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(Article from Insurance Law Alert, April 2015)

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Reversing a trial court decision, the Vermont Supreme Court ruled that an absolute pollution exclusion bars coverage for injuries caused by spray foam insulation fumes, rejecting the trial court’s holding that the exclusion is limited to traditional environmental hazards. Cincinnati Specialty Underwriters Ins. Co. v. Energy Wise Homes, Inc., 2015 WL 1524206 (Vt. Apr. 3, 2015).

The underlying suit alleged bodily injury resulting from exposure to airborne chemicals from spray foam insulation. The foam company’s insurer denied coverage on the basis of a pollution exclusion. A Vermont trial court ruled in favor of the policyholder, holding that the exclusion was intended to protect only against liability for traditional environmental contamination and that the term "pollutants" was ambiguous because "it was capable of such broad interpretation as to frustrate any reasonable purpose of the policy." The Vermont Supreme Court reversed.

The Vermont Supreme Court ruled that where the policy language is "clear and susceptible of only one possible interpretation," it must be enforced as written. Because the injuries at issue were allegedly caused by the dispersal of a toxic substance, the court concluded that the exclusion squarely applied. In enforcing the pollution exclusion, the court rejected several arguments frequently asserted by policyholders in this context: that the exclusion renders coverage illusory; that the policyholder’s "reasonable expectations" should dictate coverage; and that the historical background of the exclusion establishes limitations on its scope. The court noted, however, that its ruling was limited to surplus lines insurance in light of Vermont regulations requiring in-state general liability insurers to provide pollution coverage in most cases.