Insurer is ‘Torturing’ Policy Using Pollution Exclusion to Deny Death Claims

By | December 22, 2008

U.S. District Judge Lee Rosenthal in Houston has been called upon to rule if Great American Insurance Co. is acting within policy and contract language and in accordance with the required utmost good faith in asserting that it does not owe defense or liability protection in the death of three Houston-area office workers from smoke inhalation. Great American contends, according to the Associated Press, that injury by smoke inhalation is excluded under their commercial general liability (CGL) policy’s total pollution exclusion.

Friend of Court opinions are generally solicited by both sides of a civil suit, and from individuals considered non-biased experts in the field in question rather than from other attorneys.

I have not been asked to provide an amicus curiae in this particular case, but I have provided such opinions to courts in the past. If I were asked to write a friend of court brief on this particular case, here is how it would look (granted, this is not a complete brief as it lacks citations, documentation, a copy of the policy form in question and other supporting definitions; this is but a framework of how it may look and read). Disclaimer: This is also not construed to be legal advice.

‘Friend of Court’ Opinion for U.S. District Court, Houston

To: U.S. District Judge Lee Rosenthal
Re: Absolute Pollution Exclusion Defense Offered by Great American Insurance Co.

Your Honor:

Great American Insurance Co. has put forth a unique yet troublesome assertion regarding the purpose and acceptable use of the absolute (total) pollution exclusion. In truth, Great American is torturing the policy to get the answer they want in an apparent attempt to avoid payment to the survivors of the three victims of smoke inhalation.

At issue is the breadth of the absolute (total) pollution exclusion compared to the proximate cause of the injuries in the subject case.

The Absolute/Total Pollution Exclusion
Four total pollution exclusion endorsements are filed by Insurance Services Offices (ISO) for use by insurance carriers. Two provide an exception to the total exclusion and two are supposedly “total”; but even “total” has built-in exceptions.

The four forms in question are:
• CG 21 49 – Total Pollution Exclusion Endorsement;
• CG 21 55 – Total Pollution Exclusion With A Hostile Fire Exception;
• CG 21 65 – Total Pollution Exclusion With A Building Heating, Cooling And Dehumidifying Equipment Exception And A Hostile Fire Exception; and
• CG 21 98 – Total Pollution Exclusion Endorsement (for Products Completed Operations only polocies).

Regardless of the form, each shares a common bond with the other three: proximate cause. Specifically, each exclusionary endorsement requires there first be a pollution event leading to the release of pollutants. The policy wording of each form supports this statement as follows (ISO wording):

Exclusions
This insurance does not apply to:
Pollution
(1) “Bodily injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.

The key phrase, “would not have occurred…but for….” “But for” is the proximate cause wording at issue in this case. A pollution event would have be the proximate cause for the exclusionary wording to apply. In the subject case, the proximate cause is fire NOT the requisite pollution event.

Lacking a pollution event, there is no proximate cause between pollution and the injuries.

Reported Proximate Cause
The event that caused these unfortunate smoke inhalation deaths was the intentional setting of a fire. A fire in no way equates to a pollution event. Fire, defined as oxidation rapid enough to produce a flame or a glow, has a visible, destructive and, in this case, deadly byproduct – smoke. Fire is the proximate cause of these injuries; had there been no fire, there would have been no injuries.

Smoke resulting from the release and subsequent dissipation of a pollutant will fit the intended proximate cause addressed by the subject exclusion; but to equate a release of pollution with smoke of an intentionally set fire is, again, torturing the facts and the policy to arrive at an answer in direct defiance of clear contract language.

Rules of contract applied to insurance policies differ slightly from normal rules of contract; in particular, an insurance contract is a contract of adhesion (the insured takes the contract on a take-it-or-leave-it basis with little or no ability to negotiate wording). Should detailed explanation of the differences be desired, click here.

Results of Ruling in Favor of Great American
Allowing this defense to stand would be catastrophic; and this is not hyperbole. If smoke from fire can be considered a pollutant, try to imagine the far-ranging applications of this decision to both property and liability policies. Even though this is a liability case, a decision in favor of Great American could result in:
• Homeowners suffering only a small fire may be denied coverage for any damages caused by smoke (and that amount could be greater than the damage caused by the fire);
• Business owners may have to pay the cost to repair machinery and equipment damaged by fire-related smoke out of their own pockets (which are now empty because there has been a business shut down); and
• Insurance carriers will be encouraged to attach pollution-related exclusions (property and liability) where they would have not otherwise (judicially taking coverage away with no reduction in premium).

Property and liability insurance coverages and policy holders could unjustly suffer based on the outcome of this case. Much is relying on your decision.

About Christopher J. Boggs

Boggs, CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS, is a veteran insurance educator. He is Executive Director, Big I Virtual University of the Independent Insurance Agents and Brokers of America. He can be reached at chris.boggs@iiaba.net. More from Christopher J. Boggs

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