The Washington District Court finds that the "Efficient Proximate Cause" Doctrine does not Automatically Trump Mold Exclusions when Mold is not the Efficient Proximate Cause of the Loss

Posted on September 22, 2009 by Diane Polscer

In AXIS Surplus Ins. Co., et. al v. Intracorp Real Estate, LLC, et. al., the Washington District Court, Judge Coughenour, recently ruled in favor of the Insurers on the application of Mold Exclusions irrespective of the fact that efficient proximate cause was potentially a covered peril. This coverage dispute arises out of a claim made by the insured under two “all-risk” Builders Risk insurance policies for alleged moisture, mold, and related damages to a mixed-use condominium project that resulted primarily from faulty and defective construction. The Claimants argued that because the efficient proximate cause was a covered peril, the Mold Exclusions have no application under Washington’s “efficient proximate cause” doctrine. The Insurers argued that the Mold Exclusions should apply regardless of the rule.

 

On competing cross-motions for summary judgment on the application of the various Mold Exclusions, the Court expressly rejected the claimant’s argument that if the efficient proximate cause of the loss is a covered peril, then the efficient proximate cause doctrine per se requires coverage regardless of any other potentially applicable exclusions. The Court was “persuaded” by the Insurers argument that a properly worded Mold Exclusion can operate to exclude “mold damage” irrespective of the application of the “efficient proximate cause” doctrine, even if the efficient proximate cause is a covered peril. At the Insurers urging, the court adopted the holding from the California Court of Appeals decision in DeBruyn v. Super. Ct. , 70 Cal. Rptr. 3d 652, 658-659 (2008) that when a policy “‘plainly and precisely communicates an excluded risk to a reasonable insured’ * * * the efficient proximate cause doctrine [does] not operate to cover the loss. * * * [I]nsurers ‘may limit coverage to some, but not all, manifestations of a given peril, as long as a reasonable insured would readily understand from the policy language which perils are covered and which are not.’” In so holding, the District Court went on to note that the “efficient proximate cause” rule “merely brings about ‘a fair result’ within the reasonable expectations of the parties.”

 

With respect to the language at issue in this case, the District Court held, in relevant part, that the “[mold] however caused” language in one of the insurers Mold Exclusions “is clear. It communicates to a reasonable insured that mold damage is excluded, even if it was caused by a covered peril.” With respect to the other insurers Mold Exclusion, the Court agreed (ostensibly based upon the “anti-current causation” language), under the same rationale, that it applied irrespective of the “efficient proximate cause” doctrine as well, but found that the Exclusion’s “resulting loss” exception potentially had application, and that was “an issue not before the Court.” The Court’s holding with respect to the later Exclusion is not a model of clarity.

 

As we all know, the “efficient proximate cause” rule is a very insured friendly doctrine. Washington Courts have not been shy to apply the rule ad nauseam to find coverage regardless of the express policy language. Having the District Court put the brakes on its application and look to the particular language of an exclusion that has application later in the chain of causation is a step in the right direction, and an encouraging result for property insurers in Washington. That being said, it is hard to predict what Washington State Court’s or the Ninth Circuit might do with the decision.

 
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Fifth Circuit Applies Pollution Exclusion to Explosion Caused by Gas Vapors

Posted on June 25, 2008 by Diane Polscer
Another court has determined that the total pollution exclusion is in fact “total.” In Noble Energy Inc. v. Bituminous Casualty Company, 2008 U.S. Dist. LEXIS 11757 (5th Cir. June 2, 2008), the court addressed the applicability of a pollution exclusion to bodily injury from an explosion. Workers were disposing of sediment and water from Noble’s petroleum storage tanks from two tanker trucks. Combustible vapors from the sediment and water caused the diesel engines in the truck to race which led to an explosion and fire. The sediment and water waste included gas condensate. Three employees were killed and several others injured. Bituminous Casualty argued that the pollution exclusion in its policy barred coverage for the claims. The policy included a pollution exclusion that defined pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Following Texas law, the Fifth Circuit determined that the exclusion was unambiguous. The Court first determined that the allegations in the complaint that combustible vapors emanating from the sediment and water qualified as a “pollutant.” The Court then found that the alleged injuries arose out of the discharge, release or escape of that pollutant. The Court rejected an argument that the vapors were not “acting as a pollutant,” but as an accelerant for the fire. The Court found inapplicable cases finding that liability must be based on a substance’s polluting qualities for the exclusion to apply. The Court noted that unlike other cases, the Bituminous policy defined pollutant, and did not restrict its application to pollutants entering the land, atmosphere, or water. Finally, the Court noted that the injury did arise out of the “hazardous quality of the vapors.” This last point seemed to be a throwaway for the Court since it had already determined that it was not the “quality” of the substance that mattered.

The Court also rejected arguments by the insured that pollution exclusion should not apply because that would be contrary to the reasonable expectation of the insured. The Court observed that that was not the test in Texas for unambiguous policy terms. The Court similarly rejected an argument that the hostile fire exception applied. The hostile fire exception only applied where there is a pre-existing fire that causes pollution, not where the pollutant itself causes a fire. The Court also rejected arguments that the vapors were not discharged into the environment because they were confined to the area of intended use. The Court found that the pollution exclusion was not restricted to situations where environmental harm occurred. In rejecting all of the insureds arguments that the scope of the exclusion should be limited, the court clearly held that liability from any substance that falls within the definition of pollutant is excluded by this form of the pollution exclusion. This decision may help to reinforce that the most recent version of the pollution exclusion is actually “total.”
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New York U.S. District Court Dismisses Coverage Complaint for Accident at Non-Scheduled Location

Posted on June 24, 2008 by Diane Polscer
In Ten Seventy One Home Corp. v. Liberty Mutual, 2008 U.S. Dist. Lexis 47328 (2008), the court granted an insurer’s CR 12(b)(6) motion dismissing another insurer’s complaint seeking a coverage determination for a personal injury claim.

On June 14, 2002, Leonard Hutchings was seriously, severely and permanently injured when Morton Yuter closed an overhead garage door on Hutchings’ head and neck at 3001 Arlington Avenue in the Bronx, New York. Josh Neustein and Ten Seventy One Home Corporation owned 3001 Arlington and used it as an office from which they operated, administered and maintained a number of rental properties in the Bronx and Manhattan.
Hutchings sued Yuter, Neustein and Ten Seventy One for his injuries. They tendered the defense and indemnification of Hutching’s suit to their insurer, Liberty Mutual, who disclaimed coverage. Yuter, Neustein and Ten Seventy One then sued Liberty Mutual for defense and indemnification. Liberty brought a third party action against Greenwich Insurance seeking a declaration that Yuter, Neustein and Ten Seventy One are insureds under its policies and that the policies are primary to the Liberty policies. Greenwich issued two liability policies, both of which were in effect on the date of the accident, but neither of which listed 3001 Arlington a designated premises for coverage.

The Greenwich policies included endorsements titled “Limitation of Coverage to Designated Premises or Project.” The endorsement provided coverage for “bodily injury . . . arising out of . . . the ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises” (emphasis added). Neither Greenwich policy Schedule listed 3001 Arlington as a designated premises. Liberty argued that 3001 Arlington, as the office for premises that were listed on the Greenwich policies’ Schedule, was covered as “operations necessary or incidental to” the other, scheduled premises.

Greenwich moved to dismiss Liberty’s complaint pursuant to CR 12(b)(6) and the court granted its motion. It explained the phrase “operations necessary or incidental to” scheduled premises has a spatial meaning extending the premises listed on the schedule to certain non-scheduled, appurtenant spaces such as location entryways “necessary or incidental” to the enjoyment or use of the insured premises. The court refused to more broadly construe the phrase to include 3001 Arlington. The fact that 3001 Arlington was Ten Seventy One’s business address did not allow Liberty to essentially reform the Greenwich policies to hold it liable for insuring a premise not contemplated in its agreements with its insured.
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