www.andersonkill.com/publications/pa/pdf/200010.pdf
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Page 1
Over the last decade,
courts in New York
and around the nation
have rejected attempts by
insurance companies to evade
their obligations to defend
and indemnify policyholders under general liabili-
ty insurance policies by means of an overly-broad
interpretation of the so-called “absolute” pollution
exclusion. Courts have held that this “absolute”
pollution exclusion could be interpreted as apply-
ing solely to instances of environmental pollution,
and that the exclusion does not eliminate coverage
for accidental injuries from exposure to the build-
up of carbon monoxide from a faulty furnace, or to
lead chips from the paint on the walls of an apart-
ment building. When confronted by claims policy-
holders should be aware of the fact that “absolute”
pollution exclusions in their policies excludes cov-
erage for injuries far removed from the property
damage caused by environmental pollution.
Preliminary Issues
The New York Court of Appeals has held that
the duty to defend under liability insurance poli-
cies is a form of “litigation insurance,” for which
the policyholder specifically pays a premium
when it buys an insurance policy. The duty to
defend is much broader than the duty to indem-
nify a policyholder, and therefore, is resolved
solely on the allegations of the underlying com-
plaint: if those allegations are potentially within
coverage, the duty to defend attaches. In other
words, the duty to defend is not contingent on
the insurance company’s obligation to indemni-
fy; even if ultimately it is determined that a claim
is not covered under the policy, the duty to
defend is unaffected.
An insurance company has a duty to defend
under New York law, whenever the allegations in
an underlying complaint state a cause of action
that gives rise to the “reasonable possibility” of
recovery under the policy. In an underlying law-
suit against a policyholder even where only one
claim is potentially covered, the duty to defend
extends to all claims.
When an insurance company relies upon an
exclusionary clause to deny its duty to defend, it
“shoulders the burden” of demonstrating that the
underlying allegations are “solely and entirely”
within that exclusion, and that the allegations are
“subject to no other interpretation.” Although insur-
ance companies always bear the burden to justify
their reliance upon exclusions, this burden is espe-
cially heavy “when the insurer is seeking to avoid
the duty to defend.” “[T]he insurer must demon-
strate that there is no reasonable possibility of cov-
erage under the policy.” Furthermore, “[a]ny ambi-
guity is to be construed against the insurer, particu-
larly when the ambiguity is in an exclusionary
clause.” “[A]mbiguity alone justifies summary
judgment in the insured’s favor.”
The “Absolute” Pollution Exclusion Has
Been Limited to Long Term Industrial
Pollution
Although insurance companies routinely
attempt to apply the “absolute” pollution exclusion
to all sorts of accidents which involve exposure to
fumes or smoke, courts in New York and elsewhere
have, in conformity with the intent of the insurance
industry drafters, limited the reach of that exclu-
sion to long-term industrial pollution of the type
addressed by environmental clean-up statutes. For
example, in Stoney Run Co. v. Prudential–LMI
Commercial Insurance Co., the policyholder, the
Volume 9 Number10
October 2000
www.andersonkill.com
T h e P o l i c y h o l d e r L a w F i r m
ANDERSON
KILL & OLICK
AKO
1
Don’t Be Fooled:
The “Absolute” Pollution Exclusion
Is Not So Absolute
John Berringer
Page 2
owner of a real estate complex, was sued for dam-
ages arising out of the inhalation of carbon monox-
ide fumes that were emitted from a faulty heating
system. The insurance company denied coverage
based on the policy’s “absolute” pollution exclu-
sion. The court held that the insurance company
had a duty to defend the policyholder, and rejected
the insurance company’s argument that the pollu-
tion exclusion necessarily barred coverage.
The court rejected the insurance company’s
attempt to distinguish New York case law regard-
ing the application of the pollution exclusion in
cases alleging injurious to exposure to certain
products and chemicals.
Even if several of the cases cited by Plaintiffs do
involve so-called direct contact with useful prod-
ucts, courts have not focused on this distinction as
the basis for their decisions. The issue remains
whether the pollution exclusion clause unambigu-
ously includes injuries caused by exposure to car-
bon monoxide within an apartment. As set forth
above, a reasonable interpretation of the pollution
exclusion clause is that it applies only to environ-
mental pollution, and not to all contact with sub-
stances that can be classified as pollutants.
In Kenyon v. Security Insurance Co., the court
also rejected an insurance company’s attempt to
deny coverage pursuant to the “absolute” pollu-
tion exclusion for injuries arising out of a carbon
monoxide release.
In Calvert Insurance Co. v. S & L Realty Corp., the
court held that the “absolute” pollution exclusion
did not relieve the insurance company of its duty to
defend claims arising out of alleged exposure to
chemical fumes from the installation of a new floor.
The court reasoned that the allegations were not
plead “solely and entirely” within the “absolute”
pollution exclusion because the exclusion
“appl[ies] only to instances of environmental pol-
lution.” The court held that, even if the fumes were
deemed a “pollutant”, the insurance company
nonetheless had a duty to defend.
In Karroll v. Atomergic Chemetals Corp., the poli-
cyholder sought coverage for injuries arising out
of an accidental spraying of sulfuric acid. When
the policyholder tendered the claim to its insur-
ance company, the insurance company denied the
claim on the basis of the “absolute” pollution
exclusion. The court in Karroll, rejecting the insur-
ance company’s argument, held that the allega-
tions triggered the duty to defend.
Courts outside of New York also have rejected
attempts by insurance companies to invoke the pol-
lution exclusion to defeat insurance coverage for
claims which were never intended to be precluded
by reason of the exclusion. For example, in American
States Insurance Co. v. Kiger, the Supreme Court of
Indiana found the exclusion to be inapplicable to
the policyholder’s claim for insurance coverage for
damages resulting from a leaking gasoline tank, in
part because of the nature of the policyholder’s pri-
mary activity. Similarly, in Sullins v. Allstate Ins. Co.,
the Maryland Supreme Court rejected the insur-
ance company’s contention that an “absolute” pol-
lution exclusion applied to a claim for insurance
coverage for injuries from exposure to lead paint, as
did an Illinois appellate court in Ins. Co. of Illinois v.
Katalina Stringfield.
The “absolute” pollution exclusion has been the
subject of dispute in claims concerning “sick build-
ings.” In Donaldson v. Urban Land Interests, Inc., for
example, the Wisconsin Supreme Court rejected the
contention of Hanover Insurance Company that
exhaled carbon dioxide was a pollutant, and found
that the policyholder could reasonably expect
insurance coverage for “sick building” syndrome
under the comprehensive general liability and
umbrella excess liability policies it purchased from
Hanover. In Western Alliance Ins. Co. v. Jarnail Singh
Gill, the court held that the absolute pollution exclu-
sion did not apply to injuries caused by exposure to
carbon monoxide fumes from tandoori oven, fur-
ther, it cautioned that the exclusion “should not
reflexively be applied to accidents arising during
the course of normal business activities simply
because they involve a ‘discharge, dispersal, release
or escape’ of an ‘irritant or contaminants.’” On the
other hand, in West American Insurance Co. v. Band &
Desenberg the court under Florida law, found that
the release of airborne contaminants from attic
space into building’s interior spaces constituted
“pollution” for purposes of “absolute” pollution
exclusion. A New York Court in Advanced Healthcare
Resources Inc. v. Merchants Insurance Co. of N.H.
found that the absolute pollution exclusion bars
coverage for sick building syndrome.
The Hostile Fire Exception Preserves
Coverage for Accidental Discharges
Even where insurance companies have suc-
cessfully argued that the ‘absolute’ pollution
exclusion can be applied to accidents which
ANDERSON
KILL & OLICK
AKO
2
AKO Policyholder Advisor
Page 3
would not ordinarily be considered as “pollu-
tion,” e.g., carbon monoxide poisoning, a “hos-
tile fire” exception has been found to have pre-
served coverage.
In this regard, a recent decision of the Minnesota
Federal District Court found coverage for a policy-
holder’s claim under the “hostile fire” exception to
the “absolute” pollution exclusion in circumstances
much like those in many non-environmental prop-
erty damage claims. In Schmid v. Fireman’s Fund Ins.
Co., the district court examined a standard-form
‘hostile fire” exception found in many policies. This
exception provided that the exclusion would not
apply to “bodily injury or property damage caused
by heat, smoke or fumes from a hostile fire,” which
in turn is defined by the district court as a fire
which “becomes uncontrollable or breaks out from
where it is intended to be.” The district court stated
that “[a] fire can be both uncontrollable and burn-
ing in a location other than where it was intended
to burn.” Attempting to define “uncontrollable,”
the district court found that a fire is “uncontrol-
lable” when a person “cannot contain, guide, or
extinguish [it].” In Schmid, the district court noted
that the fire contained in a furnace was not “uncon-
trollable” because it was capable of being turned
off and it also held that the furnace fire had broken
out from where it was intended to be because the
flame was burning “three inches from its intended
location in the combustion chamber,” thereby per-
mitting a buildup of harmful carbon monoxide.
Conclusion
Courts around the nation have refused to apply
the “absolute” pollution exclusion outside the con-
text of traditional environmental pollution claims.
To the contrary, these courts have looked to the rea-
sonable expectations of policyholders, and have
concluded that accidental damage or injuries
caused by exposure to fumes or smoke will not be
excluded if the underlying activity cannot be fairly
characterized as “pollution.” The moral: don’t be
fooled by exaggerated claims that the “absolute”
pollution exclusion is “absolute.” ■
JOHN BERRINGER IS A LAWYER IN THE NEW YORK OFFICE OF ANDERSON
KILL & OLICK, P.C. JOHN CAN BE REACHED AT (212)278-1500 OR
*****erringer@andersonkill.com
ANDERSON
KILL & OLICK
AKO
3
AKO Policyholder Advisor
This is the html version of the file http://www.andersonkill.com/publications/pa/pdf/200010.pdf.
Google automatically generates html versions of documents as we crawl the web.
Page 1
Over the last decade,
courts in New York
and around the nation
have rejected attempts by
insurance companies to evade
their obligations to defend
and indemnify policyholders under general liabili-
ty insurance policies by means of an overly-broad
interpretation of the so-called “absolute” pollution
exclusion. Courts have held that this “absolute”
pollution exclusion could be interpreted as apply-
ing solely to instances of environmental pollution,
and that the exclusion does not eliminate coverage
for accidental injuries from exposure to the build-
up of carbon monoxide from a faulty furnace, or to
lead chips from the paint on the walls of an apart-
ment building. When confronted by claims policy-
holders should be aware of the fact that “absolute”
pollution exclusions in their policies excludes cov-
erage for injuries far removed from the property
damage caused by environmental pollution.
Preliminary Issues
The New York Court of Appeals has held that
the duty to defend under liability insurance poli-
cies is a form of “litigation insurance,” for which
the policyholder specifically pays a premium
when it buys an insurance policy. The duty to
defend is much broader than the duty to indem-
nify a policyholder, and therefore, is resolved
solely on the allegations of the underlying com-
plaint: if those allegations are potentially within
coverage, the duty to defend attaches. In other
words, the duty to defend is not contingent on
the insurance company’s obligation to indemni-
fy; even if ultimately it is determined that a claim
is not covered under the policy, the duty to
defend is unaffected.
An insurance company has a duty to defend
under New York law, whenever the allegations in
an underlying complaint state a cause of action
that gives rise to the “reasonable possibility” of
recovery under the policy. In an underlying law-
suit against a policyholder even where only one
claim is potentially covered, the duty to defend
extends to all claims.
When an insurance company relies upon an
exclusionary clause to deny its duty to defend, it
“shoulders the burden” of demonstrating that the
underlying allegations are “solely and entirely”
within that exclusion, and that the allegations are
“subject to no other interpretation.” Although insur-
ance companies always bear the burden to justify
their reliance upon exclusions, this burden is espe-
cially heavy “when the insurer is seeking to avoid
the duty to defend.” “[T]he insurer must demon-
strate that there is no reasonable possibility of cov-
erage under the policy.” Furthermore, “[a]ny ambi-
guity is to be construed against the insurer, particu-
larly when the ambiguity is in an exclusionary
clause.” “[A]mbiguity alone justifies summary
judgment in the insured’s favor.”
The “Absolute” Pollution Exclusion Has
Been Limited to Long Term Industrial
Pollution
Although insurance companies routinely
attempt to apply the “absolute” pollution exclusion
to all sorts of accidents which involve exposure to
fumes or smoke, courts in New York and elsewhere
have, in conformity with the intent of the insurance
industry drafters, limited the reach of that exclu-
sion to long-term industrial pollution of the type
addressed by environmental clean-up statutes. For
example, in Stoney Run Co. v. Prudential–LMI
Commercial Insurance Co., the policyholder, the
Volume 9 Number10
October 2000
www.andersonkill.com
T h e P o l i c y h o l d e r L a w F i r m
ANDERSON
KILL & OLICK
AKO
1
Don’t Be Fooled:
The “Absolute” Pollution Exclusion
Is Not So Absolute
John Berringer
Page 2
owner of a real estate complex, was sued for dam-
ages arising out of the inhalation of carbon monox-
ide fumes that were emitted from a faulty heating
system. The insurance company denied coverage
based on the policy’s “absolute” pollution exclu-
sion. The court held that the insurance company
had a duty to defend the policyholder, and rejected
the insurance company’s argument that the pollu-
tion exclusion necessarily barred coverage.
The court rejected the insurance company’s
attempt to distinguish New York case law regard-
ing the application of the pollution exclusion in
cases alleging injurious to exposure to certain
products and chemicals.
Even if several of the cases cited by Plaintiffs do
involve so-called direct contact with useful prod-
ucts, courts have not focused on this distinction as
the basis for their decisions. The issue remains
whether the pollution exclusion clause unambigu-
ously includes injuries caused by exposure to car-
bon monoxide within an apartment. As set forth
above, a reasonable interpretation of the pollution
exclusion clause is that it applies only to environ-
mental pollution, and not to all contact with sub-
stances that can be classified as pollutants.
In Kenyon v. Security Insurance Co., the court
also rejected an insurance company’s attempt to
deny coverage pursuant to the “absolute” pollu-
tion exclusion for injuries arising out of a carbon
monoxide release.
In Calvert Insurance Co. v. S & L Realty Corp., the
court held that the “absolute” pollution exclusion
did not relieve the insurance company of its duty to
defend claims arising out of alleged exposure to
chemical fumes from the installation of a new floor.
The court reasoned that the allegations were not
plead “solely and entirely” within the “absolute”
pollution exclusion because the exclusion
“appl[ies] only to instances of environmental pol-
lution.” The court held that, even if the fumes were
deemed a “pollutant”, the insurance company
nonetheless had a duty to defend.
In Karroll v. Atomergic Chemetals Corp., the poli-
cyholder sought coverage for injuries arising out
of an accidental spraying of sulfuric acid. When
the policyholder tendered the claim to its insur-
ance company, the insurance company denied the
claim on the basis of the “absolute” pollution
exclusion. The court in Karroll, rejecting the insur-
ance company’s argument, held that the allega-
tions triggered the duty to defend.
Courts outside of New York also have rejected
attempts by insurance companies to invoke the pol-
lution exclusion to defeat insurance coverage for
claims which were never intended to be precluded
by reason of the exclusion. For example, in American
States Insurance Co. v. Kiger, the Supreme Court of
Indiana found the exclusion to be inapplicable to
the policyholder’s claim for insurance coverage for
damages resulting from a leaking gasoline tank, in
part because of the nature of the policyholder’s pri-
mary activity. Similarly, in Sullins v. Allstate Ins. Co.,
the Maryland Supreme Court rejected the insur-
ance company’s contention that an “absolute” pol-
lution exclusion applied to a claim for insurance
coverage for injuries from exposure to lead paint, as
did an Illinois appellate court in Ins. Co. of Illinois v.
Katalina Stringfield.
The “absolute” pollution exclusion has been the
subject of dispute in claims concerning “sick build-
ings.” In Donaldson v. Urban Land Interests, Inc., for
example, the Wisconsin Supreme Court rejected the
contention of Hanover Insurance Company that
exhaled carbon dioxide was a pollutant, and found
that the policyholder could reasonably expect
insurance coverage for “sick building” syndrome
under the comprehensive general liability and
umbrella excess liability policies it purchased from
Hanover. In Western Alliance Ins. Co. v. Jarnail Singh
Gill, the court held that the absolute pollution exclu-
sion did not apply to injuries caused by exposure to
carbon monoxide fumes from tandoori oven, fur-
ther, it cautioned that the exclusion “should not
reflexively be applied to accidents arising during
the course of normal business activities simply
because they involve a ‘discharge, dispersal, release
or escape’ of an ‘irritant or contaminants.’” On the
other hand, in West American Insurance Co. v. Band &
Desenberg the court under Florida law, found that
the release of airborne contaminants from attic
space into building’s interior spaces constituted
“pollution” for purposes of “absolute” pollution
exclusion. A New York Court in Advanced Healthcare
Resources Inc. v. Merchants Insurance Co. of N.H.
found that the absolute pollution exclusion bars
coverage for sick building syndrome.
The Hostile Fire Exception Preserves
Coverage for Accidental Discharges
Even where insurance companies have suc-
cessfully argued that the ‘absolute’ pollution
exclusion can be applied to accidents which
ANDERSON
KILL & OLICK
AKO
2
AKO Policyholder Advisor
Page 3
would not ordinarily be considered as “pollu-
tion,” e.g., carbon monoxide poisoning, a “hos-
tile fire” exception has been found to have pre-
served coverage.
In this regard, a recent decision of the Minnesota
Federal District Court found coverage for a policy-
holder’s claim under the “hostile fire” exception to
the “absolute” pollution exclusion in circumstances
much like those in many non-environmental prop-
erty damage claims. In Schmid v. Fireman’s Fund Ins.
Co., the district court examined a standard-form
‘hostile fire” exception found in many policies. This
exception provided that the exclusion would not
apply to “bodily injury or property damage caused
by heat, smoke or fumes from a hostile fire,” which
in turn is defined by the district court as a fire
which “becomes uncontrollable or breaks out from
where it is intended to be.” The district court stated
that “[a] fire can be both uncontrollable and burn-
ing in a location other than where it was intended
to burn.” Attempting to define “uncontrollable,”
the district court found that a fire is “uncontrol-
lable” when a person “cannot contain, guide, or
extinguish [it].” In Schmid, the district court noted
that the fire contained in a furnace was not “uncon-
trollable” because it was capable of being turned
off and it also held that the furnace fire had broken
out from where it was intended to be because the
flame was burning “three inches from its intended
location in the combustion chamber,” thereby per-
mitting a buildup of harmful carbon monoxide.
Conclusion
Courts around the nation have refused to apply
the “absolute” pollution exclusion outside the con-
text of traditional environmental pollution claims.
To the contrary, these courts have looked to the rea-
sonable expectations of policyholders, and have
concluded that accidental damage or injuries
caused by exposure to fumes or smoke will not be
excluded if the underlying activity cannot be fairly
characterized as “pollution.” The moral: don’t be
fooled by exaggerated claims that the “absolute”
pollution exclusion is “absolute.” ■
JOHN BERRINGER IS A LAWYER IN THE NEW YORK OFFICE OF ANDERSON
KILL & OLICK, P.C. JOHN CAN BE REACHED AT (212)278-1500 OR
*****erringer@andersonkill.com
ANDERSON
KILL & OLICK
AKO
3
AKO Policyholder Advisor
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