Source: http://www.wisbar.org, October 20, 2015
By: Deborah Spanic
In a case of unintended consequences, an insurance policy endorsement on pollution was found ambiguous and summary judgment was reversed for an insurance company seeking not to provide coverage to its insured.
Patrick Connors was employed at Grede Foundries in Reedsburg, Wis., when he became ill with pneumonia caused by exposure to the bacteria Legionella pneumophilia. A federal agency found that the water in the foundry cooling towers contained the bacteria, and those cooling towers were near the fresh air intakes at the foundry.
Connors sued the foundry, which had a liability insurance policy with Charter Oak Fire Insurance Company. Charter Oak argued that the insurance didn’t cover the foundry in this case because of a pollution exclusion in the policy, specifically stating the “insurance does not apply to bodily injuries caused by ‘pollutants’ that have been dispersed or released from a location owned by the insured.”
All would have been well for Charter Oak if it had kept the standard pollution exclusion in the policy. It didn’t, however. There was an endorsement to the policy that replaced the definition of “pollutants” with a different, more specific definition. The endorsement added four pollutant categories: 1) petroleum or petroleum derivatives, 2) chlorinated and halogenated solvents, 3) coal tar and manufactured gas plant byproducts, and 4) organic and inorganic pesticides and inorganic contaminants.
Charter Oak argued that the Legionella bacteria are contaminants, and thus ‘pollutants’ to which the pollution exclusion applied, so coverage was barred. The Sauk County Circuit Court granted summary judgment to Charter Oak, and Connors appealed.
A three-judge panel of the District IV Court of Appeals, in Connors v. Zurich American Ins. Co. and Charter Oak, 2014AP2990 (Oct. 15, 2015), reversed summary judgment and remanded to the circuit court for further proceedings.

Analysis

The only issue on appeal is whether Legionella bacteria is unambiguously a “pollutant” under the terms of the pollution endorsement in the liability insurance policy.
Judge Brian W. Blanchard, in drafting the panel’s decision, found that the endorsement to the policy provided a significantly different definition of “pollutants” than the standard policy exclusion language that Charter Oak based its arguments on.
“The additional language provides a new definition of pollutants, under which it is ambiguous whether the bacteria alleged to have been inhaled are obviously in the nature of commercial or industrial byproducts specified in the pollution exclusion,” the panel noted. “Therefore we reject Charter Oak’s repeated assertion that the standard pollution exclusion is ‘identical’ to the pollution exclusion here.”
The panel continued, “This conclusion disposes of extensive arguments that Charter Oak makes on appeal, because Charter Oak repeatedly relies on case law interpreting the standard pollution exclusion.”
The endorsement is where things went wrong for Charter Oak. The panel noted, “We agree with Charter Oak to the extent that it suggests that, if we were presented only with the language in the standard pollution exclusion, then coverage would be excluded.” But the specific, detailed endorsement language makes the difference.
“Ambiguity arises because the replacement definition of ‘pollutants’ in the endorsement limits the exclusion by specifying particular types of substances that qualify as pollutants,” the panel added.
“Without assigning detailed meanings to each term [in the endorsement], it is readily apparent that each category involves a type of product or byproduct that would be expected to be used in, or result from the operation of, particular types of commercial or industrial operations.
“We see no reason to conclude that a reasonable insured reading any category would think of mist- or vapor-borne bacteria as belonging in any of the four categories.”
In concluding its reversal of the circuit court’s granting of summary judgment, the panel summarized, “While coverage would not be available if the policy here contained the standard pollution exclusion, one reasonable interpretation of the included substances categories [in the endorsement] is that they involve products or byproducts that would be expected to be used in, or result from the operation of, certain commercial or industrial operations, and that would not include mist- or vapor-born bacteria.”