Tred R. Eyerly | Insurance Law Hawaii | October 24, 2018
Applying Virginia law, the federal district court determined that the pollution exclusion did not bar coverage. Allied Prop. & Cas. Ins. Co. v. Zenith Aviation, Inc., 2018 U.S. Dist. LEXIS 14727 (E.D. Va. Aug. 29, 2018).
Zenith Aviation, Inc. hired Abby Construction Company to install an elevator at its warehouse. A wet saw was used to cut away concrete, but Abby did not use any water with the wet saw. This created a significant amount of concrete dust to leave the warehouse. Surrounding businesses contacted the fire department because they thought the dust was smoke from a fire. The concrete dust settled inside Zenith’s building, damaging airplane parts stored in the warehouse.
Allied issued to Zenith a commercial insurance policy. Zenith submitted a claim for its loss. The policy’s pollution exclusion barred coverage for the discharge, dispersal, etc. of “pollutants” unless the escape of a “pollutant” was not “caused by any of the ‘specified causes of loss.'” But if the discharge . . . of ‘pollutants’ results in a ‘specified cause of loss,’ we will pay for the loss or damage caused by that ‘specified cause of loss.'” “Pollutants” included any irritant or contaminant, including smoke, chemicals and waste. Finally, “specified causes of loss” were defined as “fire; lightening; explosion; windstorm or hail; smoke . . .”
Cross motions for summary judgment were filed. Allied acknowledged that Zenith suffered a “direct physical loss” that would be covered but for the pollution exclusion. Allied argued that the concrete dust meet the definition of a “pollutant” since it was an “irritant or contaminant.” Zenith contended that cement was not a pollutant and Allied had offered nothing to suggest it was.
The court agreed that concrete dust was a pollutant since it could function as both an “irritant” and a “contaminant.” There was no genuine issue of fact concerning whether the concrete dust “contaminated” Zenith’s products and machinery.
Zenith then argued that the dust was a “specified cause of loss” in the form of “smoke.” The court found the applicable definition of “smoke” as used in the Pollution Exclusion to be unclear, with more than one reasonable definitions. Zenith argued “smoke” could mean a cloud of fine particulate matter. Allied submitted that “smoke” meant “the gaseous products of burning materials” and “suspension of particles in a gas.” With two reasonable definitions, the court construed the ambiguity in favor of the insured. “Smoke” referred to any visible suspension of particles in a gas, including the concrete dust suspended in the air in Zenith’s warehouse.
Allied then argued that even if the concrete dust was “smoke,” it did not “cause” a loss when it merely settled on the airplane parts, contaminating them, because the concrete in the air did not “result in” the dust on the inventory and machinery since it was the dust.
The exceptions to the Pollution Exclusion required a causal nexus between a specified cause of loss and the pollutant. The facts reflected: (1) Abby Construction used a wet saw without water to cut concrete; (2) the saw “released” concrete solids into the air; (3) the dust, rather than falling immediately to the ground, carried into a cloud of particulate, resulting in “smoke;” and (4) the particulate from the cloud of smoke ultimately settled on Zenith’s products and equipment, contaminating them and causing the loss.
Therefore, Zenith’s loss resulted from the dispersal or migration of a pollutant onto its inventory and machinery, and that dispersal or migration was caused by a visible gaseous suspension of the concrete particulate in the air, i.e., smoke. The “dispersal” or “migration” of the concrete dust onto Zenith’s products was therefore “itself caused by” the smoke from which it settled, and therefore the loss fell under the exception to the pollution exclusion. Further, the “discharge, dispersal, seepage, migration, release or escape” of the concrete dust from the wet saw “resulted in” smoke, a specified cause of loss, which then caused Zenith’s loss.
Allied argued that “smoke” could not simultaneously be both the “pollutant” and the “specified cause of loss.” But the fact that the particles that contaminated Zenith’s products and equipment were the same as the particles that were a constituent part of the “smoke” did not mean that there was no causal separation between the “pollutant” that was dispersed and the “specified cause of the loss” that dispersed it or resulted from it.
Therefore, the court believed that the Supreme Court of Virginia would conclude that the Pollution Exclusion did not apply and that there was coverage under the policy for Zenith’s alleged losses.