Supreme Court enforces 'absolute' pollution exclusion as written

By Christina L. Smith

The "absolute" pollution exclusion contained in most general-liability insurance policies defeats coverage for illness caused by toxic fumes, according to a recent 5-4 decision by the Washington Supreme Court.

In Quadrant Corp. v. American States Ins. Co., no. 74663-0 (Apr. 28, 2005), Pacific was making repairs and improvements on an apartment building owned by Roy Street Associates. During the repair work, Pacific Restoration applied waterproofing sealants to a deck. The sealants contained a toxic substance called TDI, whose fumes can irritate the respiratory tract and in high concentrations can cause central-nervous-system depression.

Delores Kaczor was a tenant in the apartment building next door. Pacific failed to warn Kaczor that it would be applying the sealants, and it failed to ventilate the area adequately. Fumes entered Kaczor’s apartment, making her ill. Kaczor claimed that the fumes worsened her pre-existing chronic obstructive pulmonary disease. Kaczor sued Pacific.

American States insured Pacific for general liability. The policy also covered Roy Street Associates as an additional insured. The policy excluded from liability coverage any bodily injury or property damage “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.” Roy Street Associates held a liability policy with State Farm that contained a nearly identical exclusion.

After Kaczor sued, both insurers declined to defend the insureds based on the pollution exclusions. The insureds sued both insurers and moved for summary judgment, arguing that this pollution exclusion applied only to “traditional environmental pollution.” The trial court disagreed and entered summary judgment in favor of the insurers. The Court of Appeals affirmed. The Washington Supreme Court accepted review.