New York Court Holds General Liability Insurer Has Duty to Defend Odor Claim

In its recent decision in Hillcrest Coatings, Inc. v. Colony Ins. Co., 2017 N.Y. App. Div. LEXIS 4519 (N.Y. 4th Dep’t June 9, 2017), the Supreme Court of New York, Appellate Division, Fourth Department, had occasion to consider coverage under a general liability for allegations of odor emanating from a recycling facility.

Hillcrest operated a glass, paper and paper recycling facility in upstate New York.  Suit was filed against it by nearby residents complaining that Hillcrest operated its facility in a negligent fashion, thereby allowing hazardous materials and other substances to be discharged into areas where plaintiffs worked and resided.  The suit also alleged that Hillcrest’s facility created a pervasive malodorous condition.

Hillcrest sought coverage for the underlying suit under its general liability policy issued by Colony.  The policy contained a hazardous materials exclusion, which like a pollution exclusion, barred coverage for bodily injury or property damage “which would not have occurred in whole or [in] part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘hazardous materials’ at any time.”  The policy defined hazardous materials as “pollutants” as well as “lead, asbestos, silica and materials containing them.”  “Pollutants,” in turn, was defined by the policy as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

In an ensuing coverage action, Colony maintained that its policy’s hazardous materials exclusion barred coverage for the underlying suit.  The Fourth Department, affirming the trial court’s ruling on summary judgment, held that Colony had a duty to defend since it was not clear from the face of the complaint that the allegations of odor came within the scope of the exclusion.  As the court explained, “[a]lthough many of the factual assertions in the second amended complaint allege that the odor resulted from hazardous materials, those are not the only factual allegations therein. Indeed, foul odors are not always caused by the discharge of hazardous materials.”