Facts
- Delores Kaczor was a tenant in an apartment building in Seattle owned by Roy Street Associates and managed/related to Quadrant Corporation and Equity Residential Properties Trust (collectively, the owners).
- In 1996, the owners hired Pacific Restoration to perform repairs and improvements, including applying waterproofing sealants to a deck adjacent to Kaczor’s apartment.
- Pacific Restoration applied sealants (PC-220 and Polyglaze AL) that contained toluene diisocyanate (TDI), a toxic substance listed as a hazardous air pollutant under the Federal Clean Air Act.
- Kaczor alleged that fumes from the sealant entered her apartment, made her seriously ill, and required hospitalization.
- Kaczor sued Pacific Restoration and the owners for personal injury and property damage; the claim was settled.
- Pacific Restoration was insured under a commercial general liability policy issued by American States Insurance Company; the owners were additional insureds under that policy.
- Quadrant also had general liability coverage issued by State Farm Fire and Casualty Company.
- Both policies contained “absolute pollution exclusion” language excluding coverage for bodily injury or property damage that would not have occurred but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of “pollutants,” defined broadly to include irritants or contaminants such as smoke, vapor, fumes, and chemicals.
- American States and State Farm denied defense and indemnity based on the pollution exclusions.
- The insureds sued the insurers for wrongful denial of defense and indemnity. The trial court granted summary judgment to the insurers, and the Court of Appeals affirmed.
Issues
- Whether the absolute pollution exclusions barred coverage for Kaczor’s claims arising from toxic sealant fumes released during the deck work.
- Whether the Washington Supreme Court’s decision in Kent Farms, Inc. v. Zurich Ins. Co. required limiting the pollution exclusion to “traditional environmental harms,” so that it would not apply to this indoor fume exposure.
- Whether applying the pollution exclusions rendered the policies illusory as to the insured owners (and, as argued, as to Pacific Restoration).
- Whether the insureds were entitled to attorney fees in the coverage litigation.
Decision
- The Washington Supreme Court affirmed summary judgment for the insurers.
- The court held that, under the policies’ plain language, Kaczor’s injuries arose from the release/dispersal of “pollutants” because the claimed harm was caused by toxic “fumes” and “chemicals” from the sealant.
- The court declined to read the exclusion as limited to large-scale environmental contamination and held that Kent Farms did not control because it involved different facts; the court instead relied on the reasoning of Cook v. Evanson, which involved injuries from toxic fumes.
- The court rejected the argument that the pollution exclusion made coverage illusory for the building owners because meaningful coverage remained for many ordinary risks (for example, slip-and-fall and other non-pollution claims).
- The court did not decide whether the policy was illusory as to Pacific Restoration because the restoration company was not a party before the court.
- The court denied attorney fees because the insureds did not prevail on coverage.
Legal Principles
- Insurance policy interpretation is a question of law when the material facts are not disputed; clear policy language is enforced as written and given its ordinary meaning.
- An absolute pollution exclusion with a broad definition of “pollutants” (including “fumes,” “vapor,” and “chemicals”) can bar coverage for bodily injury and property damage caused by indoor exposure to toxic fumes generated during construction or repair work.
- Washington courts will not add an extra limitation (such as a “traditional environmental harms” requirement) when the policy text contains no such limit; Kent Farms is confined to its factual setting and does not prevent applying the exclusion to toxic-fume claims that fit the exclusion’s terms.
- Coverage is not illusory merely because an exclusion is broad; it is not illusory where the insured still receives substantial protection for other common liability risks outside the excluded category.
- Attorney fees are not awarded to insureds in coverage disputes where they do not establish a right to defense or indemnity.
Conclusion
In Quadrant Corp. v. American States Insurance Co., the Washington Supreme Court held that absolute pollution exclusions in the American States and State Farm liability policies barred defense and indemnity for a tenant’s claims that she was harmed by toxic TDI-containing sealant fumes released during repair work near her apartment, distinguished Kent Farms on its facts, rejected an illusory-coverage challenge as to the building owners, and denied attorney fees after affirming judgment for the insurers.