INSURANCE COVERAGE
Absolute Pollution Exclusion-New Jersey Supreme Court Finally Ends Its Silence
High Court Limits the Exclusion to the Swamps of Jersey
by Randy J. Maniloff
When it comes to the “sudden and accidental” pollution exclusion, the New Jersey Supreme Court was in on the ground floor. Its controversial 1993 decision in Morton International, Inc. v. General Accident Insurance Company was one of the earliest state supreme courts to address the issue. But it has been a much different story for the “absolute” pollution exclusion. Surprisingly, although the absolute pollution exclusion was the subject of hundreds of court decisions nationally since the early 1990’s, and despite the New Jersey Supreme Court’s fondness for insurance coverage issues - especially environmental issues - the New Jersey high court has been a very late-bloomer on the potent subject.
Recently, the New Jersey Supreme Court finally spoke up on the absolute pollution exclusion. In Nav-Its, Inc. v. Selective Insurance Company of America, the Court held that a CGL absolute pollution exclusion would not preclude coverage for bodily injury caused by exposure to toxic fumes. The facts of Nav-Its are simple. Nav-Its, a construction contractor, hired a subcontractor to perform painting, coating and floor sealing work at a shopping center. A physician with office space in the shopping center was allegedly exposed to fumes released during the performance of the coating/sealant work. The doctor claimed a number of physical consequences. He sought medical treatment and eventually filed suit against several parties, including the construction contractor. That contractor sought insurance coverage for the physician’s claims from its commercial general liability insurer. The carrier disclaimed coverage, relying on the absolute pollution exclusion. Later, the suit by the physician against the contractor was resolved in arbitration. The contractor then sought a declaratory judgment that the carrier was obligated to defend and indemnify it in the physician’s underlying suit.
The pollution exclusion in the policy precluded coverage for bodily injury arising out of an actual exposure or threat of exposure to the corrosive, toxic or other harmful properties of any “pollutants” arising out of the discharge, dispersal, seepage, migration, release or escape of such “pollutants.” The policy defined “pollutants” as “any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
The physician’s claim against the contractor - bodily injuries caused by exposure to toxic fumes - was clearly precluded by the language of the pollution exclusion. The case wound its way to the New Jersey Supreme Court. Like a number of courts in other states, the New Jersey Supreme Court approached the absolute pollution exclusion from a broader perspective. It framed the question as “whether we should limit the applicability of the pollution exclusion clause to traditional environmental pollution claims.” The overarching issue was whether the absolute pollution exclusion applied solely to “traditional” environmental pollution claims (such as leaching landfills, releases at oil refineries, damages imposed by CERCLA or in other industrial contexts), or, alternatively and more broadly, would the courts honor the express language of the exclusion by applying it to any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste (i.e., “non-traditional” environmental pollution). That determination has been the deciding one in numerous opinions addressing the exclusion around the country. Courts have generally placed themselves in one of these two camps concerning their interpretation of the scope of the absolute pollution exclusion.
In Nav-Its, the New Jersey Supreme Court placed the Garden State in the camp that gives the edge to policyholders. It limited the applicability of the absolute pollution exclusion to “traditional” environmental pollution. To reach its decisions, the Nav-Its Court relied on the exclusion’s drafting history. “We are confident that the history of the pollution-exclusion clause in its various forms demonstrates that its purpose was to have a broad exclusion for traditional environmentally related damages.” The Court believed it had not been “ presented with any compelling evidence that the pollution exclusion clause in the present case, when approved by the Department of Insurance, was intended to be read as broadly as [the insurer] urges.” The Nav-Its court also noted that its decision was consistent with the decisions of the highest courts in California, Illinois, Massachusetts, Ohio, New York and Washington. While New Jersey joined the “traditional environmental pollution camp” of interpretation of the absolute pollution exclusion, there is still considerable debate about the issue in other areas of the country. That debate was recently analyzed by a midwestern federal court. In Bituminous Casualty Corporation v. Sand Livestock Systems, Inc., a judge on the United States District Court for the Northern District of Iowa addressed the applicability of the pollution exclusion to a death claim for exposure to carbon monoxide. The Iowa federal court cited dozens of decisions from around the country that have weighed-in on the “traditional” versus “non-traditional” environmental pollution debate, including the nascent Nav-Its decision. It described the array of results as “dizzying,” and ultimately decided that the best course of action was to certify the issue to the Iowa Supreme Court.
Despite the seemingly strong language of the New Jersey Supreme Court’s unanimous decision in Nav-Its, there are several cases demonstrating that when it comes to the absolute pollution exclusion, a state high court opinion may not be the last word on the subject. For example, in 2003, the California Supreme Court issued an opinion that sounded as definitive as Nav-Its. In Mackinnon v. Truck Insurance Exchange, the California court held that the absolute pollution exclusion was limited to traditional environmental pollution. The court rejected the applicability of the exclusion to a claim for the death of an apartment dweller exposed to pesticide after an exterminator sprayed for yellow jackets. Notwithstanding the California Supreme Court’s strong pronouncement in Garamendi v. Golden Eagle Insurance Company, the California Court of Appeals had no problem in concluding that the pollution exclusion precluded coverage for bodily injury caused by exposure to silica. The Garamendi Court stated, “unlike the residential use of a pesticide for the purpose of killing insects, the widespread dissemination of silica dust as an incidental by-product of industrial sandblasting operations most assuredly is what is ‘commonly thought of as pollution’ and ‘environmental pollution.’” The California Supreme Court declined to accept appeal of Garamendi. California demonstrates that even after a decision like Nav-Its, the door may remain ajar for insurers to respectfully contest the scope of the absolute pollution exclusion.
As a strategic matter, Nav-Its illustrates the importance of choice of forum. Consider this: when it comes to the applicability of the absolute pollution exclusion to non-traditional environmental pollution, the Pennsylvania Supreme Court took the exact opposite approach from Nav-Its. In Madison Construction Company v. Harleysville it ruled that the exclusion properly precluded coverage for bodily injury caused by exposure to fumes from a cement curing agent. Given that some New Jersey policyholders no doubt conduct business in Pennsylvania and vice versa, the stage is set in some pollutionrelated litigation for policyholders and insurers to have different ideas about which state’s law applies. (Incidentally, New York’s view on the pollution exclusion and non-traditional environmental pollution is the same as that in New Jersey. See Belt-Painting Corp. v. TIG Insurance Co.) Perhaps potential disputes over choice of law and forum are more likely to relate to South Jersey policyholders and operations than to those that are located in New York and Northern New Jersey.
Randy Maniloff concentrates his practice on the representation of insurers in coverage disputes. He can be contacted at 215-864-6311 or maniloffr@whiteandwilliams.com.
