Source: https://www.irmi.com, September 2015
By: Kent Holland
Where a natural gas pipe exploded due to construction workers disturbing it while working on an excavation project, the Wisconsin Supreme Court held that the resulting bodily injury and property damage was caused by a “pollution condition,” i.e., the escape of the natural gas, and that the contractor’s pollution liability (CPL) policy was required to pay defense and indemnity costs.
In Acuity v. Chartis Specialty Ins. Co., 861 N.W.2d 533 (Wis. 2015), Acuity Insurance was the commercial general liability (CGL) insurer for the contractor, and Chartis was the CPL insurer. Acuity defended and indemnified the contractor in four lawsuits seeking recovery for bodily injury and property damage caused by the natural gas-fueled explosion and fire. Acuity then sought recovery from Chartis, asserting that the CPL policy provided coverage for the damages because it was caused by a pollution condition.
The trial court found in favor of Acuity against Chartis—concluding that Chartis breached its duties of defense and indemnification. That decision was reversed by an intermediate state court of appeals, holding that the bodily injury (BI) and property damage (PD) were “due only to the explosion and fire, not to contacts with the escaped natural gas itself because the gas intrinsically is an ‘irritant’ or ‘contaminant’….” That decision in turn was reversed by the Wisconsin Supreme Court in the decision that is reported in this article.
Three sections of Chartis’s CPL policy were deemed important to determining Chartis’s liability in the present case. The first is the coverage section of the CPL policy. The policy provides that Chartis will cover the insured’s liability for claims of bodily injury and property damage “caused by Pollution Conditions.” The relevant coverage provision states as follows:

A. COVERAGE

1. The Company will pay on behalf of the Insured all sums that the Insured shall become legally obligated to pay as Loss as a result of Claims for Bodily Injury, Property Damage, or Environmental Damage caused by Pollution Conditions resulting from Covered Operations. The Pollution Conditions must be unexpected and unintended from the standpoint of the Insured. The Bodily Injury, Property *411 Damage, orEnvironmental Damage must occur during the Policy Period.
The CPL policy’s definitions of the phrases “pollution conditions” and “covered operations” were deemed critical by the court in defining the scope of the policy’s coverage.
The phrase “pollution conditions” is defined by the policy as the “release or escape of any solid, liquid, gaseous, or thermal irritant or contaminant … into or upon land, or any structure on land, [or] the atmosphere … provided such conditions are not naturally present in the environment in the concentration or amounts discovered.” The policy does not define the terms “irritant” or “contaminant.”
The phrase “covered operations” is defined by Chartis’s CPL policy as “those activities performed by the Named Insured at a job site.” The court stated, “No one disputes that the insured’s excavation project, during which the insured’s employees damaged the natural gas pipe, was a covered operation under the policy.”
The two issues decided by the court were whether the escape of natural gas constitutes a pollution condition and, if so, whether the BI and PD were caused by the pollution condition?

Did Escape of Natural Gas Constitute a Pollution Condition?

The answer to this question, said the court, turns on whether the natural gas was an “irritant or contaminant.” The CPL policy didn’t define those terms. The court thus looked elsewhere to define the terms and said, “When interpreting these words in the context of pollution exclusion clauses in general liability policies, the court has used the common, ordinary dictionary definitions of these words.”
In finding that natural gas was a contaminant under the circumstances of the current case, the court used the dictionary definition of “contaminant” and concluded that, “natural gas that is released into the air from a damaged natural gas pipe constitutes a contaminant. Natural gas renders the surrounding ground and air space impure or unclean because nature gas is extremely flammable and explosive. An explosion and fire resulted in ‘great harm’ in the present case.”
For a contaminant to qualify as a “pollution condition” under the Chartis policy, it must be released in concentrations above those “naturally present in the environment.” The court said that was an indisputable fact in this case and that the escape of natural gas from the damaged pipe was therefore a pollution condition.

Was BI/PD Caused by the Pollution Condition?

Chartis contended that the BI and PD alleged in the four lawsuits were caused by the explosion and fire, not by the contaminating nature of natural gas. It argued that, to fulfill the policy’s causation requirement, it was not enough that a substance capable of acting as a contaminant was the but-for cause of the alleged bodily injury and property damage, but rather, “the contaminating nature of the substance at issue” must directly cause the alleged BI and PD.
In rejecting Chartis’s argument, the court compared two earlier pollution coverage cases (Peace v. Northwestern National and Hirschhorn v. Auto-Owners Ins.). In one of those, the release of lead from lead paint, chips, and dust caused a child tenant to ingest lead, and the injection of lead poisoned the child. In the other, the release of bat guano into walls led to an offensive odor, and the offensive odor made the property uninhabitable. In both of those decisions, the court had found the condition in question to be a “contaminant” or “pollutant” as defined by commercial general liability (CGL) polices. The court, without any real analysis or decent explanation, jumped to the following conclusion:

In Peace, the release of lead from lead paint, chips, and dust caused the child tenant to ingest lead, and the ingestion of lead poisoned the child. In Hirschhorn, the release of bat guano into the walls led to an offensive odor, and the offensive odor made the property uninhabitable. As in Peace and Hirschhorn, it is clear under the language of Chartis’s CPL policy that the bodily injury and property damage alleged in the four lawsuits were “caused by Pollution Conditions.”

It must be noted that, in the cases cited by the court, the harm suffered by the individuals resulted directly from their contact with the “pollutant” or “contaminant” itself. There was no subsequent event, such as a fire or explosion that caused damage and injury. The court fails to make that critical distinction between the facts of the cases. The court simply, and almost glibly, states:

We are not convinced by Chartis’s argument.

First, Chartis fails to tether its argument to the language of the CPL policy. We do not agree that Chartis’s CPL policy requires the contaminating nature of the substance at issue to cause the alleged damage in order to trigger coverage. On its face, the CPL policy covers claims of bodily injury or property damage “caused by Pollution Conditions”—nothing more, nothing less. Chartis does not explain why this court should read a more stringent causation requirement into this provision.

Second, even assuming that the contaminating nature of the contaminant must cause the bodily injury or property damage, we conclude that the contaminating nature of natural gas is precisely what caused the bodily injury and property damage alleged in the four lawsuits.

As discussed previously, natural gas is a contaminant. It can cause injury through inhalation and when it mixes with air in certain concentrations, it can explode or ignite. In other words, part of the contaminating nature of natural gas is its capacity to cause explosions and fire. In the instant case, the escape of natural gas caused an explosion and fire that resulted in bodily injury and property damage. The alleged bodily injury and property damage were therefore caused by the contaminating nature of natural gas.

Conclusion

The bottom line of this decision seems to be that, because the pollution condition resulted from the release of natural gas from a damaged pipe, this inherently created the danger of explosion and fire and, therefore, the subsequent explosion and injuries that followed must, ipso facto, be caused by a pollution condition covered under the CPL policy.