Dealing with sick building liability claims.

Building owners and operators are being sued by persons - particularly children - claiming to have been injured by exposure to lead based paint. The news media are filled with headlines such as "Boy Poisoned By Lead Paint To Get Up To $1.5 Million" or stories contending that "It is estimated that childhood lead paint poisoning costs society billions of dollars annually." Who will pay these huge sums?

The death of a tenant asphyxiated by fumes from a defective gas heater was held to be covered by insurance after a knockdown, drag-out court battle with the insurance company.

Claims are being made by tenants and other building occupants alleging health damage due to: asbestos-containing building materials; lead based paint; formaldehyde insulation; electromagnetic fields created by use of electrical equipment; a variety of commonplace cleaning and building materials such as solvents, adhesives and coatings; and polluted indoor air.

These sick building syndrome claims are now hitting the courts in ever increasing numbers. Building owners and operators are finding that insurance policies sold to them years ago will pay for these claims.

A variety of insurance policies provide owners and operators with protection against lead, asbestos and other injurious exposure claims. These include comprehensive general liability, umbrella liability, and excess liability policies. These insurance policies were intended to provide insurance coverage for bodily injury and property damage claims which building owners and operators are facing.

Often, Sick Building Syndrome claims stem from activities which took place many years ago. Building owners and operators should provide notice of Sick Building Syndrome claims against them to all insurance companies that sold them insurance policies over the entire period the claimants are alleging that the building was "sick." Note particularly that old insurance policies may cover today's claims. Old insurance policies are worth more than their weight in gold.

Sick Building Syndrome claims made by employees should - of course - be covered by workers' compensation insurance. Sick Building Syndrome claims by workers are sometimes brought at the urging of their unions.

It is critically important that owners and operators know that they may be able to look to old policies to provide insurance coverage. They should perform a diligent search for old insurance policies and make certain that copies of insurance policies are not discarded. Insurance purchased by prior owners may also cover today's claims.

The Pollution Exclusion

While it may seem obvious to most people that lead in-house paint and asbestos in ceiling or floor tiles are not "pollutants," insurance companies attempt to avoid their contractual obligations by arguing that the "pollutionexclusion" bars coverage for such claims. Numerous courts nationwide have rejected this argument.

Recently, a state court in New York held: "There is nothing in the [pollution] exclusion clause from which it can be inferred that the provision was drafted with a view toward limiting liability for lead paint-related injury. The definition of pollutant in the insurance policy makes no reference to lead, paint, or lead-based paint... Generali-U.S. Branch v. Caribe Realty Corp., 1994 N.Y. Misc. LEXIS 166 (Sup. Ct. Ap. 13, 1994).

In Gould, Inc. v. Continental Casualty Co., No. 3529 (Pa. Ct. C.P., July 26, 1991), the court held that such work place exposure claims were covered by insurance.

In 1986, the insurance industry revised the standard-form Comprehensive General Liability policy to include a new pollution exclusion which has been nicknamed the "absolute pollution exclusion."

Only one state supreme court has ruled on the applicability of the so-called absolute pollution exclusion to bar insurance coverage for lead paint claims. That court rejected the exclusion and held that the owner was covered by insurance for the lead paint claims being made against it. In Atlantic Mut. Ins. Co. v. McFadden, 595 N.E.2d 762 (Mass. 1992), the Supreme Court of Massachusetts held that in-place lead paint is not a "pollutant" under the pollution exclusion. Indeed, the McFadden lower court had ruled that "there is no language in the policy which even suggests that lead in paint, putty, or plaster is a 'pollutant' within the meaning of the provision."

In Mount Vernon Fire Ins. Co. v. Valencia, 1993 U.S. Dist. LEXIS 13265 (E.D.N.Y. July 6, 1993), the judge awarded sanctions and attorney's fees to the policyholder on the grounds that the insurance company had asserted an insupportable claim that an absolute pollution exclusion barred coverage for claims arising from lead poisoning. The judge stated that "had [Mount Vernon Insurance Company's] counsel made the required inquiry into the law surrounding the pollution exclusion, he could not have come to the conclusion, consistent with minimal standards of professional competence, that the pollution exclusion would operate to exclude coverage of the [defendants in the underlying claim]."

Similarly, other courts have refused to read the term "pollutant" too broadly. In West American Ins. Co. v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. Ct. App. 1991), vapors were released by the material (styrene monomer resin) with which the policyholder resurfaced the floor of a Perdue chicken processing facility. As a result, $500,000 worth of chicken parts were damaged. Perdue sued the policyholder which had done the resurfacing. The insurance company denied coverage based on the so-called absolute pollution exclusion.

The North Carolina Court of Appeals affirmed the trial court's summary judgment ruling that there was insurance coverage and that the pollution exclusion was inapplicable, finding, among other things, that the flooring material containing styrene monomer resin is not a "pollutant" under the so-called absolute pollution exclusion. The court stated: "The common understanding of the word 'pollute' indicates that it is something creating impurity, something objectionable and unwanted. The flooring material (styrene monomer resin) brought upon the premises by [the policyholder] was wanted. It was not impure. When [the policyholder] purchased its CGL insurance, it understood 'pollutant' in the same way that the Oxford English Dictionary defines 'pollutant,' as an unwanted impurity, not as the raw materials which [the policyholder] purchased to do its job."

A few lower court decisions have applied erroneously the so-called absolute pollution exclusion to preclude coverage for lead claims. These cases were settled by the insurance companies on appeal so as to prevent the policyholders from appealing. See Oates v. New York, 597 N.Y.S.2d 550 (Ct. Cl. 1993) in which absolute pollution exclusion barred coverage for in utero injury allegedly arising from ingestion of lead pigment in paint; and Kaytes v. Imperial Casualty & Indem Co., No. 93-1573 (E.D. Pa. Jan. 7, 1994) where absolute pollution exclusion barred coverage for claims arising from injury caused by lead pigment in paint.

The Lead Exclusion

In view of the potential liability arising from injuries claimed to have been caused by lead, a number of insurance companies have now added lead exclusions to their policies. Exclusions in present-day insurance policies underscore the importance of looking to older insurance policies for insurance coverage of present-day claims. One court has found that such lead exclusions can preclude coverage. In J.A.M. Assocs. of Baltimore v. Western World Ins. Co., 622 A.2d 818 (Md. Ct. Spec. App. 1993), the Maryland appellate court held that a provision contained in a renewed policy excluding "all losses arising out of lead paint poisoning" was valid.

Building owners, operators, and their insurance brokers must be very careful when buying insurance policies with special exclusions.

Conclusion

Building owners and operators should assume they are covered by insurance. The purpose of insurance is to provide a financial cushion when untoward claims are made. Sick building syndrome claims are certainly untoward.

Liability insurance policies purchased by building owners and operators should provide insurance coverage for claims made by tenants and others based upon the so-called "Sick Building Syndrome." Where the bodily injury or property damage has occurred over many years, even though it was not visible, every policy for every policy year may provide insurance coverage. The pollution exclusion does not limit insurance coverage.

When claims are made against them, owners and operators should notify their insurance brokers and insurance companies and aggressively seek the insurance coverage for which they paid premiums.