New Jersey Applies So-Called "Absolute Pollution"Exclusion To Carbon Monoxide Claims
By Renier P. Pierantoni
In an apparent departure from New Jersey’s legacy of pro-policyholder jurisprudence, a New
Jersey appellate court recently extended the exclusionary reaches of the so-called “absolute
pollution exclusion” found in comprehensive general liability (“CGL”) policies to nonenvironmental
claims. The case, Leo Haus, Inc. v. Selective Insurance, 2002 WL 1445386
(N.J. Super. A.D. July 5, 2002), involved a dispute between the insured, who was a
homebuilder, and its insurance carrier over coverage for carbon monoxide poisoning against
the insured due to the discharge of carbon monoxide from an allegedly defective heating unit
installed by the insured. Relying on the so-called “absolute pollution exclusion,” the carrier
moved for summary judgment. Affirming the trial court’s granting of the carrier’s motion,
the appellate court agreed with the trial court’s finding that the carbon monoxide allegedly
released from the heating unit was a “pollutant”(i.e., a “gaseous or thermal irritant”) within
the meaning of that term in the policy. Consequently, manufacturers, distributors and
installers of gas appliances, heaters, dryers and furnaces in New Jersey or with New Jersey
operations will likely see insurers add Leo Haus to their artillery in their attempt to try and
restrict coverage for bodily injury claims caused by a defective products, even in the absence
of any environmental claims.
This retreat from long-standing pro-policyholder law in New Jersey is the result of insurance
industry efforts to, once again, broaden exclusionary provisions and deny rightful claims to
coverage. Undaunted by the New Jersey Supreme Court’s decision in Morton Intern. Inc. v.
General Acc. Ins. Co. of America, 134 N.J. 1 (1993), cert. denied, 512 U.S. 1245 (1994), in
which the Supreme Court held that the so-called“sudden and accidental pollution exclusion”
was unenforceable due to the insurance industry’s misrepresentations to the Insurance Rating
Board, the insurance industry has found in the Haus decision another way to try and preclude
coverage for what are otherwise legitimate bodily injury claims.
While the so-called “absolute pollution exclusion” appeared in some CGL policies as early as
the mid-1970s, the exclusion made its way into the language of most CGL policies in and
around 1986. Not satisfied with the restrictions in coverage garnered by the “sudden and
accidental” exclusion, the insurance industry crafted the absolute exclusion. While the draft
history behind the absolute exclusion, as courts have held, evidences an attempt to exclude
coverage for environmental claims, carriers now argue that the absolute exclusion excludes
coverage for toxic tort claim s as well. A typical absolute exclusion provision reads as follows:
It is agreed that this policy shall not apply to any liability for personal
injury or property damage arising out of the discharge, dispersal,
release or escape of smoke, vapors, soot, fum es, acids, alkalis, toxic
chemicals, liquids or gases, waste materials or other irritants,
contaminants or pollutants into or upon land, the atmosphere or any
water course or body of water.
Unfortunately for policyholders, the insurers’ attempt to broaden a similarly worded
exclusion in Haus is what led the court to exclude coverage for what was obviously not an
environmental claim. In Haus, the subject policy excluded coverage for:
[A]n actual exposure or threat of exposure to the corrosive, toxic or
other harmful properties of any‘pollutants’ arising out of the discharge,
dispersal, seepage, migration, release or escape of such pollutants....
‘Pollutants’ means 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 Haus court’s rationale and that of similar decisions demonstrate how courts sometimes
make forced and artificial distinctions as to when and when not the absolute exclusion will
apply to the thousands, if not millions, of “irritants” people are exposed to every day. For
example, in Leo Haus, the appellate court found that carbon monoxide was a “discharged,
dispersed, released or escaped ‘pollutant’” as defined under the exclusion, even though three
years earlier, the same court held that lead paint chips did not come within the exclusion.
The Haus court’s exp lanation for these seemingly divergent holdings was that the exclusion
was “commonly understood to relate to an active or clearly perceived event, and not to the
imperceptible chipping or flaking of lead paint which merely occurs over a period of years.”
Haus, at *3 (citing Byrd v. Blumenreich, 317 N.J. Super. 496 (App. Div. 1999)).
In an attempt to further justify its holding, the Haus court also reasoned that the exclusionary
provision before it was not truly “absolute” since it set forth an “exception-within-anexception,
thereby contemplating exclusion from coverage for the very type of exposure
addressed.” Ultimately, however, the Haus court’s attempt to distinguish lead paint chips
from the escape of carbon monoxide fails. After all, is the manufacturer of a
heating unit really able to “clearly perceive” that its product could cause carbon monoxide
poisoning, while a manufacturer of lead paint is not? What is more, the absolute exclusion
varies – at times – ever so slightly from policy-to-policy and carrier-to-carrier. It is anyone’s
guess as to how a slightly different exclusion from the one in Haus will be viewed as applied
to yet some other alleged irritant. In short, such“fine- line” distinctions are in the end
impractical and unworkable.
Fortunately for policyholders, there are m any courts that have concluded the absolute
exclusion is limited to traditional environmental damage claims, as was always meant to be
the case. For example, the Maryland Supreme Court in Sullins v. Allstate Ins. Co., 667 A.2d
617 (Md. 1995) found that “the insurance industry intended the pollution exclusion to apply
only to environmental pollution.” In Illinois, the Supreme Court there held the absolute
exclusion did not exclude coverage for injuries caused by the accidental release of
carbon monoxide due to a broken furnace. See Am erican States Ins. Co. v. Koloms, 227 Ill.
Dec. 149 (1997). In Louisiana, the state’s highest court held that the absolute exclusion “was
designed to exclude coverage for environmental pollution only and not for all interactions
with irritants of any kind” in Doerr v. Mobil Oil Corp., 774 So. 2d 119 (La. 2000). In Am
By Renier P. Pierantoni
In an apparent departure from New Jersey’s legacy of pro-policyholder jurisprudence, a New
Jersey appellate court recently extended the exclusionary reaches of the so-called “absolute
pollution exclusion” found in comprehensive general liability (“CGL”) policies to nonenvironmental
claims. The case, Leo Haus, Inc. v. Selective Insurance, 2002 WL 1445386
(N.J. Super. A.D. July 5, 2002), involved a dispute between the insured, who was a
homebuilder, and its insurance carrier over coverage for carbon monoxide poisoning against
the insured due to the discharge of carbon monoxide from an allegedly defective heating unit
installed by the insured. Relying on the so-called “absolute pollution exclusion,” the carrier
moved for summary judgment. Affirming the trial court’s granting of the carrier’s motion,
the appellate court agreed with the trial court’s finding that the carbon monoxide allegedly
released from the heating unit was a “pollutant”(i.e., a “gaseous or thermal irritant”) within
the meaning of that term in the policy. Consequently, manufacturers, distributors and
installers of gas appliances, heaters, dryers and furnaces in New Jersey or with New Jersey
operations will likely see insurers add Leo Haus to their artillery in their attempt to try and
restrict coverage for bodily injury claims caused by a defective products, even in the absence
of any environmental claims.
This retreat from long-standing pro-policyholder law in New Jersey is the result of insurance
industry efforts to, once again, broaden exclusionary provisions and deny rightful claims to
coverage. Undaunted by the New Jersey Supreme Court’s decision in Morton Intern. Inc. v.
General Acc. Ins. Co. of America, 134 N.J. 1 (1993), cert. denied, 512 U.S. 1245 (1994), in
which the Supreme Court held that the so-called“sudden and accidental pollution exclusion”
was unenforceable due to the insurance industry’s misrepresentations to the Insurance Rating
Board, the insurance industry has found in the Haus decision another way to try and preclude
coverage for what are otherwise legitimate bodily injury claims.
While the so-called “absolute pollution exclusion” appeared in some CGL policies as early as
the mid-1970s, the exclusion made its way into the language of most CGL policies in and
around 1986. Not satisfied with the restrictions in coverage garnered by the “sudden and
accidental” exclusion, the insurance industry crafted the absolute exclusion. While the draft
history behind the absolute exclusion, as courts have held, evidences an attempt to exclude
coverage for environmental claims, carriers now argue that the absolute exclusion excludes
coverage for toxic tort claim s as well. A typical absolute exclusion provision reads as follows:
It is agreed that this policy shall not apply to any liability for personal
injury or property damage arising out of the discharge, dispersal,
release or escape of smoke, vapors, soot, fum es, acids, alkalis, toxic
chemicals, liquids or gases, waste materials or other irritants,
contaminants or pollutants into or upon land, the atmosphere or any
water course or body of water.
Unfortunately for policyholders, the insurers’ attempt to broaden a similarly worded
exclusion in Haus is what led the court to exclude coverage for what was obviously not an
environmental claim. In Haus, the subject policy excluded coverage for:
[A]n actual exposure or threat of exposure to the corrosive, toxic or
other harmful properties of any‘pollutants’ arising out of the discharge,
dispersal, seepage, migration, release or escape of such pollutants....
‘Pollutants’ means 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 Haus court’s rationale and that of similar decisions demonstrate how courts sometimes
make forced and artificial distinctions as to when and when not the absolute exclusion will
apply to the thousands, if not millions, of “irritants” people are exposed to every day. For
example, in Leo Haus, the appellate court found that carbon monoxide was a “discharged,
dispersed, released or escaped ‘pollutant’” as defined under the exclusion, even though three
years earlier, the same court held that lead paint chips did not come within the exclusion.
The Haus court’s exp lanation for these seemingly divergent holdings was that the exclusion
was “commonly understood to relate to an active or clearly perceived event, and not to the
imperceptible chipping or flaking of lead paint which merely occurs over a period of years.”
Haus, at *3 (citing Byrd v. Blumenreich, 317 N.J. Super. 496 (App. Div. 1999)).
In an attempt to further justify its holding, the Haus court also reasoned that the exclusionary
provision before it was not truly “absolute” since it set forth an “exception-within-anexception,
thereby contemplating exclusion from coverage for the very type of exposure
addressed.” Ultimately, however, the Haus court’s attempt to distinguish lead paint chips
from the escape of carbon monoxide fails. After all, is the manufacturer of a
heating unit really able to “clearly perceive” that its product could cause carbon monoxide
poisoning, while a manufacturer of lead paint is not? What is more, the absolute exclusion
varies – at times – ever so slightly from policy-to-policy and carrier-to-carrier. It is anyone’s
guess as to how a slightly different exclusion from the one in Haus will be viewed as applied
to yet some other alleged irritant. In short, such“fine- line” distinctions are in the end
impractical and unworkable.
Fortunately for policyholders, there are m any courts that have concluded the absolute
exclusion is limited to traditional environmental damage claims, as was always meant to be
the case. For example, the Maryland Supreme Court in Sullins v. Allstate Ins. Co., 667 A.2d
617 (Md. 1995) found that “the insurance industry intended the pollution exclusion to apply
only to environmental pollution.” In Illinois, the Supreme Court there held the absolute
exclusion did not exclude coverage for injuries caused by the accidental release of
carbon monoxide due to a broken furnace. See Am erican States Ins. Co. v. Koloms, 227 Ill.
Dec. 149 (1997). In Louisiana, the state’s highest court held that the absolute exclusion “was
designed to exclude coverage for environmental pollution only and not for all interactions
with irritants of any kind” in Doerr v. Mobil Oil Corp., 774 So. 2d 119 (La. 2000). In Am
erican States Ins. Co. v. Kiger, 662 N .E. 2d 945 (Ind. 1996), Indiana’s highest court held that
the absolute clause “cannot be read literally as it would negate all coverage.”
Finally, even in notoriously pro-carrier New York, that state’s highest court held that the
absolute exclusion did not clearly and unmistakably exclude damages arising out of lead
paint. Westview Associates v. Guaranty Nat. Ins. Co., 717 N .Y.S.2d 75 (2000).
Even though most courts have held that the absolute exclusion was intended to exclude
environmental damage claims only, the carriers continue to press for the expansion of the
exclusion beyond its intended limits. Therefore, until Haus and other decisions like it are
reversed, abated or otherwise diminished by subsequent controlling legal authorities,
policyholders would be wise to analyze their insurance coverage to determine whether they
have provisions in their policies that would potentially leave them in the same position as
Leo Haus, Inc.
Finally, even in notoriously pro-carrier New York, that state’s highest court held that the
absolute exclusion did not clearly and unmistakably exclude damages arising out of lead
paint. Westview Associates v. Guaranty Nat. Ins. Co., 717 N .Y.S.2d 75 (2000).
Even though most courts have held that the absolute exclusion was intended to exclude
environmental damage claims only, the carriers continue to press for the expansion of the
exclusion beyond its intended limits. Therefore, until Haus and other decisions like it are
reversed, abated or otherwise diminished by subsequent controlling legal authorities,
policyholders would be wise to analyze their insurance coverage to determine whether they
have provisions in their policies that would potentially leave them in the same position as
Leo Haus, Inc.
