The California Court of Appeals considered the reach of a pollution exclusion in a first party property policy. See The Villa Los Alamos Homeowners Assoc. v. State Farm Gen. Ins. Co., 2011 Cal. App. LEXIS 1079 (Cal. Ct. App. Aug. 17, 2011).
A prior case from the California Supreme Court was instructive. In MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635 (2003), the court determined that a standard pollution exclusion in a CGL policy was intended to exclude coverage for injuries resulting from events commonly regarded as environmental pollution. As a result, the court rejected a broader, literal interpretation,thereby foreclosing coverage for any injures arising from various harmful substances. Here, the court of appeals determined a similar interpretation should apply to pollution exclusions in first party policies.
In 2006 the Association contracted with Cal Coast Construction to scrape the acoustical ceilings and stairways to search for possible asbestos. Cal Coast disturbed asbestos contained in the ceilings, releasing asbestos fibers into the air. Cal Coast was cited by the County and removed from the project. The County ordered the Association to perform a comprehensive abatement of the building. A contractor was hired to perform cleanup.
Cal Coast refused to help pay for the cleanup. The Association tendered claims to State Farm. The Association's all risk property policy included a pollution exclusion as follows:
2. We do not insure under any coverage for any loss caused by one or more of the items below:
. . . 1. the presence, release, discharge or dispersal of pollutants, meaning any solid, liquid, gaseous, or thermal irritant or contaminant, including vapor, soot, fumes, acids, alkalis, chemicals and waste . . . ."
State Farm denied coverage and the Association paid $650,000 to fully clean and abate the building. The Association sued and the trial court granted summary judgment to State Farm.
On appeal, the court first looked to the drafting history of the pollution exclusion and its interpretation in the CGL context. The exclusions in first and third party policies were virtually identical. Accordingly, there was no reason to reject MacKinnon's holding that the pollution exclusion was aimed at environmental pollution, and instead adopt a dictionary-based, literal language approach to deciding whether there was coverage.
Moreover, State Farm's policy included both first and third party coverage with pollution exclusions in each. To interpret the pollution exclusion differently depending on whether first party or third party coverage was implicated under a claim that could trigger either section of the policy did not make sense. Therefore, the court determined that a reasonable insured would expect both exclusions to apply to environmental pollution.
Nevertheless, the accidental release and airborne dissemination of asbestos fibers amounted to what was commonly regarded as "environmental" pollution. Damage to the Association's property was caused by a "release" of asbestos into the air. "Release" was a defined mechanism within the terms of the pollution exclusion. Consequently, judgment was properly entered in favor of State Farm.
Thanks to Robert Thomas (www.inversecondemnation.com), my Damon Key blogging colleague, for forwarding this case.
