June 1, 2009
A recent decision by the United States District Court for the Southern District of New York illustrates the continuing strength of New York authorities limiting the absolute pollution exclusion to bar coverage or "environmental contamination."
In Janart 55 W. 8th St., LLC v. Greenwich Insurance Company, the policyholder (an apartment building owner) sought a declaration of coverage under a property insurance policy issued by Greenwich Insurance Company. The claimed loss arose from the leaking of a mercury container from the joist space between two floors of the insured building, where the material had apparently been abandoned by a long-since departed dentist who had used mercury in his dental practice. Greenwich denied coverage for the claim, based on the absolute pollution exclusion in its policy.
The District Court denied the insurer's motion for a declaration of non-coverage, on grounds that New York state and federal decisions have limited the pollution exclusion to "environmental contamination." The District Court reasoned that the spill of waste mercury within a building's indoor spaces was not subject to the pollution exclusion "in light of [the exclusion's] general purpose, which is to exclude coverage for environmental pollution." The Janart 55 Court relied upon a 1995 decision by the federal Second Circuit Court of Appeals, which held that the exclusion did not bar coverage for loss arising from the escape of carbon monoxide from a faulty residential heating and ventilation system. Based on this and similar authority, the Janart 55 Court concluded that "the mercury leaking into Apartment 2 . . . from the ceiling cannot be characterized as 'environmental' in nature."
Significantly, the Janart 55 Court did not define the term "environmental contamination." Nor was the limitation to "environmental contamination" expressed in the Greenwich policy. Thus, the Janart 55 decision does little to clarify precisely which types of releases would qualify as "environmental contamination." Several facts here could have supported a conclusion that the release involved "environmental contamination," including: (a) mercury is a hazardous substance regulated under federal and state environmental law; (b) the mercury release would not have occurred but for the improper disposal of the material; and (c) the mercury release resulted in site remediation under applicable environmental regulations.
While the Janart 55 holding is consistent with New York law limiting the pollution exclusion's scope to "environmental contamination," the decision illustrates the lack of clarity inherent in the "environmental contamination" limitation. If you would like a copy of the Janart 55 decision, or for further information regarding our insurance coverage litigation and analysis capabilities, please feel free to contact Michael Case at (212) 634-5030 or mcase@brhr.com.
