Natural Gas Explosion Covered under Contractor’s Pollution Insurance Policy
Source: http://www.wisbar.org, March 17, 2015
By: Joe Forward
An insurer that covered a contractor’s liability for “pollution” damages must cover a share of defense costs and settlement amounts from a natural gas explosion that caused property damage and bodily injury, the Wisconsin Supreme Court has ruled.
In 2008, Dorner Inc. was performing road construction in Oconomowoc, which included underground excavation. Workers discovered a natural gas line and mistakenly thought it was inactive. When they tried to move the pipe, it ruptured and leaked gas, causing an explosion that leveled a church, damaged nearby residences, and injured workers.
Four lawsuits followed. Dorner had two liability insurance policies. One was a general commercial liability policy with Acuity Insurance Company (Acuity).
Another was a “contractors’ pollution liability policy” with Chartis Specialty Insurance Company (Chartis), which covered damages caused by pollutants specifically.
Acuity defended the lawsuits and indemnified Dorner upon settlement. But Acuity sued Chartis to pay half of defense fees and half the settlement. Chartis argued that the damages weren’t covered because an explosion caused the damages, not pollution.
The Waukesha County Circuit Court said the damages were covered, and ordered Chartis to pay 50 percent of defense and indemnity costs associated with the lawsuits.
But a state appeals court reversed, concluding that Chartis’s policy did not cover the losses. In Acuity Ins. Co. v. Chartis Specialty Ins. Co., 2015 WI 28 (March 17, 2015), a unanimous supreme court reversed the appeals court, concluding that the natural gas leak was a “pollution condition” that caused the bodily injury and property damage.
“We therefore conclude that Chartis’s CPL policy covers the insured’s liability arising from the natural gas-fueled explosion and fire,” wrote Chief Justice Shirley Abrahamson. “Chartis must pay its share of the defense fees and indemnity payments as ordered by the circuit court.” Acuity had paid a $1.5 million settlement on behalf of Dorner.
In the Chartis policy, a “pollution condition” was defined as the “release of any solid, liquid, gaseous, or thermal irritant or contaminant” on land or into the atmosphere in concentrations not naturally present in the environment.
First, the supreme court rejected Chartis’s claim that natural gas released into the air is not a “irritant” or “contaminant” and thus not a covered “pollution condition.”
“Natural gas renders the surrounding ground and air space impure or unclean because natural gas is extremely flammable and explosive,” wrote Chief Justice Abrahamson, noting that in this case, its release resulted in great harm. “Thus, we conclude that natural gas is a contaminant under the circumstances of the present case.”
The supreme court noted that a company like Dorner, which does excavation construction work, would expect the pollution policy to cover natural gas leaks.
Second, the supreme court ruled that the Dorner workers caused a contamination of natural gas into the air, which caused damages by triggering the explosion.
“This sequence of events is sufficient to establish that the escape of natural gas (a pollution condition) caused the alleged bodily injury and property damage,” wrote the chief justice, rejecting Chartis’s claim that no coverage existed unless the leaked natural gas, in its gaseous state, caused the damage, not a resulting explosion of fire.
Finally, the court rejected Chartis’s claim that since Acuity’s policy applies to cover the loss, Chartis’s policy does not since Chartis’s policy merely fills a “pollution” gap in coverage. The court noted that both policies can apply simultaneously:
“Depending on the language of the policies and the facts of the case, it is entirely possible for both a commercial general liability policy with a pollution exclusion clause and a contractors’ pollution liability policy to cover the insured’s liability.”
The court noted that it was only deciding Chartis’s coverage obligation, not whether Acuity’s policy actually covers liability for a natural gas explosion.