Interplay of General Liability and Pollution Liability Coverage
March 19th, 2015
An explosion caused by release of natural gas from a damaged pipe caused personal injury and property damage. Resulting lawsuits against the contractor whose crew damaged the pipe were defended by the contractor’s general liability (GL) carrier, which sought contribution for both defense and indemnity from the contractor’s pollution liability (PL) carrier. The PL carrier agreed to pay half of the defense, but claimed there was no coverage and thus no obligation to share in the indemnity costs. The trial court ruled against the PL carrier, but the intermediate appeals court reversed. On further appeal the Wisconsin Supreme Court held that an explosion caused by release of natural gas came within the bounds of the PL policy, and the PL carrier is liable for its share of the indemnity. Two points of dispute were (a) whether escape of natural gas was a pollution condition, and (b) if so, whether the personal injury and property damage were “caused” by that pollution condition. The first point focused on whether escaping gas was an “irritant” or “contaminant.” The Wisconsin high court, using a dictionary definition, found that escaping natural gas is a contaminant, as it “renders the surrounding ground and air space impure or unclean because natural gas is extremely flammable and explosive.” The gas also occurred in concentrations above those “naturally found in the environment” (a term within the PL definition) at the point of escape from the damaged pipe. As for the second point, the PL carrier argued that the damage was caused by explosion and fire, and not by release of any contaminant. But the court reasoned: “There is no dispute that the natural gas leak caused the explosion and fire. There is no dispute that the explosion and fire caused the alleged bodily injury and property damage. This sequence of events is sufficient to establish that the escape of natural gas (a pollution condition) caused the alleged bodily injury and property damage.” And to tie the two points together, the court stated: “natural gas is a contaminant. It can cause injury through inhalation and when it mixes with air in certain concentrations, it can explode or ignite. In other words, part of the contaminating nature of natural gas is its capacity to cause explosions and fire. In the instant case, the escape of natural gas caused an explosion and fire that resulted in bodily injury and property damage. The alleged bodily injury and property damage were therefore caused by the contaminating nature of natural gas.” Thus, the PL carrier is liable not only for its share of defense costs, but its share of the underlying indemnity, in this case arising from settlements. The case is Acuity, A Mut. Ins. Co. v. Chartis Specialty Ins. Co., 2015 WI 28, 2015 Wisc. LEXIS 153 (Mar. 17, 2015).