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By Randy J. Maniloff, White and Williams, LLP
There are two significant Pollution Exclusion cases where I've been looking forward to a decision - the Indiana Supreme Court's in State Automobile Mut. Ins. Co. v. Flexdar and the Wisconsin Supreme Court's in Hirschhorn v. Auto Owners Ins. Co. There is no question that Flexdar is the more important of the two. But Hirschhorn will answer the vexing question whether bat guano is a "pollutant." Flexdar won't. So you can image which one I've been looking forward to more. Guano what I mean.
When it comes to Hirschhorn and bat guano, Binding Authority has not been blind. Robin there before. (See Binding Authority (10/28/10)) (addressing Ind. Ct. App. decision). The insured in Hirschhorn won at the Appeals Court level, but the insurer decided to Munster the pot, arguing that the lower court vampierred in reaching its decision. Earlier today the Wisconsin Supreme Court spread its wings and issued its decision. The high court reversed, err, turned the case upside down, by ruling that bat guano is a "pollutant." Policyholders will be aghast, shaking their heads and saying - guano way.
The question whether bat guano is a "pollutant," for purposes of the Pollution Exclusion, has not been an easy one for those involved in Hirschhorn. Even before the Supreme Court reached its decision, there were five formal positions taken. The insurer took two positions on it (no followed by yes). The trial court took two positions (no followed by yes) and the Court of Appeals took one position (no). Now make it six as the Supreme Court said yes. This sure is a lot of effort for an issue that doesn't arise very often.
The Wisconsin Supreme Court held in Hirschhorn that "bat guano falls unambiguously within the policy's definition of 'pollutants.' Second, we conclude that the Hirschhorns' alleged loss resulted from the 'discharge, release, escape, seepage, migration or dispersal' of bat guano under the plain terms of the policy's pollution exclusion clause." Hirschhorn at 4. Two Justices dissented from the court's decision.
The facts are simple - and while the case involves the Pollution Exclusion under a homeowners' policy, the analysis applies equally to a similar pollution exclusion under a liability policy.
In May 2007, Joel Hirschhorn met with a real estate broker to list his vacation home for sale. "At that time, the broker inspected the home and saw no signs of bats. However, in July 2007, upon inspecting the home again, the broker discovered the presence of bats and bat guano. The broker attempted to remove the bats and clean the home, to no avail. The Hirschhorns and their family stayed at their vacation home between August 9 and 14, 2007. During their stay, they noticed a 'penetrating and offensive odor emanating from the home.' Upon leaving on August 14, 2007, they arranged for a contractor to conduct a more thorough inspection of the home. The contractor determined that the cause of the odor was the accumulation of bat guano between the home's siding and walls. The contractor provided the Hirschhorns a remediation estimate but could not guarantee that cleaning up the bat guano would rid the home of its odor." Id. at 5-6. The Hirschhorns eventually demolished the vacation home and constructed a new one in its place. Id. at 6.
Putting aside various procedural steps, and the several earlier positions and decisions, the case made its way to the Wisconsin Supreme Court on the question whether bat guano comes within the Pollution Exclusion of the Hirschhorn's homeowners policy. The policy defined "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, gases and waste. Waste includes materials to be recycled, reconditioned or reclaimed." Id. at 12-13.
The Wisconsin Supreme Court turned for guidance to its decisions in Donaldson v. Urban Land Interests, Inc. (1997) and Peace v. Northwestern Nat'l Ins. Co. (1999). In Donaldson, the supreme court found the pollution exclusion clause ambiguous as it applied to exhaled carbon dioxide. However, in Peace, the court found the clause unambiguous as it applied to lead paint particles.
Following a discussion of Peace and Donaldson, the Supreme Court held:
[W]e conclude that bat guano falls unambiguously within the term "pollutants" as defined by Auto-Owners' insurance policy. Bat guano, composed of bat *** and urine, is or threatens to be a solid, liquid, or gaseous irritant or contaminant. That is, bat guano and its attendant odor "make impure or unclean" the surrounding ground and air space, see id. at 122 (quoting American Heritage Dictionary 406), and can cause "inflammation, soreness, or irritability" of a person's lungs and skin, see id. (quoting American Heritage Dictionary 954). See Wis. Dep't of Health & Family Servs. in cooperation with the Agency for Toxic Substances & Disease Registry, Indoor Air and Health Issues: Bat Guano, Antigo, Langlade County, Wisconsin (June 9, 1998), http://www.atsdr.cdc.gov/hac/pha/batg/bat_toc.html. These points cannot be seriously contested by the Hirschhorns, who alleged in their complaint that the odor of bat guano was so "penetrating and offensive" as to render their vacation home unfit to live in. Id. at 15-16. "[O]ur conclusion that bat guano falls unambiguously within the term 'pollutants' as defined by Auto-Owners' insurance policy is consistent with our prior decisions in Donaldson and Peace. Unlike exhaled carbon dioxide, bat guano is not 'universally present and generally harmless in all but the most unusual instances.' See Donaldson, 211 Wis. 2d at 234. To the contrary, bat guano, like lead present in paint, is a unique and largely undesirable substance that is commonly understood to be harmful. See Peace, 228 Wis. 2d at 137-38. A reasonable homeowner would therefore understand bat guano to be a pollutant." Id. at 18.
The Supreme Court also held that its decision was "buttressed by the fact that the policy explicitly lists 'waste' as one such irritant or contaminant. The noun 'waste' is defined as, among other things, '[t]he undigested residue of food eliminated from the body; excrement.'" Id. at 16 (citation omitted). The Supreme Court rejected the Court of Appeals's argument that the term "waste" does not include *** and urine, given the policy's other examples of irritants and contaminants, namely, smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, and gases. Id. at 17. The court held that, having already concluded that the term "waste" unambiguously includes *** and urine, the court would not apply rules of construction to rewrite the plain terms of the policy's definition of "pollutants." "Moreover, in Peace, this court already rejected the argument that the pollution exclusion clause should apply to only industrial-type pollutants." Id.
Lastly, the Supreme Court turned to the question whether the "discharge, release, escape, seepage, migration or dispersal" requirement of the pollution exclusion was satisfied. The Court of Appeals held that it was not. The Supreme Court, however, held that it was:
The bat guano, deposited and once contained between the home's siding and walls, emitted a foul odor that spread throughout the inside of the home, infesting it to the point of destruction. The Hirschhorns acknowledged as much in their complaint. They alleged that "the drapes, carpets, fabrics and fabric furnishings in the home were rendered unusable as a result of the absorption of the bat guano odor." Accordingly, implicit in their complaint is an allegation that the bat guano somehow separated from its once contained location between the home's siding and walls and entered the air, only to be absorbed by the furnishings inside the home.
Id. at 21.
Bat guano cases are surely rare. As such, Hirschhorn's impact has nothing to do with bat guano. Rather, the decision places Wisconsin in the camp that applies the Pollution Exclusion to non-traditional pollution.
A copy of today's Supreme Court of Wisconsin decision in Hirschhorn v. Auto Owners Ins. Co. can be accessed here:
Please let me know if you have any questions.
Randy J. ManiloffWhite and Williams LLP1800 One Liberty Place | Philadelphia, PA 19103-7395Direct Dial: 215.864.6311 | Direct Fax: firstname.lastname@example.org
The views expressed herein are solely those of the author and not necessarily those of the firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. The term "Binding Authority" is used herein for literary purposes only and is not an admission that any case discussed herein is in fact binding authority on any court.
Randy J. Maniloff is a Partner at White and Williams, LLP in Philadelphia. He concentrates his practice in the representation of insurers in coverage disputes over various types of claims. He writes frequently on insurance coverage topics for a variety of industry publications. Maniloff's views on coverage issues have been quoted by numerous media including The Wall Street Journal, The New York Times, USA Today, Associated Press and Dow Jones Newswires. Randy is co-author of "General Liability Insurance Coverage - Key Issues In Every State," a book addressing the law in all 50 states on twenty key liability insurance coverage issues (Second Edition; Oxford University Press 2012) (with Professor Jeffrey Stempel of the University of Nevada Las Vegas Boyd School of Law).
Lexis.com subscribers can access the Lexis enhanced version of the decision with summary, headnotes, and Shepard's, State Auto. Mut. Ins. Co. v. Flexdar, Inc., 937 N.E.2d 1203 (Ind. Ct. App. 2010).
Lexis.com subscribers can access the Lexis enhanced version of the decision with summary, headnotes, and Shepard's, Hirschhorn v. Auto-Owners Ins. Co., 2012 WI 20 (Wis. 2012).
Lexis.com subscribers can access the Lexis enhanced version of the decision with summary, headnotes, and Shepard's, Donaldson v. Urban Land Interests, 211 Wis. 2d 224 (Wis. 1997).
Lexis.com subscribers can access the Lexis enhanced version of the decision with summary, headnotes, and Shepard's, Peace v. Northwestern Nat'l Ins. Co., 228 Wis. 2d 106 (Wis. 1999).
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