Source: http://www.lexology.com, July 2, 2013
By: Jan A. Larson, Jenner & Block
The U.S. District Court for the Middle District of Florida recently granted summary judgment for policyholder, Arrow Terminals, Inc. (“Arrow”), ruling that a pollution exclusion and health hazard exclusion did not apply to Arrow’s Chinese drywall (“CDW”) claims, and ordering Arrow’s insurers, American Home Assurance Company (“AHAC”) and National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) to defend Arrow in the underlying litigation. American Home Assurance Co. v. Arrow Terminals, Inc., No. 11-cv-1278 (M.D. Fla. May 8, 2013). Arrow operated marine storage warehouse facilities and in the course of its business distributed CDW to various third parties, which was the basis for a number of underlying actions filed against Arrow that sought recovery for alleged property damage caused by the installation of CDW (the “Underlying Actions”). Arrow tendered the Underlying Actions to AHAC and National Union, who filed a declaratory judgment action seeking a declaration that no duty to defend or indemnify existed. On cross-motions for summary judgment, the parties contested the application of the relevant policies’ pollution exclusion and health hazard exclusion. The Court held that the pollution exclusion at issue, which precluded coverage for claims arising out of the “discharge, dispersal, release or escape of . . . irritants, contaminants or pollutants into or upon land, the atmosphere, or any watercourse or body of water,” did not apply to the CDW claims at issue in the Underlying Actions because the alleged property damage was confined only to the interior of the residences. According to the Court, the language of that particular exclusion limited its applicability to outdoor environmental contamination. Id. As to the health hazard exclusion, the Court held that its plain language made clear that it applied only to claims arising out of the ingestion of hazardous substances. The exclusion therefore had no application to the Underlying Actions’ CDW claims for property damage.