The United States District Court for the Eastern District of Virginia held, in Firemen’s Ins. Co. of Washington, D.C. v. Kline & Son Cement Repair, Inc., 474 F. Supp. 2d 779 (E.D. Va. 2007), that a general liability insurer had no duty to defend or indemnify a general contractor and its subcontractor against a personal injury claim arising from the inhalation of fumes from an epoxy/ sealant that had been applied to a concrete warehouse floor. After an extensive review of the case law regarding the application of the pollution exclusion to so-called nontraditional pollutants, the district court concluded that the pollution exclusion in the policy barred coverage for the claim and granted summary judgment for the insurer.

Factual Background

R.J. Smith General Contracting, Inc. (“R. J. Smith”) contracted with Kline & Son Cement Repair, Inc. (“Kline”) to apply an epoxy/sealant to a concrete floor as part of a renovation project of a warehouse.

Patricia Lewis (“Lewis”), having allegedly suffered respiratory problems as a result of inhaling fumes from the epoxy and eurathane protective sealant applied by Kline, brought a personal injury claim against both R.J. Smith and Kline. At the time of the coverage action, Lewis had yet to file suit against either R.J. Smith or Kline.

Firemen’s Insurance Company of Washington, D.C. (“Firemen’s”) had issued a commercial general liability policy to Kline. The general liability policy contained a Total Pollution Exclusion. Kline (as the named insured) and R.J. Smith (as an additional insured) each sought coverage for the Lewis claim under the Firemen’s general liability policy, and Firemen’s brought a declaratory judgment action seeking a declaration that it owed no coverage obligations to either R.J. Smith or Kline. On the parties’ cross-motions for summary judgment, the district court agreed with Firemen’s that it had no duty to defend or indemnify R.J. Smith and Kline for the Lewis claim.

The Court’s Decision

The federal district court granted summary judgment to the insurer. In doing so, the court held that:

(1) the declaratory judgment action was ripe even though the personal injury claimant had not yet filed a formal action;

(2) fumes emanating from the epoxy/ eurathane sealant were “pollutants” within meaning of the CGL policy’s Total Pollution Exclusion; and

(3) the pollution exclusion’s “discharge, dispersal, seepage, migration, release” language applied, even though the release in question was not traditional environmental pollution.

As to the first issue, the district court considered whether the facts of the case presented a justiciable “case or controversy”— and thus the coverage issues in the declaratory judgment action were ripe for judicial determination—despite the fact that Lewis had not yet filed a lawsuit against either R.J. Smith or Kline.

The court concluded that “[e]ven when there has been no formal institution of legal proceedings against the insured, the particular issue of coverage under the policy as to which a declaration is sought may be sufficiently ripe for a declaratory judgment action to lie.”

Kline, 474 F. Supp. 2d at 787. More specifically, here, [t]he stipulations of Firemen’s, Kline, and R.J. Smith, as well as the deposition testimony of Lewis, establish as undisputed the facts necessary for a coverage determination in the matter. Lewis’ claim submission to Kline and R.J. Smith for her alleged injuries, as well as her settlement demand submitted to the same insureds, combined with her sworn deposition testimony, establish “a case of actual controversy” sufficient to confer subject matter jurisdiction on this Court for purposes of the Declaratory Judgment Act. Id.

Having reached this conclusion, the court next proceeded to consider the substantive coverage issues raised by the declaratory judgment complaint and addressed the question of whether Firemen’s had a duty to defend the Lewis claim.

The district court found no duty to defend because the Lewis claim was barred by the Total Pollution Exclusion in the general liability policy. The epoxy/ eurathane sealant constituted a “pollutant” as defined by the policy because it was an “irritant.” To reach this conclusion, the court relied on the Material Safety Data Sheet for Eucothane VOX, a chemical found in the eurathane sealant applied by Kline. The Data Sheet noted, among other things, that “Eucothane VOX ‘[m]ay cause moderate irritation to the respiratory system,’ that its [v]apor and/or mist may ‘irritate [the] nose and throat,’ and directs affected persons on no less than two occasions to ‘move to fresh air’ if the substance is inhaled.’” Id. at 790 (emphasis in original). The court concluded that “the sealant at issue is not innocuous, and its harmful effects are well known.

According to the [Data Sheet], the sealant is an irritant.” Id. The court rejected the insureds’ argument that the policy’s definition of “pollutant” as “any irritant or contaminant” was “too broad to be meaningful” because the definition was clear and unambiguous. Id. at 791.

Finally, the district court considered whether the Total Pollution Exclusion applied to a claim that arose in the ordinary course of the insured’s business and did not involve what might be thought of as traditional environmental or industrial pollutants. Acknowledging that the Virginia Supreme Court had never spoken directly or indirectly to this issue, the court provided a comprehensive survey—both pro and con—of decisions from other jurisdictions that had considered the application of a pollution exclusion to nontraditional pollutants.

The Eastern District concluded that the resolution of this split of authority lay in the application of settled principles of contract interpretation. Namely, the court stated, [n]owhere in the Policy is there any reference to the word “environment,” “environmental,” “industrial,” or any other limiting language suggesting the pollution exclusion is not equally applicable to both “traditional” and indoor pollution scenarios. The Pollution Exclusion clause does not say the discharges or dispersals of pollutants must be “into the environment” or “into the atmosphere,” or in any way indicate that environmental “incidents” are the only conditions that bar coverage under the clause….To hold in favor of the [insureds] would require this Court to interject words into the writing contrary to the elemental rule that the function of the court is to construe the contract made by the parties, and not to reformulate a contract for them. Id. at 796.

The Total Pollution Exclusion, thus, unambiguously applied to Lewis’ allegations and Firemen’s had no duty to defend or indemnify R.J. Smith or Kline should Lewis formally pursue her personal injury claim related to her inhalation of the epoxy/eurathane sealant fumes.

Implications

First, the Eastern District of Virginia found that an insurer may seek a declaratory judgment on its potential coverage obligations even in the absence of a formal lawsuit. This ruling gives insurers the opportunity to seek early and definitive determinations of coverage disputes, and to avoid the uncertainties and costs related to claims for which there would be no coverage had a lawsuit already been filed. Second, relying on basic Virginia contract law, the district court held that the Total Pollution Exclusion in a general liability policy barred coverage for claims even where the alleged personal injuries did not arise out of so-called traditional environmental or industrial pollution. The court refused to read limitations into the scope of the pollution exclusion that have no basis in the plain and unambiguous language of the insurance contract.