Insurance Law Hawaii

Traditional Pollution Exclusion Does Not Bar COVID-19 Claim

    The trial court's dismissal of the insured's loss of business income claim due to COVID-19 based upon a traditional pollution exclusions was reversed and remanded as to most of the insurers. JRK Prop. Holdings v. Colony Ins. Co., 2023 Cal. App. LEXIS 760 (Cal. Ct. App. Oct. 2, 2023). 

    JRK was a real estate investment firm with investments in approximately 100 hotel and residential properties across 22 states. When the COVID-19 pandemic arrived, JRK had $245 million in business interruption coverage from various insurers. The policies provided business interruption coverage for "loss resulting from necessary interruption of business conducted by the insured and caused by direct physical loss, damage, or destruction by any of the perils covered herein." However, the policies included a pollution exclusion for "pollution caused directly or indirectly by the release, discharge, dispersal, seepage, migration, or escape of pollutants or contaminants." "Pollutants of contaminants" were defined as any,

solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste, which after its release can cause or threaten . . . loss of use to property insured hereunder, including, but not limited to, bacteria, virus, or hazardous substances. . .

    JRK filed suit alleging breach of contract and declaratory relief due to the insurres' refusal to cover JRK's losses. JRK alleged the highly contagious virus caused loss and damage to its properties. The virus could survive for days on surfaces, compromising the "physical integrity of the structures it permeates" and posed an "imminent risk of physical damage to all other structures." Residents at JRK's properties tested positive for COVID-19 as early as mid-March 2020. Accordingly, the pandemic caused JRK to suffer significant financial losses, including substantial costs incurred to respond to on-site cases. 

    The insurers filed a motion for judgment on the pleadings, arguing that JRK failed to allege facts showing a distinct "physical alteration" to its covered properties as required to establish "direct physical loss or damage" under California law. The insurers also argued specific exclusions precluded coverage, including the pollution exclusion in the policies, and the pathogen exclusions in two of the policies. 

    The trial court granted the motion without leave to amend. The court found that JRK suspended its operations due to the government shutdown orders, not the presence of the virus on its properties. The court also found that the pollution and pathogen exclusions barred coverage. 

    In a portion of the opinion not certified for publication, the appellate court found the JRK adequately stated causes of action for breach of contract and declaratory judgment. The court turned to the pollution exclusion. 

    The insurers contended that the pollution exclusion barred coverage because it covered the dispersal sand migration of pollutants and contaminants, which terms were specifically defined to include a virus. The court determined, however, that the pollution exclusion did not apply because a reasonable interpretation of the exclusion was that it applied only to traditional sources of environmental pollution, as the Supreme Court held in McKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635 (2003). 

    The insurers relied on cases with pollution exclusions that excluded "loss or damage" caused by the "release, discharge, escape or dispersal" of contaminants or pollutants, with contaminants defined to include a virus. The policies here more closely tracked the pollution exclusion in McKinnon, excluding "pollution" (not loss or damage) caused by the "release, discharge, dispersal, seepage, migration, or escape of pollutants or contaminants," with a specific reference to the Clean Air Act and CERCLA.

    The pathogen exclusions in policies issued by Evanston and RSUI barred coverage, however. There was no reference in these exclusions to pollution. These exclusions specifically barred coverage for losses from a virus, thereby precluded coverage for COVID-19. 

    The order of dismissal was reversed except as to RSUI and Evanston. 

 

Ninth Circuit Certifies Pollution Exclusion Issue to Alaska Supreme Court

    The Ninth Circuit certified a question on the interpretation of the pollution exclusion to the Alaska Supreme Court. Estate of Joshua Wheeler v. Garrison Prop. and Cas. Ins. Co., 2023 U.S. App. LEXIS 23648 (9th Circuit Sept. 6, 2023).

    Josiah Wheeler moved into a cabin owned by Deborah Overly and Terry Summers in Tok, Alaska. Josiah was found dead in the cabin's bathtub. An autopsy showed that he died from acute carbon monoxide poisoning. The deputy fire marshal determined that the cabin's water heater had emitted the carbon monoxide. Summers had installed the water heater in the same small bathroom as the bathtub without connecting its flue to a venting system, in contravention of he heater's instruction manual. 

    Overly and Summers had a homeowers' policy issued by Garrison. The policy excluded medical payments for bodily injury arising out of "discharge, dispersal, release, escape, seepage or migration of pollutants." The policy defined "pollutants" as "a solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapour, soot fumes, acids alkalis, chemicals and waste.

    The Wheelers brought wrongful death and survivorship claims against Overly and Summers. A claim was submitted to Garrison. Coverage was denied on the basis that carbon monoxide was a "pollutant" that fell under the policy's pollution exclusion. Overly and Summers signed a confession of judgment in which they admitted liability for Josiah's death. They also assigned to the Wheelers their rights to pursue coverage against Garrison.

    The Wheelers filed a declaratory judgment action against Garrison seeking a declaration of coverage and an award of damages. The parties filed cross-motions for summary judgment. The district court held that the pollution exclusion applied to deny coverage and granted summary judgment for Garrison.

    On appeal, the Ninth Circuit noted that some states decided that carbon monoxide fell outside the total pollution exclusion after having previously held that its language was unambiguous with respect to a different substance.

    How the Alaska Supreme Court interpreted the pollution exclusion could determine the outcome of the case. If the  exclusion applied only to active industrial polluters or traditional environmental pollution, then there would be coverage in this case. In contrast, if the plain language unambiguously encompassed carbon monoxide exhaust from a residential water heater, coverage might be precluded, unless that result contravened the reasonable expectations of the insured. 

    The Ninth Circuit was unable to predict how the Alaska Supreme Court would analyse the Wheelers' case without expanding state law. Alaska had not considered the exclusion in the residential context or in any case involving a nonindustrial pollutant that caused no environmental harm.

    Therefore, the following question was certified to the Alaska Supreme Court:

Does a total pollution exclusion in a homeowners' insurance policy exclude coverage of claims arising from carbon monoxide exposure?

Duty to Indemnify May Exist Even if Duty to Defend Does Not

    The Fifth Circuit affirmed the district court's granting the insurer's motion for summary judgment on the duty to defend, but reversed the district court's ruling that there was no duty to indemnify. Liberty Mut. Fire Ins. Co. v. Copart of Connecticut, Inc., 2023 U.S. App. LEXIS 18674 (4th Cir. July 31, 2023). 

    Copart was an online car-auction company that sold used, wholesale and repairable vehicles. Copart owned several parcels of land in South Carolina on which it operated machine salvage junkyard and vehicle was facilities. 

    Eight property-owner plaintiffs sued Copurt alleging that they owned properties located near Copart's land and that Copart's operations damaged their properties. They alleged that wrecked and salvaged vehicles and machines stored on unpaved lots leaked gasoline, oil, hydraulic fluids, antifreeze, and other hazardous fluids and materials into the soil. When there was significant rain, water, soil, sediment and hazardous materials and chemicals washed from the Copast property into a creek that ran through the owners' property. The creek was tested and had alarming levels of heavy-metals and other dangerous elements present.

    Copart tendered to Liberty under its CGL policy. Liberty denied coverage based upon the pollution exclusion. Property damage caused by discharge, dispersal, seepage, migration, release or escape of pollutants was excluded. "Pollutants" was defined as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."

    Liberty filed a declaratory action against Copart. The district court granted Liberty's motion for summary judgment and denied Copart's cross-motion. The court found that the pollution exclusion was unambiguous and that it was clear that the underlying plaintiffs alleged damages caused by pollutants, so Liberty had no duty to defend under the CGL policy. The court further noted, "because Liberty Mutual has no duty to defend the underlying suit, it follows that it has no duty to indemnify,"

    On appeal, Copart argued many of the underlying allegations alleged facts that did not fall within the pollution exclusion. Copart pointed out that the underlying complaint named "30+ independent substances," including some non-pollutants such as water, soil, and sediment. Therefore, Copart argued, the underlying suit included some allegations not excluded from coverage by the pollution exclusion, thereby triggering Liberty's duty to defend.

    The court rejected this argument. It exceeded the bounds of plausibility to interpret the complaint as alleging "independent" harm by the non-pollutant substances. The water was indeed alleged to include some non-pollutants like soil, alleged to include some non-pollutants like soil, sediment, dirt, rock and sand, but the water was also consistently and repeatedly alleged to include "hazardous materials and chemicals" and chemical waste." Therefore, the district court did not err in declining to read into the complaint allegations of "independent' harm by non-pollutants alone. 

    The district court's assumption, however, that the duty to indemnify could not exist where there was no duty to defend was faulty. Granting summary judgment on the duty to indemnify was premature. The facts adduced a trial could differ from the allegations, and a duty to indemnify could be shown notwithstanding the absence of a duty to defend. This was not a case where no conceivable set of facts could give rise to coverage. 

Certified Question Asks Hawaii Supreme Court to Determine Coverage for Allegations of Greenhouse Gas Emissions

    The federal district court certified questions to the Hawaii Supreme Court regarding coverage for underlying allegations of greenhouse gas emissions. Aloha Petroleum, Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2023 U.S. Dist. LEXIS 156211 (D. Haw. Sept. 5, 2023). 

    Aloha was sued in two lawsuits, one filed by the County of Maui and the second filed by the City and County of Honolulu. The underlying lawsutis alleged that Aloha disregarded known risks of harm to the counties when selling its fuel products that would inevitably combust and produce greenhouse gasses, particularly carbon dioxide, thereby changing the climate and causing harm to the counties. 

    Aloha tendered the suits to AIG. Coverage was denied based on AIG's determination there was no "occurrence" and the pollution exclusion barred coverage. Aloha sued AIG in federal district court seeking a declaratory judgment on AIG's obligations under the policy.

     The parties filed cross-motions for summary judgment. The court found two issues for which it sought guidance from the Hawaii Supreme Court. First, the parties' dispute hinged on whether recklessness could amount to an "accident" as the term has been defined by the Hawaii Supreme Court. If so, were greenhouse gas emissions the release or escape of "pollutants."

    The court noted that in the Hawaii Supreme Court's decision Tri-S Corp. v. Western World Ins. Co., 110 Hawaii 473, 135 P.3d 82 (2006), the court held that an exclusion in an occurrence policy did not exclude coverage for recklessness. The Supreme Court considered whether a "wilful and wanton' misconduct claim was excepted from coverage by a clause exlcuding "expected or intended" injuries. "Wilful and wanton" misconduct comprised recklessness, so the court focused on the recklessness mental state. The court found that the exclusion might not apply to the wilful and wanton claim because the possibility existed that the insured could be found liable for recklessness, which did not involve intent or expectation. Thus, the wilful and wanton act could be an occurrence. 

    On the other hand, some cases from the Hawaii Supreme Court defined an "accident" to require injuries that were neither the "expected nor reasonably foreseeable result of the insured's own intentional acts or omissions." E.g., AIG v. Estate of Caraang, 74 Haw. 620, 636, 851 P.2d 321, 329 (1993). Therefore, a conflict existed between Tri-S implyng that an "accident" could be the result of recklessness and Carrang saying that an "accident cannot be "reasonably foreseeable" from the insured's perspective, a standard almost synonymous with the subjective foreseeability required by recklessness. 

    If the Hawaii Supreme Court found that recklessness could be an "accident", the federal district court then asked whether greenhouse gases were "pollutants," defined in the AIG policies to mean "any gasseous . . . irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." On the one hand, the Hawaii Air Pollution Control statutes defined "air pollutant" to include greenhouse gases. Further, it was reasonable to assume that greenhouse gases were "gaseous" "chemicals" that were known to cause harm to persons and property through climate change. 

    On the other hand, it was also reasonable that greenhouse gases, such as carbon dioxide, were emitted around people daily, but were relatively harmless to immediate health, particularly in limited amounts.

    Therefore, the following questions were certified to the Hawaii Supreme Court:

1) For an insurance policy defining a covered "occurrence" in part as an "accident," can an "accident' include recklessness?

2) For an occurrence insurance policy excluding coverage of "pollution" damages, are greenhouse gasses "pollutants," i.e., "gaseous" "irritants or contaminants, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste"?

 

Motion to Dismiss COVID-19 Claim Denied

    Finding that a contamiation exclusion was ambiguous, the Court denied the insurer's Motion to Dismiss the insured's COVID-19 claim. C.J. Segerstrom and Sons v. Lexington Ins. Co., 2023 U.S. Dist. LEXIS 33293 (C.D. Cal. Feb. 27, 2023). 

    Segerstrom owned and operated a shopping mall. It was forced to close the mall due to the outbreack of COVID-19 in order to comply with related closure and stay-at-home orders issued by state and county governmental authorities. The mall was unable to open for several months, resulting in losses over $3,000,000. 

    Segerstrom had a polidy with Lexington. Coverage was denied. The policy provided coverage for loss as a result of closing of the premises by order of a public authority due to the existence or threat of hazardous conditions. The policy also had a pollution and contamination exclusion which excluded coverage for loss due to contaminants or pollutants, defined to include "bacteria, virus, or hazardous substances as listed in the Federal Water, Pollution Control Act, Clean Air Act, Resource Conserfation and Recovery Act of 1976 and Toxic Substances Control Act or as designated by the U.S. Environmental Protection Agency."

    Segerstrom sued and Lexington moved to dismiss. Lexington argued that the pollution and contamination exclusion precluded coverage. Segerstrom contended that the exclusion was inapplicable and did not preclude its claim. 

    The court found that a reasonable interpretation of the policy was that the SARS-CoV-2 virus and resulting COVID-19 pandemic fell within the pollution and contamination exclusion. Segerstrom argued, however, that the exclusions terms of "release, discharge, escape or dispersal" should be interpreted in the context of traditional environmental pollution. Further, there was no act involving the "release, discharge, escape, or dispersal" of a "virus," as defined in the exclusion, to trigger the exclusion. Binding authority in California was the California Supreme Court case in McKinnon v. Truckers Ins. Exchange, 73 P.3d 1205 (Cal. 2003), where the court found that the terms "discharge, dispersal, release or escape" related to intentional industrial pollution. Therefore, the court limited the scope of the pollution exclusion to environmental pollution. 

    The court concluded that the terms "discharge, dispersal, release, and escape" should, as in McKinnon, be read as limited to traditional environmental pollution and not encompass coughing, breathing, or sneezing. The holding in McKinnon therefore supported Segerstrom's reading of the exclusion as reasonable. The coverage language expressly included discussion of an outbreak of a communicable disease, which established a reasonable expectation that Segerstrom would have coverage for such an outbreak.

    Therefore, the court found that Segerstrom's reading was reasonable, making the exclusion ambiguous. The Pollution and Contamination Exclusion endorsement did not preclude coverage of Segerstrom's COVID-related losses and Segerstrom therefore properly stated a breach of contract claim. The motion to dismiss was denied. 

 

Pollution Exclusion Found Ambiguous

    The Mississippi Supreme Court found the pollution exclusion ambiguous under the facts presented. Omega Protein, Inc. v. Evanston Ins. Co., 2022 Miss. LEXIS 90 (Miss. March 31, 2022).

    Omega Protein, Inc., entered a contract with Ascu-fab to perform welding and other fabrication work at their facility. Accu-fab was required to have CGL coverage naming Omega as an additional insured. Accu-fab purchased a $1 million primer policy from Colony Insurance Company and a $5 million excess policy issued by Evanston Insurance Company.

    Accu-fab performed welding and other fabrication work on a large metal storage tank used for the temporary storage of stickwater, which was a liquid composed of water, fish oil, and fish solids. An explosion occurred at the Omega plant while Accu-fab workers were welding and grinding on a large metal tank that was used for the temporary storage of stickwater. One of Accu-fab's workers , Jerry Lee Tayler, was killed, another was seriously injured, and still others suffered less serous injuries. 

    Omega was sued in various lawsuits. Omega tendered the defense of the lawsuits to Colony and Evanston. Colony filed this declaratory judgment action seeking a declaration that there was no coverage due to the pollution exclusion. Evanston intervened, also arguing the claim was barred by its pollution exclusion. Omega and the Taylor estates settled with Colony contributing its policy limits of $1 million.

    In this declaratory judgment actin, Omega filed motions for partial summary judgment, alleging that the pollution exclusion did not apply. Evanston also filed a motion for summary judgment arguing that Omega was not an additional insured under the Colony policy or the excess policy. Evanston also argued that Omega was not entitled to indemnity because there were no factual allegations of negligence against Accu-fab in the underlying cases and also because its own pollution exclusion barred Omega's claims. 

    A special master was appointed to address the motions for summary judgment. The special master recommended that coverage was barred under the pollution exclusion and that Omega qualified as an additional insured under the policy in addition to Evanston's coverage being triggered by the $1 million payment by Colony. The trial court granted Evanston's summary judgment motion. Omega appealed, and Evanston cross-appealed. 

    The Evanston pollution exclusion did not apply to "ultimate net loss" . . . "arising out of or contributed to in any way by the actual, alleged or threatened discharge, dispersal, release, migration, escape or seepage of pollutants." Stickwater was a byproduct of the fish meal and fish oil production process. The stickwater produced methanethiol, hydrogen sullied, and methane - all three of which were extremely flammable. 

    Omega asserted that the gasses emitted from the stickwater tank were not irritants or contaminants because they were found naturally in the ambient air. Further, the gasses in the stickwater tank were not irritants or contaminants under the pollution exclusion since they were property contained within the tank and were not contacting, contaminating, or irritating anything. Evanston argued that the gasses emitted from the tank fit squarely within the pollution exclusion language. 

    After considering dictionary definitions, the court determined that the pollution exclusion was susceptible to more than one reasonable interpretation and, therefore, ambiguous. Accordingly, it was construed in favor of coverage.

    The court next determined that Evanston's excess policy was not triggered because there was no exhaustion of the underlying policy. Nor was there a showing of negligence by Accu-fab. 

    Finally, the court found that Omega was not an additional insured under Accu-fab's policies. Omega was an a an additional insured only if there was a determination of negligence on Accu-fab's part. The underlying policy, and Evanston's following form policy, required a determination that Omega incurred liability on behalf of negligence attributed to Accu-fab. But there was never any adjudication made regarding negligence of Accu-fab because of the settlement. Therefore, Evanston failed to prove that Omega was not covered under the excess policy.

    However, Evanston intervened in the declaratory judgment suit and assumed the burden of proof. Because there was no adjudication of fault or negligence attributed to Accu-fab, Evanston failed to prove that Omega was not covered under the excess policy, The trial court erred by finding that Omega qualified as an additional insured under the excess policy. 

Pollution Exclusion Bars Coverage for Golf Course's Gasoline Leak

    The magistrate recommended that the policy issued to the club's groundskeeper  containing a Pollution Exclusion provided no coverage for a gasoline leak. Glocester County Club v. Scottsdale Ins. Co., 2021 U.S. Dist. LEXIS 149666 (D. R.I. Aug. 5, 2021). 

    The groundskeeper, Mr. Simonelli, was in charge of maintaining Glocester County Club's (GCC) greens. He applied for a policy from Scottsdale and described the operations as "Pesticide/Herbicide for golf greens." GCC was identified as an additional insured. The application stated that it was the basis of the contract should a policy be issued. 

    The policy was issued with a Pollution Exclusion barring coverage for property damage arising out of release or escape of pollutants. The policy also included a Pesticide Endorsement. 

    GCC stored gasoline to fuel thirty pieces of equipment, including golf carts. Nine pieces of equipment were used for pesticide and herbicide application operations by Mr. Simonelli. The gasoline tank began to leak and contaminated the soil and ground water on GCC's property and that of its neighbor. The state notified GCC that it was responsible for remediation. GCC also agreed to to pay the neighbor's claim.

    GCC then turned to Scottsdale. The claim was denied based on Pollution Exclusion. Scottsdale determined that the Pesticide Endorsement was inapplicable because it applied only to ongoing operations arising out of pest control services and the leak did not occur in connection with the performance of such services. GCC sued and cross-motions for summary judgment were filed.

    GCC agreed that the Pollution Exclusion was potentially fatal to its claim. But GCC relied upon the Pesticide Endorsement because the vehicles Mr. Simonelli used for pesticide application needed gasoline and were fueled from the leaking gasoline tank. 

    The court determined that the Pesticide Endorsement would only be applicable if the Pollution Exclusion was ignored. The court considered the meaning of "operations" in the Pollution Exclusion. The dictionary definition was "performance of a practical work or of something involving the practical application of principles or processes." The policy's "Description of Operations" stated in the Pesticide Endorsement was "Pest Control Services." Therefore, the term "operations" was not ambiguous. It was limited to Mr. Simonelli's pest control services and did not extend to the general operations of the golf course for which the leaking gasoline tank was used. Further, in the application, Mr. Simonelli described the "operations" as "Pesticide/Herbicide for golf greens" and specified that the "operations" did not involve the storing of hazardous materials, for example in a fuel tank. 

    Here, the pollution discharge did not occur contemporaneously with Mr. Simonelli's performance of his pest control service operations. Nor was GCC's loss due to a discharge of gasoline brought by Mr. Simonelli to the premises on which the leak occurred "in connection with" Mr. Simonelli's performance of pest control service operations. 

    The Pollution Exclusion was clear and barred coverage for environmental contamination caused by a pollution discharge that occurred on premises owned or occupied by GCC. Therefore, the magistrate recommended that summary judgment should be issued in favor of Scottsdale, which GCC's motion should be denied.

    

Pollution Exclusion Does Not Apply To Concrete Settling Dust

    Applying Virginia law, the federal district court determined that the pollution exclusion did not bar coverage. Allied Prop. & Cas. Ins. Co. v. Zenith Aviation, Inc., 2018 U.S. Dist. LEXIS 14727 (E.D. Va. Aug. 29, 2018).

    Zenith Aviation, Inc. hired Abby Construction Company to install an elevator at its warehouse. A wet saw was used to cut away concrete, but Abby did not use any water with the wet saw. This created a significant amount of concrete dust to leave the warehouse. Surrounding businesses contacted the fire department because they thought the dust was smoke from a fire. The concrete dust settled inside Zenith's building, damaging airplane parts stored in the warehouse. 

    Allied issued to Zenith a commercial insurance policy. Zenith submitted a claim for its loss. The policy's pollution exclusion barred coverage for the discharge, dispersal, etc. of "pollutants" unless the escape of a "pollutant" was not "caused by any of the 'specified causes of loss.'" But if the discharge . . . of 'pollutants' results in a 'specified cause of loss,' we will pay for the loss or damage caused by that 'specified cause of loss.'" "Pollutants" included any irritant or contaminant, including smoke, chemicals and waste. Finally, "specified causes of loss" were defined as "fire; lightening; explosion; windstorm or hail; smoke . . ." 

    Cross motions for summary judgment were filed. Allied acknowledged that Zenith suffered a "direct physical loss" that would be covered but for the pollution exclusion. Allied argued that the concrete dust meet the definition of a "pollutant" since it was an "irritant or contaminant." Zenith contended that cement was not a pollutant and Allied had offered nothing to suggest it was.

    The court agreed that concrete dust was a pollutant since it could function as both an "irritant" and a "contaminant." There was no genuine issue of fact concerning whether the concrete dust "contaminated" Zenith's products and machinery. 

    Zenith then argued that the dust was a "specified cause of loss" in the form of "smoke." The court found the applicable definition of "smoke" as used in the Pollution Exclusion to be unclear, with more than one reasonable definitions. Zenith argued "smoke" could mean a cloud of fine particulate matter. Allied submitted that "smoke" meant "the gaseous products of burning materials" and "suspension of particles in a gas." With two reasonable definitions, the court construed the ambiguity in favor of the insured. "Smoke" referred to any visible suspension of particles in a gas, including the concrete dust suspended in the air in Zenith's warehouse.

    Allied then argued that even if the concrete dust was "smoke," it did not "cause" a loss when it merely settled on the airplane parts, contaminating them, because the concrete in the air did not "result in" the dust on the inventory and machinery since it was the dust. 

    The exceptions to the Pollution Exclusion required a causal nexus between a specified cause of loss and the pollutant. The facts reflected: (1) Abby Construction used a wet saw without water to cut concrete; (2) the saw "released" concrete solids into the air; (3) the dust, rather than falling immediately to the ground, carried into a cloud of particulate, resulting in "smoke;" and (4) the particulate from the cloud of smoke ultimately settled on Zenith's products and equipment, contaminating them and causing the loss.

   Therefore, Zenith's loss resulted from the dispersal or migration of a pollutant onto its inventory and machinery, and that dispersal or migration was caused by a visible gaseous suspension of the concrete particulate in the air, i.e., smoke. The "dispersal" or "migration" of the concrete dust onto Zenith's products was therefore "itself caused by" the smoke from which it settled, and therefore the loss fell under the exception to the pollution exclusion. Further, the "discharge, dispersal, seepage, migration, release or escape" of the concrete dust from the wet saw "resulted in" smoke, a specified cause of loss, which then caused Zenith's loss. 

    Allied argued that "smoke" could not simultaneously be both the "pollutant" and the "specified cause of loss." But the fact that the particles that contaminated Zenith's products and equipment were the same as the particles that were a constituent part of the "smoke" did not mean that there was no causal separation between the "pollutant" that was dispersed and the "specified cause of the loss" that dispersed it or resulted from it. 

    Therefore, the court believed that the Supreme Court of Virginia would conclude that the Pollution Exclusion did not apply and that there was coverage under the policy for Zenith's alleged losses. 

Occurrence is Covered Where Pollution Event Is Not Efficient Proximate Cause Of Loss

    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.

Pollution Exclusion Bars Coverage for Damage Caused by Tar Escaping From Roof

    The insurer prevailed on summary judgment establishing it had no duty to defend the insured roofing contractor for damage caused by tar escaping from a roof. Mesa Underwriters Spec. Ins. Co. v. Myers, 2016 U.S. Dist. LEXIS 108444 (W.D. Ohio Aug. 16, 2016).

     Myers contracted to do roofing work for Sireco III LLC. Myers removed stones from the roof, patched all bad sections, and sealed the roof. To seal the roof, Myers used a roofing-tar sealant. The substance was a skin irritant and harmful or fatal if swallowed.

    Myers expected the sealant to harden within twenty-four hours. When rain hit the area eleven days later, however, it washed the sealant off the roof and into the downspouts. It then flowed into the city's sewer system and eventually into Lake Erie.

    The Ohio Environmental Protection Agency notified Myers, and he hired SpillTek Environmental Services, LLC to remediate the damage. Myers also notified his insurer, Mesa. Mesa refused to cover the remediation and after four days, Myers ordered SpillTek to halt its work. After being warned it was being considered a responsible party, Sireco hired SpillTek to finish the cleanup work. Sireco hired another company to remove the sealant remaining on the roof.

    Sireco sued Myers, alleging he breached the contract and was negligent in failing to use the proper sealant. Mesa refused to defend or indemnify, contending that the underlying suit alleged defective workmanship. Mesa recognized it might have had to cover the consequential damages Sireco sought, i.e, the clean-up costs incurred to capture the sealant that entered Lake Erie. But Mesa determined that the policy's Total Pollution Exclusion applied.

    Mesa filed suit for a declaratory judgment. A prior Ohio case held that claims of defective construction or workmanship were not claims for property damage caused by an occurrence under a CGL policy. Westfield Ins. Co v. Custom Agr. Sys., Inc., 133 Ohio St. 3d 476 (2012). Westfield held that truly accidental property damage generally was covered. Conversely, faulty workmanship claims generally were not covered, except for their consequential damages, because they were not fortuitous.

    Therefore, the cost of remediating the roof was not covered. Where the damages claimed were the cost of correcting the work itself, there was no coverage. But the policy did cover the consequential damages that stemmed from the insured's work and the damage caused to the water system. Here, however, the pollution exclusion applied. The roofing sealant was a pollutant under the policy. Sireco's remediation costs stemmed from the dispersal, seepage, release and/or escape of the sealant from the roof and into Lake Erie.

    Therefore, Mesa's motion for summary judgment was granted.