United States: If Not "Determinative," Then At Least Compelling: Other, Specific Exclusionary Language Available On Market Undermines Application Of Pollution Exclusion

Last Updated: October 14 2015
Article by Michael H. Sampson

Recently, in a non-precedential order, an Illinois appellate court correctly held that a "Pollution and Health Hazard Exclusion" in a commercial general liability policy did not preclude coverage for mold-related bodily injury claims. See In re Liquidation of Legion Indem. Co., 2014 IL App (1st) 140452-U (Sept. 30, 2015) (applying Texas law).

That court held, inter alia, that "the plain language of the [p]olicy does not specifically exclude mold related claims." Id. at ¶ 16. It continued: "While the policy does not need to specifically list the terms 'mold' and 'fungi', the intent to exclude coverage must be expressed in clear and unambiguous language. Here the alleged intent to exclude mold related claims was not clearly stated in the [pollution e]xclusion." Id. at ¶¶ 17-18 (internal citation omitted). The court later stated: "It is undisputed that the [p]olicy's [e]xclusion did not include the words 'mold,' or 'fungi' although [the insurer] could have easily inserted the words in the [p]olicy's [e]xclusion to avoid different interpretations." Id.at ¶ 21. All good points.

The appellate court added, "While not determinative, we also note that several liability and property insurance policies that [the insurer] filed in the Illinois Department of Insurance clearly and unambiguously excluded mold or fungi from coverage by listing the terms in the exclusion sections of their policies while the [p]olicy in the instant case does not." Id. at ¶ 28.

The court was correct to consider whether there was other exclusionary language available on the market (regardless whether it was used by the same insurer) that expressly precluded coverage for mold-related bodily injury claims. In fact, although the court found such evidence not to be "determinative," it could have – and should have – given this evidence even greater weight.

"[S]everal courts have observed an insurance company's failure to use available language to exclude certain types of liability gives rise to the inference that the parties intended not to so limit coverage." Fireman's Fund Ins. Cos. v. Atlantic Richfield Co., 115 Cal. Rptr. 2d 26, 33 (Cal. Ct. App. 2001). Cf. also, e.g., Philadelphia Elec. Co. v. Nationwide Mut. Ins. Co., 721 F. Supp. 740, 742 (E.D. Pa. 1989) ("If the parties had intended coverage to be limited to the vicarious liability type suggested by the defendants, language clearly embodying that intention was available ...."); Pardee Constr. Co. v. Insurance Co. of the West, 92 Cal. Rptr. 2d 443, 456-57 (Cal. Ct. App. 2000) (The "failure to use available language expressly excluding coverage ... implies a manifested intent not to do so. ... If the parties had intended coverage to be limited to the [extent] suggested by ... [the insurers], language clearly embodying that intention was available.") (internal quotations omitted).

For example, the U.S. Court of Appeals for the Second Circuit, in Pan American World Airways, Inc. v. Aetna Casualty & Surety Co., 505 F.2d 989 (2d Cir. 1974), focused at the outset on the availability of other, more specific exclusionary language when determining whether certain policy exclusions precluded coverage for the hijacking of an airplane. "Various exclusionary terms in use or being considered for use prior to the present loss," that court observed, "would have excluded the loss had they been employed." Id. at 1000. After considering different, more exacting language that the insurers had considered and could have used – and which "might well have excluded the present loss" – the Second Circuit concluded that when the insurers failed to include the more precise language in their exclusions, "they acted at their own peril." Id. at 1001 (footnote omitted).

Evidence that other, more precise exclusionary language was available on the insurance market but that an insurer chose not to include it in its policy should be afforded significant weight by any court – be it the Second Circuit, the Appellate Court of Illinois, or some other court – tasked with interpreting a more general exclusion in the same insurer's policy (e.g., a pollution exclusion). Such evidence should in fact be decisive, or determinative, as it is generally a strong indicator that the more general exclusion under consideration (e.g., a pollution exclusion) was not intended to preclude coverage in the manner that the more specific exclusion does. It also speaks to, or informs, the policyholder's reasonable expectations. Thus, even if not determinative, evidence of other exclusionary language available on the market but not included in the policy is, at the very least, quite compelling.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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