By Andrew E. Grigsby of Hinshaw & Culbertson LLP
Mt. Hawley Insurance Company v. Dania Distribution Center Ltd., Case No. 11-10596 (11th Cir. Mar. 20, 2013)
The U.S Court of Appeals for the Eleventh Circuit addressed coverage under a commercial general liability policy for a developer being sued by an entire neighborhood of plaintiffs. In their complaint, the residents claimed bodily injury for negligence, nuisance, trespass and violations of the Florida Pollutant Discharge Prevention and Control Act. Specifically, they asserted that development construction activity, including removing soil and other materials from the property, resulted in the dissemination of pollutants from the property throughout the neighborhood, which caused harm. The complaint was quite specific, using extensive information that the insured had developed in the course of documenting its case with the local Department of Environmental Resources Management. The residents alleged in their complaint that the property purchased by the insured was used historically as an illicit dump site for construction and demolition debris, medical waste, fuel tanks, gasoline and other petroleum products, and various chemicals. They further alleged that ground water assessments and soil samples collected from the property before the effective date of the policy confirmed the presence of many hazardous contaminants.
Under Florida law, the duty to defend is determined by the allegations in the complaint. The insurer, comparing the complaint’s specific allegations to its policy provisions, denied coverage for the residents’ lawsuit based on the policy’s Pollution Exclusion clause and the exclusion for Continuous or Progressive Injury and Damage.
On appeal, the Eleventh Circuit first examined the policy’s Pollution Exclusion clause. The exclusion precluded coverage for bodily injury and property damage "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release, escape, contamination, growth, inhalation, ingestion, absorption of or exposure to ‘pollutants.’" The exclusion was tied to specific locations, including "any premises, site or location which is or was at any time owned . . . by any insured" or "any premises, site or location which is or was used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste."
As a preliminary matter, the court determined that there was no language within the Pollution Exclusion that was ambiguous when applied to the facts of the case. Based on the allegations in the complaint it was undisputed that the property was both owned by the insured and had once been used for waste disposal. The claims therefore fell squarely within the Pollution Exclusion.
At oral argument, the residents argued that property damage from cracks in the walls of their homes, which were alleged in the complaint, were not caused by pollutants. However, the court pointed out that, to the contrary, nowhere in the complaint’s "1,862 paragraphs" did the residents ever allege property damage resulting from anything other than the discharge of pollutants. The residents also argued that they had made allegations concerning sewage odors, excessive noise and dust. Again, the court pointed out the residents’ failure to allege any causal relation between the alleged bodily injuries and the odors, noise and dust. The court observed that the sole causal connection of the residents’ alleged injuries asserted in the complaint was the pollutants and poisons in the dust.
Finally, turning to the Continuous or Progressive Injury and Damage Exclusion, the court pointed to the allegations in the complaint that the insured was aware of the presence of toxic and hazardous substances on the property prior to the policy coming into effect. There were also specific allegations that soil and ground water testing had been conducted years before the policy came into effect which revealed the presence of toxins, including petroleum contaminants. Accordingly, coverage was also excluded by the Continuous or Progressive Injury and Damage Exclusion.
This case demonstrates how an effective pollution exclusion can stand as a bar against an otherwise catastrophic environmental claim. Where these provisions are viewed as unambiguous, they can be quite powerful. In addition, the wisdom of the carrier in providing specific exclusions dealing with the insured’s knowledge of the conditions that led to the damage prior to the policy period is self-evident.
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