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Absolute Pollution Exclusion – New Jersey Supreme Court Finally Ends Its Silence

High Court Limits the Exclusion to the Swamps of Jersey

Randy J. Maniloff

When it comes to the “sudden and accidental” pollution exclusion, the New Jersey Supreme Court was in on the ground floor. Its controversial 1993 decision in Morton International, Inc. v. General Accident Insurance Company was one of the earlier state supreme courts to address the issue. But it has been a much different story for the “absolute” pollution exclusion. Surprisingly, despite the absolute pollution exclusion being the subject of hundreds of court decisions nationally since the early 1990s, and the New Jersey Supreme Court’s fondness for insurance coverage issues – especially environmental – the New Jersey high court has been a very late-bloomer on the subject.

In April, the New Jersey Supreme Court finally spoke up on the absolute pollution exclusion. In Nav-Its, Inc. v. Selective Insurance Company of America, the court held that the absolute pollution exclusion contained in a commercial general liability policy did not apply to preclude coverage for bodily injury caused by exposure to toxic fumes.

The facts of the case are simple. Nav-Its, a construction contractor, hired a subcontractor to perform painting, coating and floor sealing work at a shopping center. A physician with office space in the shopping center was allegedly exposed to fumes that were released while the coating/sealant work was being performed. As a result, he allegedly suffered from nausea, vomiting, lightheadedness, loss of equilibrium and headaches. He sought medical treatment and eventually filed suit against several parties, including Nav-Its.

Nav-Its sought coverage for the physician’s claims from Selective, its commercial general liability insurer. Selective disclaimed coverage. The suit by the physician was resolved in arbitration. Nav-Its filed suit against Selective, seeking a declaratory judgment that Selective was obligated to defend and indemnify it in the physician’s suit.

At issue in the coverage action was the applicability of the pollution exclusion contained in the Selective policy, which, in general, precluded coverage for bodily injury arising out of an 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.” The policy defined “pollutants” as “any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

The physician’s claim against Nav-Its -- bodily injury caused by exposure to toxic fumes – was clearly precluded by the language of Selective’s pollution exclusion. However, just as a number of courts addressing the absolute pollution exclusion have done, the New Jersey Supreme Court approached the issue from a more global perspective, stating, “The central question presented in this case is whether we should limit the applicability of the pollution exclusion clause to traditional environmental pollution claims.”

The over-arching issue whether the absolute pollution exclusion applies solely to “traditional” environmental pollution claim, such as leaching landfills, releases at oil refineries, damages imposed by CERCLA or in other industrial contexts, or, alternatively, and more broadly, as the language of the exclusion states, any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste (i.e., “non-traditional” environmental pollution), has been the deciding one in numerous opinions addressing the exclusion. Courts have generally placed themselves in one of these two camps concerning their interpretation of the scope of the absolute pollution exclusion. In Nav-Its, the New Jersey Supreme Court placed the Garden State in the one that gives the edge to policyholders – limiting the applicability of the absolute pollution exclusion to “traditional” environmental pollution.

The Nav-Its court relied on the exclusion’s drafting history to reach its decision: “We are confident that the history of the pollution-exclusion clause in its various forms demonstrates that its purpose was to have a broad exclusion for traditional environmentally related damages. Notably, we have not been presented with any compelling evidence that the pollution exclusion clause in the present case, when approved by the Department of Insurance, was intended to be read as broadly as Selective urges.” The Nav-Its court also noted that its decision was consistent with the decisions of the highest courts in California, Illinois, Massachusetts, Ohio, New York and Washington.

Coincidentally, in late June, the Northern District of Iowa issued its opinion in Bituminous Casualty Corporation v. Sand Livestock Systems, Inc., addressing the applicability of the pollution exclusion to a claim for exposure to carbon monoxide (causing death). The Iowa federal court cited dozens of decisions from around the country that have weighed-in on the “traditional” versus “non-traditional” environmental pollution debate (including a nascent one from New Jersey called Nav-Its), described the array of results as “dizzying,” and ultimately decided that the best course of action was to certify the issue to the Iowa Supreme Court.

Will Nav-Its be the Last Word?

Despite the seemingly strong language of the New Jersey Supreme Court’s (unanimous) decision in Nav-Its, there are several cases demonstrating that, when it comes to the absolute pollution exclusion, just because a state’s highest court has spoken, it is not always the last word. Take one recent example.

In 2003, the Supreme Court of California issued Mackinnon v. Truck Insurance Exchange. In a unanimous opinion as definitive-sounding as Nav-Its, the Mackinnon court held that the absolute pollution exclusion was limited to traditional environmental pollution. Thus, the court rejected the applicability of the exclusion to a claim for the death of an apartment dweller exposed to pesticide after an exterminator sprayed for yellow jackets.

Notwithstanding the California Supreme Court’s strong pronouncement in Mackinnon, in March 2005 the Court of Appeal of California had no problem concluding that the pollution exclusion precluded coverage for bodily injury caused by exposure to silica. The court in Garamendi v. Golden Eagle Insurance Company stated, “But unlike the residential use of a pesticide for the purpose of killing insects, the widespread dissemination of silica dust as an incidental by-product of industrial sandblasting operations most assuredly is what is ‘commonly thought of as pollution’ and ‘environmental pollution.’” Garamendi demonstrates that, even after a decision such as Nav-Its, the door remains ajar for insurers in some cases to argue about the scope of the absolute pollution exclusion. On June 15, the California Supreme Court declined to hear Garamendi.

The New Jersey Supreme Court’s decision in Nav-Its could also pave the way for “choice of law” disputes in coverage litigation. Consider this. When it comes to the applicability of the absolute pollution exclusion to non-traditional environmental pollution, the Pennsylvania Supreme Court took the exact opposite approach as Nav-Its, holding in Madison Construction Company v. Harleysville (1999) that the exclusion precluded coverage for bodily injury caused by exposure to fumes from a cement curing agent.

Given that some New Jersey policyholders no doubt conduct business in Pennsylvania and vice versa, the stage is likely set for policyholders and insurers in some pollution related claims with dual-state contacts to have different ideas about which state’s law applies. Incidentally, New York’s view on the pollution exclusion and non-traditional environmental pollution is the same as Nav-Its (see Belt-Painting Corp. v. TIG Insurance Co., New York Court of Appeals, 2003). Thus, potential “choice of law” disputes are more likely to relate to South Jersey policyholders and operations than to those that are located in Giants territory.

Randy J. Maniloff is an attorney at White and Williams, LLP in Philadelphia. He concentrates his practice in the representation of insurers in coverage disputes over primary and excess policy obligations for various types of claims including construction defect; mold; general liability (products/premises); environmental property damage; asbestos/silica and other toxic torts; first-party property; homeowners, director’s & officer’s liability; and a variety of professional liability exposures, including medical malpractice, media liability, community associations, public official’s liability, school board liability, police liability, computer technology liability, managed care and additional insured/contractual indemnity issues. The views expressed herein are solely those of the author and are not necessarily those of his firm or its clients.

Posted: Monday, October 17, 2005 12:00:00 AM. Modified: Monday, October 17, 2005 3:00:31 PM.

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