In the 1980s, insurance companies sought approval from state insurance boards for exclusions that are now referred to as the "broad form" or "absolute" pollution exclusions. These exclusions were designed to preclude coverage for environmental damage claims. The exclusions are stated very broadly, precluding coverage for injury or damage arising out of the release or escape of "pollutants," which is defined to include any "irritant or contaminant."
When insurance carriers first proposed this new exclusion to the state insurance boards, the broad language raised concerns about the exclusion being applied outside of its intended context: environmental damage. Insurance carriers assured state insurance boards at the time that they had no intention of denying coverage for every claim that arose from something that could be defined as an "irritant" or "contaminant." For example, one insurance company representative explained to a state board that policyholders would justifiably be upset if "every time a bottle of Clorox fell off of a shelf at a grocery store...we denied the claim because it’s a pollution loss."1
After the broad form pollution exclusions were approved by state boards, however, insurance companies began denying claims outside of the environmental damage context, based on the broad language in the exclusion. Two courts have recently rejected insurance company attempts to expand the broad-form pollution exclusion beyond the environmental damage context.
In Richardson v. Nationwide Mutual Ins. Co., the court held the pollution exclusion did not apply to bodily injuries arising from carbon monoxide poisoning allegedly caused by a malfunctioning furnace in an apartment complex. The court noted that the "largely undisputed history" of the absolute pollution exclusion reveals that its purpose was to protect carriers from liability for environmental cleanups at hazardous waste sites and industrial facilities. The court specifically relied on the "box of Clorox" example made to a state board of insurance in convincing that board to allow the broad form pollution exclusion. The court explained that "the revised exclusion has to do with the by products of the manufacturing process and with massive environmental cleanup costs..."2
In Belt Painting Corp. v. TIG Ins. Co.,3 the court held that the pollution exclusion did not bar coverage for injuries to an office worker who inhaled paint and stripping solution fumes while the workplace was painted. The court explained that the exclusion only applies where the damages are "truly environmental in nature" or result in "pollution of the environment."
These decisions signal that courts may limit pollution exclusion clauses to polluting events. The tune that some carriers played to state boards of insurance in acquiring approval of pollution exclusions is now an old, familiar song being played again by the courts as a justification for these results.
1 Richardson v. Nationwide Mutual Ins. Co., 2003 WL 211448372 (D.C. App. 2003)
2 2003 WL 21448372 (D.C. 2003)
3 100 N.Y. 2d 377, 795 N.E. 2d 15, 763 N.Y.S.2d 790 (2003)