Academic journal article Journal of Risk and Insurance

Washington Supreme Court Finds Cgl Pollution Exclusion Inapplicable to Negligence Torts Not Involving Environmental Degradation

Academic journal article Journal of Risk and Insurance

Washington Supreme Court Finds Cgl Pollution Exclusion Inapplicable to Negligence Torts Not Involving Environmental Degradation

Article excerpt

Kent Farms, Inc. v. Zurich Ins. Co., 2000 Wash. LEXIS 278 (Washington Supreme Court -- April 27, 2000).

Steve Gugenberger made a delivery of diesel fuel to Kent Farms. As he was removing the delivery hose, a faulty intake valve allowed the fuel to back-flow over him. "He struggled to replace the hose, to stop the potential spill of thousands of gallons of diesel fuel. Fuel was driven into his eyes, his lungs, and his stomach, causing him significant injury." 2000 Wash. LEXIS at * 2.

When Gugenberger sued Kent Farms for negligence in maintaining and designing the fuel tank, Kent Farms tendered the claim to its insurer, Zurich. Zurich denied coverage and refused to defend its policyholder "on the grounds that coverage was precluded by a pollution exclusion clause in the policy." Kent Farms brought a declaratory judgment action seeking coverage and won by summary judgment at both the trial court and intermediate appellate court level. The Washington Supreme Court unanimously affirmed, finding that the broadly worded pollution exclusion clause did not apply to this type of tort claim against a policyholder.

The Zurich pollution exclusion in question was the now-familiar one proving that coverage was barred for bodily injury claims "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants," with "pollutant" being defined to mean "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." 2000 Wash. LEXIS 278 at *3-*4

The Court found the exclusion inapplicable largely because the exclusion was never intended to remove Gugenberger-type incidents from the coverage afforded to a commercial CGL policyholder for ordinary torts sounding in negligence. Reading the policy as a whole and in light of its intended purpose, the court found that

This exclusion clause does not deal with the discharge of substances that may also be pollutants directly onto (and into) an individual; rather, this clause specifically addresses those situations in which injury was caused by environmental damage. We, therefore, hold the absolute pollution exclusion clause relates to environmental damage, and not to the facts of this case.

Id. at *7-*8

Although diesel and other fuels fall within the definition of pollutants and was involved in Gugenberger's injury, the Court found this not to be dispositive:

[T]his reasoning [that anything involving a "pollutant" is outside coverage] misunderstands the nature of the claim. Gugenberger was not po1luted by diesel fuel. It struck him; it engulfed him; it choked him. It did not pollute him. Most importantly, the fuel was not acting as a 'pollutant' when it struck him any more than it would have been acting as a pollutant if it had been in a barrel that rolled over him .... To adopt Zurich Insurance's interpretation would unjustly broaden the application of the exclusion far beyond its intended purpose.

Id. at *8.

The Court also noted that finding coverage in Gugenberger's case was consistent with the reasonable expectations doctrine and consistent with the reasonable expectations of Kent Farms that it had CGL coverage for essentially ordinary workplace mishaps that result in third-party tort claims sounding in negligence. However, the Court did not rest its decision on the reasonable expectations doctrine. Kent Farms was decided based on the Court's interpretation of the meaning of the pollution exclusion clause according to ordinary principles of contract construction.

Additionally and importantly, the Kent Farms Court also concluded that the broad, post-1985 pollution exclusions generally found in liability policies [1] were added to liability policies to remove the risk of an insurer facing a multitude of long-gestation claims arising from gradual or repeated discharge of hazardous waste into the environment and in particular to avoid insurance coverage for cleanup costs occasioned by Superfund (the Comprehensive Environmental Response, Compensation, and Liability Act of 1980) and similar state legislation. …

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