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Vol. 6, Iss. 6
July 12, 2017

Interesting Pollution Exclusion Decision
It is reasonable to say that, under New York law, the pollution exclusion would not preclude coverage to an insured for bodily injury caused by residential lead paint exposure. But, as the New York Appellate Division shows in Matter of Midland Ins. Co., No. 4357N (N.Y. App. Div. June 22, 2017), not all lead paint situations are the same: “However, in those cases, the courts did not address damage caused by lead paint in conjunction with an acknowledged pollutant, and did not address the peculiarities of liability under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (see 42 USC § 9607), pursuant to which the EPA sought recovery from claimant in this case. . . . In this case, not only did the damage result from different sources, i.e., lead emissions and lead paint, but, also, one source is excluded from coverage and the other is not. However, the damage resulting from either source is not readily divisible from the damage resulting from the other. The combined effect of the lead emissions and the lead paint was soil contamination - of the same soil. To the extent a particular area was contaminated solely by lead paint, it was not (and could not have been) included in the EPA’s remediation efforts (see 42 USC § 9604). Moreover, claimant would not have had to pay for any damage - including lead paint damage - if not for the accompanying pollution (see 42 USC § 9607). Thus, the entire claim is barred by the pollution exclusions.”

The Pro-Insurer Washington Anomaly
In the last issue of Coverage Opinions, Paul Rosner and Steve Soha, of Seattle’s Soha & Lang, P.C., tackled the My Hometown column and addressed the question: Is Washington really as bad for insurers as everyone says? Following a phenomenal piece, Paul and Steve concluded that, “unfortunately, yes, the coverage landscape for insurers in Washington is as bleak as reputed.” However, they also noted a curiosity. Despite Washington’s incredibly broad duty to defend standard, the Seattle duo had this to say: “[i]t is still the general rule in Washington that, when dealing with covered and non-covered claims, an insurer has a duty to defend only the covered claims, so long as it is able to establish a reasonable means of apportioning the defense costs. Waite v. Aetna Cas. & Sur. Co., 77 Wn.2d 850, 467 P.2d 847 (1970). However, the insurer has the difficult burden to carefully segregate between covered and non-covered defense costs. See Prudential Prop. & Cas. Ins. Co. v. Lawrence, 45 Wn. App. 111, 724 P.2d 418 (1986).”

Wow! An insurer’s ability to defend only covered claims – recognizing the apportionment challenge – is generally unheard of. Rather, the oft-cited rule is that, if a single claim triggers the duty the defend, the insurer has a duty to defend all claims. Coincidentally, this point that Paul and Steve made was just on display in Travelers Property Casualty Company of America v. Northwest Pipe Company, No. 17-5098 (W.D. Wash. June 22, 2017), where the court addressed an insurer’s obligation to defend a “mixed” lawsuit, being one with covered and uncovered claims.

The court stated this do a double-take – especially for Washington – conclusion: “Before the Court issues an order based on this finding, it requests that the parties submit supplemental briefing. The parties have not yet addressed how the Court should proceed in regards to the duty to defend when presented with a ‘mixed’ lawsuit such as this, comprised of both covered and uncovered claims. In some jurisdictions, such as California, "[i]f any claim alleged in a lawsuit could be potentially covered under the policy, the insurer is obligated to defend against all claims alleged, even if some of those claims could not even potentially be covered, and even if such non-covered claims predominate.” (citation omitted). However, at least one Washington decision strongly suggests that ‘mixed’ lawsuits do not require the insurer to defend the entire lawsuit if an ‘effective means exists for prorating the costs of defense between the claims for which the defendant insurer provided no coverage from those which it did cover.’ (citation omitted). In their supplemental briefing, the parties will address how the Court should tailor its final order, particularly in relation to the duty to defend, in light of its conclusion that the only claim conceivably covered by the policy is that for property damage to the circumferential welds.”

Well This Is Neat. Coverage Opinions Included in Xia Supreme Court Brief
There has been lots of chatter lately about the Washington Supreme Court’s recent decision in Xia v. ProBuilders Specialty Insurance Company, where the court held that, based on the “efficient proximate cause” rule, the pollution exclusion did not apply. The court determined that the efficient proximate cause of injuries was the negligent installation of a hot water heater. Because this was a covered occurrence, that set in motion a causal chain, that led to discharging toxic levels of carbon monoxide, being an excluded peril, the pollution exclusion was not applicable.

The insurer in Xia filed a motion for reconsideration. The motion was supported by an amicus brief from Property Casualty Insurers Association of America. PCIAA’s brief included, as an exhibit, Coverage Opinion’s May 1st article on the Xia decision, to make the point that the “Court’s application of the efficient proximate cause rule to liability insurance is unprecedented in American jurisprudence, and has quickly drawn both local and national attention and criticism.” [Other commentary was also included.] When you write a newsletter like this you always worry that nobody is reading it or it’s having no impact. So to see CO included in the Xia brief was satisfying.

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