Noxious fumes emitted from defective drywall are “pollutants” for purposes of applying total pollution exclusions in commercial general liability (CGL) policies, according to a recent decision by a federal court in Mississippi. Based on this conclusion, the United States District Court for the Southern District of Mississippi, in Prestige Properties, Inc. v. National Builders and Contractors Ins. Co., No. 1:12CV205–HSO–RHW, 2013 WL 5592453 (S.D. Miss. Oct. 10, 2013), granted summary judgment in favor of an insurer under Mississippi law and dismissed with prejudice a coverage action brought by the insured, a building contractor.
In early 2006, Prestige Properties, Inc. (Prestige) was contracted by a homeowner to repair damage caused by Hurricane Katrina. Id. at *1. The repair work included replacing drywall. Id. The homeowner subsequently sued Prestige as part of an omnibus class action involving certain defective “Chinese drywall.” Id. The underlying complaint alleged that Prestige installed the defective drywall, “which ha[d] resulted in harm and damages to” the homeowner. Id. at *2. According to the complaint, “chemical components of the drywall break down and produce noxious gases that cause corrosion and damage to personal property, including appliances, wiring and other objects with metal surfaces” and further, that “exposure to these gases causes personal injury resulting from eye irritation, sore throat, nausea, fatigue, shortness of breath, fluid in the lungs and neurological harm.” Id.
National Builders and Contractors Insurance Company (NBCI) had issued to Prestige a CGL policy for the relevant policy period. The policy included a “Total Pollution Exclusion Endorsement” that defined “pollutant” to mean “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Id. at *3. Based on the language of this exclusion, NBCI denied Prestige’s claim for a defense and indemnity. Id. Prestige subsequently brought suit against NBCI, seeking coverage. Id. Both parties filed motions for summary judgment regarding the effect of the “Total Pollution Exclusion Endorsement.” Id.
The Court first looked to precedent in deciding the case. The Court noted that in American States Ins. Co. v. Nethery, 79 F.3d 473 (5th Cir. 1996), the Fifth Circuit, applying Mississippi law, found that paint and glue fumes qualified as gaseous chemicals under the meaning of a pollution exclusion and denied coverage. Id. at *7. The Court also considered decisions from other circuits in which those courts found that gas emitted from “Chinese drywall” was either a pollutant or a contaminant, and so covered by pollution exclusions. Id. at *7-8.
The Court then distinguished a Louisiana case involving drywall emissions that was relied on by Prestige, In re Chinese Manufactured Drywall Products Liability Litigation, 750 F. Supp. 2d 822 (E.D. La. 2010), in which a district court declined to apply a pollution exclusion in a homeowners’ insurance policy. Id. at *8-9. The Court noted that the Louisiana case relied on a much broader test used by the Louisiana Supreme Court to analyze the exclusion. Id. at *9. This test involved a review of “‘the origin of the total pollution exclusion, the history of pollution exclusions in Louisiana courts, and the position of the Louisiana Commissioner of Insurance on pollution/contamination exclusions,’ who had ‘expresse[d] concern about interpreting pollution and/or contamination exclusions broadly.’” Id. (quoting In re Chinese Manufactured Drywall Products Liability Litigation, 750 F. Supp. 2d at 840).
The Court, however, found the Louisiana test inappropriate, noting that “[u]nder Mississippi law, the Court must utilize a somewhat different test and must enforce an unambiguous insurance contract as written based upon the four corners of the document.” Id. The Court then concluded that because the “essence” of the allegations in the underlying action was that “gasses were released from drywall and caused irritation,” the homeowner’s claims were “encompassed by the Policy’s definition of gaseous irritants.” Id. at *9-10.
This case is an example of a court applying the plain meaning of a pollution exclusion to somewhat unique facts. It shows that, at least in Mississippi, courts that look to the four corners of pollution exclusions are likely to exclude coverage for claims involving indoor emissions from materials like drywall.