Pollution and Collapse Exclusions Rejected in 9/11 Building Coverage Claim
The 2001 World Trade Center (“WTC”) disaster continues to generate insurance coverage litigation. Recently, the United States Southern District Federal Court considered the applicability of pollution and collapse exclusions in the face of a claim by a building owner for damage caused to its building as a result of exposure to the cloud of World Trade Center particulate matter generated by the collapse of the WTC towers. The infiltration of the particulate matter into the building allegedly damaged mechanical systems to the point where the insured alleged that it was physically and economically unfeasible to remediate the building’s systems and that the particulate must be removed to eliminate risk to human health. Ocean Partners, LLC. v North River Insurance Company, 04 Civ. 00470, Decided 1/14/08.
The policy of insurance issued by North River Insurance Company to the building owner, Ocean Partners, was an all-risk policy providing coverage for direct physical loss or damage to covered property, unless the loss was excluded. The policy contained exclusions for collapse as well as a pollution exclusion which excluded:
Discharge, dispersal [,] seepage, migration, release or escape of ‘pollutants’ unless the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the ‘specified causes of loss.’
The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot [,] fumes, acids, alkalis, chemicals and waste.”
North River paid the insured 3.1 million dollars for building damage, but rejected any claim for remediation of the alleged damage from exposure to the WTC particulate, citing the pollution and collapse exclusions. The insured brought suit in Federal Court and, after discovery, North River moved for summary judgment. North River argued that the WTC particulate was a “contaminant” within the pollution exclusion, emphasizing the fact that the plaintiff’s own experts repeatedly used the word “contaminant” and “contaminate” to describe the damage to the building from the WTC particulate.
The Court referenced a recent Second Circuit Court of Appeals decision which held that the term “contamination” was ambiguous in a policy of insurance which insured another building in connection with a WTC claim for damage allegedly caused by the WTC particulate. See, Parks Real Estate, 472 F. 3d 33 (2nd Circuit, 2006). The Court in Ocean Partners noted that the term contaminant was not defined in either the Parks’ policy nor in the North River Insurance Company policy at issue. The Court adopted the reasoning from the Parks Real Estate decision, which held that cases dealing with pollution or contamination exclusions fall into two categories: cases that look at the definition of contamination in isolation, and cases that examine the “contextual” meaning of the term under a particular policy and loss. The Court rejected the common definitions of the term contaminant found in some cases (“the introduction of a foreign substance that injures the usefulness of the object” or “a condition of impurity resulting from the mixture or contact with a foreign substance”.) The Court found that following such definitions would allow the pollution/contamination exclusion in the policy to be applied in a limitless variety of situations.
The Court held:
There is no basis upon which to distinguish the exclusion in Parks Real Estate from the exclusion here. Just as was true in Parks Real Estate, there are many situations that fit the dictionary definition of ‘contamination’ (or ‘contaminant’) cited in that case. Because of the boundless array of possible applications of these terms, it is not clear that the policy was intended to exclude them. Thus, North River has not met its burden of showing that the pollutant exclusion ‘is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applied in the particular case and that its interpretation of the exclusion is the only construction that [could] fairly be placed thereon. *** The problem with the word ‘contaminant’ is not that it has no commonly-used meaning, but that in the context of the Policy, its meaning is so ‘broad’ *** as to be ambiguous.
The Court also rejected North River’s argument that the collapse exclusion applied. The Court found that the efficient proximate cause of the loss at issue was not the collapse of the World Trade Center towers, but the exposure of the plaintiff’s building to the “cloud of particulate matter”.
The Court’s ruling raises uncertainty as to the application of the term contaminant in the context of a pollution exclusion in the absence of any limiting definition of the term in the policy.
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