For two decades now, American courts have been divided over whether the pollution exclusion is limited to traditional environmental harm. The Fourth Circuit Court of Appeals recently had occasion to address this issue in NGM Insurance Co. v. Kuras, 2011 U.S. App. LEXIS 512 (4th Cir. Jan. 11, 2011).
The insured in Kuras was a painting contractor that had entered into a contract with the United States Postal Service to paint the interior of a postal facility in Johns Island, South Carolina. Two employees of the Postal Service claimed various respiratory illnesses and other injuries as a result of exposure to fumes, paints and dust generated during the course of the insured’s work. The insured sought coverage for these claims under its general liability policy issued by NGM Insurance.
NGM filed suit against its insured in South Carolina federal district court, seeking a declaration that it owed no coverage as a result of its policy’s absolute pollution exclusion. Finding a lack of authority under South Carolina law, the district court looked to the competing lines of authority throughout the United States as to whether the pollution exclusion applies to non-traditional environmental damage. The court reasoned that this “nationwide split in authority” in and of itself reflected the fact that the exclusion is ambiguous and thus should be construed in favor of the insured. In passing, however, the court explained that it found persuasive the line of cases limiting the exclusion to traditional environmental harm, as exemplified by New York’s highest court in Belt Painting Corp. v. TIG Ins. Co., 763 N.Y.S.2d 790 (N.Y. 2003)
In a one-page opinion, the Fourth Circuit affirmed, holding that based on the “briefs, record, and controlling legal authorities,” the lower court’s decision was “well-reasoned” and correctly decided. In doing so, the Fourth Circuit’s ruling is consistent with its 2004 holding in Auto-Owners Ins. Co. v. Potter, 105 Fed. Appx. 484 (4th Cir. 2004), in which it held that under North Carolina law, the pollution exclusion is limited to traditional environmental harm. A split in authority still remains within the circuit, however, based on the Court’s two 1998 decisions rejecting such an interpretation. See, Nat'l Elec. Mfrs. Assoc. v. Gulf Underwriters Ins. Co.,. 162 F.3d 821 (4th Cir. 1998) (holding that under the law of the District of Columbia, the exclusion applied to bodily injury claims arising out of exposure to manganese fumes); Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997 (4th Cir. 1998) (holding that under Maryland law, the exclusion applied to bodily injury claims arising out of indoor release of carbon monoxide).