Opinion ID: 796324
Heading Depth: 2
Heading Rank: 3

Heading: The Contamination Exclusion Under the Contract

Text: 40 Under the all-risk Policy in this case, Parks may seek compensation for loss or damage not otherwise excluded. Here, St. Paul asserts that the claimed loss falls under the Contamination Exclusion and therefore is excluded from coverage. The parties agree, as they must, that the term contamination is not further defined in the Policy. 41 We recognize that some courts have used the same definitions as the District Court in applying contamination exclusions — i.e., the introduction of a foreign substance that injures the usefulness of the object, see Hi-G, Inc. v. St. Paul Fire & Marine Ins. Co., 391 F.2d 924, 925 (1st Cir.1968) (holding that a product is commonly spoken of as contaminated when the foreign substance merely injures its usefulness without affecting the original physical characteristics); J.L. French Auto. Castings, Inc. v. Factory Mut. Ins. Co., No. 1:02CV09479, 2003 WL 21730127 (N.D.Ill. July 23, 2003) (concluding that contamination — the presence of human remains in the die lubricant — was caused by the operator being crushed in the press), or a condition of impurity resulting from the mixture or contact with a foreign substance, see American Cas. Co. of Reading, Pa. v. Myrick, 304 F.2d 179, 184 (5th Cir.1962) (holding that there was a contamination of refrigerated foodstuffs that had been rendered impure when they came in contact with ammonia gas as a result of a broken commercial refrigerator — rendering the foodstuffs unfit for consumption); Auten v. Employers Nat. Ins. Co., 722 S.W.2d 468, 469 (Tex. App.1986) (finding that [c]ontamination occurs when a condition of impairment or impurity results from mixture or contact with a foreign substance); Richland Valley Prods., 548 N.W.2d at 130 (stating that contamination connotes a condition of impurity resulting from mixture or contact with a foreign substance, and that it means to make inferior or impure by mixture; an impairment of impurity; loss of purity resulting from mixture or contact (internal quotation and citation marks omitted)). 42 Other courts have eschewed the foregoing definitions, opting to define the term contamination contextually. In Enron Oil Trading & Transp. Co. v. Walbrook Ins. Co., 132 F.3d 526 (9th Cir.1997), our sister Circuit addressed the insurers' contention that the pollution exclusion in a commercial general liability policy applied in that case so as to exclude coverage for losses sustained as a result of the addition of a foreign substance to crude oil transported in a pipeline. 132 F.3d at 528. In that case, the at-issue policy excluded coverage for loss resulting from pollution or contamination. Id. at 529. Recognizing that an insurance policy clause is ambiguous when different persons looking at the clause in light of its purpose cannot agree upon its meaning, id. at 530 (quotation marks omitted), the Ninth Circuit agreed with the district court in determining that although `contamination' is not defined in the policy, it must be construed within the context of the pollution exclusion.  Id. (emphasis supplied). The term contamination, the court explained, is an environmental term of art and applies only to discharges of pollutants into the environment. Id. The court also agreed with the district court's rejection of the insurers' common-sense approach to defining contamination, as that approach would render an interpretation that was virtually boundless and would reach far beyond the reasonable expectations of the insured. Id. 43 The Enron Oil court found that the insurers' expansive definition of contamination demonstrated the ambiguity convincingly; under their interpretation, the [contamination] exclusion would be virtually limitless, extending to claims for product liability (for example, a bottle manufactured with impure glass) or for negligence (for example, spoilt food served in a restaurant) that arguably involved an impurity resulting from contact with a foreign substance. Id. The Ninth Circuit concluded that the use of the words `seepage, pollution and contamination,' together with the specific exclusion of `the cost of removing, nullifying or cleaning-up seeping polluting or contaminating substances,' sends an unmistakable message to the reasonable reader that the exclusion deals with environmental-type harms. Id. The Ninth Circuit thus opted for a contextual definition of contamination, an approach with which we agree. 44 Similarly, in Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037 (7th Cir.1992), the Seventh Circuit examined an insurance policy's pollution exclusion clause, in which the definition of pollutant included any . . . thermal irritant or contaminant. 976 F.2d at 1043. The court held that the terms `irritant' and `contaminant,' when viewed in isolation, are virtually boundless, for `there is virtually no substance or chemical in existence that would not irritate or damage some person or property.' Id. at 1043 (quoting Westchester Fire Ins. Co. v. City of Pittsburgh, 768 F.Supp. 1463, 1470 (D.Kan.1991)). Further analyzing the expansive definition of contaminant sought by the insurer in the pollution context, the Seventh Circuit explained: [W]ithout some limiting principle, the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results. To take but two simple examples, reading the clause broadly would bar coverage for bodily injuries suffered by one who slips and falls on the spilled contents of a bottle of Drano, and for bodily injury caused by an allergic reaction to chlorine in a public pool. Although Drano and chlorine are both irritants or contaminants that cause, under certain conditions, bodily injury or property damage, one would not ordinarily characterize these events as pollution. 45 976 F.2d at 1043. 46 In McConnell Constr. Co. v. Ins. Co. of St. Louis, 428 S.W.2d 659 (Tex.1968), the Texas Supreme Court affirmed the judgment of the trial court (and reversed the judgment of the intermediate appellate court) in determining that the damage claimed was not the result of contamination. In McConnell, muriatic acid was applied to the brick and mortar of a new floor of a new house. Id. at 660. By virtue of that application, a chemical reaction occurred, resulting in fumes and gases arising from the floor. Those gases damaged the metal parts of the house — doorknobs, metal fixtures, aluminum window frames, and the like — by causing corrosion. Id. The Texas Supreme Court held: 47 Corrosion and contamination are not synonymous terms. The connotation of contamination is a mixing of substances like dirt and water which results in an impure mixture. Corrosion on the other hand connotes disintegration, oxidation, decay of metal and the like. While it may be possible that under certain situations, a corrosion may also be classified as a contamination, that is not the situation here. We have no mixing of substances resulting in impurity. We have a pitting, a destruction and a disintegration of metal caused by chemical fumes and a resultant degenerative reaction adversely affecting the structure of metal. We hold that the loss in this case was comprehended by the insuring clause of the policy and was not excluded therefrom. 48 Id. at 661 (emphasis supplied). McConnell amply illustrates how the term contamination may be used improperly as a synonym for various types of damage and chemical processes, which may or may not properly be classified as contamination or excluded from coverage under the terms of a policy. 49 We find that the term contamination is ambiguous in the context of the St. Paul Policy, because the common definition of the term that the District Court employed — the introduction of a foreign substance that injures the usefulness of the object or a condition of impurity resulting from the mixture or contact with a foreign substance — would allow the contamination exclusion in the Policy to be applied in a limitless variety of situations. 50 An illustration of a how the term contamination may have a virtually boundless set of applications in the all-risk policy context may be served by example. Consider the situation if the Twin Towers had collapsed directly on top of the Property, causing substantial damage. In such an instance, the Property surely would be insured for that loss under the all-risk commercial insurance Policy. However, St. Paul, taking the position that it does here, could argue that the damage to the building in this example resulted from the introduction of a foreign substance that injures the usefulness of the object, see Hi-G, Inc., 391 F.2d at 925, or a condition of impurity resulting from the mixture or contact with a foreign substance, Myrick, 304 F.2d at 183, the definitions applied by the District Court in the case at bar. 51 Consider also the example of a fire, an insurable event or peril. The ash and soot from the fire could arguably be considered a foreign substance injuring the usefulness of a building or object. Certainly, soot and ash could also be considered an impurity in a building that has suffered a fire. Indeed, the insurer made precisely this argument in Cantrell v. Farm Bureau Town & Country Ins. Co. of Missouri, 876 S.W.2d 660 (Mo.Ct.App.1994). In Cantrell, the insured's home was damaged by a fire, which resulted in the release of toxic chemicals and fumes throughout the home. The home was rendered uninhabitable as a consequence. The all-risk fire insurance policy issued to the insured in that case excluded coverage for contamination but specifically covered losses from fire and smoke. Id. at 662. The insurer denied coverage of the insured's claim under the policy's contamination exclusion, explaining that contamination, undefined in the policy, meant to make inferior or impure by admixture. Id. at 664 (internal quotation marks omitted). The court found that the word contamination was not unambiguous and had a broad meaning that encompassed at least four types of damage. 52 The court identified the four types of contamination as (i)  [g]radual contamination from natural sources or unknown or various external sources, such as pollution, contamination from radon or other noxious natural sources, or exposure to raw sewage or chemicals used as pesticides or herbicides; (ii) contamination from  activities or events not occurring on the insured's property, such as nuclear radiation, or toxic gas resulting from an accident or mishap; (iii) contamination resulting from an  uncovered event or activity occurring on the insured's property, such as the negligent or malicious saturation of a floor or wall with chemicals designed for use as pesticides or fertilizers; (iv) contamination resulting from a  covered event occurring on the insured's premises, such as smoke damage to unburned parts of a house damaged by fire. See id. at 664 (emphases in original). The court explained, however, that smoke damage, identified by the court as a fourth type of contamination, would ordinarily not fall within the ambit of what the reasonable person would consider to be excluded damage under an insurance Policy's contamination exclusion: 53 Permeation of the house with toxic or noxious smoke and/or fumes would fit this very broad definition. However, there may be many conceivable types and sources of contamination.... 54 Smoke damage, by the definition cited by Farm Bureau, would be contamination. The smoke has made the other parts or contents of the house inferior or impure by admixture. If the word contamination were to be given the broad, all-encompassing definition advanced by Farm Bureau, smoke damage of any type would have to be excluded from Farm Bureau's type three coverage. The policy states: We cover direct loss not otherwise excluded in this policy, that follows caused by fire, smoke (but not smoke from agricultural smudging or industrial operations).... If contamination were intended to include any impurity caused by admixture, smoke damage could never be covered because of the not otherwise excluded language. 55 The exclusion section does not clearly exclude contamination resulting from a covered event. A reasonable person reading the exclusion would expect the first two types of contamination to be the types of contamination excluded. The other types of items listed in the exclusions section are of similar nature to the first and second types listed above. Whether the third type of contamination is covered is less certain, but an argument can be made that a reasonable person would also understand the third type of contamination would not be covered. The first three types of contamination involve contamination without occurrence of a covered event. However, a reasonable person would not determine that smoke damage caused by a covered fire, would be excluded from coverage. 56 Id. at 664-65 (footnotes omitted). 57 In the context of a liability insurance policy, at least one New York State court has also found the term contamination or contaminant to be ambiguous. In Pepsico, Inc., the insured used faulty raw ingredients in its soft drink products, which caused the products to have an unintended taste and which necessitated the destruction of the damaged products. 788 N.Y.S.2d at 143. The insurance carrier in that case disclaimed coverage, relying on the policy's contamination exclusion. The carrier claimed that contamination meant to make inferior or impure by mixture. Id. at 144. The New York State Supreme Court, Appellate Division, however, determined that 58 [t]o accept [the insurance carrier's] interpretation would require that the term contamination be read literally, whereas New York courts, in construing terms in pollution exclusions, favor a common-sense approach over a literal approach. [The insurance carrier's] reading also ignores the general purpose of pollution exclusions, which is to exclude coverage for environmental pollution. 59 .... At best, there being more than one reasonable interpretation to the meaning of the term contamination, the exclusion is ambiguous. Since it is ambiguous, the exclusion must be construed in favor of the insured. To accept [the insurer's] reading would also contradict the common speech and reasonable expectations of a businessperson who has come to understand standard pollution exclusions as exclusions addressing environmental-type harms. 60 Id. (internal citations omitted); cf. Nautilus Ins. Co. v. Jabar, 188 F.3d 27, 30 (1st Cir.1999) (We also find ambiguity in the exclusion's definition of `pollutant.' The . . . policy defines `pollutant' as `any solid, liquid, gaseous, or thermal irritant or contaminant.' As other courts have observed, the terms `irritant' and `contaminant' are virtually boundless, for `there is no substance or chemical in existence that would not irritate or damage some person or property.' (quoting Pipefitters, 976 F.2d at 1043)); Herald Square Loft Corp. v. Merrimack Mut. Fire Ins. Co., 344 F.Supp.2d 915, 919-20 (S.D.N.Y.2004) (The language of the pollution exclusion clause of the 2002 policy is so broad that it cannot literally mean what it says. As defined, `pollutants' is so broad that ambiguity is created. Literally construed, the words would encompass the `release' or `dispersal' of ordinary household dust, for household dust is arguably a `solid . . . irritant or contaminant, including . . . waste'.... [T]he term `pollutant' is ambiguous because there is virtually no substance or chemical in existence that is not an `irritant or contaminant.') (quoting Pipefitters, 976 F.2d at 1043; Roofers' Joint Training, Apprentice & Educ. Comm. of Western N.Y. v. Gen. Accident Ins. Co. of Am., 275 A.D.2d 90, 713 N.Y.S.2d 615 ((2000))). 61 Without doubt, there are many situations where an insured's property is rendered impure or is damaged by the introduction of a foreign substance. Under an all-risk policy, almost any unintended damage to a building or its contents could be considered contamination within these broad definitions of the term. Under such a construction, the all-risk policy would insure against virtually nothing. Accordingly, we find that the term contamination is ambiguous in the context of the all-risk Policy that we are considering. The District Court concluded [w]hether the airborne substance at issue is considered pulverized, abrasive, corrosive, erosive, particulate or contaminant, the effect on the Property was contamination. Parks Real Estate, 2005 WL 2414771, at . We are not so sure that the damage caused by the settling of the airborne matter into Parks' Building, machinery, and equipment was intended by the parties to constitute contamination excluded from the Policy's coverage. Because of the virtually boundless array of possible applications of the term contamination in the contamination exclusion provision, we think that the parties should be allowed to introduce evidence of what was intended by the use of this ambiguous term. See Morgan Stanley Group Inc., 225 F.3d at 275-76. Opting for the contextual approach, we think that questions of material fact pertaining to the meaning of the term contamination under this all-risk Policy remain for resolution by the trier of fact. Accordingly, a remand for that purpose is indicated in this case.