In Westport Insurance Corporation v. VN Hotel Group, LLC, et al., 2013 WL 1196957 (11th Cir. March 22, 2013), the Eleventh Circuit, applying Florida law, held that the fungi/bacteria exclusion in the policy at issue did not exclude from coverage injury resulting from the legionella bacteria; accordingly, the insurer had a duty to defend a wrongful death claim brought against the insureds.

The case arose out of an wrongful death suit filed by the wife of a hotel guest who died after contracting Legionnaires’ Disease at the insured’s hotel.  Id. at *1.  The insureds sought to have Westport indemnify them and defend against the suit.  Id.  Under Florida law, “[a]n insurer is under no duty to defend if the allegations in the complaint implicate a policy exclusion.”  Id. at 3 (duty to defend it broader than duty to indemnify–insurer has no duty to indemnify if it has no duty to defend).  Westport filed a declaratory judgment action seeking confirmation that it was not responsible for indemnifying and defending the insureds because the policy excluded coverage for injuries resulting from pollutants or bacteria.  Id. at 1.  Under the terms of the policy, there was no coverage for injury “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’” Id.  The policy also excluded from coverage injury “which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of any ‘fungi’ or bacteria on or within a building or structure, including its contents . . . .”  Id. (emphasis added).  

After the parties to the underlying suit reached a settlement in the wrongful death case, the trial court held that Westport had a duty to indemnify the insureds because “the legionella bacteria was not a pollutant and . . . the bacteria exclusion did not apply because the outdoor spa [where the disease was contracted] was not a ‘structure.’”  Id. at 2.  On appeal, the Eleventh Circuit agreed that the pollutant exclusion did not exclude the injury from coverage, concluding that “[b]ecause the Policy includes a separate exclusion provision for bacteria, the legionella bacteria cannot be considered a pollutant under the terms of the Policy.”  Id. at 3.  The court also agreed with the district court’s conclusion that the fungi/bacteria exclusion did not apply. Interpreting the meaning of “structure” in the policy, the court found that, pursuant to Florida law, exclusionary provisions are to be construed strictly against the insurer. The court also reasoned that “in this Policy, the term ‘building’ modifies the term ‘structure’ and shows that ‘structure’ is to be narrowly construed.” Id. at 4.  Thus, although the injury was caused by the legionnaires’ bacteria, the fungi/bacteria exclusion did not apply because “an outdoor spa would not qualify as a ‘structure’ for purposes of the exclusion.” Id. at 4.

The Westport Insurance Corporation decision is important because it limits the pollution and fungi/bacteria exclusions and potentially expands coverage provided to Florida insureds seeking indemnification and defense of claims.