In a recent Second Circuit decision, the court considered an insurer’s duty to defend and indemnify an insured in connection with a chemical contamination at Love Canal near Niagara Falls, New York.

In Cincinnati Insurance Company v Roys Plumbing Inc, several families sued Roy’s Plumbing, Inc. and other defendants alleging personal injury, property damage, and loss of companionship due to the wrongful dumping of toxic substances.  Cincinnati Insurance Company and disclaimed coverage to Roy’s pursuant to the policy’s pollution exclusion.  After disclaiming coverage, Cincinnati sued seeking a declaration of no coverage.  The United States District Court for the Western District of New York granted Cincinnati’s motion for summary judgment, holding that Cincinnati was not obligated to defend or indemnify Roy’s in connection with the underlying litigation.

The Cincinnati policy excluded “[b]odily injury or property damage which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release, escape or emission of pollutants at any time.”  “Pollutant” was broadly defined, covering “substances which are generally recognized in industry or government to be harmful or toxic to persons, property or the environment” and “any solid [or] liquid … irritant or contaminant, including … waste.”  Since the complaint against Roy’s alleged damages related to personal injuries and contamination of property caused by toxic chemicals, as well as sewage, the court had “no doubt” these constituted excluded pollutants.  The court also rejected Roy’s argument that the pollution exclusion was overbroad and created ambiguity because it would deny coverage for most damages due to plumbing work, as New York courts limit the reach of pollution exclusions to “those cases where the damages alleged are truly environmental in nature, or where the underlying complaint alleges damages resulting from what can accurately be described as the pollution of the environment.”  Thus, the Second Circuit upheld the District Court’s ruling on appeal finding that the allegations against Roy’s Plumbing fell within the policy’s pollution exclusion.

Though Roy’s tried to present a quasi “illusory coverage” argument, this case illustrates that an appropriately worded exclusion will be upheld.

Thanks to Rebecca Rose for her contribution to this post.