When an Ambiguous Policy Provision Does Not Necessary Mean a Loss in the Win/Loss Columns

LIFE INSURANCE – POLICY INTERPRETATION – AMBIGUITY – GENERAL BUSINESS LAW § 349 – PUNITIVE DAMAGES 

Hobish v. Axa Equitable Life Ins. Co. 
(NY App. Div., 1st Dept., 05/25/2023) 

Although this is a life insurance, rather than a property/casualty insurance, case, there are several important #insurance coverage/policy interpretation points at work in this decision:

1. A policy provision is ambiguous when it is susceptible to two or more reasonable interpretations. 


2. A New York court is not required to resolve the ambiguity against the insurer when extrinsic evidence presented in the case is not conclusory as to the provision's meaning. 


3. Unless the extrinsic evidence supports only one party's proposed interpretation, the ambiguity should not be resolved by the court as a matter of law.

The court also:

• AFFIRMED Supreme Court's denial of summary judgment to the defendant dismissing plaintiff's General Business Law § 349(h) cause of action, holding that "even if the decedent did not read the policy herself, issues of fact exist as to whether there was consumer impact in this case"; 


• AFFIRMED Supreme Court's grant of summary judgment to defendant dismissing plaintiffs' claim for compensatory and consequential damages on the breach of contract cause of action, based on plaintiffs' election not to terminate the contract and sue for a total breach, but instead maintain the policy with higher rates and then under protest exercise the surrender provisions of the policy;
  
  
• AFFIRMED Supreme Court's dismissal of plaintiffs' claim for "restitutionary" damages pursuant to General Business Law § 349(h), holding that such damages were "too speculative to constitute actual damages under the statute"; 
  
  
• AFFIRMED Supreme Court's dismissal of plaintiffs' claim for punitive damages of $12 million on its General Business Law § 349(h) cause of action based on its observation that GBL 349(h) provides for only "limited punitive damages" in the form of "an award of actual damages or fifty dollars, although a court may increase an award up to three times, up to one thousand dollars".

Why Don't We Ask ChatGPT?

How many of  YOU have discovered and starting playing with ChatGPT?  

For a little over a week now I've been tossing insurance- and law-related questions at this AI (and posting ChatGPT's answers to my LinkedIn account).  Here's a bunch of my Q's and ChatGPT's A's:

Direct Physical Loss

Hey ChatGPT -- How have the US courts interpreted the term "direct physical loss"?

The term "direct physical loss" has been interpreted by US courts in the context of insurance law. In the insurance industry, "direct physical loss" refers to physical damage to property, such as a building, caused by a covered peril, such as a fire, hurricane, or theft.

In interpreting the term, US courts have looked at the specific language of the insurance policy in question and the context in which the term is used. Some courts have held that "direct physical loss" requires a physical alteration of the property, such as the presence of fire or water damage. Other courts have taken a broader approach and have held that "direct physical loss" includes a loss of use or occupancy of the property, even if the property itself has not been physically altered.

In recent years, the interpretation of "direct physical loss" has become increasingly important in the context of pandemic-related business interruption claims. Some courts have held that business interruption losses caused by government-mandated shutdowns in response to the COVID-19 pandemic are covered under policies that include "direct physical loss" as a covered peril, while others have held that such losses are not covered.

The interpretation of "direct physical loss" can vary depending on the jurisdiction and the specific circumstances of each case, and it remains an evolving area of law that continues to be the subject of legal disputes and judicial decisions.

Lawyers

Hey ChatGPT -- Why do lawyers have such a bad reputation?

Lawyers have often been the subject of criticism and negativity in popular culture, and this has contributed to their negative reputation.

Some of the reasons for this reputation include:

• Stereotyping: Lawyers are often portrayed as dishonest, greedy, or unethical in movies, TV shows, and books, which has contributed to negative stereotypes about the profession.
• High costs: Legal services can be expensive, and some people may feel that lawyers take advantage of their clients by charging high fees.
• Perceived tactics: Some people may feel that lawyers engage in unethical or manipulative tactics in order to win a case, such as misrepresenting the facts or exploiting loopholes in the law.
• Complexity of the legal system: The legal system can be confusing and difficult to navigate, which can lead to negative perceptions of lawyers as individuals who benefit from this complexity.

It's important to note that not all lawyers fit these negative stereotypes, and many lawyers are dedicated and hard-working individuals who are committed to serving their clients and upholding the highest standards of ethical and professional conduct. Nevertheless, the negative reputation of the legal profession has persisted, and it is something that many lawyers and legal organizations are working to change.

Ambulance-Chasing Lawyers

Hey, #ChatGPT, why are some lawyers called "ambulance chasers"?

The term "ambulance chaser" is a pejorative slang term used to describe personal injury lawyers who are perceived as unethical and only interested in making money by seeking out clients who have been involved in accidents or incidents. The term is thought to come from the stereotype of such lawyers actively seeking out accidents and emergencies in order to solicit business from those involved.

However, it is important to note that not all personal injury lawyers engage in these types of practices and many provide valuable services to their clients. The term is a negative stereotype and should not be used to describe all personal injury lawyers or the legal profession as a whole. 

Insurance Companies

Good morning, #ChatGPT -- Why do people hate insurance companies?

People may have negative opinions about insurance companies for a variety of reasons:

• Denied claims: People may feel that insurance companies are unfair or unreasonable when they deny claims or pay out less than expected.
• Customer service issues: People may have had negative experiences with insurance companies' customer service, such as long wait times or unhelpful representatives.
• Complexity: People may find the insurance process confusing or difficult to understand, which can lead to frustration and anger.
• Premium increases: People may feel that insurance companies are taking advantage of them when their premiums increase, especially if they believe they are paying more and receiving less in return.
• Limited coverage: People may feel that their insurance coverage is inadequate, especially in the case of unexpected medical expenses or other significant costs.
• Perceived lack of empathy: People may feel that insurance companies do not understand or care about their unique circumstances, leading to a sense of distrust.

These are some of the reasons why people may dislike insurance companies. It is important to remember that insurance companies are businesses, and like any other business, they must balance their responsibilities to policyholders with the need to remain financially sustainable.

Reptile Theory

Hey, #ChatGPT -- What is the "reptile theory"?

"Reptile theory" is a term used in litigation, particularly in personal injury and insurance disputes, to describe a negotiation strategy that is based on the theory that people have a basic survival instinct, like reptiles, and will act in their self-interest to avoid danger and protect themselves.

The reptile theory posits that if the attorney can convince the jury that the defendant poses a threat to the safety and well-being of the plaintiffs and others, then the jury will instinctively respond to protect themselves and others, and be more likely to award a substantial settlement.

Proponents of the reptile theory argue that it can be a powerful tool in the courtroom, helping plaintiffs to establish a strong emotional connection with the jury and increase their chances of a favorable outcome. However, the effectiveness of the reptile theory has been questioned by some, who argue that it is manipulative and may not be supported by evidence or the facts of the case.

It is important to note that the use of reptile theory or similar tactics may not be permitted in all jurisdictions, and it is always recommended to seek the advice of a qualified attorney to determine the best approach for your specific case.

Vermin

Hey #ChatGPT -- Are raccoons vermin?

The classification of raccoons as vermin can vary depending on the context and the specific definition of the term "vermin." In some cases, the term vermin may be used to refer to any animal that is considered a pest or nuisance, which could include raccoons.

Raccoons are known to raid garbage cans, gardens, and bird feeders, which can cause damage and create a mess, leading some people to view them as a nuisance.

However, it's important to note that raccoons are also an important part of many ecosystems and have an important role to play in controlling populations of insects and small animals. Additionally, many people find raccoons to be fascinating and enjoy watching them in their natural habitat. Ultimately, whether or not raccoons are considered vermin may depend on the individual's perspective and context.

Insurance Policy Interpretation

Hey #ChatGPT -- What are the various methods of #insurance policy interpretation?

Interpreting an insurance policy can be a complex task as insurance policies are written in legal language and can be difficult to understand. The methods of insurance policy interpretation can vary depending on the jurisdiction, but there are several common approaches:

• Plain Meaning Rule: The plain meaning rule is the most common method of interpreting insurance policies. It holds that if the language of the policy is clear and unambiguous, then the words should be given their ordinary and plain meaning.
• Ejusdem Generis: This method involves interpreting general words in a policy in light of the specific words that accompany them. For example, if a policy lists specific items and then includes a general term, the general term is interpreted to include only items of the same type as those specifically listed.
• Expressio Unius: This method involves interpreting a policy by looking at what is expressly included, and what is expressly excluded. For example, if a policy specifically lists certain types of damages that are covered, and then lists other types of damages that are excluded, then any damages that are not mentioned would be subject to interpretation.
• Contra Proferentem: This method involves interpreting a policy against the party who drafted it, as described in my previous answer. Any ambiguities in the policy are resolved against the insurer, who is presumed to have had greater control over the language used in the policy.
• Maxims of Construction: These are general principles of law that are used to interpret contracts, including insurance policies. Maxims of construction are used to resolve any ambiguities or uncertainties in a policy by considering the purpose of the policy, the intent of the parties, and any other relevant factors.

It is important to note that the methods of insurance policy interpretation can vary depending on the specific policy and the jurisdiction in which the policy is being interpreted. In some cases, courts may use a combination of these methods to interpret a policy.

That or Which and the Rules of Grammar in Insurance Contract Interpretation

Those who follow me on LinkedIn know that I consider myself somewhat of a (okay, an obsessive-compulsive) grammarian.  

A post to LinkedIn that I made this morning today prompted an interesting discussion (at least to me and, at last count, one other) in the comments about policyholders', insurers', and courts' use of dictionary definitions to argue and determine the meaning of an insurance policy's undefined term.  

What's at stake, of course, is the dreaded "A" word:  Ambiguity.  Why?  Because ambiguities in contracts are construed against the drafter of the contract--the insurer in the case of an insurance coverage dispute.  I've heard that insurance recovery attorneys are taught that in kindergarten.  

The A-word can be quite the vorpal blade when it comes to slaying the ambiguous Jabberwock.  Especially for words or terms left undefined in an insurance policy.  But it is well-established in New York (and many other jurisdictions) that an ambiguity does not arise from an undefined term in a policy merely because the parties interpret that term differently.  Mount Vernon Fire Ins. Co. v. Creative Housing, Ltd., 88 NY2d 347, 352 (1996).

So what's the role, if any of grammar (and syntax) in insurance policy interpretation?  The now-retired Justice Bernard J. Fried, who concluded that his "job is not to police the rules of grammar", said it best in his 2006 decision in AIU Ins. Co. v. Robert Plan Corp. (2006 Slip Op. 52538 [Sup. Ct., NY Co., 2006], affd, 44 A.D.3d 355 [1st Dept. 2007]):

Under New York principles of contract interpretation, however, strict rules of grammar do not have the last word, when a grammatical construction of a contract is inconsistent with the parties' intent. Rather, a court's purpose in interpreting a written contract should be: 

to discover the intention which the parties have formulated in its written language. Often punctuation and grammatical construction are reliable signposts in the search. At times the language of a contract, read as a whole and in the light of the circumstances surrounding its execution, may disclose an intention which would be thwarted by a strict grammatical construction. We refuse to follow a signpost when it appears that it points in the wrong direction. Intention may be formulated in words that are not strictly accurate and in terms that are not grammatical. 

Wirth & Hamid Fair Booking v. Wirth, 265 NY 214, 219, 220-21 (1934) (concluding that a fair construction of the language of a written contract manifested that parties intended that defendant should have right to book performances for two circuses during summer months, notwithstanding the strict grammatical construction of the restrictive covenant to the contrary). 

The Court of Appeals has further instructed: 

Contracts are not to be interpreted by giving a strict and rigid meaning to general words or expressions without regard to the surrounding circumstances or the apparent purpose which the parties sought to accomplish. The court should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. 

William C. Atwater & Co. v. Panama R., 246 NY 519, 524 (1927) (citations and internal quotations omitted). In Atwater, for instance, the Court refused to enforce a provision of a contract for the sale of coal that, read literally, precluded the plaintiff seller from obtaining damages for breach of contract as to any coal remaining unshipped at the expiration of the contract. The Court reasoned that a literal reading of the provision was inconsistent with the "general sense of the contract," read in the light of "reason, equity, [and] fairness." Id. at 523-24. The Court concluded that it was "evident that the plaintiff had not the remotest intention of releasing any claims against defendant [the buyer] for damages for breach of contract which had accrued at the date of the expiration of the agreement and that the defendant could not reasonably have so understood the language thus used." Id. at 523. 

Although Wirth and Atwater were decided some years ago, they articulate principles that remain valid. See, e.g., Kass v. Kass, 91 NY2d 554, 566 (1998); In re Estate of Stravinsky, 4 AD3d 75, 81-82 (1st Dept. 2003).

For those two of you who may be wondering (and didn't click the case's Google Scholar hyperlink), the case before Justice Fried involved the restrictive and nonrestrictive relative pronouns of "that" and  "which" -- a topic which that has brought many grammarians better than me I to fisticuffs for a long time many years (if not decades or centuries).  Justice Fried explained:

In the previous Order, I concluded that the universe of property owned by Plaintiffs is the property described in clause A,[4] after subtracting the property described in clause B. Order at 2-3, 3 n.2. I further stated that clause C the phrase, "which are the property of AGENT" modifies the property described in clause B. Order at 3-4 n.2. These conclusions followed July's oral argument, at which the parties focused on whether "which" modified clause A or clause B. July 14 Trans. at 36-43. The issue of how "which" modified clause B did not arise. It seems necessary now to investigate how clause C modifies clause B, and, in particular, the significance of the word "which" in clause C. 

Strict grammarians prefer the use of the word "that" as the defining, or restrictive relative pronoun, while reserving "which" as the nondefining, or nonrestrictive relative pronoun. William Strunk, Jr. & E.B. White, The Elements of Style 59 (4th ed. 2000). So, for example, in the sentence, "The lawn mower that is broken is in the garage," the restrictive pronoun "that" tells the reader which mower is in the garage. (The broken one.) In contrast, in the sentence, "The lawn mower, which is broken, is in the garage," the nonrestrictive "which" adds a fact about the only mower in question. Id. 

In practice, however, "not all writers observe the distinction between restrictive clauses [] and non-restrictive clauses." The New Fowler's Modern English Usage 774 (R.W. Burchfield ed., 3d ed., Clarendon Press 1996). In fact, "it would be idle to pretend that it is the practice either of most or of the best writers." Id. (quoting with approval H.W. Fowler, A Dictionary of Modern English Usage 635 (1st ed., Oxford Univ. Press 1926)). The relative pronoun "which" is commonly used in both written and spoken English in place of the restrictive relative pronoun "that." Strunk, The Elements of Style at 59. In fact, writers of English sometimes use "which" in both the restrictive and the nonrestrictive sense in the same piece of writing. The New Fowler's Modern English Usage at 774 (emphasis added). 

The agreement itself contains other instances of "which" used in place of "that" as a restrictive relative pronoun. E.g. Agreement art. IV ¶ 4 ("In addition to... any applicable underwriting guideline, bulletin or instruction which may be issued from time to time..."); id. art. VI ¶ 3 ("AGENT will promptly advise the COMPANY in writing of any Insurance Department notice which specifically threatens the Company with disciplinary actions or penalties."). 

However, a strict grammarian would point out that in both of these instances, "which" is not preceded by a comma, whereas it is in clause C. Ordinarily, a comma setting off a modifying clause indicates that the modifier is nonrestrictive. See Strunk, The Elements of Style at 4. Thus, a comma preceding "which" in clause C would tend to suggest that "which" is being used as a nonrestrictive pronoun and that clause C does not limit or define clause B. This is the reading favored by Plaintiffs. 

This reading is supported by the fact that a purpose of paragraph 9 appears to be to identify who, between AIU and TRP, owned certain items relating to the business of TRP's agency. If "which" in clause C were read as a restrictive pronoun, clause B would no longer identify the items that were owned by TRP. Instead, clause B would assume that the reader knew which items were owned by TRP and would simply carve them out from the items identified in clause A, which were owned by AIU.

You had me at "restrictive, relative pronoun", judge. 😜😍

Next up: "different than" or "different from" in insurance contract interpretation?  

Google Scholar Lately?

Four days.  It took me only four days back in November 2009 to hear and blog about the then beta Google Scholar for case law research.  I was impressed with Google Scholar then, and almost six years later I remain impressed.  More so than ever, in fact.

FREE.  Case law research.  All state and federal court jurisdictions. No direct Shepardizing feature (for subsequent case history) or perfect citator feature, but did I mention FREE?

For the uninitiated, scholar.google.com will bring you to a landing page that defaults to searching articles and patents (the original Google Scholar birthday suit), not case law.  Click the "Case law" radio button, select your courts, and type your search in natural language.  Google search commands work in Google Scholar.  If you want to search case law in only New York state courts, you can select only those courts.  I've created a bookmark for only those jurisdictions and you can, too.  If you want to search both state and federal courts (less the Second Circuit Court of Appeals) in New York, here's that bookmark.

What court opinions are included in the Google Scholar databases?  Here's what Google Scholar says about that:

Currently, Google Scholar allows you to search and read published opinions of US state appellate and supreme court cases since 1950, US federal district, appellate, tax and bankruptcy courts since 1923 and US Supreme Court cases since 1791. In addition, it includes citations for cases cited by indexed opinions or journal articles which allows you to find influential cases (usually older or international) which are not yet online or publicly available. 

Legal opinions in Google Scholar are provided for informational purposes only and should not be relied on as a substitute for legal advice from a licensed lawyer. Google does not warrant that the information is complete or accurate.

Let's say we were researching New York state court cases addressing the question of whether the absolute pollution exclusion applies indoors.  In the New York state court database, we would search:  "absolute pollution exclusion" indoors.  And in 0.02 secs (on my computer, at least) Google Scholar would return 17 results, the first of which would be the New York Court of Appeals' 2003 decision in Belt Painting Corp. v. TIG Ins. Co.:

Your search terms are highlighted in the excerpted text and beneath the search result are hyperlinks for the (number of) cases citing Belt Painting Corp. nationwide, how the case has been cited by those cases, cases related in issue to the result case, a quick citation generator (in Bluebook format even), and a link to save the case to your "My library" if you are logged on to your Google account (assuming you have a Google account).

Once you have run a search and opened a case, Google Scholar provides a rudimentary (and still free) substitute for Shepard's Citations.  For the New York insurance coverage seminal case of Albert J. Schiff Assoc. v. Flack, for example, clicking the "How cited" link in the upper left-hand corner of the case's reading page reveals this:

The "How this document has been cited" section gives snippets of text from cases that cite to the case search result, Schiff Assoc. v. Flack in this example, grouped into .  Additional citing decisions can be found in the "Cited by" column, and the "Related documents" section provides additional case decisions of potential relevance.

No doubt the biggest drawback to Google Scholar is its inability directly to determine whether a found case has been affirmed, reversed or modified on appeal.  The best way of doing so within Google Scholar if your case result is from a court above which an appeal could be taken is to run another search using the case result's case name and review the search results to see whether there has been any appellate treatment of that case.  So, for example, if you came across the Third Department, Appellate Division's 1981 decision in Zappone v. Home Ins. Co., and wanted to see whether that case had received any appellate treatment, you could run "Zappone v. Home Ins. Co." in Google Scholar and would see that the Third Department's order was affirmed by the New York Court of Appeals in 1982.  Or pay for a subscription of LexisNexis, Westlaw, Bloomberg, or the like.  Which is probably a good idea anyway if you are going to cite the case result in a legal memorandum or brief.

With the understanding and appreciation of the fact that Google Scholar's citator feature is less than perfect, Google Scholar still provides a (very) cost-effective alternative to paying for access to a subscription-based legal research service either directly or through paid counsel.  I commend Google Scholar to every group of legal and non-legal professionals I speak to, and continue to be surprised by the number of insurance industry people who either don't know of or don't use Google Scholar. I won't lie; Google Scholar is where I start my legal research.  It is especially useful for doing insurance coverage legal research.  I simply put a policy phrase between quotations marks and run searches in the relevant jurisdictions.  Easy-peasy.

Want to follow a particular legal case decision or issue, or be notified in the event certain policy language appears in any future case?  Google Scholar has an "alert" feature.  Search the case name or issue or policy language in the databases (state or federal jurisdictions) you want Google to use for your alert and then click "Create alert" (the envelope icon for visual learners) at the bottom of the search result page's column to create your alert.  Ever wonder how I stay "up" so to speak on certain areas of law?  Google Alerts and Google Scholar Alerts are two ways.

Google Scholar began as many thing Googley -- as an experiment.  For as long as it remains FREE, enjoy it.  And use it.  And for the especially curious or appreciative, head over to the blog of one of Google Scholar's two creators, Anurag Acharya.  Thank you, Anurag.

The tweeted birth announcement:

Deservedly proud.  Exceptionally good work, Google folks.

Are you using Google Scholar for case law research?

Water Damage from Broken Water Main Not Due to "Explosion"

PROPERTY – HOMEOWNERS – WATER LOSS EXCLUSION – EXPLOSION EXCEPTION
Platek v. Town of Hamburg
(Ct. Apps., decided 2/19/2015)

A subsurface water main abutting the property of plaintiffs ruptured, causing water to flood into and severely damage their home's finished basement. Plaintiffs immediately made a claim under their homeowners' insurance policy with defendant Allstate Indemnity Company.
Plaintiff's homeowners policy with Allstate contained the following exclusion:

We not cover loss to the property ... consisting of or caused by:

4.  Water ... on or below the surface of the ground, regardless of its source[,] [including] water ... which exerts pressure on, or flows, seeps or leaks through any part of the residence premises.

We do cover sudden and accidental direct physical loss caused by fire, explosion or theft resulting from items 1 through 4 listed above. 

Allstate denied coverage under Exclusion 4, and plaintiffs commenced this action against the municipality and Allstate.  Plaintiffs moved for summary judgment on their breach of contract claim, asserting that because they had "sustained a water intrusion loss" caused by "an explosion of the ... water main," their claim fell within the exception to the water loss exclusion.  In support of their motion, plaintiffs submitted the affidavit of an engineer, who stated that the water main "suddenly exploded from the internal water pressure being exerted on the pipe walls. Hence, the explosion resulted from internally pressurized water that was supposed to be contained in a buried underground pipe." He opined that plaintiffs had therefore suffered "direct physical loss to their home and other property," which was "caused by an explosion resulting from internally pressurized water suddenly and accidentally bursting from the underground pipe."  Allstate cross-moved for summary judgment, arguing that the explosion exception did not apply because, under that provision's wording, any "loss caused by ... explosion" must "result[ ] from" the explosion. Allstate argued that in this case, by contrast, any explosion "occurred earlier, outside the residence premises, when the water main broke."

Supreme Court granted plaintiffs' motion and denied Allstate's cross motion, and declared that plaintiffs' loss was covered under the policy and Allstate was required to pay the claim. On Allstate's appeal, the Appellate Division, with two Justices dissenting in part, modified Supreme Court's order by vacating the declaration and otherwise affirmed. All the Justices agreed that since plaintiffs asserted a cause of action against Allstate for breach of contract, Supreme Court erred by "declaring" that plaintiffs' claimed loss was covered under the policy and directing payment. The Court split on the issue of whether the policy's sudden and accidental exception to the water loss exclusion applied.

In REVERSING the Appellate Division's denial of Allstate's cross motion for summary judgment, the Court of Appeals first reviewed the "three basic principles" of insurance policy interpretation guiding its analysis in this case:

1. In determining an insurance coverage dispute the court first looks to policy language, construing the policy in a such way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect.


2. Although the insurer has the burden of proving the applicability of a policy exclusion it is the insured's burden to establish the existence of coverage, which includes demonstrating the applicability of an exception to a policy exclusion.


3. Where a property insurance policy contains an exclusion with an exception for ensuing loss, courts should assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk.

After holding that the plaintiffs' loss clearly fell within the policy's water loss exclusion, the court rejected the plaintiffs' argument that explosion exception applied, holding:

Plaintiffs nonetheless argue that the water damage to their basement was covered because it was "caused by an explosion of the ... water main resulting from highly pressurized water located on or below the surface of the ground," or, as stated slightly differently elsewhere in their brief, that "the explosion occurred as a result of water that was exerting pressure on the Property" or "the Residence." But this is not what plaintiffs' expert said. He opined that "highly pressurized water" exerted internal water pressure on the walls of a pipe buried off plaintiffs' property, not that an explosion resulted from subsurface water "exert[ing] pressure on . . . any part of the residence premises" per item 4 of the water loss exclusion.

* * * * *

In sum, interpreting the insurance policy as plaintiffs propose would contravene the water loss exclusion's purpose, as expressed in unambiguous language, which is to preclude coverage for damages caused by the entry of water onto an insured's property. As stated by the Supreme Court of New Hampshire when interpreting a policy excluding water loss, "[t]o apply the ensuing loss provision to provide coverage for what is essentially a flood would subvert the intent of the parties" (Bates v Phenix Mut. Fire Ins. Co., 156 NH 719, 723, 943 A2d 750, 754 [2008] [internal quotation marks omitted]). In the same way, permitting coverage under the facts of this case would force Allstate to insure a loss it did not contemplate and, indeed, affirmatively excluded.

Food Odors from Delicatessen Do Not Constitute Pollutants Within the Meaning of the Absolute Pollution Exclusion

CGL – ABSOLUTE POLLUTION EXCLUSION – SMOKE, EXHAUST AND ODORS FROM INSURED RESTAURANT'S EXHAUST VENT – POLICY INTERPRETATION
Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co.
(2nd Cir., US Ct. Apps., decided 11/4/2011) 

Noisome odors emanating from an insured's delicatessen do not constitute "pollutants" within the meaning of the absolute pollution exclusion of a commercial general liability policy.  Affirming the District Court's order, so holds the United States Court of Appeals for the Second Circuit in this decision.

Plaintiff operated a century-old delicatessen, famously known as The Sturgeon King, on the Upper West Side of Manhattan.  A man who lived in an apartment upstairs from the restaurant sued the building owner, a co-op, which in turned impleaded the tenant that controlled the delicatessen, which in turn impleaded the deli, Lumbermens' insured.  The upstairs tenant claimed that overpowering food odors that emanated from a commercial kitchen exhaust vent underneath one his windows permeated his living room and rendered it uninhabitable.  Plaintiff tendered the fourth-party complaint to Lumbermens for defense and indemnification coverage, but Lumbermens denied coverage based on the policy's pollution exclusion, which negated coverage for

"property damage" ... arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time . . . [a]t or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured.

The policy defined “Pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste,” with “[w]aste includ[ing] materials to be recycled, reconditioned or reclaimed.

Plaintiff commenced this declaratory judgment action for coverage and moved for summary judgment.  In granting summary judgment to the insured plaintiff, the United States District Court for the Southern District of New York noted that "while the quality of plaintiff's restaurant smells may be in the nose of the beholder, defendant's 'pollution' argument -- as addressed to the odors here -- is malodorous to this Court."  Lumbermens appealed that decision to the United States Second Circuit Court of Appeals.

In AFFIRMING the judgment appealed from, the Second Circuit rejected Lumbermens' argument that the District Court judge misapplied the “common speech” and “reasonable expectations” doctrines in construing the pollution exclusion against Lumbermens:

As an initial matter, the complaint in the underlying action does not allege that the plaintiff, Theodore Bohn, was damaged by a “pollutant” or that the odors emitted from BG’s [Barney Greengrass'] exhaust vent constituted “pollution.” Instead, it alleges that Bohn “stopped using [his] living room because the odors permeating that room had become so overpowering as to make the room entirely unusable,” J.A. 135, and that he was damaged by the co-op board’s failure to address his complaints.

*  *  *  *  *

The district court reasoned that “[t]o read ‘pollution’ as encompassing ‘restaurant odors,’ as defendant urges here, would contradict ‘common speech’ and the ‘reasonable expectations of a businessperson,’ who has come to understand standard pollution exclusions as addressing environmental-type harms.” Barney Greengrass, Inc. v. Lumbermens Mut. Cas. Co., No. 09 Civ. 7697 (NRB), 2010 WL 3069560, at *7 (S.D.N.Y. July 27, 2010). On appeal, Lumbermens contends that district court misapplied the “common speech” and “reasonable expectations”doctrines on the ground that “the term ‘fumes’ contained in the Policy’s definition of ‘Pollutant’ is commonly defined as odorous.” Def. Br. 21. There is no dispute, however, that the term “odors” is not included in the policy’s definitions of “pollutants,” and the term “fumes” is undefined.  Moreover, the definitional list of “pollutants” set forth in the policy particularizes “irritant or contaminant” by reference to “smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste,” App. 95, terms that connote traditional forms of environmental or industrial pollutants or contaminants. Cf. W. Alliance Ins. Co. v. Gill, 426 Mass. 115, 118 (1997) (“The exclusion should not reflexively be applied to accidents arising during the course of normal business activities simply because they involve a ‘discharge, dispersal, release or escape’ of an ‘irritant or contaminant.’”).

The cases upon which Lumbermens relies are easily distinguishable because the “odors” there constitute traditional environmental pollution to which exclusion clauses typically apply.  See, e.g., Town of Harrison v. Nat’l Union Fire Ins. Co. of Pittsburgh, 89 N.Y.2d 308, 314, 316 (1996) (pollution exclusion applied to odors from “dumping of waste materials, contaminants or pollutants”); Tri-Mun. Sewer Comm’n v. Cont’l Ins. Co., 636 N.Y.S.2d 856, 857 (2d Dep’t 1996) (pollution exclusion applied to odors from “sewage treatment plant”). In these circumstances, we conclude that Lumbermens cannot meet its burden of showing that the restaurant odors constitute “pollution” within the meaning of the exclusion, as any ambiguities must be construed against the insurer. See, e.g., Stoney Run Co. v. Prudential-LMI Commercial Ins. Co., 47 F.3d
34, 37 (2d Cir. 1995).

Lumbermens also argued that since under the New York City Administrative Code, restaurant odors in sufficiently detectable quantities could constitute “air contaminants” subject to regulation, such odors could also constitute a "pollutant" within the meaning of the policy's pollution exclusion.  In rejecting that argument, the court ruled:  

The administrative regulations upon which Lumbermens relies, however, do not pertain in any way to insurance coverage disputes, much less pollution exclusion clauses. Nor does the parties’ dispute here concern administrative liability under the Code. Therefore, Lumbermens’s attempt to apply the principles underlying a New York administrative regulation to the insurance clause here at issue is unavailing.

This is yet another example in which a court has ruled that the so-called absolute pollution exclusion of a commercial general liability policy applies only to traditional forms of environmental or industrial pollutants or contaminants and instances of traditional environmental pollution.