Granite State Ins. Co. v. American Building Materials, Inc.
(11th Cir, January 3, 2013)
This environmental coverage dispute arises out of Chinese Drywall claims and the interpretation of coverage under six separate policies issued by the plaintiff. Here, an insured alleged that another insured, American Building, supplied it with defective gypsum drywall manufactured in China for installation in residential homes in Florida. It was determined that the drywall was emitting unusual amounts of sulfide gases.
The court of appeals held that the damages associated with the drywall fell within the scope of the pollution exclusions in the subject insurance policies; however, the court declined to decide a choice-of-law dispute because damages would be excluded under either Massachusetts or Florida law. Specifically, the court of appeals noted that under Florida law, nearly identical pollution exclusions had been found to apply to claims arising from the release of sulfide and other noxious gases from defective drywall relying on the Florida Supreme Court decision in State Farm Fire & Cas. Ins. Co., 711 So.2d 1135 (Fla. 1998). There the Supreme Court held the plain language of the pollution exclusions at issued included the damage from Chinese Drywall as the sulfide gas released constituted a gaseous irritant or contaminant, and therefore a “pollutant” as defined in the policy.
Conversely, while it was noted that Massachusetts law adopted a different method of interpreting the exclusions (i.e., based on the objective reasonable insured), the defective drywall, nonetheless would be excluded under the policy exclusions. Specifically, under Massachusetts law, the exclusion must be interpreted to exclude coverage for “injuries resulting from everyday activities gone slightly, but not surprisingly, awry,” citing Western Alliance Ins. Co. v. Gill, 426 Mass 115 (1997). It was further noted that this approach does not “limit pollution exclusions to the improper handling of hazardous waste, or other pollution occurring in an industrial setting”; instead it limits such exclusions to harm “caused by the kind of release that an ordinary insured would understand as pollution,” citing, McGregor v. All-American Ins. Co., 449 Mass. 400, 404 (2007).
Based on the foregoing, the court of appeals held that the damage from the defective drywall fell within the scope of the pollution exclusion because 1) the defective drywall cannot be considered an “everyday activit[y] gone slightly, but not surprisingly, awry,” and 2) the unexpected emission of sulfuric gas is the kind of release that a reasonable insured would understand as pollution. The court further noted that the defective drywall is different from the examples given by the Supreme Court of Massachusetts of everyday activities “gone slightly awry,” explaining that “it is the level of harm instead of the kind or release that was surprising in the prior cases. The court further explained that by contrast, one would not expect drywall to emit a gaseous substance at all, and certainly not after the drywall has been installed. As such, the harm from the defective drywall is different from the mishaps identified in Gill, supra.
Secondly, the court concluded that gas released by the drywall is the kind of release that a reasonable insured would understand as pollution, and therefore,Massachusettsstate courts would find the defect more analogous to an oil spill than an unusually harmful emission of carbon monoxide from an appliance. Consequently, the court held coverage was excluded by the pollution exclusion under either Florida or Massachusetts law.