Bernhardt v. Hartford Fire Ins. Co.

• Decision Date: 01 September 1993
• Docket Number: No. 1754,1754
• Citation: 102 Md.App. 45,648 A.2d 1047
• Parties: Norman C. BERNHARDT v. HARTFORD FIRE INSURANCE COMPANY. ,
• Court: Court of Special Appeals of Maryland

Page 45

102 Md.App. 45

648 A.2d 1047

Norman C. BERNHARDT v. HARTFORD FIRE INSURANCE COMPANY.

No. 1754, Sept. Term, 1993.

Court of Special Appeals of Maryland.

Oct. 26, 1994.

Certiorari Granted March 10, 1995.

John B. Dunn, Takoma Park, for appellant.

Hugh E. Donovan (Donovan & Broderick, P.C., on the brief), Silver Spring, for appellee.

Argued before GARRITY and DAVIS, JJ., and JOHN F. McAULIFFE, Judge (retired), Specially Assigned.

JOHN F. McAULIFFE, Judge (retired), Specially Assigned.

This appeal is from a summary determination that an "absolute" pollution exclusion clause in a landlord's comprehensive business liability insurance policy excluded claims brought by tenants for personal injury and damages resulting from the escape of carbon monoxide fumes from a heating plant.

Norman C. Bernhardt is the owner of a home in Takoma Park, Maryland, that has been converted into apartments. On 31 January 1992, several tenants in the building were overcome by carbon monoxide and were taken to area hospitals for treatment. According to claims made by the tenants, the source of the carbon monoxide was the central heating system, owned and maintained by the landlord. The tenants contend that the furnace and its related systems were defective, and improperly maintained and operated by the landlord. The attorney for appellant represented to the Circuit Court for Montgomery County that the incident occurred when

debris, apparently from an old chimney liner, fell into the base of the chimney blocking free air passage from the boiler, so that there was a buildup of carbon monoxide, which then permeated the building, causing injury to the tenants.

Claims made by the tenants, and an action filed on behalf of one of the tenants, were tendered to the Hartford Fire Insurance Company (Hartford), from whom the landlord had earlier purchased a policy that included comprehensive business liability coverage. Hartford denied coverage and refused to provide a defense, contending that the pollution exclusion clause of the policy operated to exclude the claim from coverage.

The landlord brought an action for declaratory relief against Hartford in the Circuit Court for Montgomery County, and tenants having claims against the landlord were permitted to intervene as additional plaintiffs. Hartford answered and moved for summary judgment, contending that the material facts were not in dispute, and that the pollution exclusion clause upon which Hartford relied was dispositive. The motion was heard by Judge James Ryan, who agreed with the insurer and entered summary judgment in its favor, declaring that the pollution exclusion clause was clear and unambiguous and that the landlord was not entitled to a defense or indemnification by Hartford. The landlord appealed to this Court.

The pollution exclusion clause with which we are concerned is contained in an endorsement that was attached to the policy at the inception of a policy period. The endorsement is captioned "Pollution Exclusion," and is prefaced by the following statement, in bold type: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." The endorsement provides:

It is agreed that the exclusion relating to the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants is replaced by the following:

1. to bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

a. at or from premises owned, rented or occupied by the named insured b. at or from any site or location used by or for the named insured or others for the handling, storage, disposal, processing or treatment of waste;

c. which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for the named insured or any person or organization for whom the named insured may be legally responsible; or

d. at or from any site or location on which the named insured or any contractors or subcontractors working directly or indirectly on behalf of the named insured are performing operations:

(i) if the pollutants are brought on or to the site or location in connection with such operations; or

(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants.

2. to any loss, cost or expense arising out of any governmental direction or request that the named insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Subparagraphs (a) and (d) of this exclusion do not apply to bodily injury or property damage caused by heat, smoke or fumes from a hostile fire. As used in this exclusion, a hostile fire means one which becomes uncontrollable or breaks out from where it was intended to be.

Hartford contends the exclusion applies because the claims are for "bodily injury ... arising out of the actual ... discharge, dispersal, release or escape of pollutants ... at ... premises owned ... by the named insured." The insurer points out that "pollutant" is defined to include "any ... gaseous or thermal irritant or contaminant, including smoke ... fumes ... [and] chemicals."

The landlord does not deny that carbon monoxide is a pollutant within the literal language of the policy exclusion. Nor does he deny that the claims made against him are for personal injuries arising out of the escape of the carbon monoxide at his premises. He argues instead that: 1) notwithstanding the literal language of the exclusion, the parties intended that it apply only to persistent industrial pollution of the environment, and not to an accident of the kind generally covered by a comprehensive business liability policy; and 2) the exception to the exclusion applies because the damage was "caused by ... fumes from a hostile fire."

Addressing the latter contention first, we find nothing in the record to support the landlord's present contention that the injuries could have resulted from a hostile fire. There is simply no evidence or proffer that the fire in the furnace became "uncontrollable" or "[broke] out from where it was intended to be." Although some of the claimants alleged that the landlord exacerbated the problem by setting the thermostat at a higher than normal level, there is no indication that this caused the fire in the furnace to become "hostile" within the meaning of the language of the exclusion. The cause of the release of carbon monoxide, as proffered by counsel for the landlord at the hearing before Judge Ryan, was the blockage of free air passage in the chimney flue, causing a buildup and dispersal of carbon monoxide throughout the building. The exception to the exclusion does not apply.

The landlord's first argument presents a more difficult question. He suggests that the intention of the parties must be gathered not simply from the literal words of the exclusion clause, but from a reading of the policy as a whole, and a consideration of the history and the development of the exclusion clause.

A portion of the history of the exclusion clause was described in Bentz v. Mutual Fire, 83 Md.App. 524, 532, 575 A.2d 795 (1990), and is discussed in greater depth in Note, The Pollution Exclusion Clause Through The Looking Glass, 74 Geo.L.J. 1237, 1986 (hereinafter, "Through The Looking Glass"). See, in addition, 1A R. Long, The Law of Liability Insurance, § 10A.04 & (1990, 1994 supp.); 1 W. Friedman, Richards On The Law Of Insurance, § 5:2[d] (1990, 1992 cum. supp.). According to the insurance industry, a recurring problem has been the tendency of some courts to interpret broadly, and sometimes imaginatively, standard general comprehensive liability insurance policies to require coverage for pollution claims. Before 1966, these policies covered only damage "caused by accident." Through The Looking Glass, supra, at 1241. Although the insurance industry apparently believed that this would limit coverage to sudden, unexpected, and unintended events easily fixed as to time and place, various definitions of "accident" were handed down by the courts.

The insurance industry responded by changing from "accident" to "occurrence" based coverage in 1966. This type of policy generally defined an "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Id. at 1246-47. The insurers apparently believed this definition would exclude claims when damage was the natural and obvious consequence of the regular operation of a business. Not all courts agreed, and claims were allowed in cases where the insureds' ongoing business practices involved the intentional discharge of pollutants but the courts determined that the ultimate loss was neither intended nor expected. Id. at 1251.

The next change made by the insurance industry was the adoption of a pollution exclusion clause, generally known as the "ISO-form" or "sudden and accidental" policy exclusion. Added to the general comprehensive liability policies in the early 1970s, this exclusion generally provided as follows:

This policy shall not apply:

To bodily injury arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental; ....

According to one commentator,...