Insurance Law

Insurer Cherry Bombs: Court Holds That Pollution Exclusion Does Not Apply To Fireworks [Yes, Fireworks]

One of the things that makes the pollution exclusion such a fan-favorite is that its applicability is sometimes tested against unusual substances, i.e., ones that don’t necessarily shout pollution when come across. For example, just since 2011, courts have addressed whether such things as aroma from curry, cooking oil, deli odors, ejaculate (see CO – issue), swine waste odors and bat guano qualified as a “pollutant.” These seemingly unusual pollution exclusion cases are sure to continue to leach from courthouses. Here is the latest entry is this pollution exclusion category. [Far be it from me to question another insurer’s decision to litigate a coverage issue, but this one seemed like a real hail Mary.]

At issue in Charter Oak Fire Ins. Co. v. Endurance American Specialty Ins. Co., No. 13–00558 (D. Hawaii Aug. 20, 2014), [enhanced version available to lexis.com subscribers], was the potential availability of coverage for an enormous tragedy. The facts are simple, as stated by the court. “VSE [Corp.] had a contract with the federal government to destroy seized fireworks. VSE subcontracted with Donaldson Enterprises, Inc., to have Donaldson destroy those fireworks. On April 11, 2011, an explosion occurred where the fireworks were being stored that killed [five] Donaldson employees who were in the process of destroying the fireworks at the time of the explosion. Four suits were filed in state court arising out of the deaths of the five Donaldson employees.”

Charter Oak Insurance insured VSE and undertook its defense. Charter Oak then sought reimbursement of the defense costs from Endurance Insurance on the basis that VSE was an additional insured under the policy Endurance issued to Donaldson. Endurance undertook VSE’s defense under a reservation of rights (noting that there were “ significant coverage issues”).

The Endurance policy issued to Donaldson contained a pollution exclusion. And there was nothing unusual about it. It excluded coverage for “bodily injury” or “property damage” “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ ... [a]t or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste.” The policy defined “Pollutants” as “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.”

Lots of other things happened in the litigation – both procedurally and substantively. But those things are not important here. But here’s what is.

Endurance argued that, since the fireworks were waste, the explosion of the fireworks was an “actual ... discharge of ‘pollutants,’” that caused bodily harm, and that such harm therefore fell under the pollution exclusion contained in the policy.

The court provided a detailed analysis of the issue – perhaps more than some others might have. It first looked to two Hawaii cases and noted that they did not limit the pollution exclusion (as in California, the court observed) to traditional environmental pollution. The court pointed to Hawaii federal cases that applied the pollution exclusion to: physical and emotional injuries caused by the escape of concrete dust from a concrete recycling plant; and injuries caused when a plumber “poured an extremely strong drain cleaner down the maintenance drain, releasing noxious fumes” at a Wal–Mart store.

The court rejected Endurance’s argument that, because the fireworks were waste, that per se made them pollutants: “According to Endurance, because what Donaldson was destroying should qualify as ‘waste,’ it also qualifies as a ‘pollutant.’ This court reads the words following ‘including’ as examples of ‘irritants’ or ‘contaminants.’ That is, ‘waste’ cannot be a ‘pollutant’ without being an ‘irritant’ or ‘contaminant.’ Because ‘waste’ does not expand the definition of ‘pollution’ beyond ‘irritants’ and ‘contaminants,’ some forms of ‘waste’ (i.e., waste that is neither an ‘irritant’ nor a ‘contaminant’) may not necessarily be ‘pollutants.’ Thus, while ‘vapor’ is part of the list that includes ‘waste,’ not all ‘vapors’ are ‘pollutants.’ Water vapor, when it is not an ‘irritant’ or ‘contaminant,’ would not be a ‘pollutant.’”

The court also noted that “[f]ireworks might be considered hazardous waste on their own, but it was not the fireworks themselves that caused the injury. Unlike the drain cleaner (or the dust in Allen), fireworks can sit out exposed without necessarily emitting fumes, causing irritation, or generating what a layperson would consider pollution. Even if the court looks at the flammable components of the fireworks, not at the manufactured fireworks, the mere presence of those components did not cause any irritation or contamination, so it is not clear that the components fit the definition of ‘pollutants’ for purposes of this case.” The court expanded on this: “Even if the fatal explosion could be said to have ‘arisen out of’ the presence of the fireworks or their components, and even if the fireworks or their components were ‘pollutants,’ it is not at all clear that, in the Liability Suits, VSE is being sued in connection with an explosion allegedly arising out of ‘the discharge, dispersal, seepage, migration, release or escape’ of pollutants.”

So the court held that fireworks cannot be a “pollutant” without first being an “irritant.” But for many of us, fireworks are an irritant. Ooh. Aah.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.

The views expressed herein are solely those of the author and not necessarily those of his 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. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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