Sunday, March 29, 2009

Things That Go Boom -- Court Affirms Coverage for Loss Due to Contaminants Released Into Atmosphere by Explosion at Nearby Chemical Plant

Trupo v. Preferred Mut. Ins. Co.

(4th Dept., decided 2/6/2009)

On January 5, 2002, the Diaz Chemical Corporation facility in the Village of Holley, Orleans County, New York, accidentally released a mixture consisting primarily of toluene, water (steam), and 2-chloro-6-fluorophenol (CFP) into outdoor air. Soon after the chemical release, residents of nearby homes complained of acute health effects such as sore throats, headaches, eye irritation, nosebleeds, and skin rashes.

The "release" occurred when a pressure build-up in heated storage vessel at the Diaz facility caused a pressure disc to rupture. The rupture resulted in a chemical discharge that visibly contaminated surfaces in the nearby neighborhood and produced odors that were reported as far as 12 miles away. According to Diaz, approximately 80 gallons of liquid were released. The mixture was reported to be mostly water (in the form of steam), toluene, and CFP. Droplets of CFP deposited on cars, houses, and other surfaces to the east-northeast of Diaz. On January 6 and 7, fifteen to twenty families voluntarily relocated with assistance from Diaz.

Many if not all of these families made first-party property coverage claims to their homeowners insurers. The Trupos were one such family. They claimed that their home and contents were damaged by the explosion and release of CFP, a contaminant. Many of the insurers to which those claims were submitted, including Preferred Mutual Insurance Company, denied coverage based on a variety of reasons. Preferred Mutual's reasons included that there was no direct physical loss from a covered peril, including explosion, and the policy's "Wear and Tear" exclusion, which negated coverage for, among other things, loss that resulted from contamination.

In AFFIRMING the motion court's denial of Preferred Mutual's motion and granting of the plaintiffs' cross motion for summary judgment, the three-justice majority (Centra, Green and Gorski) of the Fourth Department ruled that an explosion was the cause of the damage to plaintiffs' property and the policy's wear and tear exclusion was ambiguous and did not apply:
The policy issued by defendant provided coverage for "direct physical loss" caused by certain perils, including explosion. We agree with plaintiffs that the incident at the chemical plant constitutes an explosion under the policy and that the alleged contamination of their home was caused by that explosion. We further agree with plaintiffs that the exclusion relied upon by defendant, entitled "Wear and Tear," does not apply to this case. Pursuant to that exclusion, defendant would "not pay for loss which results from wear and tear, marring, deterioration, inherent vice, latent defect, mechanical breakdown, rust, wet or dry rot, corrosion, mold, contamination or smog" (emphasis added). We reject defendant's contention that, because the damage to plaintiffs' home arises out of pollution or contamination, the exclusion for "Wear and Tear" applies. Rather, we conclude that the exclusion in question is ambiguous and thus should be construed in favor of plaintiffs, the insureds (see generally White v Continental Cas. Co., 9 NY3d 264, 267; Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383). The title "Wear and Tear" would lead an average person to believe that the exclusion for "contamination" therein included only contamination that occurred over time, rather than a sudden occurrence such as the incident here.
The two-justice dissent (Scudder and Pine), while agreeing that the chemical plant incident constituted an "explosion" under the policy and that the alleged contamination of plaintiffs' home was caused by that explosion, disagreed that the policy's wear and tear exclusion was ambiguous and did not apply to negate coverage.  "Plaintiffs suffered a loss from contamination, and the policy specifically excludes loss resulting from contamination. '[U]nambiguous provisions of an insurance contract must be given their plain and ordinary meaning[.]'"  The dissent also disagreed with the majority that the "Wear and Tear" title of the exclusion rendered it ambiguous:
The majority focuses on the title of the paragraph containing the exclusion in question and concludes that it would lead an average person to believe that the exclusion for contamination was only for contamination that occurred over time. We disagree. Rather, we apply the principle of statutory construction that titles are given little weight. "The title of a statute may be resorted to . . . only in case of ambiguity in meaning, and it may not alter or limit the effect of unambiguous language in the body of the statute itself" (McKinney's Cons Laws of NY, Book 1, Statutes § 123 [a]). Inasmuch as the language in the exclusion in question is unambiguous and does not limit the exclusion to contamination that occurs over time, we decline to add such limiting language.
The majority also affirmed the motion court's decision denying that part of plaintiffs' cross motion for damages in the amount of approximately $144,000, and instead ordering a hearing on damages.

1 comment:

DLev said...

The majority's reasoning is superior to the dissent's, but neither is wholly satisfying. The majority combines the title of an exclusion with a word appearing in the body of the exclusion and finds an ambiguity that is to be construed in favor of the insured. The dissent ignores the title of the exclusion (saying it is giving it little weight, but actually giving it no weight) and broadly applies an unmodified word in the exclusion without reference to the surrounding words and with no attempt to discern the intended purpose of the exclusion. A more satisfying approach would be to determine what the particular instance of the word "contamination" means in the context of an exclusion entitled "wear and tear", which lists other related excluded causes of damage. The majority's result could be reached without resort to the overly malleable concept that ambiguities in exclusions are construed in favor of the policyholder. The "wear and tear" exclusion is not rendered ambiguous because it lacks temporal limitation to the scope of contamination. Rather, the exclusion unambiguously does not apply to sudden contamination caused by explosion when the full context is considered.