Judiciary takes strict reading of insurance policies

Three recent rulings offer insight into the strict interpretation of insurance policies by the judiciary: 


Sierra Recycling & Demolition Inc. v. Chartis Specialty Insurance Co., E.D. Cal. 1:11-cv-00500-AWI-MJS, 11/3/11: 


  •  A court in California recently held that insurance company Chartis owes coverage to its insured Sierra Recycling for injuries and environmental damage from the deposition of contaminated debris at a recycling drop-off site Sierra Recycling did not own.  According to the holding of the case, Sierra Recycling removed construction debris from a site and transported it to a recycling center.  The center informed Sierra Recycling that tests showed the debris contained elevated levels of zinc and lead.  Sierra Recycling tendered the claim to Chartis, which denied coverage under an exclusion that the policy would not cover damage “arising from the final disposal of material and/or substances of any type … at any site or location which is not owned, leased or rented by you.”  Sierra Recycling contended that the recycling center was not a landfill site, emphasizing the requirement for “final” disposal for the exclusion to apply.  Chartis emphasized that the exclusion was intended to exclude the insured’s final relinquishment of waste at a disposal site.  Applying California law that ambiguous language must be construed against the insurer and in favor of coverage, the court found that the exclusion was capable of two or more reasonable constructions.  Moreover, the court found that Sierra Recycling’s interpretation was in accord with the ordinary meaning of the words “final disposal” and that Chartis did not meet its burden to make the exclusion plain and clear. Accordingly, the court ruled in favor of Sierra Recycling and found that coverage was not excluded.

 Barney Greengrass Inc. v. Lumbermen’s Mutual Casualty Co., 2d Cir., 10-3467-cv, 11/4/11: 


  •  Finding that restaurant odors are not pollutants covered by the pollution exclusion, the U.S. Second Circuit Court of Appeals ruled in favor of an Upper West Side New York delicatessen, and required Lumbermen’s Mutual to defend and indemnify the delicatessen in a lawsuit brought by a neighbor who alleged he could no longer use his living room because of odors from the deli’s exhaust vent.  The court ruled that “odors” are not “pollutants” within the meaning of the pollution exclusion.  Lumberman’s had relied on the use of the term “fumes” in the definition of pollutant.  The Second Circuit found that the term “odors” was not used in the definition, and that “fumes” was undefined.  The court also distinguished several cases relied upon by Lumbermen’s in which odors had been found to be excluded pollutants,  finding that in each of those cases, the odors were traditional environmental pollution such as odors from dumped waste materials and sewage treatment plants.

Brafman v. Nationwide Mutual Insurance Co., E.D. Cal. 2:11-cv-01627-MCE-GGH, 11/2/11:   

  •  A claim for personal property loss and structural damage from “toxic mold” was found time-barred by the U.S. District Court for the Eastern District of California because it was filed too late.  The policy holder had purchased an endorsement to her insurance policy from Nationwide covering losses caused by mold.  She began to notice the effect of mold on her home in August and September of 2009, presented a claim to Nationwide, and was denied coverage because the mold was caused by “dampness of atmosphere”.  In January 2010, the insured noticed mold problems in her rental unit on her property, and engaged in coverage discussions with Nationwide for several months.  She ultimately filed suit on May 12, 2011.  The policy required that a lawsuit under the policy must be brought within one year from the inception of the loss, which was “that point in time when appreciable damage occurs and is or should be known to the insured”.  The court found that in this case, the insured was aware of property damage in approximately August or September of 2009, as well as in January of 2010, so a lawsuit filed in May 2011 was time-barred.

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