Two Courts Reach Different Conclusions about Applicability of Pollution Exclusions to Sewer Gas and Carbon Monoxide

Federal district courts in Arizona and Florida have reached different conclusions about the applicability of pollution exclusions to gases, with one finding that the exclusion did not apply to sewer gas and the other finding that it barred a carbon monoxide claim.

The Sewer Gas Case

The first case arose after Quik Flush Plumbing installed plumbing pipes and fixtures during the construction of a shopping center in Mesa, Arizona.  Several tenants alleged that they had encountered a terrible “sewer odor” (later determined to be hydrogen sulfide) that was described as “sickening … horrific … revolting … and []debilitating.” The tenants sued the mall owner, which sued the project’s general contractor, Sigma Contracting, Inc.

Sigma tendered the action to James River Insurance, which had issued a commercial general liability insurance policy to Quik Flush that named Sigma as an additional insured. James River concluded that there was no coverage afforded to Quik Flush and, therefore, no additional insured coverage afforded to Sigma because of the policy’s “absolute exclusion for any claim arising from gas pollution such as what [was] alleged in this matter.”

The Arizona District Court’s Decision

The U.S. District Court for the District of Arizona decided that the exclusion’s “plain and ordinary meaning” was intended to preclude coverage for “traditional environmental pollution” and, therefore, did not exclude hydrogen sulfide gas allegedly arising from Quik Flush’s faulty plumbing installation.

The Arizona district court was not persuaded that the clause’s blanket exclusion of coverage for all “[p]ollution/environmental impairment/contamination” was sufficient to preclude coverage for the hydrogen sulfide gas. It reasoned that the terms “impairment” and “pollution” were “exceedingly broad” and said that they had to be “tethered to some limiting principle” to prevent the clause from “eviscerating coverage.” Accordingly, it concluded that the terms “pollution” and “impairment” had to be read to exclude “traditional environmental pollution” and not the hydrogen sulfide allegedly resulting from the allegedly faulty plumbing work.

The Carbon Monoxide Case

The second case arose when Kenneth and Dawn Shaw spent the night in a rented room at a hotel in Daytona Beach, Florida. They allegedly were poisoned by carbon monoxide gas that flowed into their room from the parking garage. The Shaws sued the hotel, which sought coverage from Liberty Mutual Fire Insurance Company under a commercial liability umbrella policy. Liberty Mutual denied coverage based on the pollution exclusion in the policy.

After settling their personal injury claims, the Shaws filed a declaratory judgment action seeking to establish coverage under the Liberty Mutual policy.  Liberty Mutual moved for summary judgment based on the policy’s pollution exclusion.

The Florida District Court’s Decision

The U.S. District Court for the Middle District of Florida, applying Texas law, decided that the pollution exclusion in the Liberty Mutual policy precluded coverage for the Shaws’ carbon monoxide poisoning claim.

The court found that the exclusion was “unambiguous.” Although carbon monoxide was a naturally occurring gas that was present in the air, the court observed that it also was an irritant and contaminant, and was toxic at the level of concentration the Shaws asserted they had experienced.

Therefore, the court concluded, carbon monoxide “clearly and unambiguously” fit within the definition of a “pollutant” under the Liberty Mutual policy.

Finally, the court assumed that the Shaws’ expert witness was correct and that the carbon monoxide gas they had inhaled had travelled from the parking garage through openings created for the plumbing system. The court concluded that this was sufficient to establish that the gas had been discharged, dispersed, seeped, migrated, released, or escaped as required for the pollution exclusion to apply.

The cases are National Fire Ins. Co. of Hartford v. James River Ins., No. CV-14-00765-PHX-JAT (D. Ariz. Feb. 16, 2016), and Shaw v. Liberty Mutual Fire Ins. Co., No: 6:15-cv-686-Orl-TBS (M.D. Fla. Feb. 12, 2016).