MARCH 17, 2015
An insurer that covered a contractor's liability for
“pollution” damages must cover a share of defense costs and settlement
amounts from a natural gas explosion that caused property damage and
bodily injury, the Wisconsin Supreme Court has ruled.
In 2008, Dorner Inc. was performing road construction in
Oconomowoc, which included underground excavation. Workers discovered a natural
gas line and mistakenly thought it was inactive. When they tried to move the
pipe, it ruptured and leaked gas, causing an explosion that leveled a church,
damaged nearby residences, and injured workers.
Four lawsuits followed. Dorner had two liability insurance
policies. One was a general commercial liability policy with Acuity Insurance
Company (Acuity).
Another was a “contractors’ pollution liability policy” with
Chartis Specialty Insurance Company (Chartis), which covered damages caused by
pollutants specifically.
Acuity defended the lawsuits and indemnified Dorner upon
settlement. But Acuity sued Chartis to pay half of defense fees and half the
settlement. Chartis argued that the damages weren’t covered because an
explosion caused the damages, not pollution.
The Waukesha County Circuit Court said the damages were
covered, and ordered Chartis to pay 50 percent of defense and indemnity costs
associated with the lawsuits.
But a state appeals court reversed, concluding that
Chartis’s policy did not cover the losses. In Acuity Ins. Co. v. Chartis
Specialty Ins. Co., 2015 WI 28 (March 17, 2015), a unanimous supreme court
reversed the appeals court, concluding that the natural gas leak was a
“pollution condition” that caused the bodily injury and property damage.
“We therefore conclude that Chartis’s CPL policy covers the
insured’s liability arising from the natural gas-fueled explosion and fire,”
wrote Chief Justice Shirley Abrahamson. “Chartis must pay its share of the
defense fees and indemnity payments as ordered by the circuit court.” Acuity
had paid a $1.5 million settlement on behalf of Dorner.
In the Chartis policy, a “pollution condition” was defined
as the “release of any solid, liquid, gaseous, or thermal irritant or
contaminant” on land or into the atmosphere in concentrations not naturally
present in the environment.
First, the supreme court rejected Chartis’s claim that natural
gas released into the air is not a “irritant” or “contaminant” and thus not a
covered “pollution condition.”
“Natural gas renders the surrounding ground and air space
impure or unclean because natural gas is extremely flammable and explosive,”
wrote Chief Justice Abrahamson, noting that in this case, its release resulted
in great harm. “Thus, we conclude that natural gas is a contaminant under the
circumstances of the present case.”
The supreme court noted that a company like Dorner, which
does excavation construction work, would expect the pollution policy to cover
natural gas leaks.
Second, the supreme court ruled that the Dorner workers
caused a contamination of natural gas into the air, which caused damages by
triggering the explosion.
“This sequence of events is sufficient to establish that the
escape of natural gas (a pollution condition) caused the alleged bodily injury
and property damage,” wrote the chief justice, rejecting Chartis’s claim that
no coverage existed unless the leaked natural gas, in its gaseous state, caused
the damage, not a resulting explosion of fire.
Finally, the court rejected Chartis’s claim that since
Acuity’s policy applies to cover the loss, Chartis’s policy does not since
Chartis’s policy merely fills a “pollution” gap in coverage. The court noted
that both policies can apply simultaneously:
“Depending on the language of the policies and the facts of
the case, it is entirely possible for both a commercial general liability
policy with a pollution exclusion clause and a contractors’ pollution liability
policy to cover the insured’s liability.”
The court noted that it was only deciding Chartis’s coverage
obligation, not whether Acuity’s policy actually covers liability for a natural
gas explosion.