The Flint, Mich., water crisis returned to the news recently as criminal charges were brought against additional government employees resulting from the crisis. Meanwhile, a federal court in Pennsylvania recently issued a ruling in an insurance case that, like Flint, related to alleged contamination in drinking water stemming from corroded pipes. The decision rejects two insurers’ attempts to avoid coverage and serves as a good reminder of some fundamental insurance law principles—the duty to defend is broad, ambiguous policy language usually is construed against the insurer, and policies should be interpreted in favor of their purpose to provide coverage. It is also a reminder that the pollution exclusion is not nearly as all-encompassing as insurers like to think it is.
A panda is sitting in a bar, polishing off his dinner. He pulls out a gun, fires a shot in the air, and heads toward the exit. A stunned waiter demands an explanation. The panda pauses at the door and tosses the waiter a badly punctuated wildlife manual. “I’m a panda—look it up.” The waiter turns to the appropriate entry: “Panda. Large black-and-white bear-like mammal, native to China. Eats, shoots and leaves.” 
Beware the missing Oxford comma!
That was the lesson of a recent decision by the First Circuit Court of Appeals, which held that the omission of an Oxford comma in a Maine employment statute created an ambiguity that must be resolved in favor of dairy delivery drivers. For want of a comma, the dairy is out $10 million.
Barely removed from the Super Bowl, football fans have begun their long hibernation in anticipation of next season. But the Patriots’ incredible comeback reminds me that it coincided with the tenth anniversary of one of the great NFL coach rants, courtesy of the late Dennis Green of the Arizona Cardinals. Coach Green was interviewed after his team blew a 20-0 halftime lead to my beloved Chicago Bears. Using some other choice words, Green said about the comeback kids: “the Bears are who we thought they were!”
So what does this have to do with insurance? Well, unlike Coach Green, not all policyholders can say that their insurance policies are exactly what they thought they were. A recent Fifth Circuit case, Richard v. Dolphin Drilling Ltd., is such a case. There, the policy exclusions were so broadly construed that 99 percent of the insured’s operations were excluded from coverage.
Say you want to make a reservation for a nice dinner. Do you call the restaurant and simply say you plan to come sometime in the next two weeks? Of course not. If you want your reservation to do any good, you give the restaurant a date, time, and number of people. So why should insurers be able to issue reservations of rights where they quote half the policy and say they may deny coverage at some time, based on some unspecified provision? The South Carolina Supreme Court was presented with that question and decided that insurers need to provide greater specificity or risk losing their reservations completely.
The Florida Supreme Court recently issued a widely reported decision, Sebo v. American Home Assurance Co., which applied the concurrent cause doctrine in ruling that an all-risk homeowner’s insurance policy provides coverage when damage is the result of multiple events—so long as at least one of them is a covered peril. Plaintiff John Sebo purchased a home, which he insured under an all-risk homeowner’s policy written by American Home. As an “all-risk” policy, it provided coverage for damage to property caused by all perils, except those it explicitly excluded. Design defects and faulty construction were among the excluded perils. Within less than two months of buying the house, Mr. Sebo discovered major leaks during rainstorms, which were later found to be the result of design defects and faulty construction. Hurricane Wilma then caused even more damage. When Mr. Sebo sought coverage for damage from the water intrusion, American Home denied most of the claim on the grounds that it was caused by design defects and faulty construction—which were excluded perils. But the Florida Supreme Court found coverage.
If you believe the news, I may be lucky to make it out of the driveway alive on my morning commute tomorrow. That microwave-ready triple egg breakfast sausage sandwich I stuff into an increasingly jowly face on my way to the car? Recalled. The overpriced technology-assisted car that practically backs itself out of the driveway as I struggle to wipe away the remnants of my savory breakfast? Recalled. Each morning brings fresh product recall announcements involving everything from contaminated sunflower seeds to exploding toilets. This year contamination recalls in Food and Drug Administration (FDA) regulated industries alone rose 167% from the first quarter to the second quarter. The exponential rise of product recalls stems from a convergence of factors, including increased governmental regulation and more extensive and technologically sophisticated testing of products.
Since 1979, commercial general liability (CGL) insurers have relied on the New Jersey Supreme Court case of Weedo v. Stone-E-Brick, Inc. and its progeny to argue that a subcontractor’s defective work can never qualify as an “occurrence” under a standard form ISO CGL policy. This argument is contrary to both the language of standard CGL policies and the trend in recent case law, but courts in New Jersey and elsewhere have continued to cite Weedo for this proposition. With its new decision in Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court has now finally relegated Weedo to its proper status as an historical footnote based on outdated policy language.
Cypress Point involved claims for rain water damage to a condo building. When the condo association began noticing the damage, it brought claims against the developer/general contractor and several subcontractors. The association alleged that the subcontractors’ defective work on the exterior of the building allowed water leaks that damaged steel supports, sheathing and sheetrock, and insulation. When the developer’s CGL insurers refused to cover the claims, the association sued the insurers, seeking a declaration that the association’s claims against the developer were covered.
As we edge further into the summer months, many contractors see an increase in work volume with longer days and universally better weather. That said, Mother Nature is not always predictable, and an unexpected storm can quickly lead to a flash flood, or other natural disaster that might result in what insurers may classify as a pollution event. Even something seemingly as innocuous as water run-off from a job site following a summer shower has the potential to result in a third-party claim against a contractor for damage. Thus, it is imperative that contractors have the right pollution coverage in place to remain secure and profitable.
The recent bombings at the Brussels Airport and Maalbeek metro station are another sobering reminder of how much vigilance is needed to protect against these kinds of public health and safety from attacks. They show once again that violence—whether resulting from terrorism or otherwise—can occur any time at any place, and can have far-reaching impacts.
Risk management programs should generally include measures to reduce the risk of violent attacks, such as security policies and procedures. At the same time, companies should also prepare for the possibility that precautions are not enough to prevent all attacks. As a result, preparations should also include steps such as creating a comprehensive crisis response plan as well as reviewing the “terrorism” provisions in the company’s insurance policies.