In Foremost Ins. Co. v. Nosam, LLC, E.D. PA, (11/5/18), the United States District Court for the Eastern District of Pennsylvania held that Foremost Insurance Company had no duty to defend or indemnify its insured against claims arising from carbon monoxide poisoning of tenants of residential property leased by Nosam, LLC. It was determined that the emission of the carbon monoxide was caused by the collapse of the chimney from the property’s gas furnace. It was also determined that the chimney collapsed due to the failure to properly size the chimney when the furnace was converted from oil to gas. The tenants were unaware that the furnace had been converted from oil to gas when they ignited the furnace.
Nosam sought coverage under its policy with Foremost for the claims brought by its tenants. The Foremost policy provided coverage for “damages because of bodily injury or property damage caused by an accident on the premises.” However, it also contained an exclusion for “bodily injury … arising out of the .. discharge … of pollutants.” The policy also contained an exception to the exclusion where the pollutant is released by an “accidental fire” on the premises. It was undisputed that carbon monoxide was a pollutant, and that the tenants claims arose from carbon monoxide poisoning. However, the tenants argued that the emission of the carbon monoxide was caused by an accidental fire.
First, the court found that even though the tenants were not parties to the insurance contract, they had standing since the real dispute was between them and the insurance company.
Second, even though the duty to defend is determined solely on the four corners of the complaint, extrinsic evidence may be considered to rebut a policy exclusion.
Policy interpretation is a matter of law for the court to decide. The language of the policy will determine if an insurer has a duty to defend. The court must ascertain the intent of the parties from the language of the policy. When the policy language is clear and unambiguous, the court will give effect to that language. When the policy language is ambiguous, it must be construed in favor of the insured. Ambiguity exists if the contract language is reasonably susceptible of different constructions and capable of being understood in more than one sense. The court should not consider isolated individual terms, but should instead consider the entire contractual provision to determine the parties’ intent. Words of common usage in an insurance policy are to be construed in their natural, plain, and ordinary sense. The court should not distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity. In addition, the doctrine of reasonable expectations requires examination of the reasonable expectations of the insured when resolving an ambiguity. Even if the terms of the insurance contract are clear and unambiguous, the insured’s reasonable expectations may prevail over the express terms of the contract. Conversely, even if a term is ambiguous, the reasonable expectations of the parties may bar coverage.
An insurer bears the burden of proving an exclusion to coverage, but the insured bears the burden of proving an exception to an exclusion. If the insured is successful in demonstrating that coverage is not necessarily excluded, the insurer is required to defend. (The question of whether an insurer has a duty to indemnify is separate from whether it has a duty to defend. However, if it is found that an insurer has no duty to defend, it has no duty to indemnify).
In Pennsylvania, the term “accident” in an insurance policy refers to an unexpected and undesirable event occurring unintentionally. “Accidental,” means happening by chance, unexpectedly, not in the usual course of things.
In this case, the court found that the term “accidental” was used in the policy to describe the type of fire, not the emission pollutants. And, since the fire was not accidental, even though it resulted in an accidental buildup of carbon monoxide, the court held that Foremost had no duty to defend, and correspondingly, no duty to indemnify.
Opinion by Joseph F. Leeson, Jr., U.S. District Judge.