The case was brought by another insurer (Acuity) that provided the same contractor with a commercial general liability (CGL) policy that did cover damage from the explosion. Based on the decision, the CGL insurer could not require the CPL insurer to share in the costs of defense and indemnification. See Acuity v. Chartis Specialty Ins. Co.,353 Wis. 2d 554, 846 N.W.2d 34 (Wis. App. 2014).

The Insurance Dispute

Four consolidated lawsuits were brought by several plaintiffs against a contractor, Dorner, Inc., following an explosion that occurred when Dorner employees hit an underground natural gas line. The ruptured line caused an explosion and fire that destroyed a church, damaged nearby houses, and injured two employees of an electric utility company.
The contractor had a CPL policy issued by Chartis Specialty Insurance and a CGL policy issued by Acuity. Acuity provided defense and indemnification to the contractor, settling the lawsuits for about $1.5 million, plus defense costs of almost $300,000. However, from the outset, Acuity contended that Chartis was required to share in the defense and indemnification costs under its CPL policy. Chartis denied that its policy was triggered, prompting Acuity’s suit in circuit court against Chartis for breach of the policy.
The county circuit court decision, which was reversed on appeal, had found that Chartis had breached its policy and owed Acuity 50 percent of the defense and indemnification costs. The court looked to the language of CPL policy, which covered damages due to “Pollution Conditions.” The policy defined pollution conditions in part as “the discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant.” The circuit court theorized that the leak of the “gaseous combustible fuel” met the definition of a contaminant under the pollution policy. Accordingly, the circuit court found that Chartis breached the policy and ordered it to provide Acuity with half of the defense and indemnification costs.
The Wisconsin Court of Appeals disagreed, finding that the CPL insurer was not under a duty to defend. Under Wisconsin law, an insurer’s duty to defend is triggered when the allegations in a lawsuit, if proven, would “give rise to the possibility of recovery” under the policy. A duty to defend “is necessarily broader than the duty to indemnify because the duty to defend is triggered by arguable, as opposed to actual, coverage.” Assuming the facts in the complaint are correct, the insurer’s coverage under the policy must at least be “fairly debatable” for the insurer to have a duty to defend the insured.
The appeals court found that, even assuming all the facts in the complaint were correct, the insurer had no duty to defend under the CPL policy. The appeals court explained that the lawsuits against the contractor alleged property damage and injury due to the explosion and resulting fire, not from contact to the escaped natural gas itself. Without any damage or injury due to direct contact with a “contaminant or irritant,” there was no “Pollution Condition” under the policy. The court concluded that, since coverage under the policy was not “fairly debatable,” Chartis was under no duty to defend under the CPL policy.

Conclusion

This case highlights the distinction between damages and injuries that are caused by a covered pollution condition that would be covered under a CPL policy versus those that are caused by a nonpollution event (such as explosion) even when that event might itself cause the release of a contaminant (in this case, gas). The point is that the complaint did not allege that the gas caused the injuries. It alleged that the explosion caused the injuries. The court found that it was undeniable that the natural gas did not cause or contribute to the damages or injuries alleged in the complaint. Consequently, there could be no possible trigger of pollution coverage under the CPL policy, and this meant there could be no duty under the CPL policy to defend the claims.