Faced with mounting claims for insurance coverage as a result of the novel coronavirus (COVID-19) outbreak, commercial insurers are likely to search for any policy provision that they think will enable them to avoid paying virus-related claims.  One provision that insurers ultimately may invoke in an attempt to deny such claims is the so-called “pollution exclusion” – an exclusion that can be found in both commercial general liability (CGL) insurance policies and property insurance policies.  Policyholders should anticipate such an argument and should not walk away from insurance claims just because of it.  Although the exclusion is often broadly worded, there is generally good reason not to read it to preclude coverage for third-party claims and/or first-party losses involving viruses, including COVID-19.

While the exact language of the pollution exclusion may differ from one policy to another, it typically provides that there is no insurance for “bodily injury” and/or “property damage” that “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.”  Again, while its precise definition can vary among policies, “pollutant” is typically defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”

Where the definition of “pollutant” does not specifically include “virus,” insurers are left to argue that the exclusion applies because a virus purportedly is a “contaminant.”  In First Specialty Insurance Corporation v. GRS Management Associates, Inc., No. 08-81356-CIV, 2009 WL 2524613 (S.D. Fla. Aug. 17, 2009), the insurers argued that the policyholder, a homeowner’s association, was not covered under certain CGL policies for a claim brought against the association by a third party who had contracted the Coxsackie virus while swimming in a pool on the association’s property.  The court accepted the insurer’s argument, which was predicated on the pollution exclusion, concluding rather simplistically:

As defined under the plain language of the policy, the meaning of the term pollutant includes contaminant.  Furthermore, cases from this jurisdiction have ruled that similar pollutant clauses encompass “contaminants” and microbes.  Clearly, the record evidence demonstrates that the substance in the swimming pool was a viral contaminant and a harmful microbe.  Thus, the pollutant exclusion applies here. (citations omitted) (footnotes omitted)

The insurers’ argument and this one court’s conclusion overlooked many – stronger – reasons why a typical pollution exclusion should not be read to bar coverage for virus-related claims and/or losses, including, but necessarily limited to the following:

  • The pollution exclusion was intended to apply to traditional environmental and industrial pollution – not to viruses. As the Alabama Supreme Court observed in 2002:  “The incorporation of environmental liability terms and concepts into the absolute pollution exclusion illustrates that the exclusion was designed to be limited to injury for typical, industrial environmental damage.”
  • Although broad, the scope of the exclusion, many courts have explained, is not unbounded. In 2000, for example, the Louisiana Supreme Court explained:  “In light of the origin of the pollution exclusions … we now find that the total pollution exclusion was neither designed nor intended to be read strictly to exclude coverage for all interactions with irritants or contaminants of any kind.”
  • A “virus” is not a typical environmental or industrial “pollutant” or “contaminant” intended to fit within the scope of a pollution exclusion. Considering “Legionella and Pseudomonas aeruginosa bacteria,” the U.S. District Court for the Eastern District of Louisiana, in Paternostro v. Choice Hotel International Services Corp., No. 13-0662, 2014 WL 6460844 (E.D. La. Nov. 17, 2014), stated that those bacteria “do not qualify as pollutants.”  That court explained:  “The nature of these microbial agents are bacteria, not pollutants as is ‘generally understood.’  These bacteria are significantly different than a typical environmental pollutant and are also distinguishable from other common ‘pollutants’ such as asbestos, carbon monoxide, gasoline, and lead paint.  Nor are these bacteria ‘typically used’ in the same manner with which the previously discussed pollutants are used by a ‘polluter.’  Rather, these bacteria are simply microorganisms existing in a natural environment.  Finally, they do not discharge, dispersal [sic], seepage [sic], migration [sic] in the manner that a typical pollutant does.”  Similar points can be made about viruses.
  • At a minimum, the generally undefined term “contaminant” is susceptible to more than one reasonable interpretation and, therefore, ambiguous. And, ambiguities generally should be construed in favor of the policyholder and in favor of coverage.
  • If a policy does not already include a specific virus-related exclusion, an insurer should not be permitted to read such an exclusion into a policy after the fact. Indeed, exclusions that apply to viruses have been included in certain insurance policies for some time, and if an insurer had wanted to include such an exclusion in a policy, it could have done so.  As one California state appellate court has observed, an insurer’s “failure to use available language expressly excluding coverage … implies a manifested intent not to do so. … If the parties had intended coverage to be limited to the [extent] suggested by … [the insurer], language clearly embodying that intention was available.”
  • And, where a policy has both a pollution exclusion and some form of a virus-related exclusion (that does not bar coverage for some reason), the insurer should not be able to use the former to accomplish what the latter cannot. In Westport Insurance Corp. v. VN Hotel Group LLC, 513 Fed. App’x 927 (11th Cir. 2013), the U.S. Court of Appeals for the Eleventh Circuit explained that because the particular policy at issue in that case “includes a separate exclusion provision for bacteria, the legionella bacteria cannot be considered a pollutant under the terms of the policy.”  That court concluded that “if the bacteria was considered a pollutant, the fungi/bacteria exclusion would be meaningless.”  A similar result could occur if a “pollutant” was defined to include a virus.

As evidenced by the foregoing discussion, it is important to review the specific language in one’s own insurance policy to determine what exclusions are included therein, how they are worded, and how key terms are defined.

That said, a policyholder should never just accept an insurer’s argument that a pollution exclusion precludes coverage for claims and/or losses relating to COVID-19, and it should never just assume that there is no coverage available for such claims and/or losses.  If and when presented with such an argument, a policyholder should, in addition to reviewing its policy language, consult counsel and work with that counsel to respond to the insurer, making all relevant counter-arguments, including, but not necessarily limited to, one or more of the foregoing.