Insurance law Hall of Fame

by Walter Olson on December 19, 2008

“An insurance company with a potential $25 million liability from a 2007 Houston office fire is claiming smoke that killed three people was ‘pollution’ and surviving families shouldn’t be compensated for their losses since the deaths were not caused directly by the actual flames. Great American Insurance Company is arguing in a Houston federal court that the section of the insurance policy that excludes payments for pollution — like discharges or seepage that require cleanup — would also exclude payouts for damages, including deaths, caused by smoke, or pollution, that results from a fire.” (Mary Flood, “Insurance loophole claimed in fire deaths”, Houston Chronicle, Dec. 17).

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Update: Insurance law Hall of Fame
02.01.09 at 9:15 am

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1 Jason Barney 12.19.08 at 1:15 am

Okay, I don’t agree and have a fair bit of experience with insurance coverage issues. Smoke, resulting from an accidental fire as described in this instance, is not “pollution” as it would typically be understood by the average purchaser of insurance.

Given the potential exposure here I don’t totally blame the insurer for exercising this defense but do find it to some extent “Overlawyered.”

P.S.: Where is David Rossmiller to opine on this? He’s the expert.

2 Robert 12.19.08 at 8:35 am

This article is a glossing over of a complex issue. First and foremost, even if the language in the policy covered the loss, there has been no determination that Boxer Properties (and by extension, the excess liability insurer, Great American) owes the victims of this tragedy anything. That will probably be determined by a jury and the trial is years away.

Second, the language of the conditions, exclusions and exceptions in the excess liability policy that Great American and Boxer had in place, has not been reproduced in any of these articles so we don’t know exactly what is being contested. For an insurer to go before a Federal Judge for a dec action over a coverage issue is not uncommon at all. Unless the language in the Great American policy echoed the language in the primary policy EXACTLY, there could very well be coverage gaps.

It also appears from reading the article that Great American’s policy had the $1M to $25M layer and if I would not be surprised to find an umbrella policy above that layer. (Given the exposure that Boxer Property has, I cannot imagine otherwise.) It is entirely possible that the umbrella policy would drop down and cover this gap in coverage if Great American succeeds in their motion.

There is just so much more to this story that we are not being told. To be honest, the story in the Chronicle seems to be planted by Boxer to sway public feeling.

3 Commentor 12.19.08 at 9:25 am

Robert,

I understand your point, but can’t we assume that any policy will be generally in line with similar policies since all must be approved by the state licensing agency?

In other words, can insurance policies exist that cover losses due to fire, but exclude as “pollution” deaths due to smoke inhalation and losses caused by seepage and cleanup.” I can’t imagine that they do.

4 Robert 12.19.08 at 9:48 am

Again, it all depends on the policy language and excess policies are often ‘manuscript’ policies, self contained and not governed by state insurance departments. The standard ISO CG 00 01 12 04 in section 1, paragraph 2 (Exclusions), subparagraph f – Pollution – iii brings bodily injury and property damage arising from heat, smoke or fumes from a ‘hostile fire’ would be covered. That would be the primary policy. Since we don’t know if this excess policy has the same language as the primary policy, who knows if it is included or excluded. There is actually an endorsement named “Broad as primary” endorsement which is designed to prevent situations where coverages may not mesh.

5 VMS 12.19.08 at 10:20 am

Sounds like a case of “[w]e take all premiums, but pay no claims.” Or the one I coined: “Buy insurance, buy a lawsuit!” [when you need the insurance most for a significant claim].

6 bobby b 12.19.08 at 10:42 am

“Sounds like a case of “[w]e take all premiums, but pay no claims.””
– - – -

Sounds like a case of “my strong pre-existing antipathy towards insurance companies excuses, in my mind, that I’m lying about something by proclaiming someone’s venality without knowing the facts.”

7 L Nettles 12.19.08 at 1:25 pm

Just when I think a 18:1 punitive to actual ratio is too high I see something like this.

8 Matt 12.19.08 at 6:24 pm

Just ammunition for trial lawyers…

9 Robert 12.22.08 at 4:51 pm

Something that occured to me over the weekend – the primary layer liability carrier has the duty to defend only as long as limits have not been paid out or that an offer has been made withing policy limits. With only $1M on the hook, they could have looked at the venue, weighed their odds and decided to cut and run. This would leave Boxer high and dry if the excess did not kick in. When you read the Chronicle’s article, the attorney for Boxer was nearly antagonistic towards his own excess carrier which is not good politics so it makes me think that somehow Boxer is being hung out to dry.

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