United States: Absolute Pollution Exclusion: The Summer Blockbusters
What do they mean for mold?

Maniloff is Chair of the Insurance Coverage Group at Philadelphia-based Christie, Pabarue, Mortensen and Young, P.C., where he concentrates his practice in the representation of insurers in coverage disputes. Maniloff handles a wide variety of insurance coverage matters in both the litigation and non-litigation arenas, including environmental property damage, toxic tort bodily injury/asbestos, construction defect, mold, general liability (products and premises), professional liability, director’s & officer’s liability, media liability, public official’s liability, homeowners, first-party property, health care - including managed care and community associations. The views expressed herein are solely those of the author and are not necessarily those of his firm or its clients.

It probably doesn’t happen too often that the New York Court of Appeals and the California Supreme Court – arguably the two most influential state courts in the country – hand down decisions six weeks apart, involving similar facts and the same issue, reaching the same conclusion for the same reasons, and both in unanimous fashion. Such was the case not long ago. Hollywood and the Great White Way know a thing or two about sequels and remakes. Now we learn that so too do their courts.

On July 1, 2003, the New York Court of Appeals premiered Belt Painting Corp. v. TIG Insurance Company, 2003 N.Y. LEXIS 1745. On August 14, 2003, the California Supreme Court opened Mackinnon, et al. v. Truck Insurance Exchange, 2003 Cal. LEXIS 5692. On stage was the Absolute Pollution Exclusion. While hardly in need of any more publicity, the Absolute Pollution Exclusion still managed to steal the insurance coverage spotlight this summer.¹

The trailer – California Supreme Court and New York Court of Appeals hold that the Absolute Pollution Exclusion does not apply to so-called "non-traditional environmental pollution." In New York, it was bodily injury allegedly caused by exposure to paint fumes. In California, death allegedly caused by exposure to pesticides in a residential setting. In both cases, the courts provided a litany of reasons why the Absolute Pollution Exclusion did not serve to bar coverage.

In Belt Painting Corp. v. TIG Insurance Company, the New York Court of Appeals addressed the applicability of the Absolute Pollution Exclusion to an underlying action seeking damages for bodily injury as a result of the inhalation of paint or solvent fumes in an office building where the insured was performing painting and stripping work. In its trademark succinct fashion, the court concluded that the exclusion was ambiguous and affirmed the order of the Appellate Division, granting summary judgment to the insured. After setting out a brief history of the Absolute Pollution Exclusion and some of the arguments at the heart of the protracted litigation surrounding its interpretation, the court provided four independent rationales for its decision. None of the bases relied upon by the Belt Painting court will look unfamiliar to those that practice in this area.

First, the Belt Painting court concluded that the terms "discharge, dispersal, seepage, migration, release or escape," as used in the exclusion, are terms of art in environmental law used with reference to damage or injury caused by disposal or containment of hazardous waste. As such, the exclusion does not unequivocally deny coverage for a personal injury claim arising from indoor exposure to the insured’s "tools of trade." Id. at 13. Second, the court noted that, under the insurer’s interpretation, any "chemical" or "material to be recycled" that could "irritate" person or property would be a "pollutant." This, the court concluded, proves too much and would infinitely enlarge the scope of the term "pollutants." Id. at 13 - 14.

Third, the Belt Painting court stated that, even if paint or solvent fumes are within the definition of "pollutant," the underlying injury was not caused by the "discharge, dispersal, seepage, migration, release or escape" of the fumes. "It can not be said that this language unambiguously applies to ordinary paint or solvent fumes that drifted a short distance from the area of the insured’s intended use and allegedly caused inhalation injuries to a bystander." Id. at 14. Lastly, the Belt Painting court was not persuaded that the absence of the language "into or upon the land, the atmosphere or any water course or body of water" in the Absolute Pollution Exclusion (such terms having been removed from the "sudden and accidental" pollution exclusion) eliminates or overcomes the environmental implications of the terms "discharge, dispersal, seepage, migration, release or escape." Id. at 15.

In Mackinnon, et al. v. Truck Insurance Exchange, the California Supreme Court addressed the applicability of the Absolute Pollution Exclusion under the following tragic circumstances. A landlord, at a tenant’s request, hired an exterminator to eradicate yellow jackets in an apartment building. The tenant that requested the exterminator died -- allegedly from pesticide exposure. The decedent’s parents brought an action seeking damages for wrongful death. The landlord sought coverage from its CGL insurer. The insurer denied coverage on the basis of the Absolute Pollution Exclusion.

Like its New York counterpart, but with a longer script, the California Supreme Court first set out a history of the pollution exclusion and the various competing arguments concerning its interpretation. From that background, the Mackinnon court turned to the task of interpreting the exclusion -- concluding that it did not apply to preclude coverage. Interestingly, the Mackinnon court reached this decision for all the same reasons as Belt Painting, but without any mention whatsoever of the nascent New York Court of Appeals decision. The Mackinnon court’s lack of acknowledgment of Belt Painting is curious. It certainly could not have been due to a reluctance to cite out of state opinions, since the court cited to decisions from eighteen other states and six circuits other than the Ninth.

The Mackinnon court concluded that the insurer’s interpretation was unreasonable because any substance, under the proper circumstances, can act as an "irritant or contaminant." This is the oft-cited "limiting principle" argument. As noted by Pipefitters Welfare Education Fund v. Westchester Fire Insurance Company, 976 F. 2d 1037, 1043 (7^th Cir. 1993), one of the early decisions in this area, "Without some limiting principle, the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results." Mackinnon at 27 – 28.

The Mackinnon court also concluded that the spraying or application of pesticides in and around an apartment building does not satisfy the "discharge, dispersal, release or escape" element of the Absolute Pollution Exclusion. The court took an interesting approach to arrive at this conclusion. The court noted that examination of dictionary definitions, although useful, do not necessarily yield the "ordinary and popular" sense of the word if it disregards the policy’s context. Id. at 26 – 27. To avoid this problem, the Mackinnon court turned to the nation’s media to examine how they used the terms "disperse" and "discharge" with respect to pesticides. After examining articles from the Chicago Sun-Times, Los Angeles Times, San Diego Union-Tribune, San Francisco Chronicle and, my personal favorite, a radio broadcast of "All Things Considered," the Mackinnon court concluded that the terms "discharge" and "dispersal" did not apply to pesticides being normally applied. Mackinnon at 30 – 34. [Advice to non-California counsel – the next time you cite a radio broadcast in a brief, even NPR, be sure to include a blank check. It will make it easier for the court to collect the sanction.]

Having determined that the insurer’s "broad interpretation of the pollution exclusion leads to absurd results and ignores the familiar connotations of the words used in the exclusion," the Mackinnon court then asked what is the plain meaning of the exclusion. Id. at 34. The court concluded that, because "discharge, dispersal, release or escape" are environmental terms of art and because the pollution exclusion was adopted to address the enormous potential liability resulting from anti-pollution laws enacted between 1966 and 1980, the Absolute Pollution Exclusion is limited to "environmental pollution." Id. at 34 – 36.

On one hand, Belt Painting and Mackinnon could be dismissed as just two more decisions in a mix of several hundred others that have come before them, examining the Absolute Pollution Exclusion. However, these decisions are unlikely to be so diluted. To the contrary, coming as a one-two punch from unanimous high courts of New York and California, it is doubtful that Belt Painting and Mackinnon will go unnoticed by future courts facing the Absolute Pollution Exclusion in the context of non-traditional environmental pollution. Not to mention, three weeks before Belt Painting was handed down, the District of Columbia Court of Appeals issued a 92 page decision on the Absolute Pollution Exclusion, concluding that it did not apply to non-traditional environmental pollution – bodily injury caused by carbon monoxide. See Richardson v. Nationwide Mutual Insurance Company, 826 A. 2d 310, 2003 D.C. App. LEXIS 418. Indeed, even courts that have previously ruled in the opposite manner on the exclusion may view Belt Painting and Mackinnon as cases justifying another look – especially since, when it comes to the Absolute Pollution Exclusion, courts have generally not shown a hesitancy to examine out of state cases. It would not come as a surprise to this coverage attorney if Belt Painting and Mackinnon served as the catalyst for the insurance industry’s consideration of a new version of the pollution exclusion.

Where Belt Painting and Mackinnon are likely to have the greatest impact is the "discharge, dispersal, release or escape" aspect of the exclusion. In recent years, the Pennsylvania and Alabama Supreme Courts have concluded that, while lead paint is a "pollutant," its degradation – being a gradual process -- does not constitute a "discharge, dispersal, release or escape." See Lititz Mutual Insurance Company v. Steely, 785 A. 2d 975 (Pa. 2001); Porterfield v. Audubon Indemnity Company, 2002 Ala. LEXIS 331. Belt Painting and Mackinnon have now taken the "no discharge" argument a giant leap farther, applying it in the context of fumes that admittedly traveled and pesticides that were admittedly sprayed. Courts that are faced with a substance that is undeniably a "pollutant," yet still want to find coverage, are likely to examine the "no discharge" rationale as a potential basis for doing so.

The "no discharge" argument has not been a stranger to Absolute Pollution Exclusion cases involving mold. The court in Leverence, infra relied on this rationale to avoid the application of the exclusion. More recently, Unity/Waterford-Fair Oaks, infra addressed the issue, along with suggesting that the presence of mycotoxins is a potential additional factor for consideration. On the subject of mycotoxins, see Cooper, infra for a brief discussion of whether mold and mycotoxins are subject to separate analyses for purposes of the pollution exclusion and satisfaction of the "covered cause of loss" requirement.

While Belt Painting and Mackinnon did not involve mold, any decision holding that the Absolute Pollution Exclusion does not apply to non-traditional environmental pollution is likely to be helpful to policyholders in this situation. But then again, when it comes to avoiding the Absolute Pollution Exclusion for mold, policyholders have not needed much help.

So far, courts have generally not been willing to apply the Absolute Pollution Exclusion to preclude coverage for mold. While the number of courts that have examined this issue remains limited, a trend appears to be emerging. See Droegkamp, et al. v. Langdon, et al., 2003 Wis. App. LEXIS 708 (Citing to Leverence v. U.S. Fidelity & Guar., infra, the Wisconsin Court of Appeals stated, "[T]here is some support for the argument that mold does not constitute pollution."); State Farm v. M.L.T. Construction Co., Inc., Court of Appeal of Louisiana, Fourth Circuit, Nos. 2002-CA-1811, 2002-CA-1812, June 4, 2003 ("[T]he complained-of pollutant was rainwater and, arguably, the mold and mildew that allegedly resulted from the influx of that rainwater. Using the factors enunciated by the Supreme Court, we note that rainwater is not a substance that is usually viewed as a pollutant."); California Capital Ins. Co. v. Sacramento Partridge Pointe, et al., Superior Court of California, County of Sacramento, No. 00AS06996, March 22, 2002 (California trial court held that mold did not come within the definition of "pollutants." The court reasoned that mold, being universally present, generally harmless and contained in some foods, was too dissimilar to the types of substances included in the policy’s definition of "pollutants," which included smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.); Cooper v. Am. Family Mut. Ins. Co., 184 F. Supp. 2d 960 (D. Ariz. 2002) (Examining the issue under Pollutant Clean-up and Removal Coverage, the court stated, "Pollutant is defined as any irritant or contaminant of the type which is listed as a "hazardous substance by any governmental agency." Nowhere is it suggested that mold falls into this category. The definition also includes ‘smoke, vapor, soot, fumes, alkalis, chemicals, garbage, refuge and waste.’ By listing these specific items, the insurance company is deemed to have excluded those items not listed. Mold is not listed."); Ramsey County v. Landmark American Ins. Co., Minnesota District Court, Second Judicial District, County of Ramsey, No. C5-01-7827, July 24, 2002 (Minnesota trial court concluded that fungi does not come within the "catch-all" of the definition of pollutants: "all other irritants or contaminants." If every conceivable solid, liquid or gaseous contaminant or irritant could be excluded by the "catch-all," it would virtually negate all CGL coverage.); and Leverence v. U.S. Fidelity & Guar., 462 N.W. 2d 218 (Wisc. App. 1990) ("[T]he alleged cause of the bodily injuries and property damage was water vapor trapped in the walls, which in turn caused the growth of microorganisms. No contaminants were released, but rather formed over time as a result of environmental conditions.").

One court that did apply the Absolute Pollution Exclusion to mold was presented with a very specific version of the exclusion. See Lexington Insurance Co. v. Unity/Waterford-Fair Oaks, Ltd., 2002 U.S. Dist. LEXIS 3594 (N.D. Tex) (Policy’s definition of "Contaminants or Pollutants" expressly included "fungi.").

For policyholders, Belt Painting and Mackinnon were true summer blockbusters. For insurers, a different word describes how tough this summer was when it comes to the Absolute Pollution Exclusion – Gigli.