Source: http://www.lexology.com, January 6, 2014
By: Natalie Dubose, Haynes and Boone LLP
A variety of businesses from hospitals and hotels to agricultural producers and restaurants may from time to time be faced with the threat of viral or bacterial outbreaks and related claims from third parties. When such outbreaks result in injury to persons or property, insured businesses may look to their commercial general liability (CGL) and other liability policies for coverage. An insured facing a claim arising out of a microbial infection or epidemic should carefully review the subject policy’s pollution exclusion, in addition to reviewing any bacteria/mold exclusions, when negotiating and pursuing liability coverage. Insureds should be particularly wary of any pollution exclusion which defines “irritant or contaminant” to include “biological agents or materials.”
The ISO form pollution exclusion was adopted in the 1970s to address the increasing number of claims for large scale industrial pollution, which appeared to be covered by most policies at the time. The original intent of most pollution exclusions was to exclude environmental pollution injury or damage resulting from violations of the federal environmental laws. The definition of “pollution” in a standard absolute pollution exclusion today typically includes “any solid liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.” Over time, this definition of “pollution” has been applied beyond what would traditionally be thought of as environmental hazards.
For example, the Eleventh Circuit, relying on a definition of the term “irritant” to include anything that causes “irritating effects,” found that bacterial poisoning and infection from roadwork millings mixed with water were “irritating effects” that were excluded under the pollution exclusion. See Markel Inter. Ins. Co., Ltd. v. Fl. W. Covered RV & Boat Storage, LLC, 2011 U.S App. LEXIS 16552 (11th Cir. Aug. 11, 2011).
While courts appear split on whether living organisms should be excluded as “pollution,” several courts have read the pollution exclusion broadly enough to apply to such living organisms. Examples include cases where the pollution exclusion eliminated coverage for alleged damages caused by “microbial populations” and fecal coliform bacteria. See Nova Cas. Co. v. Waserstein, 424 F. Supp. 2d 1325, 1334 (S.D. Fla. 2006) (finding that “living organisms”, “microbial populations” and “indoor allergens” fit the ordinary definition of a “contaminant”); East Quincy Servs. Dist. v. Continental Ins. Co., 864 F. Supp. 976 (E.D. Cal. 1994) (excluding from coverage damage caused by fecal coliform bacteria under an exclusion that defined “pollutants” to include “biological and etiological agents or materials”). Other courts have resisted such an expansive reading of the exclusion, noting that bacteria, as living organisms, are not similar to the pollution exclusion’s enumerated list of items, which usually includes “smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” See Keggi v. Northbrook Property & Casualty Ins. Co., 13 P.3d 785 (Ariz. App. 2000) (finding fecal coliform bacteria was not excluded under the policy’s definition of “pollutant” or “contaminant”); Westport Ins. Corp. v. VN Hotel Group, LLC, 513 Fed. Appx. 927 (11th Cir. 2013) (finding legionella bacteria was not an “irritant or contaminant” excluded by the pollution exclusion because it would otherwise render the fungi/bacteria exclusion meaningless).
Given the diverging opinions on this issue, a uniform answer on whether living organisms are excluded under a pollution exclusion as an “irritant or contaminant” seems far off, at best. Until then, insured organizations at risk for claims arising from a microbial outbreak will do well to closely examine the terms of the relevant liability policy’s pollution exclusion in negotiating and pursuing liability coverage.