Lapolla Indus., Inc. v. Aspen Specialty Ins. Co.

• Decision Date: 19 August 2013
• Docket Number: No. CV 12–5910.,CV 12–5910.
• Citation: 962 F.Supp.2d 479
• Parties: LAPOLLA INDUSTRIES, INC., Plaintiff, v. ASPEN SPECIALTY INSURANCE COMPANY, Aspen Specialty Insurance Management, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

962 F.Supp.2d 479

LAPOLLA INDUSTRIES, INC., Plaintiff,

v.ASPEN SPECIALTY INSURANCE COMPANY, Aspen Specialty Insurance Management, Inc., Defendants.

No. CV 12–5910.

United States District Court, E.D. New York.

Aug. 19, 2013.

Baker & Hostetler, LLP by George A. Stamboulidis, Esq., New York, NY, Hoover Slovacek LLP by Matthew A. Kornhauser, Esq., Dylan B. Russell, Esq., Mitchell A. Ward, Esq., Sidney Watts, Esq., Houston, TX, Greenbaum Rowe Smith Ravin Davis & Himmel, LLP by Robert M. Goodman, Esq., Clifford B. Kornbrek, Esq., Roseland, NJ, for Plaintiff.

Goldberg Segalla LLP by Richard J. Ahn, Esq., Joseph A. Oliva, Esq., New York, NY, for Defendants.

MEMORANDUM AND ORDER

WEXLER, District Judge.

This is a declaratory judgment action brought by Plaintiff, Lapolla Industries, Inc. (“Plaintiff” or “Lapolla”), seeking a judgment declaring that the Defendant insurers are obligated to defend and indemnify Plaintiff in connection with a personal injury action now pending in this court (the “Underlying Action”). Presently before the court is the motion of Defendants, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the complaint on the ground that insurance policies they issued do not cover the claims made in the Underlying Action. For the reasons that follow, the motion is granted.

BACKGROUND

I. The Parties

Lapolla, a Delaware corporation with its principle place of business in the state of Texas, is engaged in the manufacture and distribution of spray foam insulation. Defendant Aspen Specialty Insurance Company is a North Dakota Corporation. Aspen Specialty Insurance Management, Inc. is a Massachusetts corporation. Both Defendants, referred to herein collectively as “Aspen,” maintain a principle place of business in Boston, Massachusetts. They are subsidiaries of Aspen Insurance Holdings Limited, the ultimate parent corporation of a group engaged in the global specialty insurance and reinsurance businesses.

II. Policies and the Relevant Exclusion

The policies at issue here are: (1) a commercial general liability (“CGL”) policy of insurance (the “Primary Policy”) and (2) an excess policy of insurance (the “Excess Policy”) (collectively the “Policies”). The Policies cover the period of November 11, 2011 through November 11, 2012, and provide insurance for general liability claims made against Lapolla that may arise throughout the world. Both policies speak expressly, as discussed in greater detail below, to the exclusion of coverage with respect to claims arising out of exposure to, or requiring clean-up of “pollution” or “pollutants.”

The Primary Policy contains an endorsement modifying coverage for damage allegedly attributable to “pollution.” This endorsement, commonly referred to as a “total pollution exclusion” clause, states that coverage is not provided for:

Pollution

(1) “Bodily injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.

(2) Any loss, cost or expense arising out of any:

(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “pollutants”;

...

The Primary Policy defines the term “pollutants” to mean:

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.

By its terms, the Excess Policy provides coverage subject to the terms, conditions and exclusions of the Primary Policy. Additionally, the Excess Policy contains its own specific exclusion with respect to pollution,stating that, whether or not an underlying policy affords coverage, it excludes coverage for:

A. Pollution, [including any]

1. Claim, suit, demand of Loss that alleges injury or damage that, in any way, in whole or in part, arises out of, relates to or results from any:

a. Request, demand, order or statutory or regulatory requirement, or any other action authorized or required by law, that any Insured or others investigate, abate, test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, remediate or dispose of, or in any way respond to, or assess the effects of Pollutants as well as any Loss, sanctions arising out of, relating thereto or resulting therefrom.

The Excess Policy contains the same definition of “pollutants” as the Primary Policy.

The Policies were issued to Lapolla through CRC Insurance Services, Inc., a broker for Defendants that is located in Birmingham, Alabama. Lapolla, identified as the named insured party with a Houston, Texas mailing address, made payment on the Policies to CRC. Each of the Policies contain language referencing the laws of the State of Texas. That language advises Lapolla, inter alia, that the insurer is not authorized to transact business within the State of Texas, and advising the insured as to the procedure for obtaining information about the insurer through the Texas Department of Insurance. Neither of the Policies contain a choice of law provision.

III. The Underlying Action

The allegations of the action for which insurance coverage is sought are important to determine the coverage question at issue. The court therefore details below the allegations of the Underlying Action, which was commenced against Lapolla in this court, and assigned to a different District Judge, on September 14, 2012, by Neil and Christina Markey (the “Markeys”) (hereinafter the “Markey Lawsuit”). The Markey Lawsuit, styled as a class action, seeks compensation for personal injury and property damage allegedly attributable to the application of Lapolla's spray polyurethane foam (“SPF”) insulation product.¹ The action alleges that Lapolla's SPF is hazardous and defective because after application, the product emits an odor associated with the “off-gassing” of hazardous compounds and toxins. Specifically, the Markeys allege that SPF is a polyurethane open cell semi-rigid foam created by the chemical reaction of two sets of highly toxic compounds that are brought together in a spraying apparatus. While the resulting foam is intended to become inert and non-toxic after application, the Markey Lawsuit alleges that the toxicity remains. This toxicity is alleged to be released into the environment because the SPF allegedly continues to “off-gas” after installation. The off-gassing is alleged to create irritants that cause headaches and other neurological issues, as well as eye, ear, nose, throat and other respiratory irritations.

The Markey Lawsuit describes in detail the identity of the toxic chemicals allegedly offgassed after installation of Lapolla's product. It concludes that as a result of “exposure to the toxins, carcinogens, and VOC's [volatile organic compounds] off-gassed by Lapolla's SPF after installation,” Plaintiffs suffered personal injury. Plaintiffs and the class members' “structures, personal property, and bodies” are alleged to have been “exposed to Defendant Lapolla's problematic SPF and the harmful effects of the gases it emits long after installation.” Lapolla is alleged to have knowingly continued to manufacture and distribute its product, which was both unfit for its intended purpose, and unreasonably dangerous because of the damage resulting from the post-installation off-gassing. The harmful effects of the gas emitted by the product are alleged to be causally linked to past and future personal and economic injuries to the Markeys and the proposed plaintiff class.

The Markeys state the foregoing facts in support of state law causes of action alleging negligence, strict liability, breach of warranty, unjust enrichment and violation of the New York State consumer protection legislation contained in Sections 349 and 350 of the New York State General Business Law. The Markey Lawsuit seeks compensatory and punitive damages as well as injunctive relief in the form of repair and remediation of homes, rescission of contracts, and an order that corrective notices to be sent to homeowners. Plaintiffs also seek to have Lapolla bear the cost of continued testing and monitoring of the homes of class members, as well as their continuing health.

IV. The Disclaimer of Coverage

Aspen was advised of the Markey Lawsuit in October of 2012. On October 24, 2012, Aspen denied coverage under the Primary Policy pursuant to, inter alia, the total pollution exclusion clause referred to above. Coverage under the Excess Policy was denied pursuant to the language incorporating the exclusion of the Primary Policy, as well as the pollution exclusion language contained in the Excess Policy. Lapolla requested reconsideration of the decision denying coverage and Aspen reiterated the denial. Aspen did, however, offer to provide a conditional defense to Lapolla. That defense was conditioned on Lapolla's agreement to litigate a declaratory judgment action as to coverage in a Texas court. Lapolla did not agree to participate in such an action and, instead, instituted this lawsuit.

V. The Motion to Dismiss

Aspen moves to dismiss on the ground that it properly denied coverage based upon the pollution exclusion clauses. The issue of whether coverage is excluded in this case depends upon state law interpreting such clauses. As noted, the Policies do not contain a choice of law provision. Both parties recognize: (1) that the court must apply the law of the forum state, i.e. New York, to determine which law to apply and (2) that upon such application, this matter will be governed either by the laws of the State of New York or those of the State of Texas.

Aspen moves to dismiss on the ground that the Policies are governed by Texas law which, according to Aspen, holds unequivocally that the claims alleged in the Markey Lawsuit fall...