By Kevin Clonts
Recent cases from the Pacific Northwest highlight the different approaches to coverage questions employed by the courts in Oregon and Washington, with Oregon taking a more straightforward approach and Washington an approach more friendly to policyholders. Courts in both states concluded that claims of carbon monoxide poisoning fall within pollution exclusions. However, whereas the Federal Oregon District Court found no indemnity and no duty to defend, the Washington Supreme Court held that the carrier still owed the insured defense and indemnity regardless of the exclusion.
In Colony Ins. Co. v. Victory Constr. LLC,
2017 U.S. Dist. LEXIS 34368 (D. Or. Mar. 9, 2017), plaintiffs alleged that they became ill from carbon monoxide exposure due to the insured builder’s
“negligence in the installation and ventilation of a natural gas swimming pool heater.” The insurer denied defense, relying on the policy’s pollution
exclusion, which precluded coverage for damages “which would not have occurred in whole or part but for the actual, alleged or threatened discharge,
dispersal, seepage, migration, release or escape of ‘hazardous materials’ at any time.” The policy defined “pollutants” as “any solid, liquid, gaseous
or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
The District Court applied Oregon law, which requires courts to ascertain the intention of the contracting parties “based on the terms and conditions of the insurance policy” if the policy terms are unambiguous. The court surveyed cases throughout the country and acknowledged that other state courts differ on whether carbon monoxide falls within a pollution exclusion’s terms, with some courts finding that it does, under the policy provision’s plain meaning (the “Plain Meaning” approach), and others holding that pollution exclusions are limited to situations involving traditional environmental contamination claims (the “Traditional Environmental Pollution” approach). After considering those approaches, the court predicted that Oregon would follow the “Plain Meaning” approach, and held that the “only plausible interpretation of the Policy’s terms results in the conclusion that carbon monoxideis a pollutant. Thus, the pollution exclusion applies to damages caused bycarbon monoxideand, therefore, Colony Insurance has no duty to defend or indemnify.”
In Xia v. ProBuilders Specialty Ins. Co. RRG, 2017 Wash. LEXIS 443 (Wash. Apr. 27, 2017), the Washington Supreme Court also looked at whether carbon monoxide falls within a pollution exclusion’s terms in a case involving carbon monoxide poisoning due to the “negligent installation of a water heater.” The insurer denied defense based on a pollution exclusion that precluded coverage for damages “caused by, resulting from, attributable to, contributed to, or aggravated by the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants, or from the presence of, or exposure to, pollution of any form whatsoever, and regardless of the cause of the pollution or pollutants.” The exclusion further provided that it “applies regardless of the cause of the pollution and whether any other cause of said bodily injury, property damage, or personal injury acted jointly, concurrently, or in any sequence with said pollutants or pollution. This Exclusion applies whether any other cause of the bodily injury, property damage, or personal injury would otherwise be covered under this insurance.”
The court acknowledged that carbon monoxide exposure clearly falls within the pollution exclusion’s terms. However, it employed Washington’s “efficient proximate cause” analysis to hold that the insured nevertheless was owed defense and indemnity because it was the insured’s “negligent installation of a hot water heater that typically does not pollute when used as intended” that was the underlying “proximate cause” of the claim. The court stated: “allegations of [the] complaint provided a reasonable and conceivable basis to believe that the negligent installation of the hot water heater, itself a covered occurrence under the policy provisions, set in motion a causal chain wherein the venting of exhaust” containing an excluded pollutant caused the harm. As the court summarized its holding: “ProBuilders Specialty Insurance Co. correctly identified the existence of an excluded polluting occurrence under the unambiguous language of its policy. However, it ignored the existence of a covered occurrence – negligent installation – that was the efficient proximate cause of the claimed loss. Accordingly, coverage for this loss existed under the policy, and ProBuilders’s refusal to defend its insured was in bad faith.” The court also warned and admonished carriers against any attempt “to write around” the “efficient proximate cause” rule.