New York Court Holds Pollution Exclusion Applicable to Love Canal Claims

In its recent decision in Cincinnati Insurance Co. v. Roy’s Plumbing, Inc., 2016 U.S. Dist. LEXIS 75958 (W.D.N.Y. June 10, 2016), the United States District Court for the Western District of New York had occasion to consider the application of a pollution exclusion to a claim involving toxic materials discharged from a sewer system.

Cincinnati insured Roy’s plumbing under a series of general liability policies.  Roy’s was sued in a lawsuit brought by residents in the vicinity of Love Canal who alleged that defendants wrongfully caused the release of toxic substances, resulting in bodily injury and property damage.  The suit alleged that Roy’s negligently performed inspection and construction activities, including sewer replacement, which allowed previously contaminated soils from the Love Canal containment area to be discharged onto and into the plaintiffs’ homes and properties.   Notably, the complaint alleged that these toxic materials were introduced into the sewer system before escaping from the sewers to plaintiffs’ homes.

Cincinnati denied coverage for the suit on the basis of its policies’ pollution exclusion applicable to “‘Bodily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release, escape or emission of ‘pollutants’ at any time.’”

Roy’s argued that the pollution exclusion was overly broad and therefore ambiguous, at least to the facts alleged.  In particular, it claimed that as a plumbing company, Cincinnati knew that Roy’s would be handling sewage and that the exclusion, therefore, essentially negated the a large portion of the policies’ coverage.  Looking to New York case law on the issue, the court noted that the pollution exclusion is unambiguous in the limited context of traditional environmental harm, citing to Belt Painting Corp. v. TIG Ins. Co., 293 A.D.2d 206 (2d Dep’t 2002), aff’d, 100 N.Y.2d 377 (2003).  This case law guided the court’s thinking with respect to whether the exclusion applied to underlying suit:

Defendant, who is in the plumbing, heating, and cooling business, does not necessarily fit the mold of a traditional industrial polluter, and the actions that led to Defendant’s inclusion in the Underlying Litigation were part of Defendant’s ordinary business of repairing sewer systems. Nevertheless, the allegations in the Underlying Complaint fall squarely within the context of environmental pollution.

The court also considered Roy’s contention that the exclusion did not apply to the entirety of the underlying suit since a portion of plaintiffs’ claims, at least those pertaining to property damage, might have been the result of sewage.  In addressing this, the court observed that while the complaint alleged migration of pollutants through the sewer system, the complaint did not use the word “sewage.”  The court further observed that even if sewage was released, the harms alleged in the underlying suit were limited to those of a traditional environmental nature, such as birth defects and epidemiological harms, and death of vegetation and wildlife.  By contrast, the complaint did not allege any non-pollution harms associated with sewage, such as flooding or structural damage.  As such, the court concluded that:

… even if Defendant is correct and the Underlying Plaintiffs intended to allege that some of their injuries were brought about by exposure to fecal matter and sewage, rather than toxic chemicals, the Total Pollutant Exclusion would nevertheless apply because it is the “polluting” character of the “contaminated sediment” and “myriad hazardous chemicals” that has given rise to the Underlying Litigation, and not their “flood-like” character.