Author: Chris Boggs
Rarely do I return to a topic less than four months after I initially address it, but the perceived "absolute" nature of the commercial general liability's (CGL's) pollution exclusion is once again triggering improper coverage denials. In fact, the denials presented in this article will first make you laugh, then make you cry due to the state of the industry.
We've Addressed This – To No Avail
The VU's most recent absolute-pollution-exclusion-debunking article was published March 3, 2017. Following the article the VU presented an even more detailed pollution webinar on March 15. To ice it all, the webinar transcript was made available on or about March 29. Even with all this information out there – adjusters are still screwing up the exclusion (I probably should have said, "…misapplying the exclusion…" but that doesn't seem to adequately address the reality).
Beyond this most recent pollution-focused series, the VU has a history of addressing the pollution issue:
But despite all this insight, information and clear explanation, the industry continues to misappropriate (screw up) the CGL's pollution exclusion.
You Can't Make This Stuff Up
Two new improper pollution exclusion denials recently found their way to my desk; and you will not believe the ridiculousness. In fact, one incident led to the insured having to close his business. And I'm sure these two are indicative of dozens more we never hear about because no one knows enough to question the carrier's decision.
Are you ready for this?
A Roto Rooter franchisee hired to remove a clog damaged the sewer line while "snaking" the line. Sewer water backed up into the house causing thousands in damage. The carrier denied the claim based upon the "2.f.(1)(b)" exclusion in the CG 00 01 04 13 which reads:
This insurance does not apply to:
(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants"
(b) At 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;
And what is the carrier's reasoning? You won't believe it, but here goes: because the sewer line is part of a waste facility, the damage was excluded.
ARE YOU KIDDING ME?
Yes, exclusion "f.(1)(b)" is one of the three "absolute" exclusions within the "absolute" pollution exclusion, but it certainly does not apply in this situation. First, the "f.(1)(b)" exclusion is a premises exclusion, not an operations exclusion. This was an operations loss.
Second, the dwelling location was most likely never used by the insured (the Roto Rooter guy) or anyone else for the handling, storage, disposal processing or treatment of waste.
Thirdly, to make this denial even remotely possible, the carrier must insinuate that every pipe and spillway that leads to a water treatment plant is part of the premises, site or location used for the handling…. The idea that a sewer line on the insured's property is a part of a waste treatment plant is ludicrous. This borders on torturing the policy to create a logical conclusion that is beyond all reason.
Lastly, as an underwriter, wouldn't you imagine that a Roto Rooter man might actually work on sewer and water lines? It's what the insured does. To apply the exclusion in this manner means that the coverage written is illusory. Can anyone say, bad faith?
Because of the carrier's utter stupidity, the insured had to close his business. Clearly this carrier was not on its insured's side; in fact, it was fighting from an opposite corner.
An installation subcontractor working for large national hardware stores installed a gas range. After installation, the contractor turned on the range to burn excess residue off the burners. After turning the burners on, the contractor told the homeowners to allow them to burn for about 30 minutes; at this point, he left the house. However, the contractor forgot to remove a cardboard box from inside the oven. Unsurprisingly, after the contractor left, the box caught fire and filled the house with smoke. The carrier denied the claim stating that smoke from the fire is a pollutant and thus is excluded.
Yes, this denial is as stupid as it sounds. Nothing in the CGL's pollution exclusion even suggests the smoke damage should be excluded. The only possible link the carrier might have to the pollution exclusion is that smoke is included in the definition of a pollutant.
Take a few minutes to review the article, 'However' - The Word the Neutralizes the 'Absolute' Pollution Exclusion. Note from this article that there is only one exclusion that applies to a contractor – "f.(1)(d)" which when read as a whole statement excludes coverage for certain ongoing operations as follows:
"This insurance does not apply to 'bodily injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the 'pollutants' are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor."
Five requirements must be met for this exclusion to apply:
- There must be actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants;"
- The substance must be a pollutant;
- The insured, contractor or subcontractor (on the insured's or contractor's behalf) must be performing operations;
- The "pollutants" must be brought onto the premises, site or location by the insured; and
- The "pollutants" brought to the site must be connected to the operations.
If any of the five requirements is missing, the exclusion does not apply. In this case, at least two requirements are missing:
- The insured was not performing operations. This was a completed operations loss; and
- The "pollutants" were not brought to the site by the insured. The insured brought a cardboard box that caught on fire.
These facts are sufficient to prove this denial is incorrect; but there are two more reasons this denial is absolutely wrong:
- Exception (iii) to the ongoing operations exclusion reads: However, this subparagraph does not apply to: (iii) "Bodily injury" or "property damage" arising out of heat, smoke or fumes from a "hostile fire". I would say this was a hostile fire meaning the exception to the exclusion applies.; and
- There is no completed operations exclusion in the "absolute" pollution exclusion. Because this exclusion is conspicuously absent, there is coverage for a completed operations loss.
Clearly this is a covered loss that falls under this carrier's "umbrella" of coverage. It should pay the claim and stop making absurd coverage decisions by misapplying the pollution exclusion.
Hope We Don't Have to do This Again
My hope is that we don't have to revisit pollution again for a long time; but I fear screwed up denials like these will continue. Certainly, claims managers know better than this; maybe they are not passing the information down to the field. At least this would give us hope.
Adjusters need to understand the forms they hold in their hand; or, they need to stop looking for ways to deny a claim. If my insinuations of stupidity or tightfistedness have made any claims adjusters mad – good!
Last Updated: July 21, 2017