The Vermont Supreme Court recently held that the plain language interpretation of a pollution exclusion in a homeowner policy barred coverage for property damage to a home rendered uninhabitable by an over-application of a bed bug pesticide. The decision in Whitney v. Vt. Mut. Ins. Co., 2015 VT 140 (2015) is significant for insurance carriers because it restates the principle that pollution exclusions are not limited to traditional environmental pollution.

The facts are straightforward. A pest control company sprayed plaintiffs’ home, “corner to corner” and “wall to wall” with the pesticide chlorpyrifos to eradicate bed bugs. Notably, and very much relevant to the court’s analysis of the pollution exclusion, chlorpyrifos is not labelled for residential use and the spraying of the plaintiffs’ home with chlorpyrifos violated federal and state law. The homeowners complained to a state agency that the amount of chemicals sprayed in their home, which included walls and surfaces visibly dripping with the pesticide, was grossly excessive. After testing confirmed elevated pesticide levels, the plaintiffs were evacuated from the home for safety reasons.

Shortly after the testing was performed, the plaintiffs filed a claim with the defendant-insurer. Coverage A of the policy insured against a “physical loss to property.” Among the exclusions to coverage in Coverage A was a pollution exclusion, which stated that the policy did not insure loss caused by:

Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against under Coverage C of this policy. Pollutants means 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.

The defendant-insurer denied the plaintiffs’ claim under the absolute pollution exclusion. Plaintiffs thereafter filed suit seeking a declaratory judgment that the losses incurred by the spraying of chlorpyrifos within their home were covered by the homeowners policy. On cross motions for summary judgment, the trial court ruled in plaintiffs’ favor, reasoning that the terms “pollution” and “discharge, dispersal, release, and escape” were ambiguous and therefore must be construed in favor of coverage. The trial court relied on the California Supreme Court decision of McKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635 (Cal. 2003), which held that pollution exclusion clauses are generally ambiguous and therefore apply only to traditional environmental contamination.

On appeal, the issue was whether the pollution exclusion barred coverage for the loss of their home due to the spraying of chlorpyrifos inside the dwelling. The court began its analysis by relying on its then recently filed Cincinnati decision, wherein it enforced an unambiguous pollution exclusion in a commercial general liability policy. In Cincinnati, the court reviewed the evolution of the pollution exclusion clauses in the insurance industry and discussed the leading cases construing those clauses. The court considered two divergent lines of cases construing these clauses. In one, following the California Supreme Court in MacKinnon, courts have construed pollution exclusions very narrowly, concluding that they are inherently ambiguous, and that the purpose of the exclusions was to address liability arising from traditional environmental pollution, and not ordinary acts of negligence involving harmful substances. In the other, courts have concluded that by their plain language, pollution exclusion clauses exclude all injuries caused by pollutants.

The court stated that the “main lesson of Cincinnati . . . is that pollution exclusions are not presumed, as a class, to be ambiguous or to be limited in their application to traditional environmental pollution. They should be construed in the same as any other insurance contract provisions” to ascertain and carry out the parties’ intentions by looking at the plain language of the policy. Examining the policy language, the Vermont Supreme Court determined that the pollution exclusion excluded coverage for the pesticide contamination insofar as the spraying of chlorpyrifos constituted a “discharge, dispersal, seepage, immigration, release, or escape” of the pesticide.

The key issue was whether chlorpyrifos qualified as a “contaminant” or “irritant” to fall within the definition of “pollutant.”  The court quickly answered the question, relying on the undisputed facts that chlorpyrifos may be toxic to humans, can cause nausea, dizziness, confusion, and at very high exposures, respiratory paralysis and death, and is banned for residential use. The pesticide applicator’s use of chlorpyrifos in plaintiffs’ home violated EPA regulations, and federal and state law. The concentration levels in the plaintiffs’ home were consistently higher than EPA action levels, thereby preventing plaintiffs from inhabiting their house. Accordingly, the court concluded, in reversing the trial court, that the terms “irritant,” “contaminant,” and “pollutant” plainly and unambiguously encompassed the chlorpyrifos sprayed “corner to corner” and “wall to wall” throughout the plaintiffs’ home.