе insurance contract is interpreted
using familiar standards. An insurance contract is construed first by
looking to the terms used and “ ‘the evident intent of the parties as
expressed in the policy language.’ ” N. Sec. Ins. Co. v. Perron,
¶ 35. Therefore, the language of the policy itself is the starting point for determining whether coverage exists. This was a commercial general liability policy for the business described therein as “insulation contractors.” The policy covered bodily injury and property damagе caused by an occurrence. It is clear that in the absence of an exclusion the injury alleged by plaintiffs would have been covered under this policy.
¶ 36.
Thus, the main question is whether an exclusion from coverage
applies. “The insurer bears the burden of showing that the claims are
excluded by the policy.” Perron, 172 Vt.
at 209,
any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, petroleum, petroleum products and petroleum by-products, and waste. Waste includes materials to be recycled, reconditioned or reclaimed. “Pollutants” include but are not limited to, that which has been recognized in industry or government to be harmful or toxic to persons, property or the environment, regardless of whether the injury, damage, or contamination is caused directly or indirectly by the “pollutants” and regardless of whether: (a) The insured is regularly or otherwise engaged in activities which taint or degrade the environment; or (b) The insured uses, generates or produces the “pollutant.”
Thus, insurer bore the burden of proving both that the airborne compounds and particulates from the spray-foam insulation were pollutants when deployed to insulate the building, and that the injury would not have occurred but for the discharge, dispersal, seepage, migration, release or escape of those compounds.
¶ 37.
Of course, this question does not reach this Court in a vacuum. As
the majority recounts, pollution exclusions have been the subject of intense litigation
for many years, and there is no consensus on the proper interpretation of these
clauses. See MacKinnon v. Truck Ins. Exch.,
¶ 38.
Several courts have concluded that these exclusions, including the total
pollution exclusion, are ambiguous and do not exclude coverage for all injuries
related to toxic substances. See, e.g., Builders Mut.
Ins. Co. v. Parallel Design & Dev. LLC,
¶ 39.
Other jurisdictions have read the language of the pollution exclusion to
unambiguously exclude coverage. See, e.g., Quadrant Corp. v. Am.
States Ins. Co.,
I. Discharge
¶ 40. Looking first to the mechanism of injury, it is totally unclear that the injury here was due to a discharge, dispersal, seepage, migration, release or escape of a substance. Insurer gives little argument on this point, stating simply in a footnote that there is no dispute that the chemicals and residue at issue here were dispersed, released or escaped into the air. The majority also provides only limited consideration of this question, stating simply that when Energy Wise applied the spray insulation, toxic chemicals became airborne and were therefore dispersed or released “under a common-sense reading of those terms.” Ante, ¶ 26.
¶ 41.
While one reasonable interpretation of the policy is that it includes
any injury that arises when a substance becomes airbornе, that is certainly not
the only interpretation. It is important to emphasize that “ambiguity is
not what the insurer intended its words to mean but what a reasonably prudent
person applying for insurance would have understood them to mean.” 2 S. Plitt, supra, § 21:14. It is wholly
reasonable for an ordinary person seeking coverage to interpret the terms
“discharge, dispersal, release or escape” as environmental terms of art and
referring to mechanism by which pollution escapes from a contained space into
the surrounding area. See Mistick,
Inc. v. Nw. Nat’l Cas. Co.,
¶ 42. Pаrticularly where insurance is for a business involving the regular use of chemical compounds, an exclusion referring to “discharge, dispersal, seepage, migration, release or escape” is ambiguous because it does not clearly define at what point the deployment of the chemical compound triggers the exclusion. As another court stated in finding this phrase ambiguous:
Industrial chemicals when used as intended and released from a container may be used in a production process to etch, to strip, to clean, to degrease, to polish, to act as a solvent, to paint, to coat, to act as a mastic, or to surface. At what point in time does a “discharge, dispersal, seepage, migration, release or escape” of industrial chemicals outside a container or containment system occur? How would containment be defined, i.e., used as intended outside a container, contained within the plant, or merely outside its container? For example, carbon tеtrachloride, reported in many cases of maintenance slip and fall cases as a common industrial solvent/degreaser, when used on the floor of a restaurant or fast food business to remove food spills, would come within [insurer’s] overly broad exclusion language if it caused someone to slip and fall. This definition of the escape of pollutants is overly broad and demonstrates ambiguity that would cause a reasonable person to be unsure of what is excluded and what is covered by insurance.
Kerr-McGee Corp., 568 S.E.2d at 459. Given that there is no allegation in this case that the spray-foam insulation traveled outside of the area of its intended use, there is an ambiguity as to whether there was a “discharge, dispersal, seepage, migration, release or escape” of this substance.
¶ 43.
A similar conclusion was reached by the U.S. Court of Appeals for the
Sixth Circuit in a case involving a painting company that was hired to perform
construction work, including painting and drywall sealing in a school. Meridian
Mut. Ins. Co. v. Kellman,
¶ 44.
Further, insurer has failed to demonstrate that even if there was a
discharge, this discharge was the “but-for” cause of the injury. The
complaint alleges that the school employee was injured when she inhaled
chemicals or particles used in the insulation process. Employee asserts
that her exposure was the result of Energy Wise’s negligence in failing to
perform in a workmanlike manner and to properly warn or secure the site.
In other words, the chemicals were not the cause of injury; rather, the
“but-for” cause of the injury was the negligence of employees in failing either
to properly secure or ventilate their work area or warn employees as to when
the space was ready for occupancy. See Barrett v. Nat’l Union Fire
Ins. Co. of Pittsburgh,
II. Pollutant
¶ 45. To meet its burden, insurer was also required to first show that the injury was caused by a pollutant. Insurer has failed to meet this burden. The undisputed facts as presented to the trial court at summary judgment do not show that the chemicals or residues, which allegedly caused the injury, unambiguously meet the policy definition of pollutant. Further, the definition of pollutant in the policy is so broad as to make it ambiguous.
¶ 46. Here, the policy definition of pollutant includes irritants and contaminants that have been recognized by industry and government as harmful or toxic. Insurer posits that the spray-foam insulation alleged to have caused the injury is recognized by government as potentially hazardous, and therefore posits that the injury was unambiguously caused by a pollutant. The majority accepts insurer’s position and concludеs that the alleged injury was caused by the release of a pollutant because the airborne chemicals at issue “ ‘ha[ve] been recognized in industry or government to be harmful or toxic to persons, property or the environment.’ ” Ante, ¶ 26 (quoting policy definition of pollutant).
¶ 47. There is no evidence in the record to show that the chemicals or residues that caused the injury alleged are recognized by government as harmful or toxic. The complaint in the personal-injury action does not identify the chemicals or residues that caused Ms. Uhler’s injury. Insurer’s statement of undisputed facts in support of summary judgment did not attempt to set forth what particular compounds caused the injury. On appeal, insurer urges this Court to take judicial notice of the fact that spray-foam insulation has been recognized as harmful or toxic, and in support attaches an appendix of materials that was not part of the trial court record. Insurer specifically proffers that methylene diphenyl diisocyanate (MDI) is a compound found in spray-foam insulation and is identified by government as toxic becausе it is included by the Environmental Protection Agency (EPA) on its list of hazardous air pollutants. See 42 U.S.C. § 7412(b)(1). The majority does not specify what chemicals caused the injury or what industry or government standard it is relying upon, but simply repeats that the compounds at issue are recognized by government as toxic.
¶ 48.
Insurer failed to demonstrate that the injury here was caused by a
chemical that government or industry regards as toxic. The information
submitted on appeal in support of this claim should be disregarded as not part
of the record. See V.R.A.P. 10(a)(1) (defining record on appeal as
documents filed in superior court). Further, even if this Court took
judicial notice of these documents, MDI, on which insurer relies, is not
identified as a component of the insulation used in this case or as a cause of
the injury. The deposition submitted by insurer to the trial court in
support of its motion to reconsider explains that spray-foam insulation can
vary in its composition, and does not specify the composition of the insulation
used here. In addition, to the extent thаt this Court accepts that MDI is
a pollutant and a component of spray-foam insulation, the Uhlers
did not allege that this was the source of the injury. In their
opposition to summary judgment, the Uhlers stated
that the injury was due to exposure to tertiary amine catalysts, and submitted
an expert affidavit in support. Insurer has not demonstrated this
compound is a pollutant. Since insurer has failed to unambiguously
demonstrate that the injury alleged was caused by a pollutant, this Court
should require insurer to defend. City of Burlington, 163 Vt. at
127,
¶ 49.
Even assuming that a compound in the insulation used by Energy Wise
caused the injury and that the compound is on the EPA list of hazardous air
pollutants, these facts alone do not make it a pollutant under the policy in
all circumstances. This may be a reasonable interpretation, but it is not
the only one. To assume that all listed chemical compounds are pollutants
in all situations would result in overly inclusive and absurd situations since
many of the compounds on the list of hazardous air pollutants hаve legitimate
uses. For example, the EPA list identified by insurer includes chlorine,
42 U.S.C. § 7412(b)(1), a chemical used to disinfect drinking water, and
found in tap water. If inclusion on the EPA list is enough to trigger the
exclusion then any damage resulting from chlorine-treated water could be
excluded. See Pipefitters Welfare Educ. Fund v. Westchester Fire Ins.,
¶ 50.
Insurer places great emphasis on the fact the definition of pollutant in
this case differs from that used in other cases finding the language ambiguous,
such as MacKinnon,
¶ 51.
I cannot agree with the majority that this different language of
pollutant makes the definition of pollutant unambiguous. The definition
remains incredibly broad, applying to almost any injury involving a substance
that could be harmful. The overly simplistic interpretation of the
pollution exclusion applied by the majority means that it excludes coverage for
ordinary negligence involving substances with toxicity. If so
interpreted, then the exclusion has the potential to wholly eviscerate
coverage. See Century Sur. Co. v. Casino W., Inc.,
The terms “irritant” and “contaminant,” when viewed in isolation, are virtually boundless, for there is virtually no substance or chemical in existence that would not irritate or damage some person or property. Without some limiting principle, the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results.
Pipefitters Welfare Educ. Fund,
¶ 52. To apply the construction used by the majority would essentially eviscerate coverage for almost all imaginable injuries. Insurer counters, and the majority accepts, that the policy is not rendered illusory because it still provides coverage for risks such as slip-and-fall injuries. It is hard to imagine a scenario for this insured’s business, however, that does not involve the dispersal of pollutants as the majority and insurer defined those terms. What if an employee tripped while discharging the spray-foam insulation? Under the majority’s plain-language interpretation of pollutant and dispersal, any resulting injuries would be excluded. This is certainly not what a reasonable prospective insured would assume from reading the policy terms.
¶ 53.
Ambiguity is also apparent when the definition of pollutant is viewed in
the context of the policy as a whole. See McAlister v. Vt. Prop. &
Cas. Ins. Guar. Ass’n,
III. Resolving the Ambiguity
¶ 54.
Generally, when an ambiguity arises, it is resolved by construing the
policy in light of the parties’ reasonable expectations, and any uncertainty is
resolved in favor of the insured.[3]
Waters,
¶ 55. The purpose of this policy was to provide general liability insurance to Energy Wise for the insulation business. Undоubtedly, Energy Wise specifically contemplated that it would be insured for using spray-foam insulation since this is its business. See Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785 (Ariz. Ct. App. 2000) (explaining that insured who purchases general liability policy “expects to be covered for ordinary negligence in the course of its operations”). Given Energy Wise’s reasonable expectation that it was purchasing a general liability policy, and the identified ambiguities in the policy, I would construe the policy in the insured’s favor and affirm the trial court.
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Superior Judge (Ret.), Specially Assigned |
[1]
Vermont law provides that insurance coverage “shall not be placed with a
non-admitted insurer unless the full amount of insurance required is not
reasonably procurable from admitted insurers actually transacting that kind and
class of insurance in [Vermont]; and the amount of insurance exported shall be
only the excess over the amount procurable from admitted insurers actually
transacting and insuring that kind and class of insurance.” 8 V.S.A. §
5024(a); see also DeBartolo v. Underwriter’s at Lloyd’s of London, 2007
VT 31, ¶ 3,
This is significant because the Vermont Department of Financial Regulation requires all insurers issuing liability policies in Vermont to provide coverage for pollution by endorsement, although the Department will consider a “Consent to Rate” application “from licensed insurance companies or their agents seeking to attach a pollution exclusion to liability coverage when there is a high probability of a pollution claim.” See Insurance Bulletin No. 111 (Oct. 18, 1996), available at http://www.dfr.vermont.gov/reg-bul-ord/pollution-coverage.
Vermont regulators have disapproved of such exclusions
since their inception based on a “determination that the exclusions were
‘unfair and discriminatory to some[,] and indeed most[,] risk’ and inconsistent
with the ‘public expectation of the level of coverage or the degree of coverage
that is supposed to be available when one purchased a general liability policy.
. . . That practice continues today, although VDBI [(now DFR)]
now has a mechanism for approving pollution exclusions on a risk-by-risk basis
in cases where, for example, the insured’s operations involve a particularly
high risk of environmental liability and the insured would otherwise be unable
to obtain coverage.” Maska U.S., Inc.
v. Kansa Gen. Ins. Co.,
[2] While the Uhlers’ complaint did not specifically identify the airborne substance allegedly responsible for Ms. Uhler’s injury, the Uhlers’ expert opined that it was most likely tertiary amine catalysts.
[3]
Here, the trial court denied summary judgment for the insurer, and entered
judgment for the insured. I would affirm that decision. At the very
least, however, this Court should remand for a factual inquiry into the proper
scope of the exclusion “based on the common usages and understandings of the
insurance industry, and the purposes of the exclusion in conjunction with the hazards
and risks [insurer’s] policy was designed to protect against.” Red
Panther Chem. Co. v. Ins. Co. of Pa.,