Why it matters

A Texas federal district court delivered a mixed ruling to a policyholder seeking defense and indemnity for a wrongful death suit, finding that a pollution exclusion prohibited defense but not indemnity based on conflicting determinations regarding the cause of a worker’s death. In this case, the insurer was unable to demonstrate from available evidence that inhalation of methane gas was the worker’s sole cause of death, and therefore was not entitled to summary judgment. This decision serves as a reminder that the insurer bears the burden of proving the applicability of policy exclusions, and should be strictly held to its burden.

Detailed Discussion

This case involved a sewer construction project. Jacob & Martin, a construction company, contracted with the city of Gordon to design and install a new sewer system for the city. Acadia Insurance Company issued general liability and umbrella liability policies to Jacob & Martin.

During the course of the project, one of the engineers instructed an employee to open a manhole, climb inside it, and remove a plug from the sewer line. When he did, “toxic fumes were released and [the employee] died from asphyxia due to methane gas inhalation,” according to the wrongful death complaint filed by the employee’s family.

Jacob & Martin sought coverage from Acadia, which responded by filing a declaratory judgment action in Texas federal district court seeking to evade its coverage obligations.

Separating Acadia’s defense and indemnity obligations, the court agreed with Acadia that the standard-form pollution exclusion precluded coverage for defense. The underlying complaint specified that the worker died after toxic fumes were released and he inhaled methane gas, the court noted. While Jacob & Martin did not dispute that methane gas constituted a pollutant, it argued that the court should look beyond the complaint to consider the possibility that the worker may have died from a lack of oxygen.

Applying the “eight-corners” rule, the court declined to consider evidence beyond the Acadia policy and complaint because it would require the court to “engage the truth or falsity of . . . facts alleged in the underlying case.” Because the complaint did not allege any cause of death other than methane gas inhalation, the court granted summary judgment to Acadia on its defense obligation.

However, evidence outside the complaint could require Acadia to indemnify Jacob & Martin, the court held. The initial autopsy report and the results of an Occupational Safety and Health Administration (“OSHA”) investigation of the incident stated that the employee died from “asphyxia due to methane gas inhalation” and “asphyxiation due to the inhalation of a toxic vapor.” But the autopsy report was later amended, changing the cause of death to “asphyxia due to oxygen displacement in a confined space.” The updated autopsy report, the court opined, “raises a genuine issue of material fact as to whether [the employee’s] death falls outside the pollution exclusion of plaintiffs’ policies.”

Although the updated report was inconsistent with other evidence – such as the OSHA investigation – the court opined that Acadia had failed to demonstrate that the substance that displaced the oxygen was also a pollutant under its policies. Therefore, Acadia did not meet its burden on summary judgment as to the duty to indemnify, the court concluded.

To read the decision in Acadia Insurance Co. v. Jacob & Martin Ltd., click here.