Sua Ins. Co. v. S&O Invest. LLC (United States District Court, Southern District, Alabama, October 28, 2011)
The issue in this coverage dispute was whether the policy’s pollution exclusion applied to cover alleged losses from the use of Chinese Drywall in a housing tract and whether the insurer was obligated to defend or indemnify the policyholder in connection with the subsequent class action lawsuit under two policies.
Here, the policyholder sought coverage based on products/completed operations ("PCO") rather than based on commercial general liability ("CGL"). While the claimants alleged that the PCO coverage was not part of Policy 2, the Court found nothing in the record supporting this contention, especially given that the declarations page of Policy 2 included a "products/completed operations aggregate limit" of $2 million.” As such, the primary issue was whether the pollution exclusion applied to the PCO portion of the policy. Here, the exclusion was set forth in an endorsement, which stated that it modified "Commercial General Liability Part" and replaces "Exclusion f. under Paragraph 2, Exclusions of Section 1 – Coverage A – Bodily Injury And Property Damage Liability."
Notably, Policy 1 contained an identical CGL coverage form, an apparently identical pollution exclusion located in sub-paragraph f of Paragraph 2's list of exclusions, and an apparently identical replacement pollution exclusion endorsement. Policy 1 also contained a separate, ten-page "Products/Completed Operations Liability Form." The court noted that form did not reference a "Coverage A" as do the CGL forms, and its Exclusion f did not address pollution, but war. Thus, the court reasoned that there appeared to be no defensible basis for arguing that the pollution exclusion endorsement in Policy 1 extended beyond the CGL form to the PCO form.
The insurer argued that the situation is completely different with respect to Policy 2 because it, unlike Policy 1, it contained no PCO form. The court, however, held while Exhibit 9 to the plaintiff's motion for summary judgment included no such form, the insurer had not established that Exhibit 9 represented the entirety of Policy 2. Rather, it noted Exhibit 9 was “plopped in the record on its own,” without any affidavit or declaration from a representative of the plaintiff stating, much less swearing on personal knowledge, that Exhibit 9 is the entire policy.
The insurer argued in response that that no PCO form was needed for Policy 2 because the CGL form itself addressed PCO coverage. The court held that while plaintiff may be able ultimately to establish that Policy 2 contained no such form, it had yet to do so. Therefore, the court denied summary judgment to the insurer as it “had not established a necessary predicate to its argument – as to which it bears the burden – that the pollution exclusion endorsement excludes coverage in this case.”
For a copy of the decision click here