Jurisdiction in this case is based on diversity of citizenship. 28 U.S.C. § 1332(a) (1994). Each of the three plaintiffs -- LOI, Cornell, and Mid-State -- is a New York corporation with its principal place of business in New York. (Klein Aff. PP 10-12) Defendant Chubb is a Delaware corporation with its principal place of business in New Jersey. (Id. P 13) The value of the declaratory judgments sought by plaintiffs -- i.e., the value of defending and indemnifying Lefrak in the negligence actions -- combined with the demand for damages, exceeds the $ 50,000 statutory minimum. Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 346, 53 L. Ed. 2d 383, 97 S. Ct. 2434 (1977); A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d 82, 87 (2d Cir. 1991). Because this is a diversity case, this court sits in New York, and the parties have not specified otherwise, New York law controls. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 82 L. Ed. 1188, 58 S. Ct. 817 (1938).
Basic principles of contract law govern the interpretation of insurance contracts. State v. American Mfrs. Mut. Ins. Co., 188 A.D.2d 152, 154, 593 N.Y.S.2d 885, 886 (3d Dep't 1993). The fundamental objective of contract interpretation is to give effect to the expressed intention of the parties. Kimmins Indus. Serv. Corp. v. Reliance Ins. Co., 19 F.3d 78, 81 (2d Cir. 1994). The words in the contract are given their ordinary, non-technical meaning. Rocon Mfg. Inc. v. Ferraro, 199 A.D.2d 999, 999, 605 N.Y.S.2d 591, 592 (4th Dep't 1993). If a reasonably prudent layperson would find the words unambiguous, the court will enforce that unambiguous meaning. Ace Wire & Cable Co. v. Aetna Casualty & Surety Co., 60 N.Y.2d 390, 398, 469 N.Y.S.2d 655, 658, 457 N.E.2d 761 (1983). However, if language suggests more than one meaning to the reasonably prudent person, or if reasonably prudent people would disagree about its meaning, that language is ambiguous. When the meaning of ambiguous language is in dispute, the parties may present extrinsic evidence of their intent at the time of contracting to cure the ambiguity. Schering Corp. v. Home Ins. Co., 712 F.2d 4, 9 (2d Cir. 1983).
Certain additional guidelines apply to an insurer's duty to defend. The duty to defend is "exceedingly broad," Colon v. Aetna Life & Casualty Ins. Co., 66 N.Y.2d 6, 8-9, 494 N.Y.S.2d 688, 689, 484 N.E.2d 1040 (1985), and a court must find in favor of the insured when the allegations in the underlying complaint suggest a "reasonable possibility" of coverage. When such a reasonable possibility exists, the insurer must defend its insured, regardless of the ultimate determination of the scope of the policy or the merits of the underlying action. Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 65-66, 571 N.Y.S.2d 672, 673-74, 575 N.E.2d 90 (1991).
The insurer may avoid the duty to defend only by establishing that the policy unmistakably excludes the underlying action. Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652, 593 N.Y.S.2d 966, 972, 609 N.E.2d 506 (1993). The insurer may do so by relying on clear policy language or extrinsic evidence that reveals the intent of the parties to exclude particular actions. If the insurer meets that burden by either method, a court will find an absence of a duty to defend.
If the insurance company fails to satisfy its burden of establishing a policy exclusion, the ambiguous language must be construed against the insurer, as the drafter of the contract. Ace Wire, 60 N.Y.2d at 398, 469 N.Y.S.2d at 658. That proposition derives from the maxim of contra proferentem and is based in part on the insurance company's control over policy language. The cost of a failure to clarify is imposed on the drafting party, to encourage that party to clarify its language in the future. Put another way, if the insurance company had wanted to exclude certain claims, especially foreseeable claims, it could have and should have listed those exclusions in the policy and, if necessary, bargained for their adoption. If an insurance company did not make an exclusion explicit at the time of contract drafting and bargaining (if there was any bargaining), it cannot benefit from that ambiguity at the time of litigation. See generally 69 N.Y.Jur. 2d §§ 715-19 (1988) (discussing rationale for construction in favor of the insured). The contra proferentem doctrine exerts even more force on policy exclusions. The purpose of an insurance policy is to provide protection to the insured. To give effect to that purpose, limitations on coverage must be construed narrowly. See, e.g., McCostis v. Home Ins. Co. of Indiana, 31 F.3d 110, 112 (2d Cir. 1994).
The Second Circuit recently applied the principles of interpretation recited above to a pollution exclusion much like the one in dispute here. In Stoney Run Co. v. Prudential-LMI Commercial Ins. Co., 47 F.3d 34 (2d Cir. 1995), the insured sought a declaration that its insurance company was obliged to defend it in several civil actions arising from carbon monoxide poisoning in an apartment. The insurance company relied on the policy's pollution exclusion, which, like the one involved here, disclaimed coverage for bodily injury or property damage arising from the "'discharge, dispersal, release or escape of pollutants,'" and defined pollutants as "'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.'" Id. at 36. The district court found that the insurer had demonstrated that the carbon monoxide related actions unambiguously fell within that pollution exclusion and granted summary judgment to the insurer. Id. at 35.
The Second Circuit reversed. The Court began its analysis by stating that the standard pollution clause must be construed in light of its general purpose -- to exclude coverage for environmental pollution. Id. at 37-38. The Court then concluded that the release of carbon monoxide into an apartment could not properly be categorized as environmental pollution, and that as a consequence, the pollution exclusion reasonably could be interpreted as not excluding coverage for the carbon monoxide action. Id. ("A reasonable interpretation of the pollution exclusion clause is that it applies only to environmental pollution, and not to all contact with substances that can be classified as pollutants.") To bolster its conclusion the Court cited the decisions of other courts that also limited the same pollution exclusion to "environmental" pollution. Id. (citing Regional Bank of Colo., N.A. v. St. Paul Fire and Marine Ins. Co., 35 F.3d 494, 498 (10th Cir. 1994); Thompson v. Temple, 580 So. 2d 1133, 1135 (La. Ct. App. 1991); and others).
Although the Stoney Run Court did not define "environmental," and explicitly declined to extend its ruling beyond the facts of that case, the Court made clear that the release of poisonous gas into an apartment was not encompassed by that term. Because the pollution occurred indoors, it was not "environmental." The Court did not dictate that its reading was the only plausible reading of the pollution exclusion, but held only that it was one of several (or at least more than one) reasonable readings of the clause. Accordingly, because the pollution exclusion clause was ambiguous as applied to facts presented, the insurance company's motion for summary judgment could not properly be granted. 47 F.3d at 39.
Viewing the policy here in light of those principles and that precedent, I conclude that the policy reasonably can be read to cover the Allmans' lead paint poisoning claims.
In pertinent part, the pollution exclusion in Chubb's policy exempts from coverage claims for bodily injury or property damage that: (1) arise from the "discharge, dispersal, seepage, migration, release or escape of," (2) "pollutants," defined as "any . . . irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste."
A. Did Ashley Allman's injuries arise out of the "discharge, dispersal, seepage, migration, release or escape" of lead paint?
"Discharge, dispersal, seepage, migration, release, and escape" is a list of the ways by which the pollutant must travel from a contained place to the injured person's surroundings and then cause injury. In contrast, injuries caused by irritants that normally are stationary, but that can be shifted or moved manually, are not excluded from coverage because they do not cause injury by one of the prescribed methods. For example, if a child were injured because he drank from a bottle of drain cleaner or some other household product, even if that product properly could be classified as a "pollutant," the injury would not be covered by the pollution exclusion because the pollutant was not disseminated by one of the prescribed methods.
Here, it is not clear precisely how Ashley Allman was injured by lead paint. The Negligence Complaint states only that an inspection revealed the presence of lead paint in the apartment, and that Ashley Allman was catastrophically injured thereby. From this, plaintiffs argue that the list of methods of injury is inapplicable here because the complaint does not allege that the lead paint caused injury in one of the listed ways. Although linguistically accurate, plaintiffs' argument is logically flawed. Common sense tells us that lead paint that never leaves a wall or ceiling does not cause harm. Implicit in the Negligence Complaint, therefore, must be an allegation that the lead paint somehow separated from the wall or ceiling, and entered the air, or fell on the floor, furniture or fixtures in the apartment. One possibility is that lead dust flaked off the walls and was inhaled by Ashley Allman. Another is that the lead paint chipped, and that Ashley Allman ingested those chips.
Although flaking, peeling, chipping, crumbling and falling are not among the listed methods of disseminating pollution, it is arguable, and several courts have found, that the presence of lead dust or chips in an apartment qualifies as "discharge," "dispersal," or even more generally, as "release." See, e.g., Oates by Oates v. State, 157 Misc. 2d 618, 597 N.Y.S.2d 550 (Ct. Cl. 1993) (holding lead paint poisoning covered by the pollution exclusion), appeal withdrawn after settlement, 206 A.D.2d 979, 615 N.Y.S.2d 993 (1st Dep't 1994); St. Leger v. American Fire & Casualty Ins. Co., 870 F. Supp. 641 (E.D. Pa. 1994) (same), aff'd without opinion, 61 F.3d 896 (3d Cir. 1995); Kaytes v. Imperial Casualty & Indemnity Co., No. Civ. A. 93-1573, 1994 WL 780901 (E.D. Pa. Jan. 6, 1994) (same). On that interpretation, it might be permissible for Chubb to refuse to defend Lefrak in the Allman negligence action.
However, the holding of Stoney Run and the specifics of the Allman action suggest the opposite conclusion -- that the way in which lead paint harmed Ashley Allman is not included in the pollution exclusion. The holding of the Second Circuit in Stoney Run -- that the ordinary person could read the words of that policy as the argot of environmental law that applies to environmental pollution only, and that carbon monoxide poisoning in an apartment is not covered by that exclusion -- supports the conclusion that the pollution exclusion may not apply in this case. Stoney Run, 47 F.3d at 37; Rapid-American, 80 N.Y.2d at 654, 593 N.Y.S.2d at 973; see also Weaver v. Royal Ins. Co. of America, No. 94-825, 1996 WL 189242, at *2 (N.H. Sup. Ct. Apr. 17, 1996) (holding that "discharge, dispersal, release, and escape" are terms of art of environmental law); Sullins v. Allstate Ins. Co., 340 Md. 503, 667 A.2d 617, 622-23 (Md. 1995) (same); Atlantic Mutual Ins. Co. v. McFadden, 413 Mass. 90, 595 N.E.2d 762, 764 (Mass. 1992) (same). Because the poisoning occurred inside an apartment, the lead paint might not be regarded as an environmental pollutant and therefore coverage would not be excluded. See United States Liability Ins. Co. v. Bourbeau, 49 F.3d 786, 789 (1st Cir. 1995) (holding that the discharge of paint chips into soil was covered by the pollution exclusion because it polluted the environment, but that the presence of lead paint in a household would not be so covered). The clause at issue here bars coverage for pollutants that cause injury also through "migration" or "seepage" -- methods not included in the Stoney Run pollution exclusion -- but there is no reason to believe that the inclusion of those terms requires a different result.
Defendant's position that the Rapid-American decision of the New York Court of Appeals, on which the Stoney Run Court relied, is distinguishable, ignores the reasoning of both of those cases. The clause at issue in Rapid-American, known informally as the "sudden and accidental" pollution exclusion, the predecessor of the exclusion at issue here, denied coverage for:
personal injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water ; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
80 N.Y.2d at 646-47, 593 N.Y.S.2d at 968 (emphasis added). The Court held that the exclusion did not bar coverage for asbestos exposure, in part because the exclusion covered environmental pollution only. Id. at 972-73. Chubb argues that the absence of the underlined language indicates that the applicability of the pollution exclusion is no longer limited to environmental pollution. But Chubb ignores that the New York Court of Appeals based its conclusion in Rapid-American also on the finding that "discharge," "dispersal," "release" and "escape" are environmental terms of art, regardless of the language that follows. Chubb ignores as well that the Second Circuit in Stoney Run construed a policy also devoid of the underlined language, and more similar to the one at issue here than the policy in Rapid-American, and concluded also that the exclusion could be read to apply only to injury from environmental pollution. Indeed, the conclusion that "discharge," "dispersal," "release" and "escape" are distinctly environmental terms would make the underlined language largely redundant. Sullins, 667 A.2d at 622.
Defendant argues further that the clause at issue here cannot be limited to outside, environmental injury, because that interpretation would render meaningless the clause stating that the excluded injury may result from pollution "at or from premises which are or were at any time owned or occupied by, or rented or loaned to any insured." (Klein Aff., Ex. A, Amendment at 1, P 1(a)). Defendant's theory seems to be that "premises" are made-up entirely of interior space, and that for that subsection of the pollution exclusion to exclude any coverage, it must encompass injuries arising from pollutants inside the building. But the policy does not define "premises," and common understanding suggests another meaning of the term. Webster's Dictionary defines "premises" as:
3.a. Land and the buildings on it,