Washington Supreme Court Finds Coverage for Bodily Injury from Carbon Monoxide Exposure Despite Policy's Broad Pollution Exclusion, Finds Bad Faith as a Matter of Law
Uses the "Efficient Proximate Cause" Doctrine to Essentially Overrule a Recent Federal Court Ruling Upholding the Exclusion
April 27, 2017
In Xia v. ProBuilders Specialty Ins. Co. RRG, No. 92436-8 (Wash. Apr. 27, 2017) (en banc) (available here), the Supreme Court held that, although applicable to the case, a broad pollution exclusion in a commercial general liability policy did not preclude coverage where the alleged injury arose from both a covered occurrence and an uncovered occurrence.
After purchasing a new home in 2006, petitioner Zhaoyun Xia began to feel ill, and later discovered that a hot water heater exhaust vent had been improperly installed, causing carbon monoxide to discharge inside the home. The carrier denied defense and indemnity for Xia's claim against the builder, citing a townhouse exclusion and a pollution exclusion.
The efficient proximate cause rule (the "Rule") obligates a carrier to provide coverage if the efficient proximate cause – the initial event in a causal chain leading to injury – is covered by the policy, regardless of whether subsequent uncovered causes ("causes-in-fact") occurred. Slip op. at 13. Applied to the facts before it, the court found that the efficient proximate cause of Xia's injury was the negligent installation of the hot water heater – a covered occurrence. Slip op. at 17. Although the court found that it was "clear" that the pollution exclusion applied to the carbon monoxide releases (slip op. at 18), that "polluting occurrence happened only after an initial covered occurrence." Slip op. at 17.
ProBuilders argued that application of the efficient proximate cause rule was in conflict with plain exclusion language. The court rejected the argument, noting that it has "repeatedly rejected attempts by insurers to draft language into [ ] exclusion[s] that expressly circumvents the [R]ule." Slip op. at 15. According to the court, ProBuilders could have excluded the loss by, for instance, excluding coverage for damage arising out of negligent installation of home fixtures, but a carrier may not use broad language to eliminate the proximate cause rule under all possible scenarios.
The Washington Supreme Court has added a new layer to the pollution exclusion analysis. Carriers wishing to avoid coverage in similar scenarios will need to consider amending their CGL policies to include exclusions specifically-tailored to each class of insureds to ensure that conduct that may cause pollution is specifically excluded. For example, policies issued to contractors could extend the "your work/product" exclusions to bodily injury in addition to property damage as under the current ISO form, or exclude claims for BI arising from negligent work that results in claims that would excluded by the pollution exclusion.
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