Insurance coverage for lead examined

Real Estate Weekly, August 17, 1994 by Irene C. Warshauer, Nancy A. Kopans, Stacy L. Gordon

Landlords and building owners are increasingly facing claims arising from lead exposure. Each day the newspapers are filled with headlines such as "Boy Poisoned By Lead Paint To Get Up To $1.5 million." Who will pay these huge sums?

Landlords and building owners are finding they can call upon insurance policies issued years ago to pay for these lead exposure claims.

A variety of insurance policies provide landlords and owners with protection against lead exposure claims including comprehensive general liability insurance policies, umbrella and excess liability policies. These policies were intended to provide coverage for bodily injury and property damage claims landlords and owners face in lead cases.

Often these claims stem from activities which took place many years ago. Landlords and owners should make sure to provide notice to all insurance companies that sold them policies lead liabilities. Since 1. may be able to look to old policies to provide coverage for lead cases, they should perform a diligent search for insurance policies and make sure that no policies are discarded in the course of document destriction.

The Pollution Exclusion

While it may seem obvious to most that lead is not a "pollutant, " insurance companies attempt to avoid their contractual obligations by arguing that the "pollution exclusion" bars coverage for lead elms. Numerous courts nationwide have rejected this argument.

Most recently, a state court in New York held: There is nothing in the [pollution] exclusion clause from which it can be inferred that the provision was drafted with a view toward limiting liability for lead paint related injury. The definition of pollutant in the policy makes no reference to lead, paint, or lead based paint. " Generali-U.S. Branch v. Caribe Realty Corp., No. 25499/91 (S. Ct., April 26, 1994).

In March, another New York trial court held that the owner of a building sued by a demolition worker exposed to lead-based fumes could call upon his insurance company. In Schumman v. State of New York, No. 84605 (Ct. Cl. March 30, 1994), the court held that the pollution exclusion clause did not bar claims arising from lead exposure: "Here the failure to provide claimant with an appropriate protective device gives rise to exposure - covered by the policy and not excluded by the pollution exclusion clause. Similarly, in Continental Casualty Co. v. Rapid- American Corp., the New York Appellate Division held that the pollution exclusion did not relieve the insurance company of its duty to defend the underlying suits. The Appellate Division found that the reach of the exclusion: 'extends to environmental pollution occasioned by intentional discharge of a pollutant in the course of manufacturing or distribution activities by the producer of a product, but does not embrace the harm meted by a product fully and finally launched into the stream of commerce, and over which the manufacturer no longer exercises any control.

Thus, the Appellate Division found that a mere "tangential impact on any |environment'" is not sufficient to trigger the pollution exclusion. The New York Court of Appeals, affirming the Appellate Division's decision, emphasized that the exclusion is intended to: "exclude coverage for envirommental pollution. The terms used in the exclusion to describe the method of pollution - such as "discharge' and "dispersal" - are terms of art in environmental law used with reference to damage or injury caused by disposal or containment of hazardous waste."

Similarly, in Gould, Inc. v. Continental Casualty Co., No. 3529 (Pa. Ct. C.P. July 26, 1991), the court held that the so-called sudden and accidental pollution exclusion did not bar coverage for a claim involving workplace exposure to lead fumes and dust because the pollution exclusion applied only to occurrences outside the workplace.

In A-1 Sandblasting & Steancleaning Co. v. Baiden, 53 Or. App. 890, 632 P.2d 1377 (1981), passing vehicles were damaged by the overspray of paint used while the policyholder was spray-painting a bridge. The exclusion excluded liability for: "Damage to property arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants... "

The insurance company denied coverage for the policybolder's liability for the damage to the cars on the ground that paint is either a liquid, or alternatively, because of its chemical composition, an acid or alkali, and thus was excluded by the above-cited policy language. The lower court disagreed, finding that paint "in common understanding" is not thought to be an irritant, contaminant or a pollutant. The Oregon Supreme Court affirmed, stating that a reading of the above list of substances, "is not so clear as to cause a reasonable person in W& position of the insured to believe that paint was one of the substances referred to in the exclusion... "

The Absolute Pollution Exclusion