Insurance coverage for lead examined.
Landlords and building owners are finding they can call upon insurance policies issued years ago to pay for these lead exposure claims.
A variety of insurance policies provide landlords and owners with protection against lead exposure claims including comprehensive general liability insurance policies, umbrella and excess liability policies. These policies were intended to provide coverage for bodily injury and property damage claims landlords and owners face in lead cases.
Often these claims stem from activities which took place many years ago. Landlords and owners should make sure to provide notice to all insurance companies that sold them policies lead liabilities. Since 1. may be able to look to old policies to provide coverage for lead cases, they should perform a diligent search for insurance policies and make sure that no policies are discarded in the course of document destriction.
The Pollution Exclusion
While it may seem obvious to most that lead is not a "pollutant, " insurance companies attempt to avoid their contractual obligations by arguing that the "pollution exclusion" bars coverage for lead elms. Numerous courts nationwide have rejected this argument.
Most 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 policy makes no reference to lead, paint, or lead based paint. " Generali-U.S. Branch v. Caribe Realty Corp., No. 25499/91 (S. Ct., April 26, 1994).
In March, another New York trial court held that the owner of a building sued by a demolition worker exposed to lead-based fumes could call upon his insurance company. In Schumman v. State of New York, No. 84605 (Ct. Cl. March 30, 1994), the court held that the pollution exclusion clause did not bar claims arising from lead exposure: "Here the failure to provide claimant with an appropriate protective device gives rise to exposure - covered by the policy and not excluded by the pollution exclusion clause. Similarly, in Continental Casualty Co. v. Rapid- American Corp., the New York Appellate Division held that the pollution exclusion did not relieve the insurance company of its duty to defend the underlying suits. The Appellate Division found that the reach of the exclusion: 'extends to environmental pollution occasioned by intentional discharge of a pollutant in the course of manufacturing or distribution activities by the producer of a product, but does not embrace the harm meted by a product fully and finally launched into the stream of commerce, and over which the manufacturer no longer exercises any control.
Thus, the Appellate Division found that a mere "tangential impact on any |environment'" is not sufficient to trigger the pollution exclusion. The New York Court of Appeals, affirming the Appellate Division's decision, emphasized that the exclusion is intended to: "exclude coverage for envirommental pollution. The terms used in the exclusion to describe the method of pollution - such as "discharge' and "dispersal" - are terms of art in environmental law used with reference to damage or injury caused by disposal or containment of hazardous waste."
Similarly, in Gould, Inc. v. Continental Casualty Co., No. 3529 (Pa. Ct. C.P. July 26, 1991), the court held that the so-called sudden and accidental pollution exclusion did not bar coverage for a claim involving workplace exposure to lead fumes and dust because the pollution exclusion applied only to occurrences outside the workplace.
In A-1 Sandblasting & Steancleaning Co. v. Baiden, 53 Or. App. 890, 632 P.2d 1377 (1981), passing vehicles were damaged by the overspray of paint used while the policyholder was spray-painting a bridge. The exclusion excluded liability for: "Damage to property arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants... "
The insurance company denied coverage for the policybolder's liability for the damage to the cars on the ground that paint is either a liquid, or alternatively, because of its chemical composition, an acid or alkali, and thus was excluded by the above-cited policy language. The lower court disagreed, finding that paint "in common understanding" is not thought to be an irritant, contaminant or a pollutant. The Oregon Supreme Court affirmed, stating that a reading of the above list of substances, "is not so clear as to cause a reasonable person in W& position of the insured to believe that paint was one of the substances referred to in the exclusion... "
The Absolute Pollution Exclusion
In 1986, the insurance industry revised the Comprehensive General Liability policy to include a new pollution exclusion that has been nicknamed the "absolute pollution exclusion."
The only highest state court which has ruled on the issue rejected application of the so-called absolute pollution exclusion to bar coverage for lead claims. In Atlantic Mutual Insurance Co. v. McFadden, 413 Mass. 90, 595 N.E.2d 762 (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." The Massachusetts Supreme Court similarly rejected the insurance company's argument. The court concluded: "There simply is no language in the exclusion provision from which to infer that the provision was drafted with a view toward limiting liability for lead paint-related injury. The definition of "pollutant" in the policy does not indicate that leaded materials fall within its scope."
In Mount Vernon Fire Insurance Co. v. Valencia, No. 92 CV 1253 (E.D.N.Y. July 29, 1993), the judge awarded sanctions and attorney's fees to the policy-holder on the ground that the insurance company had asserted an insupportable claim that an absolute pollution exclusion barred coverage for claims arising from lead poisoning. The judge state that "had [Mount Vernon'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 [defendant in the underlying claim]."
Similarly, other courts have refused to read the term "pollutant" overbroadly. In West Am. Ins. Co. v. Tufco Flooring E., Inc., 104 N.C. App. 312, 409 S.E.2d 692 (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. 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 coverage and that the 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 preserve the decisions below. See, Oates v. New York, 597 N.Y.S.2d 550 (Ct. Cl. 1993) absolute pollution exclusion barred coverage for in utero injury allegedly arising from ingestion of lead pigment in paint); Kaytes v. Imperial Casualty & Indem Go., No. 93-1573 (E.D. Pa. Jan. 7, 1994) (absolute pollution exclusion barred coverage arising from injury caused by lead pigment in paint).
The Lead Exclusion
In view of the potential liability arising from injuries caused by lead, a number of insurance companies have added lead exclusions to their policies. At least 22 commercial liability insurance companies selling property and casualty insurance in New York have filed for and have been granted approval to add a lead liability exclusion to insurance policies they sell in New York. At least another 18 requests for approval are currently pending.
One court has found that such lead exclusions can preclude coverage. In J. A. M. Assocs. of Baltimore v. Western World Ins. Co., 95 Md. App. 695, 622 A.2d 818 (1993), the Maryland appellate court held that a provision contained in a renewed policy excluding "all losses arising out lead paint poisoning" was valid. The policyholder argued that the addition of the lead exclusion in the renewed policy had not been brought to its attention. Ruling in favor of the insurance company, the court sum that the policyholder was under sufficient notice regarding changes in the policy given differences in the deductible, a change in the premium, and the fact that notice was given to an agent.
Other Policy Exclusions
The sistership exclusion is designed to bar coverage for product recalls. Insurance companies attempt to use this exclusion to bar coverage in lead paint cases. In Sherwin Williams v. Certain Underwriters at Lloyd's London, 813 F. Supp. 576, 587 (N.D. Ohio 1993), the court held that the sistership exclusion precluded coverage for abatement costs in the context of lead pigment in paint. Nevertheless, the court held there was still a duty to defend on the basis of earlier policies which potentially were triggered.
Insurance companies also try to use the owned product exclusion to avoid liability for lead paint cases. This exclusion is "based on the theory that liability policies are not intended to provide coverage for faulty workmanship, but rather for damage caused by the product to other property." See Stonewall Ins. Co. v. Nat'l Gypsum Co.
Because products containing lead, such as paint containing lead pigment, generally work quite well, the own product/-business risk exception generally would not apply. In NL Industries, Inc. v. Commercial Union Ins. Co., Nos. 90-2124-25 (D.N.J. July 11, 1991), the court held that the business risk exclusion did not apply to injury caused by lead pigment in paint because the product, while inherently dangerous, was not defective.
Liability insurance policies provide coverage for lead cases. Where the bodily injury or property damage has occurred over many years, even though it is not visible, every policy for every policy year provides coverage. The pollution exclusion does not limit coverage for lead cases. Landlords and owners should aggressively seek coverage for their lead liabilities.