LIABILITY INSURER’S DUTY TO DEFEND INSURED IS BROADER THAN ITS DUTY TO INDEMNIFY

Posted on May 3, 2019April 24, 2020 by Edward Garber

When it comes to liability insurance, an insurer’s duty to defend its insured from a third-party claim is much broader than its duty to indemnify. This broad duty to defend an insured is very important and, as an insured, you need to know this. “A liability insurer’s obligation, with respect to its duty to defend, is not determined by the insured’s actual liability but rather by whether the alleged basis of the action against the insurer falls within the policy’s coverage.” Advanced Systems, Inc. v. Gotham Ins. Co., 44 Fla. L. Weekly D996b (Fla. 3d DCA 2019) (internal quotation omitted). This means:

Even where the complaint alleges facts partially within and partially outside the coverage of a policy, the insurer is nonetheless obligated to defend the entire suit, even if the facts later demonstrate that no coverage actually exists. And, the insurer must defend even if the allegations in the complaint are factually incorrect or meritless. As such, an insurer is obligated to defend a claim even if it is uncertain whether coverage exists under the policy. Furthermore, once a court finds that there is a duty to defend, the duty will continue even though it is ultimately determined that the alleged cause of action is groundless and no liability is found within the policy provisions defining coverage.

Advanced Systems, supra(internal citations and quotations omitted).

In Advanced Systems, an insurer refused to defend its insured, a fire protection subcontractor. The subcontractor had been third-partied into a construction defect lawsuit because the foam fire suppression system it installed had a failure resulting in the premature discharge of foam. The owner sued the general contractor and the general contractor third-partied in the subcontractor. However, the subcontractor’s CGL carrier refused its duty to defend the subcontractor from the third-party complaint because of the pollution exclusion in the CGL policy. In other words, the insurer claimed that the foam the subcontractor installed constituted a pollutant within the meaning of the exclusion and, therefore, resulted in no coverage and, thus, no duty to defend the insured in the action.

To determine the foam was a “pollutant”–which the policy defined as any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste”—the insurer relied on extrinsic evidence, specifically the Material Safety Data Sheet (MSDS Sheet) for the foam. The insured objected to the insurer’s reliance on extrinsic evidence since it was beyond the scope of the insurer’s duty to defend which should be based on the allegations in the underlying complaint. (The insurer tried to support its reliance on extrinsic evidence under a very limited exception that supports the reliance on extrinsic facts to form the refusal to defend when the extrinsic facts are uncontroverted and manifestly obvious, not normally alleged in the complaint, and that place the claim outside of coverage. However, this is a very narrow exception that the court was not going to apply here.)

It is important to consult with counsel if you have an issue with your insurer refusing to defend you in an underlying action and/or your insurer denies coverage.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

BE COGNIZANT OF THE POLLUTION EXCLUSION IN YOUR CGL POLICY

Posted on December 30, 2015November 8, 2024 by Edward Garber

Be cognizant of the pollution exclusion in your commercial general liability (CGL) policy.

The non-construction decision in Evanston Insurance Co. v. Haven South Beach, LLC, 2015 WL 9459979 (S.D.Fla. 2015) illustrates the affect of the pollution exclusion.

In this case, the plaintiff was at a catered event and suffered injuries consuming a liquid nitrogen infused alcoholic beverage. The plaintiff sued the vendor. The vendor’s CGL policy contained the pollution exclusion and further defined pollutants as follows:

f. Pollution

(1) “Bodily 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 or escape of “pollutants” at any time.

***

“Pollutants” mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditions or reclaimed.

The vendor’s CGL insurer argued that the liquid nitrogen constituted a pollutant; thus, there was no coverage under the vendor’s policy for plaintiff’s injuries. The Southern District Court of Florida agreed. The Court held that liquid nitrogen is an irritant (a substance causing irritation) falling into the definition of a pollutant. The Court further held that the irritant liquid nitrogen was discharged by the vendor into the plaintiff’s alcoholic beverage falling into the pollution exclusion, i.e., injury or damage which would not have occurred but for the actual discharge of a pollutant / irritant.

If you are working with products that could potentially fall within the definition of a pollutant and the pollution exclusion within your CGL policy, consider procuring pollution liability insurance to cover you for damages / injuries caused by that product.

CGL POLICIES AND THE EXCLUSION FOR POLLUTANTS

Posted on June 16, 2014November 8, 2024 by Edward Garber

Owners, contractors, and subcontractors, etc. need to understand the liability insurance coverage they maintain so that in event of a claim relating to bodily injury or property damage they know whether there is potential coverage for the claim. Not only does this include understanding the exclusions in the policies, but also understanding endorsements that may further restrict or modify coverage.

CGL policies contain a pollution exclusion that excludes environmental pullutants / contaminants (as it has been referred to as an absolute pollution exclusion). If an entity requires the type of insurance to cover potential environmental liabilities, there is pollution liability insurance that can be procured, but this is separate from the CGL policy.

Although not a construction dispute, the recent case of Endurance American Specialty Ins. Co. v. Savits-Daniel Travel Centes, Inc., 2014 WL 2600071 (S.D.Fla. 2014), illustrates the general application of the pollution exclusion in a personal injury situation. In this case, a woman was at a bar and was exposed to pepper spray causing her to fall and fatally hit her head. Her estate sued the owner of the premises and the owner tendered the claim to its CGL carrier. The carrier denied coverage and an action for declaratory relief ensued to determine whether the CGL carrier was responsible for a duty to defend and indemnify. The issue in the case was whether the pepper spray constituted a pollutant; if it was a pollutant, then bodily injury arising out of the pepper spray pollutant was excluded from coverage.

The policy contained the following language (common to CGL policies):

2. Exclusions This insurance does not apply to:

* * * *

f. Pollution

(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”:

(a) At 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.

* * * *

SECTION V—DEFINITIONS

* * * *

15. “Pollutants” mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

In addition, there was an endorsement that further restricted coverage known as the “Mold, Fungus, Bacteria, Virus, and Organic Pathogen Exclusion:”

ENDORSEMENT

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE FORM

MOLD, FUNGUS, BACTERIA, VIRUS AND ORGANIC

PATHOGEN EXCLUSION

It is hereby agreed that this policy shall not apply:

1. to “bodily injury”, “property damage”, or “personal and advertising injury”;

2. to damages for devaluation of property or for the taking, use or acquisition or interference with the rights of others in property or air space;

3. to any loss, cost or expense, including but not limited to fines and penalties, arising out of any governmental direction or request, or any private party or citizen action, that an insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize “organic pathogens”; or

4. to any “suit” or administrative or regulatory procedure or process in which an insured may be involved as a party;

arising, directly or indirectly, or in concurrence or in any sequence out of or in any way relating to actual, alleged or threatened existence, discharge, dispersal, release or escape of “organic pathogens,” whether or not such actual, alleged or threatened existence, discharge, dispersal, release or escape is sudden, accidental or gradual in nature.

This insurance shall not apply to any “bodily injury”, “property damage”, “personal and advertising injury”, loss, cost or expense arising out of or in any way related to any form of “organic pathogens,” whether or not such actual, alleged or threatened existence, discharge, dispersal, release or escape is intentionally caused, or whether or not such injury, damage, devaluation, cost or expense is expected or intended from the standpoint of the insured.

“Organic pathogen” means any organic irritant or contaminant, including but not limited to mold, fungus, bacteria or virus, including but not limited to their byproducts, such as mycotoxins, mildew, or biogenic aerosols.

The Southern District agreed with the CGL insurer based on the exclusionary pollution language in the policy that pepper spray was a pollutant excluded from coverage.

Check your CGL policy and corresponding endorsements. You will see the pollution exclusion. During construction, there are certainly pollution / environmental risks that would require a contractor to obtain such insurance to cover and address these risks. The objective is know the risks you need covered and the policies you have in place to ensure you are being covered for those risks.