8.5.4 The Absolute Pollution Exclusion

• Jurisdiction: Arizona

In 1985, the insurance industry redrafted the general liability policy to include what is now commonly called the "absolute pollution exclusion." This exclusion typically reads as follows:

This insurance does not apply to:

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f. (1) "bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

(a) at or from premises you own, rent or occupy;

(b) at or from any site or location used by or for you or others for the handling, storage, dispersal, processing or treatment of waste;

(c) which are at any time transported, handled, stored, treated, disposed of, or processed as waste by you or for you or any person or organization for whom you may be legally responsible; or

(d) at or from any site or location on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations:

(i) if the pollutants are brought on or to the site or location in connection with such operation; or

(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants.

(2) any loss, cost, or expense arising out of any governmental direction or request that you test for, monitor, clean up, remove, contain, treat, de-toxify or neutralize pollutants.

"Pollutants" means any solid, liquid, gaseous or thermo irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalies, chemicals and waste. "Waste" includes materials to be recycled, reconditioned or reclaimed.

The absolute pollution exclusion has been upheld by a growing number of jurisdictions and its enforceability represents a majority view.^[298]

Standard general liability policies contain what is commonly called an "absolute" pollution exclusion.^[299] In order for the exclusion to be applicable, there must be a "discharge, dispersal, seepage, migration, release or escape of "pollutants." These "pollutants" must be "transported, handled, stored, treated, disposed of, or processed as waste" by the insured.

A review of the case law reveals that there are three principal questions to be answered in the analysis of the application of the "absolute" pollution exclusion: (1) is the substance at issue a "pollutant" as defined by the policy?; (2) does the pollutant's method of travel satisfy the requirements of the exclusion?; and (3) does the alleged "pollutant" in the specific case constitute "pollution?" Arizona has only dealt with a pollution exclusion in one reported case decision ? Keggi v. Northbrookpproperty & Casualty Insurance Co.^[300]

A. Is The Substance at Issue a "Pollutant" Under the Policy?

Under the typical policy, a "pollutant" is defined as "any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed." The same or similar definition has been at the heart of many cases addressing the pollution exclusion. Some courts have found that the term "pollutants," as defined in the policy, is ambiguous. Their conclusion is primarily based upon the potential unlimitless breadth of application of the pollution exclusion.^[301]

For example, in Regent Insurance Co. v. Holmes,^[302] the court found that the policy's pollution exclusion was ambiguous because of the policy's definition of the term "pollutants." The court noted that the policy defined pollutants as "solid, liquid, gaseous or thermal irritants or contaminants." However, the policy did not define the terms "irritant" or "contaminant." Turning to a dictionary, the court noted that the term "irritant" was defined as "something that irritates or excites" and as "an agent by which irritation is produced." The dictionary defined a "contaminant" as "something that contaminates." The court observed that these terms admitted of no natural or ordinary interpretation because it was unclear whether they referred to substances which ordinarily irritate or contaminate, substances which have in fact irritated or contaminated under the particular circumstances of a given case, regardless of their tendency to irritate or contaminate under most circumstances, or both. The court also observed that "any substance could conceivably be an "irritant or contaminant under the right circumstances." In finding that the exclusion was ambiguous due to its imprecise terminology, the court stated that illustrative examples could not cure the unclear language of the exclusion.^[303]

Significant was the Holmes court's observation that "the term pollutant connotes a substance that is harmful or toxic to persons or the environment generally. This standard asks whether this particular release was harmful or toxic to persons or the environment generally, not whether the release of this particular substance generally is harmful or toxic to persons or the environment.^[304]

In so doing, the Holmes court found that "the term pollutant connotes a substance that is harmful or toxic to persons or the environment generally. This standard asks whether this particular release was harmful or toxic to persons or the environment generally, not whether the release of this particular substance generally is harmful or toxic to persons or the environment."^[305] As the spill in the case only caused injury to one person, it did not qualify as a pollutant according to the court and the pollution exclusion did not apply.

Other courts have taken similar facts and reached a contrary outcome to that of the Holmes case. The reasoning of the courts in these cases is focused not upon the exclusionary language, but upon the particular facts in the case. For instance, in Madison Construction Co. v. The Harleysville Mutual Insurance Co.,^[306] Madison was working at a Boeing facility pouring and curing concrete. The area in which the work was being performed was enclosed in polyethylene sheeting. An employee of Boeing, after being told of a strong odor coming from the area, attempted to set up an exhaust fan for the fumes coming from the curing substance. While doing so, he suffered severe injuries after the fumes rendered him unconscious, causing him to fall into the excavation site. The Boeing employee filed suit and Madison sought coverage from their insurer. The insurer denied covered, citing the pollution exclusion in the policy.

The court in Madison Construction Co. held that the curing compound was a pollutant under the policy and the pollution exclusion applied. The court began its analysis by announcing that "[t]he pertinent inquiry is not . . . Whether the policy's definition of "pollutant" is so broad that virtually any substance, including many useful and necessary products, could be said to come within its ambit. Rather, guided by the principle that ambiguity (or the lack thereof) is to be determined by reference to a particular set of facts, we focus on the specific product at issue."^[307] The court stated that the product was known to be harmful because it had a warning label cautioning users to avoid inhalation and contact with skin. Further, the court pointed out that the definition in the policy specifically included "any . . . Irritant." As such, the policy definition of "pollutants," "clearly and unambiguously applies to the product in question."^[308] The court made the following relevant observations:

This court simply cannot construe the policy language any way other than by finding that the fumes in the instance case were pollutants. First, the language of the exclusion provision clearly states that "fumes" are regarded as a "pollutant." Second, when canisters of a liquid or other compound are brought on to a premises, opened, and the material, upon exposure to the air or after application to a surface, causes noxious fumes to emanate and make persons dizzy, the fumes are clearly pollutants.

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We determine first whether the policy's definition of "pollutant" applies unambiguously to the floor sealant or curing compound known as Euco Floor Coat. The pertinent inquiry is not, as Madison contends, whether the policy's definition of "pollutant" is so broad that virtually any substance, including many useful and necessary products, could be said to come within its ambit. Rather, guided by the principle that ambiguity (or the lack thereof) is to be determined by reference to a particular set of facts, we focus on the specific product at issue. Included in the record is the Material Safety Data Report prepared by Euclid Chemical Company for the product or products known by the trade names Floor Coat, Super Floor Coat, Rez-Seal, Super Rez-Seal, Pilocure, Super Pilocure and Eucocure. The report notes that "these products may contain approximately 3-4% xylene . . .; 2-3% cumene . . .; 40% trimethylbenze [sic] . . ., which are considered toxic chemicals, and 0.2% and 0.3% styrene . . ., which is a suspected carcinogen. Xylene, cumene and styrene have been classified as hazardous air pollutants by the federal government. 42 U.S.C. Sec. 7412(b). In addition, the report states that the product's vapors may be irritating, that over exposure to such vapors "may cause CNS [central nervous system] effects, vertigo, muscular weakness, necrosis, confusion," that "inhalation of dusts and vapors should be avoided." Under the heading "Special Protection Information," the report cautions users of the products to wear eye protection, rubberized gloves, and protective clothing to prevent skin contact. As for ventilation, the report indicates that adequate fresh air is necessary and that "special precautions such as respiratory masks may be required in extreme cases." Thus, the specific product at issue is not innocuous; its harmful effects are well known.

However, these two lines of cases must be compared with the Arizona Court of Appeals decision in Keggi v. Northbrook Property & Casualty Insurance Co.^[309] in that case, Keggi was a professional golfer who...