Apana v. TIG Insurance Co., Nos. 08-15369, 08-15550, 2009 WL 2032362 (9th Cir. July 15, 2009), presents an issue of considerable import in the context of a decidedly prosaic claim. The insured, HMP, is a plumbing firm. On March 21, 2002, an HMP plumber went to a WalMart to service a clogged floor drain. He allegedly poured a strong drain cleaner down the drain, which generated noxious fumes, causing Corrine Apana, a WalMart employee who was working nearby, to inhale the fumes and to experience bleeding from her nose and mouth.
TIG insured HMP under a CGL policy issued by TIG. TIG’s policy contained a “Total Pollution Exclusion” which provided:
This insurance policy does not apply to:
(f) Pollution
(1) ‘bodily injury’ or ‘property damage’ which would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of “pollutants” at any time.
2009 WL 2032362, at *1. The policy defined “pollutants” to encompass “gaseous or thermal irritant or contaminant . . . vapor . . . .” 2009 WL 2032362, at *2. TIG rejected HMP’s request for indemnification and defense, interposing the exclusion.
The court observed that the Hawaii Supreme Court had not yet had occasion to address the proper interpretation of a Total Pollution Exclusion. The court noted that the exclusion had been “repeatedly litigated,” spawning conflicting judicial decisions throughout the country. 2009 WL 2032362, at *2. In its decision, the court provided a rather useful, comprehensive compilation of the interpretive approaches taken by courts in interpreting the exclusion.
The court noted that “some courts applied the exclusion literally because they find the terms to be clear and unambiguous. Alaska, Colorado, Connecticut, Florida, Georgia, Iowa, Michigan, Minnesota, Missouri, Montana, Nebraska, Oklahoma, Pennsylvania, South Dakota, Texas, Virginia, and Wisconsin have taken this approach. Id. “Other courts have limited the exclusion to situations involving traditional environmental pollution, either because they find the terms of the exclusion to be ambiguous or because they find the exclusion contradicts policyholders’ reasonable expectations. 2009 WL 2032362, at *3. Alabama, Arizona, Arkansas, California, Connecticut, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, North Carolina, New Hampshire, New York, Ohio, Washington, and Wyoming have taken this approach. Id.
The court remarked that “this question is dispositive of the present case.” Id. “Applying the first rule . . . would result in a finding that TIG did not owe a duty to defend—the Apanas’ injuries clearly resulted from the ‘discharge’ and ‘dispersal’ of a ‘gaseous,’ ‘vapor,’ or ‘chemical.’” Id. On the other hand, applying the latter approach would lead to the opposite result, either because the provision is ambiguous or is contrary to policyholders’ reasonable expectations—using a plumbing liquid to clear a drain appears to be a localized use of a toxic product in the ordinary course of business that would not normally be considered environmental pollution.” Id.
Hawaii law requires that a policy be construed in accordance with the reasonable expectations of a lay person. The court reasons that this standard counseled in favor of assigning a narrow scope to the exclusion, because a lay person’s reasonable expectations may well be divergent from the result of a “‘painstaking study’ of the pollution exclusion . . . .” 2009 WL 2032362, at *3. Conversely, Hawaiian courts assign the terms of an insurance policy “their plain, ordinary, and accepted sense in common speech unless it appears from the policy that a different meaning is intended.” 2009 WL 2032362, at *4. Hawaiian courts give effect to a policyholder’s reasonable expectations “only when the contract taken as a whole is reasonably subject to differing interpretation. Id. (internal quotation marks and citation omitted). This approach weighed in favor of a literal application of the exclusion.
The court characterized the issue as “a matter of exceptional importance for Hawaiian insurers and insureds.” Id. “Applying the literal terms of this provision will exclude a wide range of injuries from coverage; indeed, it is difficult to say what injuries would be covered for businesses, such as plumbers, that routinely deal with substances that are technically ‘irritants’ or ‘contaminants.’” Id. On the other hand, applying the exclusion in accordance with the reasonable expectations of a lay person would potentially increase the cost of all general-liability policies and undermine the certainty of contract, making the clear terms of an agreement subject to the vagaries of the ‘reasonable lay person.’” Id. The court thus certified to the Hawaii Supreme Court the question of whether the Total Pollution Exclusion applies “to localized uses of toxic substances in the ordinary course of business . . . or is it limited to situations that a reasonable lay person would consider traditional environmental pollution?” Id.
