Earlier this month, the Washington Supreme Court reaffirmed coverage for injuries for carbon monoxide, holding that an insurer acted in bad faith when it improperly relied on an absolute pollution exclusion to deny coverage for a lawsuit involving alleged release of carbon monoxide gas inside a home.
After an earlier decision by a three-judge panel, the high court in an en banc rehearing confirmed that its prior ruling established the proper reach of the “absolute pollution exclusion” (“APE”). In Xia v. ProBuilders Specialty Insurance Co. RRG, No. 92436-8 (Wash. Apr. 27, 2017), the insurer asked the high court to clarify the applicability of an APE to a homeowner’s claim arising from negligent installation of a hot water heater that led to a release of carbon monoxide gas. In a split decision that “reaffirm[ed] the importance of examining and understanding the causal chain of events leading to the claimed injury and damage,” the majority ruled for the policyholder based on the “efficient proximate cause” rule, which provides that if the initial event in a causal chain is a covered risk, then coverage applies regardless of whether subsequent uncovered events within the chain are excluded by the policy, even when such uncovered events are the cause-in-fact of the claimed loss.
In Xia, although the court acknowledged the insurer’s argument about alleged “pollution,” it also ruled that the insurer could not ignore the existence of a covered risk (i.e., the negligent installation) that was the efficient proximate cause of the claimed loss. As a result, the majority reversed the lower court’s judgment for the insurer and ordered judgment for the policyholder on its breach of contract and bad faith claims.
The opinion has garnered much attention within insurance coverage circles, particularly with respect to the court’s use of an “efficient proximate cause” rule in the context of liability insurance, even when facts could support an insurer argument about applicability of an APE given risks in the chain of events leading to the claimed loss. The court’s en banc decision leaves in place the three-judge opinion that confirms coverage for non-industrial pollution claims notwithstanding the existence of an APE in the insurance policy.
This decision confirms that the APE is intended—consistent with insurance representations at the time it was drafted and presented for approval by state insurance commissions—for limited application to preclude coverage only for true industrial pollution. Insurers overuse it, leading at least in some instances to decisions that limit its reach to its intended application. This is true even for claims that have an environmental nexus when they involve allegations of other negligent conduct outside the industrial pollution context.