Although the policy excluded pollution, the negligence that preceded the escape of the pollution was the efficient proximate cause, negating the impact of the pollution exclusion. Xia v. ProBuilders Specialty Ins. Co. RRG, 2017 Wash. LEXIS 443 (Wash. April 27, 2017).
Zhaoyun Xia purchased a new home in May 2006. The home was constructed by Issaquah Highlands 48 LLC. Issaquah Highlands had a CGL policy issued by ProBuilders.
After moving into her home, Xia began to feel ill. A service technician investigated the home and found that an exhaust vent attached to the hot water heater had not been installed correctly and was discharging carbon monoxide into the basement.
Xia notified Issaquah Highlands of her injuries. ProBuilders was notified and sent a letter to Xia indicating there was no coverage under the policy based upon the pollution exclusion. Xia sued Issaquah Highlands. ProBuilders refused to defend or indemnify Issaquah Highlands for Xia's loss. Xia and Issaquah Highlands settled for $2 million. Xia took an assignment of Issaquah Highlands' policy rights against ProBuilders and sued the insurer.
Xia and ProBuilders filed cross-motions for summary judgment. The trial court entered summary judgment for ProBuilders based upon the pollution exclusion. The court of appeals affirmed.
The Washington Supreme Court reversed the court of appeals. Under Washington law, the rule of efficient proximate cause provided coverage where a covered peril set in motion a causal chain, the last link of which was an uncovered peril. If the initial event, the efficient proximate cause, was a covered peril, then there was coverage under the policy regardless of whether subsequent events within the chain, which may be causes-in-fact of the loss, were excluded by the policy.
Here, the polluting occurrence happened when the hot water heater emitted toxic levels of carbon monoxide into Xia's home. However, by applying the efficient proximate cause rule, the ProBuilders policy provided coverage for the loss. The polluting occurrence happened only after an initial covered occurrence, which was the negligent installation of a hot water heater that typically did not pollute when used as intended.
The court agreed that the pollution exclusion was applicable. The policy excluded bodily injury or property damage caused by the discharge of pollution of any form whatsoever. Pollutants meant "any solid liquid, gaseous or thermal irritants or contaminants," which included "smoke, vapor, soot, fumes, acids, alkalis, chemicals," etc. Therefore, the exclusion covered the release of carbon monoxide in this case. ProBuilders did not err in determining that the plain language of its pollution exclusion applied to the release of carbon monoxide into Xia's home.
Nevertheless, the underlying complaint alleged negligent installation of the hot water heater. A jury could reasonably view the allegations as separate steps in the same causal chain, wherein the initial covered peril led to an excluded peril. If ProBuilders sought to avoid liability for damages resulting from particular acts of negligence, it could have written specific exclusions to that effect - for instance, an exclusion for acts of negligence relating to the installation of home fixtures such as hot water heaters.
Having failed to do so, ProBuilders wrongfully refused to defend its insured after receiving Xia's complaint. The efficient proximate cause rule continued to serve the underling purpose of insurance policies. The efficient proximate cause of Xia's loss was a covered peril: the negligent installation of a hot water heater.
