Herald Square Loft v. Merrimack Mut. Fire Ins.
| Decision Date | 15 November 2004 |
| Docket Number | No. 03 Civ. 7682(DC).,03 Civ. 7682(DC). |
| Citation | 344 F.Supp.2d 915 |
| Parties | HERALD SQUARE LOFT CORP., Plaintiff, v. MERRIMACK MUTUAL FIRE INSURANCE CO., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Ball & Rubin, LLP, by Wayne M. Rubin, Esq., Elmsford, NY, for Plaintiff.
Faust, Goetz, Schenker & Blee, by Erika C. Aljens, Esq., New York, NY, for Defendant.
In this diversity case, plaintiff Herald Square Loft Corp. ("Herald Square") seeks a declaratory judgment that the pollution exclusion provision of an insurance policy issued to it by defendant Merrimack Mutual Fire Insurance Company ("Merrimack") is not applicable to the loss caused by lead paint dust contamination of one of Herald Square's buildings resulting from repair work performed by a contractor.
The parties stipulated to a summary trial on agreed facts and documentary evidence, and waived their right to call live witnesses. Upon consideration of the stipulated facts and the arguments of the parties, the Court will enter judgment in favor of Herald Square on its claim that the pollution exclusion clause of the policy does not exclude coverage for the loss or damage caused by the lead paint dust contamination of Herald Square's building in or about March 2003. My findings of fact and conclusions of law follow.
A. The Facts
The parties submitted a statement of agreed facts, which I adopt in full and incorporate herein. (See Stipulation to Summ. Bench Trial ("Stip.") at 1). The facts may be summarized as follows:
1. The Insurance Agreement
Herald Square owns and operates a ten-story building with two exterior walls located in midtown Manhattan (the "Building"). (Stip. ¶ 3). For the period April 5, 2002, to April 5, 2003, the Building was covered under an insurance policy (the "2002 policy") issued by Merrimack that included, among other things, commercial property coverage. (Stip. ¶ 12). The 2002 policy covered loss or damage to the Building except for loss or damage specified in several exclusions listed in a special form endorsement. (Id. Ex. C at 69-75). The language at issue here excludes from coverage damage or loss arising out of the:
[d]ischarge, dispersal, seepage, migration, release or escape of "pollutants" unless the discharge, seepage, migration, release or escape is itself caused by any of the "specified causes of loss." But if the discharge, dispersal, seepage, migration, release or escape of "pollutants" results in a "specified cause of loss", we will pay for the loss or damage caused by that "specified cause of loss."
(Id. at 71). The 2002 policy defines "pollutants" as (Id. at 58).
The specified causes of loss for which pollution coverage is provided include: "[f]ire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; [and] water damage." (Id. at 75).
2. The Exterior Walls Inspection
In or about November 1999, Herald Square retained Rand Engineering, P.C. ("Rand") to inspect the exterior walls of the Building for the purpose of complying with New York City law. (Id. ¶ 4). Herald Square asked Rand to hire contractors to repair certain parts of the Building, including removing the paint from the exterior wood window frames and sashes throughout the front of the Building and the fire escapes in the back of the Building. (Id. ¶ 5). After a bidding process, Herald Square entered into a contract with Jade Scaffolding Corp. ("Jade") to remove the paint. (Id. ¶ 6). Jade began work on the repairs in or about September 2002. (Id. ¶ 7).
3. Lead Paint is Discovered
In or about March 2003, Herald Square stopped Jade from working because of concerns that the work was producing lead contamination in the Building. (Id.). Herald Square learned that some of the children who lived in the building had elevated levels of lead in their blood.1 (Id. ¶ 8). Herald Square retained Independent Monitoring and Analysis ("IMA") to determine whether there was lead contamination in the building and, if so, its source. (Id. ¶ 9). IMA concluded that there was lead poisoning in the Building, and that its source was leaded dust created when Jade used a high-speed grinder to remove lead based paint from the window frames on the front of the building and fire escapes on the rear of the Building. (Id. ¶ 10). The lead paint dust came into the Building through windows and was tracked into the Building from the sidewalk in front of the main entrance. (Id.).
4. Herald Square Seeks Reimbursement
Herald Square alleges it has incurred more than $100,000 in expenses to clean-up the lead paint dust contamination, replace window air-conditioner units and other equipment contaminated with the lead dust, and relocate some of the residents pending removal of the lead contamination. (Id. ¶ 11). In or about March 2003, Herald Square submitted a claim to Merrimack for reimbursement of the damages and losses caused by the lead paint dust contamination. (Id. ¶ 13). On May 16, 2003, Merrimack timely denied coverage on the ground that the damage sustained by Herald Square fell within the pollution exclusion clause of the 2002 policy. (Id. ¶ 14).
On or about February 3, 2003, Merrimack sent Herald Square a notice of conditional renewal. . This notice described a change in the policy for coverage from April 5, 2003, until April 5, 2004. (Id.). In this notice, Merrimack informed Herald Square of a "reduction of coverage: a lead paint exclusion form is added." (Id.; Stip. ¶ 15). The parties agree that lead paint dust is a solid contaminant that may be hazardous to health. (Id. ¶ 16).
The principal issues in this case are whether the pollution exclusion clause of the insurance policy is ambiguous and whether the clause excludes coverage for losses caused by lead paint dust resulting from repairs. After setting out the applicable New York insurance law, I will address the merits.2
Insurance policies are read "in light of `common speech' and the reasonable expectations of a businessperson." Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 383, 763 N.Y.S.2d 790, 795 N.E.2d 15 (2003) (quoting Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390, 398, 469 N.Y.S.2d 655, 457 N.E.2d 761 (1983)). "[I]t is appropriate to construe the standard pollution exclusion clause in light of its general purpose, which is to exclude coverage for environmental pollution." Stoney Run Co. v. Prudential-LMI Comm. Ins. Co., 47 F.3d 34, 37 (2d Cir.1995). An insurer faces a "heavy burden" when negating coverage based on an exclusion. Belt Painting Corp., 100 N.Y.2d at 384, 763 N.Y.S.2d 790, 795 N.E.2d 15 (quoting Westview Assoc. v. Guaranty Nat'l Ins. Co., 95 N.Y.2d 334, 340, 717 N.Y.S.2d 75, 740 N.E.2d 220 (2000)). If an insurer "negate[s] coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case." Id. at 383, 763 N.Y.S.2d 790, 795 N.E.2d 15 (quoting Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652, 593 N.Y.S.2d 966, 609 N.E.2d 506 (1993)). Insurance policy exclusions are given a "strict and narrow construction," and if the exclusion provision is found to be ambiguous, any ambiguity will be resolved against the insurer. Id.
The 2002 policy excludes indemnification for damage from the "[d]ischarge, dispersal, seepage, migration, release or escape of `pollutants.'" (Stip. Ex. C at 71). "Pollutants" are defined as "any solid ... irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." (Id. at 58). The indemnification sought by Herald Square is for damages arising out of what the parties describe as "leaded dust" from high-speed grinding on the outside of Herald Square's building. (Stip. ¶ 10).
The threshold question is whether this language unambiguously excludes coverage for damages caused by leaded dust to the Building. Merrimack argues that the language does unambiguously exclude such a loss, and its position is not without some support. Lead contaminants are a "pollutant" and the lead contaminants here were released or dispersed into the Building.
Nonetheless, I conclude that the language is ambiguous and that the exclusion does not apply here for the following reasons: first, the language of the exclusion section is overly broad and does not exclude coverage with the required specificity; second, common sense and the reasonable expectations of the parties support the conclusion that the exclusion does not apply; third, the New York cases have overwhelmingly held that pollution exclusion clauses do not exclude contaminants such as lead paint; and fourth, Merrimack sent Herald Square a notice of reduction in coverage by adding a lead paint exclusion to the 2003 policy.
The language of the pollution exclusion clause of the 2002 policy is so broad that it cannot literally mean what it says. As defined, "pollutants" is so broad that ambiguity is created. Literally construed, the words would encompass the "release" or "dispersal" of ordinary household dust, for household dust is arguably a "solid ... irritant or contaminant, including ... waste." In describing the seemingly limitless reach of the broad language of a similar pollution exclusion policy, the Seventh Circuit cited hypothetical examples involving Drano and chlorine: "reading the clause broadly would bar coverage" for one who slips and falls on a bottle of spilled Drano or who...
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