In Midwest Family Mutual Insurance Company v. Wolters, __ N.W.2d __, 2013 WL 2363239 (Minn. May 31, 2013), the Minnesota Supreme Court, applying Minnesota law, affirmed the court of appeals ruling that an absolute pollution exclusion in a general liability policy encompasses carbon monoxide released inside a home by a negligently installed boiler. The court found the definition of “pollutant” unambiguously applied to carbon monoxide.
In Wolters, a general contractor improperly installed a boiler, as well as the carbide monoxide detectors, in a personal residence. Id. at *2. The home owners suffered carbon monoxide poisoning and brought litigation against the contractor. Id. The contractor’s insurer appointed defense counsel, subject to a reservation of rights, and initiated a declaratory judgment action, seeking a ruling that it had no duty to defend or indemnify because coverage was barred under the absolute pollution exclusion. Id. The district court denied the insurer’s motion for summary judgment, holding that it would be inappropriate to rule as a matter of law in favor of the insurer under the facts presented, since the contractor did not cause “environmental pollution.” Id. at *3.
The court of appeals reversed. Id. Following the “non-technical, plain-meaning approach” previously taken by Minnesota courts in interpreting a qualified pollution exclusions, it held that carbon monoxide constituted a “pollutant” within the meaning of the policy. Id. The Minnesota Supreme Court agreed. It noted that the term “pollutant” was defined in the policy to include “any . . . gaseous . . . pollutant, irritant or contaminant” and that both the federal government and government of Minnesota classify carbon monoxide as a pollutant. Id. at *7. It also noted that carbon monoxide qualifies as an “irritant,” because it caused physical irritation to the injured parties. Id. at *8.
The court addressed whether pollution can occur indoors; it noted the distinction drawn in an earlier Minnesota Supreme Court case between policy language referring to pollution of the air and pollution of the atmosphere. Id. (citing Board of Regents of the University of Minnesota v. Royal Insurance Co. of America, 517 N.W.2d 888, 892-93 (Minn. 1994)). It then held that, since the policy at issue did not use language “descriptive of the natural environment only,” it applied to pollution of the air inside a building. Id.
The court also rejected public policy arguments, holding that limiting the pollution exclusion to “traditional environmental pollution,” in order to avoid a harsh result to the injured parties before the court, could put the judicial interpretation at odds with the expanding definition being urged upon the executive and legislative branches of government. Id. It added that, in any event, the place to settle public policy issues underlying this exclusion is the marketplace or the legislative arena. Id.
The court also rejected the policyholder’s “reasonable expectations” argument. It concluded that this test did not apply because the policy language at issue was clearly designated as an exclusion; it was not “hidden in the definitions section” of the policy. Id. at *9 (internal citations omitted).
One justice dissented from the majority ruling, stating without elaboration that he believed the district court was correct in ruling that the pollution exclusion did not bar coverage under the facts of this case. Id. at *10. Another dissenting opinion asserted that the pollution exclusion was designed to bar coverage for gradual environmental degradation and should not be read to extend to non-environmental or indoor pollution. Id. at *11-12. This justice further noted that courts nationwide are “about evenly split” on the specific issue of whether carbon monoxide is a pollutant, which he argued weighed in favor of concluding that the language was susceptible of more than one interpretation, making summary judgment in favor of the insurer inappropriate. Id. at *13. A third justice concurred in part and dissented in part, opining that the court should not have reached the “reasonable expectations” point. Id. at *9.
The Wolters ruling is important for several reasons. First, it confirms that, under Minnesota law, the “reasonable expectations” doctrine will not apply to policy language that is clearly designated as an exclusion. Second, it shows that, under Minnesota law, discharges taking place indoors can constitute “pollution.” This aspect of the ruling can extend to pollutants other than carbon monoxide. Third, with courts nationwide being fairly evenly split on the issue of whether pollution exclusions apply to indoor pollution (see id. at *6), as well as on the specific issue of whether carbon monoxide is a “pollutant” (see id. at *13), the issuance of a thorough opinion from a state supreme court on these issues is significant.