Heating Oil Leak Covered Because of Ambiguous Pollution Exclusion

The Rhode Island Supreme Court for the first time has found the definition of pollution in a commercial policy ambiguous enough to justify vacating a lower court’s summary judgment in favor of the insurer.

The insurer, Arbella Protection Insurance Co., had declined to defend Regan Heating and Air Conditioning against a claim by a customer who found 170 gallons of home heating oil in his basement during a Regan installation of a new heating system

Regan’s commercial package policy from Arbella included a pollution exclusion. Arbella contended and the lower court agreed that home heating oil constituted a pollutant under the policy and thus coverage was excluded.

But Regan argued that the policy was “reasonably susceptible of different constructions” rendering it ambiguous as to whether home heating oil was a pollutant and the policy should have been construed strictly against the insurer due to the ambiguity.

The policy does not cover “property damage which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”

Under the policy, pollutants are “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

Oil, and more specifically home heating oil, is not explicitly listed as a pollutant within the policy’s definition.

Chief Justice Paul Suttell noted that this issue was one of first impression for the high court. He also reiterated the lower court’s observation that there have been “decades of litigation” on this issue in other states.

Suttel distinguished this case from a 2007 decision (McGregor v. Allamerica Insurance Company) by the Supreme Judicial Court of Massachusetts, a case relied upon by Arbella and the lower court. In McGregor, years after the insured installed a furnace, there was a leak that allowed oil to drain into the ground below the house. The homeowners were ordered by the state to remediate “any environmental contamination caused by the oil.” In that context, the Massachusetts court held that a policyholder reading the policy could “reasonably expect that oil leaking into the ground constitutes a pollutant within the meaning of the policy.”

The home heating oil at issue in the Rhode Island case leaked into the homeowner’s basement and caused damage to the home and personal property. The court found the Rhode Island case distinguishable from the Massachusetts case, where there was clearly an environmental impact from the oil leaking into the ground.

The Rhode Island high court also noted that a Maryland court in 2020 found home heating oil’s status as a “pollutant” ambiguous in construing a policy against an insurer in Unitrin Auto and Home Insurance Company v. Karp.

Additionally, in many cases where a court determined that oil was a pollutant under the policy’s definition, the facts involved traditional environmental pollution, the court added.

The Rhode Island court cited the following commentary from Indiana’s high court as relevant:

“Jurisdictions applying a more ‘situational’ approach look to factual context and typically uphold the exclusion only in cases of ‘traditional’ environmental contamination. While this framework may be more palatable than the literal view, it can still be problematic because the concept of what is a ‘traditional’ environmental contaminant may vary over time and has no inherent defining characteristics. This leaves courts in the awkward and inefficient position of making case-by-case determinations as to the application of the pollution exclusion.”

The court noted that it has also previously stated that “‘diversity of judicial thought as to the meaning of terms in an insurance contract is proof positive” of ambiguity.

Suttel concluded that the policy must, therefore, be strictly construed in favor of Regan and ruled that the lower court erred in granting Arbella’s motion for summary judgment and in denying Regan’s motion for summary judgment.