Hawaii Supreme Court to Address Pollution Exclusion
During the 1990’s, I often delivered the opening talk at DRI’s annual conference on environmental coverage disputes. In the course of presenting charts showing the evolution of case law among the fifth states, it was always a comfort to point to Hawaii as one of the few remaining “white spaces” on the map.
While Hawaii remains blessedly free of most of the long-tail coverage controversies that continue to plague many other states, its Supreme Court has now been asked to tackle the vexing issue of whether absolute pollution exclusions apply to all injuries caused by pollutants or whether, as policyholders contend, they are limited to “traditional” environmental pollution.
The claims in Apana v. TIG Ins. Co., No. 08-15369 (9th Cir. July 15, 2009) come to the Hawaiian Supreme Court by way of the Ninth Circuit from an appeal of a Hawaiian district court’s ruling that a total pollution exclusion precluded coverage for personal injuries suffered by a Walmart employee after inhaling noxious fumes from a caustic drain cleaner that the insured plumber was using to clear a clogged store drain.
Allegations that a store employee suffered injuries as a result of inhaling noxious fumes from a drain cleaner being applied by the insured plumber were held subject to a total pollution exclusion in Apana v. TIG Ins. Co., 504 F.2d 998 (D. Haw. 2007). This finding has been appealed to the Ninth Circuit and has recently been certified to the Hawaii Supreme Court for resolution.
While acknowledging that a literal application of the total pollution exclusion would preclude coverage in a case of this sort, the court took note of numerous state and federal rulings in which courts have refused to give effect to such exclusions on the grounds that they are either ambiguous or conflict with the insured’s reasonable expectations of coverage. In this case, the injuries clearly arose out of the “discharge” or release” of a gaseous vapor or chemical so as to involve a “pollutant.” On the other hand, would a plumber have expected that its use of a cleaning fluid to clear a drain should be subject to a pollution exclusion?
Finding itself unable to predict how a Hawaii court would resolve this conundrum, the 9th Circuit has certified this question to the state Supreme Court: “
Does a total pollution exclusion provision in a CGL insurance policy apply to localized uses of toxic substances in the ordinary course of business (such as when a plumber uses chemicals to open a clogged drain and an employee working nearby inhales the fumes and suffers injuries), or is it limited to situations that a reasonable layperson would consider traditional environmental pollution?”
The court’s phrasing of the certified question is itself interesting. Quite a few courts have refused to apply the exclusion in cases of this sort on the grounds that localized exposures (most of these cases involve contractors) do not involve a “discharge” or “release” (the theory being that these terms imply an escape of some distance between the point of release and the place of injury). Here, however, the 9th Circuit has concluded that the literal wording of the exclusion would defeat coverage and looks instead to whether the reasonable expectations doctrine should trump the wording of the policy.
Insofar as the issue is whether different types of insureds should have different expectations of coverage, the insurer should prevail. Under similar circumstances, the Massachusetts Supreme Judicial Court recently ruled in McGregor v. Allamerica Ins. Co., 449 Mass. 400, 868 N.E.2d 1125 (2007) that a trial court erred in refusing to give effect to claims against a contractor for a spill of oil inside a customer’s residence. The fact that the location of the oil spill was a residence rather than an industrial or manufacturing site did not, in the court’s view, “automatically alter the classification of spilled oil as a pollutant.” The court cautioned that not every claim involving oil, soot or smoke would be excluded particularly if they were incidentally discharged in the course of an otherwise covered event. On the other hand, the court refused to find that giving effect to the exclusion in this case vitiated the value of McGregor’s policy or made its coverage illusory. “Costs associated with spilled oil are no less excluded by pollution exclusions merely because the insured regularly works with oil as part of his ordinary business activities.”
McGregor was clearly an “environmental”(ie. clean up) case, however. The SJC’s holding was that oil in the ground that has to be cleaned up is a “pollutant,” whether the claim is presented by a “polluter” or not. (Those of us who are old enough will recall that similar “active polluter” arguments enjoyed a brief flurry of favor back in the 1980s).
It is far from clear, however, that the Hawaii Supreme Court will consider the issue as narrowly as the question framed to it by the Ninth Circuit or will examine it more broadly, as courts in Illinois, New York and other states have in finding that only “traditional” environmental contamination is meant to be excluded. At the same time, it should be recognized that the recent trend in such cases has favored the insurance industry, as carriers have recently defeated “traditional” environmental contamination arguments in the Georgia and Iowa Supreme Courts.
Aloha!
