Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe

Special Issue
May 1, 2017

Could This Be The Most Significant And Pro-Policyholder Pollution Exclusion Case Ever?

The Washington Supreme Court just issued an Absolute Pollution Exclusion decision that, if its rationale were adopted by other courts, could be one of the most significant ever. I know. That’s a bold statement. Read on.

In Xia v. ProBuilders Specialty Insurance Company, No. 92436-8 (Wash. Apr. 27, 2017) the Washington high court held that carbon monoxide, released from a negligently installed vent, attached to a hot water heater, was a “pollutant.” At issue were claims for bodily injury by a homeowner against the home builder. So far this is routine. Lots of courts – those that apply the pollution exclusion broadly (and not simply to traditional environmental pollution) – would likely have reached that same determination.

However, the court still held that the pollution exclusion did not apply. The court got to this result by adopting the “efficient proximate cause” rule, which provides that coverage is owed if a covered peril sets in motion a causal chain, the last link of which is an uncovered peril. This is usually seen in property coverage cases. However, the court noted that there was nothing to say it couldn’t apply to any type of policy.

Applying the “efficient proximate cause” rule, the court held that the pollution exclusion did not apply. The court determined that the efficient proximate cause of the injuries was the negligent installation of the 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. In other words, the pollution exclusion did not apply because two or more perils combined in sequence to cause a loss – one covered and one not -- and a covered peril was the predominant or efficient cause of the loss.

The court pointed out that it has repeatedly rejected attempts by insurers to draft language into an exclusion that expressly circumvents the “efficient proximate cause” rule, such as "We do not cover loss caused by . . . excluded perils, whether occurring alone or in any sequence with a covered peril . . .”

In case you’re wondering, the court explained that the pollution exclusion could still apply. For example, [i]f ProBuilders sought to avoid liability for damages resulting from particular acts of negligence, it certainly could have written specific exclusions to that effect—for instance, an exclusion for acts of negligence relating to the installation of home fixtures generally or hot water heaters specifically. . . . Such an exclusion may have been foreseeable given that this policy was for the construction of a new home, but no such exclusion is found in this insurance policy.” In addition, the court noted that the initial peril that sets in motion the causal chain could be the polluting event.

Here’s the (even more) amazing part - The court held that, while it had never applied the “efficient proximate cause” rule to facts such as these, the insured should have known that it might adopt the rule. Therefore, the insurer breached the duty to defend and did so in bad faith.

There is a dissenting opinion and one that concurs in part and dissents in part.

Absolute Pollution Exclusion cases have been litigated by the hundreds (thousands perhaps ) for about three decades. At least as far as I know, this is the first liability coverage case to interpret the Absolute Pollution Exclusion using the “efficient proximate cause” rule. Needless to say, it could up-end pollution exclusion jurisprudence if other courts adopted this rationale. That’s likely tied to how states have treated insurer efforts to contract-around the “efficient proximate cause” rule. Today it was the Pollution Exclusion. What happens to other liability policy exclusions that start out with covered occurrences? After all, by definition, to get to an exclusion, doesn’t the injury or damage need to have been caused by a covered occurrence?

Website by Balderrama Design Copyright Randy Maniloff All Rights Reserved