HNRK Coverage Corner

In orders issued last week, a panel of the Ninth Circuit and a federal district judge in Hawaii certified questions to the Supreme Courts of Alaska and Hawaii regarding the scope of a liability policy’s “absolute” or “total” pollution exclusion.  The state high courts will address whether carbon monoxide and carbon dioxide constitute “pollutants” under such an exclusion. 

Ninth Circuit Order – Is Carbon Monoxide a Pollutant Under a Homeowners Policy?

The Ninth Circuit’s order in Estate of Wheeler v. Garrison Property & Casualty Ins. Co., No. 22-35484, issued on September 6, 2023, involved a claim under a homeowners policy arising from a death caused by carbon monoxide.  The policy contained a standard exclusion for claims “[a]rising out of the actual, alleged, or threatened discharge, dispersal, release, escape, seepage or migration of ‘pollutants’ however caused and whenever occurring.”  “Pollutants” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” 

The Ninth Circuit’s order offers a concise overview of the history of the pollution exclusion and the differing interpretations courts have applied—one “camp” has applied a broader literal interpretation, and another has limited the exclusion to “traditional environmental pollution”:

The pollution exclusion emerged in the 1970s to shield the insurance industry from ever-increasing economic burdens due to environmental claims under newly enacted air pollution laws by barring coverage for government-mandated cleanup from long-term industrial pollution.  The original pollution exclusion was a “qualified” exclusion that restored coverage if pollution was “sudden and accidental.”  Later versions of the exclusion eliminated that caveat, producing the modern “absolute” or “total” pollution exclusion. . . .

Since the inception of the pollution exclusion, its scope has been repeatedly litigated, spawning conflicting judicial decisions throughout the country.  We have observed that most state court decisions fall into one of two broad camps:  they either find the exclusion’s terms to be unambiguous and apply it literally, or they limit the exclusion to traditional environmental pollution due to ambiguity or the reasonable expectations of the insured.

Many states have decisions in both “camps” because their courts make a fact-specific determination in each case, tailoring their analysis to the insurance policy and the cause of the damage.  State courts’ approaches and the results in these cases thus vary according to the facts and over time.

The Ninth Circuit noted that courts across the country have reached different conclusions as to whether carbon monoxide constitutes a “pollutant” within the meaning of the standard pollution exclusion.  State or federal courts applying the law of Nevada, Massachusetts, Illinois, Ohio, Kentucky, Tennessee, Washington and the District of Columbia have ruled that carbon monoxide is outside the scope of the exclusion.  On the other hand, the Supreme Courts of “Minnesota, Iowa, and Georgia have held that carbon monoxide falls within the pollution exclusion.” 

The Alaska Supreme Court has only once “addressed the scope of an insurance policy’s total pollution exclusion,” in Whittier Props., Inc. v. Alaska Nat’l Ins. Co., 185 P.3d 84 (2008), a case involving “an underground storage tank at a gas station that leaked over 50,000 gallons of gasoline into the surrounding soil.”  The Alaska Supreme Court adopted a “literal interpretation,” holding “that the exclusion provision was unambiguous and covered the gasoline leak by its plain terms.”  Nevertheless, because the decision was “explicitly tailored” to the specific factual context of a “gasoline leak” under a “commercial general liability policy,” and “Alaska has not considered [the scope of the pollution] exclusion in the residential context or in any case involving a nonindustrial pollutant that caused no environmental harm,” the Ninth Circuit concluded that it was “unable to predict how the Alaska Supreme Court would analyze the [] case without expanding state law.”  Accordingly, it certified the question to the Alaska Supreme Court.     

District of Hawaii Order – Are Greenhouse Gases Pollutants Under a CGL Policy?

In an order issued on September 5, 2023 in Aloha Petroleum, Ltd. v. National Union Fire Ins. Co. of Pittsburg, Pa., Civ. No. 22-00372, Judge Jill Otake of the United States District Court for the District of Hawaii faced a related question—whether the pollution exclusion in a CGL policy applies to greenhouse gases, such as carbon dioxide.  This coverage dispute arose in the context of litigation brought by local Hawaiian governments, alleging that Aloha Petroleum “disregarded known risks of harm . . . when selling its fuel products that would inevitably combust and produce greenhouse gases, particularly carbon dioxide, thereby changing the climate and causing harm to the counties.” 

The policies at issue defined “pollutant” to include “any . . . gaseous . . . irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”  The Court noted that there is no case law in Hawaii addressing the specific question before the court, and in fact, there is “general uncertainty surrounding pollution exclusions under Hawai’i law.”  Judge Otake concluded there were “reasonable arguments on both sides of the ‘pollutants’ dispute,” observing:

On the one hand, the State of Hawai’i Air Pollution Control statues define through incorporation “air pollutant” to include greenhouse gases.  Also in favor of including greenhouse gases in the term “pollutants” is the reasonable argument that greenhouse gases are “gaseous” “chemicals" that are known to cause harm to persons and property through climate change, thus satisfying the thrust of the “irritant or contaminant” qualifier.  And it is at least relevant that the average person on the street would view greenhouse gases as polluting the environment.  It’s also notable that a majority of courts hold carbon monoxide to be a pollutant.

On the other hand, there is the reasonable argument that greenhouse gases, such as carbon dioxide, are emitted around us daily and yet are relatively harmless to our immediate health, particularly in limited amounts.  Relative to other chemicals (e.g., lead), the lack of immediate harm from greenhouse gases may disqualify it as an “irritant or contaminant.”  There is also the literal distance between  where the covered property/persons reside and where the greenhouse effect gradually occurs, miles up in the atmosphere, further undermining an “irritant or contaminant” finding.  At least one court has held that carbon dioxide is not a pollutant, albeit inn the context of exhaled carbon dioxide, not machine emitted carbon dioxide.  See Donaldson v. Urb. Land Ints., Inc., 211 Wis. 2d 224, 564 N.W.2d 728 (1997). . . .  And at least some people on the street would distinguish greenhouse gases from strictly defined “pollutants.”

In addition to the application of the pollution exclusion to greenhouse gases, the Court also asked the Hawaii Supreme Court to address another issue:  “For an insurance policy defining a covered ‘occurrence’ in part as an ‘accident,’ can an ‘accident’ include recklessness?”  (Readers of this blog will know that, under New York law, the unintended results of an intentional act can constitute a covered occurrence, even if the injuries were arguably foreseeable.  See, e.g., Allegany Co‐op Ins. Co. v. Kohorst, 254 A.D.2d 744, 744 (4th Depʹt 1998) (“There is coverage if the damages alleged in the complaint arise out of a chain of unintended though foreseeable events that occurred after the intentional actʺ)).

We will be following both these cases as they make their way through the Supreme Courts of Alaska and Hawaii.  Given the proliferation of litigation relating to greenhouse gas emissions, the decisions could have a significant impact on the development of the case law in an evolving area.