Cincinnati Specialty Underwriters Insurance Co. v. Energy Wise Homes, Inc., 2015 VT 52
By Andrew Delaney
Ah, insurance law—where “You get what you pay for” isn’t just a maxim, but a shield, sword, and everything else in between. We’re going to skip a lot of the finer details on this one—not because they’re completely unimportant but because they’re totally boring and they’re not really required to understand what’s going on. Also: (1) I’m lazy; (2) some of the terms are drier than the Sahara; and (3) there’s a link to the opinion at the top, so you can nerd out to your heart’s content should you so desire without me having to do it for you.
Energy Wise Homes specializes in insulation. It bought a commercial general liability policy from Cincinnati Specialty Underwriters Insurance Company, which I think we should just call “Cinci” for brevity’s sake. The policy was a “surplus lines” policy, which means it’s a policy written by a company not licensed in the state, usually because the insured activity represents a “unique” risk. The policy contained a “total pollution exclusion,” which—and this is where we’re going to skip some of those finer details—basically excluded coverage for injuries from anything airborne.
Energy Wise put in some spray-foam insulation at a school and one of the employees, Mrs. Uhler, alleged that she was “exposed to and encountered airborne chemicals and airborne residues” and was injured. She and her husband sued. Energy Wise requested coverage and Cinci agreed to defend, under a bilateral reservation of rights. See what I mean about those terms? Basically, agreeing to defend under a reservation of rights is an insurer’s way of saying, “We’re going to defend for now, but we’re not waiving our right to say we there’s no coverage.”
So, as you might expect, Cinci then filed a complaint for declaratory judgment and moved for summary judgment, arguing that the policy didn’t cover the claims. The policy excluded coverage for “pollutants” in this context, and “pollutants” was defined as pretty-much-anything-airborne-what-so-freaking-ever. Additionally, the policy excluded exterior insulation installation and finish systems. So, Cinci figured there was no coverage.
The Uhlers opposed the motion on the basis that the “pollution” exclusion only applied to traditional pollutants and that Cinci’s “interpretation was so overbroad as to make the policy meaningless.”
The trial court indicated its intent to go the Uhlers’ way, and looked to the west coast for guidance. A California case—which the trial court found persuasive—reasoned that total-pollution exclusions apply to traditional environmental pollution and not to ordinary negligence involving chemicals. A Washington case—which the trial court was not so taken with—held that the plain language of a total-pollution exclusion excludes coverage for all injuries from pollutants.
The trial court went the California route, holding that “pollutants” in this context was “ambiguous because it was capable of such broad interpretation as to frustrate any reasonable purpose of the policy.” In other words, the trial court reasoned that the policy did nothing for Energy Wise whatsoever under Cinci’s interpretation. The trial court also found the term “discharge” ambiguous in this context given the nature of Energy Wise’s work—it wasn’t “traditional” discharge “into the air, water, or earth in way that was consistent with traditional environmental liability.”
Washington’s interpretation of the total-pollution exclusion to exclude everythin’ didn’t make sense to the trial court because it defeated the entire purpose of a commercial general liability policy. Put a more-colloquial way, “Why’d anybody buy somethin’ that didn’t do nothin’?”
All ambiguities in a policy get read in favor of the insured, so the trial court told Cinci it was going to find coverage unless Cinci came up with something persuasive. Cinci filed a response, but the trial court was not swayed, and Cinci appealed.
On appeal, Cinci maintains that there isn’t any coverage “because its definition of ‘pollutants’ includes ‘that which has been recognized in industry or government to be harmful or toxic to persons, property or the environment.’”
The SCOV applies a do-what-we-want-on-de-novo review, applying the same standard as the trial court. I’ve made so many dopey jokes about the summary judgment standard that I might as well just quote without comment here: “Summary judgment is appropriate if the material facts are undisputed and any party is entitled to judgment as a matter of law.”
The majority notes that it will be applying “well-established legal principles to this dispute.” Which means, of course, that it’s going to be about as exciting as watching paint dry. Let’s run thorough it haphazardly with a pair of scissors: (1) intent and terms as expressed by the policy’s language are important; (2) policy terms are interpreted according to their plain and ordinary meaning; (3) a term is ambiguous if it’s subject to more than one reasonable interpretation and ambiguities go for the insured. While an insured’s reasonable expectations can play into it, those expectations don’t trump plain and unambiguous language.
There’s a bit about the genesis of the pollution exclusion. And while it’s interesting, we can skip to the bottom line: it evolved in response to environmental litigation and insurers’ desire to avoid unfettered liability for the same. Eventually, it evolved to a no-exceptions and discharged-anywhere-into-anything exclusion. One of the purposes, apparently, was to exclude government clean-up costs from coverage.
So the majority acknowledges the evolution and history, but also that Cinci claims its exclusion is even broader than the traditional total-pollution exclusion. The majority looks at various other jurisdictions and the split of authority on how broadly a total-pollution exclusion can apply. Then the majority reasons that it doesn’t have to really get too deep into all that.
You see, this policy excludes bodily injuries caused by the dispersal o’ pollutants and the Uhlers claim is based on exactly that. The majority notes that the chemicals used are in fact toxic, were dispersed, and that kind of takes care of that.
The majority recognizes “that the ‘broad nature of the pollution exclusion may cause a commercial client to question the value of portions of its commercial general liability policy.’” But the majority reasons that its place on review is not to rewrite the policy—you know, the whole reasonable-expectations-don’t-trump-plain-language principle. The majority also notes that its holding is limited in that it applies only to surplus lines policies (Vermont requires a pollution-coverage endorsement unless waived by the department of financial regulation).
So that’s the majority opinion. The SCOV reverses, and Cinci is off the hook for coverage on this claim.
Specially assigned Judge Morris thinks the majority got it backwards. “As the majority interprets the policy’s pollution exclusion, Energy Wise essentially purchased nothing.” Here, the dissent reasons, the majority’s construction ain’t the only reasonable one, there is ambiguity that should resolve in favor of the insured, and the trial court’s decision should be affirmed.
Because the total-pollution exclusion is rooted in “traditional environmental liabilities, and not ordinary negligence” the exclusion renders coverage meaningless, and therefor creates ambiguity. As noted above, nobody purchases a policy that don’t mean nothin’ (compound negatives aside, y’all know what I’m sayin’). Judge Morris also points out that the injuries alleged don’t conclusively establish that we’re within the exclusion, and thus the insurer would at least have a duty to defend (in case you’re not familiar with this general idea, if there’s even potential coverage of a claim, the insurer has a duty to defend).
The burden is on the insurer to show that the exclusion applies. Here, Judge Morris isn’t convinced that Cinci did that. If you look at the specific language in the policy (which we’re not going to do because it's just basic trying-to-cover-everything language and that's all you really need to know), there’s at least an argument that the specific airborne particles were not “pollutants” as defined in the policy, and that what Energy Wise did wasn’t “discharge” as defined in the policy. Judge Morris acknowledges the jurisdictional split but would—as the trial court did—come down on the California or the-exclusion-applies-only-to-traditional-environmental-pollution side of the split.
In explanation, first, Judge Morris points to “discharge” under the policy, opining that “it is totally unclear that the injury here was due to a discharge, dispersal, seepage, migration, release or escape of a substance.” Cinci just drops a footnote, but doesn’t belabor the point. Judge Morris stresses that it’s perfectly reasonable for an insured to interpret the applicable policy language as environmental terms of art referring to pollution escaping from a contained space into the surrounding area. This is a policy covering an insulation installer that excludes insulation installing. Insurer had to demonstrate that the discharge was the “but for” cause of the injury and insurer didn’t do that. “Because the exclusion can be reasonably read to apply only to injuries caused by a polluting event, it is ambiguous.”
As far as whether the chemicals were “pollutants,” Judge Morris takes issue with the majority going outside the record (apparently a these-chemicals-are-bad appendix was attached to Cinci’s brief along with a plea for judicial notice as to toxicity), and failing to find ambiguity. “The majority does not specify what chemicals caused the injury or what industry or government standard it is relying upon, but simply repeats that the compounds at issue are recognized by government as toxic.”
Judge Morris points out that even if the SCOV took judicial notice of the one commonly-used-in-spray-foam-insulation chemical that is toxic, there wasn’t any evidence that this chemical was a component of the insulation in this case or caused the injury.
Judge Morris points out that even “assuming that a compound in the insulation used by Energy Wise caused the injury and that the compound is on the EPA list of hazardous air pollutants, these facts alone do not make it a pollutant under the policy in all circumstances.” The dissent points out that chlorine—which is used to make drinking water safe—is on the same EPA list. It’s just silly to say that because some chemical is on a list, that it’s unsafe in all circumstances.
“The definition remains incredibly broad, applying to almost any injury involving a substance that could be harmful. The overly simplistic interpretation of the pollution exclusion applied by the majority means that it excludes coverage for ordinary negligence involving substances with toxicity.” Judge Morris points out that this makes the policy entirely meaningless—it thus wholly fails to fulfill its purpose. “To apply the construction used by the majority would essentially eviscerate coverage for almost all imaginable injuries.”
Because ambiguity is present and should be resolved in favor of the insured, Judge Morris would construe the policy in the insured’s favor and affirm the trial court.
I have to say I’m with Judge Morris on this one for the simple fact that the idea that an insulation installation company’s commercial general liability policy doesn’t cover insulation installation damages doesn’t pass the explain-it-to-my-wife test.