Missouri Federal Court Holds Pollution Exclusion Inapplicable to Exposure to Fumes

In its recent decision in United Fire & Casualty Co. v. Titan Contractors Service, Inc., 2013 U.S. Dist. LEXIS 10716 (E.D. Mo. Jan. 28, 2013), the United States District Court for the Eastern District of Missouri, applying Missouri law, had occasion to consider the application of a total pollution exclusion to claims arising out of what would not ordinarily be considered traditional environmental contamination.

The insured, Titan, is a company that specializes in cleaning construction project sites.  Three individuals that worked in an office space adjacent to where Titan had performed a cleanup project sued Titan.  They alleged that Titan had used an acrylic floor sealant, TIAH, as part of its cleanup operations, and that the fumes from the sealant caused plaintiffs to suffer various physical ailments.  Titan’s general liability insurer, United Fire, provided Titan with a defense in the underlying suit subject to a reservation of rights to deny coverage based on its policy’s pollution exclusion stating:

This insurance does not apply to:

f.  Pollution

(1)       "Bodily injury" or "property damage" which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" at any time.

This exclusion does not apply to "bodily injury" or "property damage" arising out of heat, smoke or fumes from a "hostile fire" unless that "hostile fire" occurred or originated:

(a)   At any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste; or

(b)  At any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize or in any way respond to, or assess the effects of, "pollutants."

(2)       Any loss, cost or expense arising out of any:

(a)    Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants"; or

(b)   Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing, or in any way responding to, or assessing the effects of, "pollutants".

United Fire argued that the exclusion unambiguously applied since the underlying suit involved allegations of bodily injury caused by exposure to pollutants.  Titan countered that the exclusion was inapplicable to products put to their intended use, and instead applied only to matters traditionally considered environmental pollution. 

Having determined that Missouri law governed the policy, the court observed that Missouri’s highest court had not yet addressed the meaning and scope of the total pollution exclusion.  The court, therefore, concluded that it would have to predict how the Missouri Supreme Court would rule on the issue, looking for guidance to decisions by Missouri’s Court of Appeals to help determine whether TIAH is a pollutant for the purpose of the exclusion, and if so, whether the exclusion applied.  Looking to cases such as Hocker Oil Co., Inc. v. Barker-Phillips-Jackson, Inc., 997 S.W.2d 510 (Mo. Ct. App. 1999); Casualty Indemnity Exchange v. City of Sparta, 997 S.W.2d 545 (Mo. Ct. App. 1999); Boulevard Investment Company v. Capitol Indemnity Corporation, 27 S.W.3d 856 (Mo. Ct. App. 2000), the court gleaned several guiding principles for determining the application of the exclusion.  First, Missouri courts take a “common sense, situational approach” in determining whether a substance qualifies as a pollutant.  Second, this common sense determination is necessarily “fact intensive.”  Third, and most notably, the court observed that “whether an insurance policy’s language is plain and unambiguous is determined by what the layman who brought and paid for the policy would ordinarily have understood.”  As such, explained the court:

… the insured is entitled to characterize the allegedly polluting substance in a manner consistent with the insured’s daily activities, particularly if the alleged pollutant belongs in the environment in which the insured routinely works.

Notwithstanding these principles, however, the court also observed that Missouri courts do not reflexively limit application of the exclusion “to traditional environmental pollutants.”

With these guiding principles in mind, the court acknowledged that application of the exclusion to the claims against Titan “is not an easy case,” but ultimately found it ambiguous whether United Fire’s pollution exclusion applied to Titan’s use of TIAH.  Central to the court’s analysis was that Titan routinely used TIAH as part of its normal operations, thus influencing Titan’s expectations of coverage.  As the court noted, under the circumstances it “is reasonable for Titan to expect that its work in sealing concrete floors would be covered by its commercial general liability policy, and that TIAH would not be deemed a pollutant.”