Is Mold an Excluded “Chemical” Under Standard CGL Policies? –
The Potential Impact of MacKinnon v. Truck Ins. Exchange.

By
Charles S. LiMandri, Esq.

Charles S. LiMandri has been representing insurance companies and insureds in coverage and bad faith litigation since graduating from Georgetown University Law Center in 1983. He is one of a select few California attorneys who are members of both the American Board of Trial Advocates and the National Board of Trial Advocacy, as well as the District of Columbia Bar. He has successfully prosecuted and defended numerous civil cases in State and Federal court, including complex toxic tort and environmental insurance coverage disputes. His five-lawyer firm includes a licensed architect/attorney specializing in construction related cases. The firm has handled coverage and bad faith claims relating to mold property damage as well as mold personal injury litigation. The firm is located in Rancho Santa Fe, California, and can be visited at www.limandri.com.

In what is considered a case of first impression, a California Court of Appeal recently held that the pollution exclusion, found in standard comprehensive general liability (CGL) policies, was not limited to claims involving environmental pollution. In MacKinnon v. Truck Ins. Exch., No. E028662, 2002 WL 49780 (Cal.App. 4th Dist. Jan. 15, 2002), an insured landlord sued his CGL carrier for the defense and indemnity of a suit brought against it by a tenant. The tenant alleged that their daughter’s death was caused by dangerous pesticide chemicals sprayed at MacKinnon’s apartment building. The trial court granted summary judgment in favor of the insurer on the basis of the pollution exclusion in the CGL policy. The Court of Appeal affirmed, stating: “We conclude the pollution exclusion is clear and unambiguous as applied in this case, the exclusion applies as a matter of law, and coverage for injuries arising from the pesticide spraying incident is thus excluded under the pollution exclusion.” Id. at *1.

The pollution exclusion in MacKinnon defined “pollutants” as follows: “Pollution or Pollutants – means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste materials . . .” Id. at *3. The court noted that other California state courts have concluded that similar pollution exclusions unambiguously excluded coverage for environmental pollution, such as groundwater and soil contamination. Id. at *3, n.12 (citing Titan Corp. v. Aetna Casualty & Surety Co. (1994) 22 Cal.App.4th 457, 469-470 [groundwater contamination]; and Legarra v. Federated Mutual Ins. Co. (1995) 35 Cal.App.4th 1472, 1481 [property damage from petroleum]).

The plaintiff in MacKinnon argued to the court that although the exclusion may be clear as it is applied to typical environmental pollution, it was ambiguous in other situations, such as the one before it. The court stated that it was unaware of any California state case law addressing the issue of whether the pollution exclusion barred coverage for claims arising from nonenvironmental pollution. In two de-published cases, however, similar issues were addressed. See Employers’ Casualty Co. v. St. Paul Fire and Marine Ins. Co. (1996) 52 Cal.Rptr.2d 17 (CGL policy excludes coverage for personal injury caused by toxic sulfur dioxide fumes); Panda Management Co., Inc. v. Wausau Underwriters Ins. Co. (1998) 73 Cal.Rptr.2d 160 (grease and cooking oils were excluded “waste” under pollution exclusion).^[1]

The MacKinnon court noted that the current general consensus appears to be that the pollution exclusion is clear on its face, and is applicable to nonenvironmental pollution such as pesticide exposure. It then proceeded to discuss various out of state cases addressing the issue. Since there was no language in the policy limiting the exclusion to environmental pollution, the MacKinnon court chose to refrain “from rewriting the exclusion as limited to environmental pollution.” Id., 2002 WL 49780 at *3.

The court in MacKinnon also declined the insureds’ invitation to apply the reasonable expectation doctrine in interpreting the pollution exclusion. Since the court found the exclusion to be unambiguous on its face, there was no need to look to the insureds’ reasonable expectation of coverage. In reaching this conclusion, the court stated: “In the instant case, the definition of ‘pollutant’ includes, not only irritants and contaminants, but also ‘chemicals.’ It is undisputed that the pesticide in question was a [sic] irritant, contaminant, and chemical, and thus fell within the policy definition of ‘pollutant.’” Id. at *8 (citations omitted). Additionally, the MacKinnon court quoted Legarra, supra, for the proposition that the pollution exclusion does not merely apply to pollutants which are classified as “hazardous substances” by governmental regulators. Id.

Notwithstanding the MacKinnon court’s somewhat expansive view of the breadth of the pollution exclusion, the question regarding whether the exclusion would bar coverage for third-party mold claims still remains unanswered. This is because mold is a biological organism and is probably not an “irritant, contaminant or chemical,” in the commonly understood sense of those terms. Nonetheless, a federal district court, applying California law, did find that fecal coliform and other sewage borne bacteria constituted “pollutants” under a CGL policy. See East Quincy Services Dist. v. Continental Ins. Co. (E.D. Cal. 1994) 864 F.Supp. 976. In that case, however, the pollution exclusion defined “Pollutants” to mean “any noise, solid, semi-solid, liquid, gaseous or thermal irritant or contaminant, including ... biological and etiologic agents or materials, ... ‘waste’ and any irritant or contaminant.” The court noted that “[n]owhere within this definition is there a requirement that the irritant or contaminant be ‘man-made’ or ‘unnatural,’ and, indeed, inclusion of ‘biological’ agents and ‘any irritant’ suggests the contrary.” Id. at 980, n.8.

Thus, the definition of pollutants in East Quincy Services District is considerably broader, with respect to “nonenvironmental” pollutants, than is the case of the standard CGL pollution exclusion which is at issue in the MacKinnon case. Indeed, a good argument can be made that, without including “biological” agents within the definition of pollutants, living organisms, such as mold, should not be excluded from coverage. MacKinnon raises an interesting issue, however, if one focuses on the fact that the definition of pollutants also includes “chemicals,” without any limitation on that term. “Unless given special meanings by the policy itself, words in an insurance policy must be given their ordinary meanings. Courts regularly turn to standard dictionaries to ascertain these ordinary meanings.” John K. DiMugno and Paul E.B. Glad, California Insurance Law Handbook (West Group 2001) Section 61.05 (citing Scott v. Continental Ins. Co. (1996) 44 Cal.App.4th 24, 28-29).

Webster’s College Dictionary defines chemical as “a substance produced by or used in chemistry,” and defines “chemistry” as “the science that systematically studies the composition, properties and activity of organic and inorganic substances and various elementary forms of matter.” Webster's Third New International Dictionary (Unabridged) defines “organic chemistry” as “chemical processes and phenomenon (as of an organism)” and further uses “the organic chemistry of fungi” as an illustration. In light of the foregoing, the inclusion of the term “chemicals” within the definition of “pollutants,” may also include organic chemicals, such as mold and fungi. But is that how most people, and courts, are likely to think of mold?

In the case of Keggi v. Northbrook Property and Casualty Ins. Co. (2000) 199 Ariz. 43, 13 P.3d 785, the issue was whether total and fecal coliform bacteria, which contaminated water, was a pollutant under the standard CGL policy. The court applied the doctrine of “ejusdem generis” to the pollution exclusion. Under that rule, any unlisted items that are construed to fall within the definition must be similar in nature to the listed items. The court stated: “The enumerated items, namely ‘smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste’ are primarily inorganic in nature. Bacteria, as living organisms, are not similar to the exclusion’s enumerated list.” Id. at 790. A more detailed discussion of the Keggi case can be found in More Mold Coverage Commentary, Mealey’s Litigation Report: Mold, Volume I, Issue No. 11, November 2001, pp. 46-48.

The distinction between coverage for inorganic substances, as opposed to organic (albeit primitive) life forms like mold, is also noted in Epidemic of Mold Litigation Plagues Insurance Industry, California Insurance Law and Regulation (West Group), Vol. 13, No. 6, 2001, pp. 86-92.^[2] As noted in that article, if a court were to focus on the strict wording of the pollution exclusion, it could very well find that mold would qualify as a “contaminant.” Id. at 91. Similarly, in light of MacKinnon, if a court were to give a strict interpretation to the word “chemical,” it may also find that mold would qualify because of its biochemical nature. Webster’s defines “biochemistry” as “the scientific study of the chemical substances and processes of living matter.”

Mold is a living substance which produces mycotoxins. These are natural organic compounds that can initiate a toxic response in various other living organisms, including people. Recent terrorist activities have thrust our country into a new age of heightened public awareness of biochemical toxic materials. Although certain types of mold have apparently been used by the former Soviet Union to make biochemical weapons, few people today would think of mold in that context. Rather, there are far more people who are presently aware of only its beneficial use in making such products as cheese, wine and penicillin. Nonetheless, the perception of mold being relatively ubiquitous and benign will undoubtedly change over time, as more people become aware of the various health risks associated with certain types of mold.

Likewise, a generation ago, many people only thought of asbestos in light of its beneficial uses as insulation and as a fire retardant. Few probably thought of it as a “pollutant.”^[3] After all, asbestos is also naturally occurring in the environment, although, unlike mold, it is a nonorganic chemical substance. Then again, is the “organic” vs. “inorganic” nature of a chemical substance a valid distinction for the purposes of the application of the pollution exclusion? If public perception is to be the litmus test, then such a distinction is probably valid. Moreover, while dictionary definitions for such terms as “biochemical” might be helpful, they can also be misleading. This is especially the case if a word is defined in a different context than the one in which it appears in the policy.

Indeed, a word's dictionary definition may be "refined" based on the context in which it is used in the policy. See, e.g., Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 754. Furthermore, in determining a policy’s plain meaning, the test is not what the insurer or its attorneys intended the policy to mean but, rather, what a reasonable person would understand the policy to mean. Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 667. When analyzed in the context of the entire pollution exclusion, such terms as “irritant,” “contaminant,” and “chemical,” would most likely not be understood by a “reasonable person” to include “mold.”

In that regard, the Keggi court probably got it right, when it applied the doctrine of ejusdem generis in the resolution of the issue. That doctrine is not foreign to California courts in the interpretation of insurance policies. See, e.g., Titan Corp., supra, 22 Cal.App.4th 457. In Titan Corp., the court stated: “Ejusdem generis instructs that where general words follow a specific enumeration, the general words should not be construed in their broadest sense, but should be read as applying to the same general class of things as the specifically enumerated things.” Id. at 475, n.14 (citing Black’s Law Dictionary (4th ed. 1968) p. 608, col. 1). The more recent, 7th edition of Black’s Law Dictionary, published in 1999, contains the following example of the application of the doctrine of ejusdem generis: “in the phrase ‘horses, cattle, sheep, pigs, goats, or any other barnyard animal,’ the general language ‘or any other barnyard animal’ – despite its seeming breadth – would probably be held to include only four-legged, hoofed mammals (and thus would exclude chickens).”

In the standard form pollution exclusion, whether one refers to the potential “pollutants” as irritants, contaminants or chemicals, or as being environmental or nonenvironmental, the fact is that, when taken in context, they all appear to be of an inorganic nature, like smoke, fumes, alkalis, etc. If the insurance industry wanted them to also include biologic agents, then they could have used language similar to that which is found in the East Quincy Services District case discussed above. Indeed, the author understands that many insurance carriers are doing just that, and are now seeking to specifically exclude biological organisms, including mold, from current CGL policy forms.

The bottom line is that the MacKinnon case will undoubtedly add another arrow to the quiver of the insurance industry, with respect to the ongoing battle over whether mold is an excluded “pollutant.” Still, it is probably much easier for people, and courts, to accept the idea that a chemical pesticide is a “pollutant,” than would be the case with mold. Until an appellate court gives us a clear-cut answer to this question, carriers would be well advised to continue to defend third-party mold cases under a reservation of rights, while they seek the court’s guidance in a declaratory relief action.