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| Curry powder - delicious spice, or pollutant? |
The so-called "absolute pollution exclusion" is one of the most litigated clauses in insurance policies. In its most common form, it states that the policy excludes coverage for losses caused by "discharge, dispersal, seepage, migration, release or escape of 'pollutants.'" "Pollutants" are normally defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including vapor, soot, fumes, acids, alkilis, chemicals and waste." This exclusion first entered policies after congress and the states started passing laws, like the CERCLA or "Superfund" statute, making companies liable for environmental clean up operations. Insurers claimed they didn't want to have to pay for such expensive operations, but as we'll see, they've recently become quite creative in the application of this exclusion.
The insurance industry generally contends that this scheme is perfectly straightforward. In, for instance, a first-party property policy, one that claims to cover "all risk of loss," but then excludes certain risks, you look at what caused the loss, and ask "did it result from the discharge, dispersal, seepage, etc. of a pollutant?" If you're unsure whether a "pollutant" was involved, you just look to the definition. And here's where things get interesting. If you read that definition literally, it can encompass anything and everything in the known universe (perhaps excluding dark matter, but I don't know enough about dark matter to analyze whether it's a pollutant, and at any rate, I've never heard of it causing an insured loss.) For instance, an inkpen is a (1) solid; if someone were to poke me in the eye with it, my eye would be both (2) irritated, and (3) contaminated with a foreign object. Thus, the injury to my eye would be excluded under a literal reading of the pollution exclusion. You might say "that's ridiculous! Even if the definition could be read to include ink pens, no court would ever hold that. And what the heck does this have to do with spice cabinets?"
Consider what the Eleventh Circuit Court of Appeals did in Maxine Furs, Inc. v. Auto-Owners Insurance Company, 2011 U.S. App. LEXIS 6706 (11th Cir. Unpublished). There, a fur shop was located next to an Indian restaurant. The two businesses shared a ventilation system, and eventually the furs became permeated with the smell of curry powder. The fur shop had their wares cleaned, and made a claim for the bill to their insurance company, Auto-Owners. Auto-Owners looked at the pollution exclusion and said, "nope, not covered. Curry smell is a 'contaminant,' so it's excluded under the pollution exclusion." My first thought on reading this case was "that's ridiculous! Even if the definition could be read to include curry powder, no court would ever hold that." But after the fur shop sued the insurer, both the district court and the court of appeals agreed with the insurer, saying curry smell is a pollutant. So now we have an exclusion that was originally written to allow insurers to escape paying for the extraction of mercury from the Raritan River being used to exclude coverage for cleaning furs that smell like garam masala.
Fortunately, most states don't go as far as Alabama in the extent to which they will read the pollution exclusion literally. Unfortunately, most don't take their own rules of insurance policy construction seriously enough to do with this exclusion what ought to be done: ignore it. I'll talk about that in another post. But for now, you may want to consider calling a toxic waste disposal expert the next time you decide to rearrange your spice cabinet.
I'll refrain from the curry / toxic waste disposal jokes (sort of)....
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