While capable of shutting down a country and causing significant death and destruction, COVID-19 does not constitute pollution under an insurance policy, according to at least one federal district court. In London Bridge Resort, LLC v. Illinois Union Insurance Company Incorporated, a federal court dismissed a destination resort’s claim under its insurance policy for revenue losses caused by COVID-19. After considering the definition of pollution in the context of an exclusion from coverage, the court held that COVID-19 did not qualify as “pollution,” requiring dismissal of the claim. The decision raises questions regarding future litigation over COVID-19-related insurance claims, according to ABA Litigation Section leaders.
The insurance policy at issue in London Bridge included coverage for a pollution condition that defined pollution to include “[t]he discharge, dispersal, release, escape, mitigation, or seepage of any solid, liquid, gaseous or thermal irritant, contaminant or pollutant including . . . infectious or pathological wastes, on, in, into, or upon land and structures thereupon, the atmosphere, surface, water, or groundwater.” The policy failed to define “contaminant” or “pollutant,” so the U.S. District Court for the District of Arizona was tasked with considering whether COVID-19 fell within the definition of either term under Arizona law.
In so doing, the district court looked to a Court of Appeals of Arizona decision that analyzed the definition of pollution contained in an exclusion clause meant to prevent recovery for pollution. There, the insurer argued that bacteria should be considered pollution to restrict the application of the policy to a claim seeking recovery for fecal coliform bacteria. The appellate court ruled that the exclusion did not apply, noting the clause was typically used in connection with “traditional environmental pollution.” The court recognized the need for a limiting condition on the term “pollution,” given that the terms “contaminant” and “irritant” could extend well beyond the parties’ intended definition of pollution. The state court ultimately held the insurer could not include bacteria in the definition of “pollution” to prevent application of the policy to the claim at issue in that case.
The London Bridge court applied the same analysis in holding the term “pollution” did not include COVID-19, as the language of the pollution condition mirrored the state appellate case. Likewise, the definition in the policy contained terms like “‘discharge,’ ‘dispersal,’ ‘release,’ and ‘escape,’” which the district court recognized as “terms of art in environmental law” typically associated with the “disposal or containment of hazardous waste.” Thus, the district court held that COVID-19 did not fit within any of those definitions, and dismissed the coverage claim.
Litigation Section leaders questioned the application of the prior Arizona decision in the context of the London Bridge dispute. “It is interesting that the court applied the same test for determining whether there was coverage under a pollution policy as another court had used to evaluate whether an exclusion applied,” opines Bethany W. Kristovich, Los Angeles, CA, immediate past cochair of the Section’s Environmental & Energy Litigation Committee. “Typically, there is a presumption in favor of the insured, which would suggest that the same test might not be warranted,” she explains.
Precedent regarding “traditional pollution” seemed to be a “necessary hurdle” for the court to overcome, observes Brent W. Huber, cochair of the Property Coverage Subcommittee of the Section’s Insurance Coverage Litigation Committee. However, he posits, “I think the starting point should be the policy language and the case law that was developed that established that you need to look to whether this is a traditional pollution typically comes from other types of policies.”
Section leaders anticipate that the questions raised in London Bridge, like many in the brave new world of COVID-19 litigation, will arise in many other cases. Indeed, Huber says, the definition of pollution will continue to evolve, especially given the regulatory treatment of pollution as contaminants in the air.
“In these jurisdictions that talk about traditional pollution, they are typically saying that traditional pollution only happens in the soil and ground water, and they are reluctant to look at pollution in the air even though that is very traditional in the sense of environmental contamination,” asserts Huber. “The courts appear to be playing catch-up,” he notes.
Another question to be settled is the type of damages allowed in a case asserting a claim for COVID-19-related losses, as typically damages sought under pollution policies are meant to remediate the contaminated area.
“Establishing the presence of COVID may be difficult, or it may be simple, depending on the facts of the case,” ponders Kristovich. “If the case had gone forward, I expect there would have been significant litigation over what type damages were covered.”
