This is an important, recent decision from the Supreme Court of the State of Washington, its highest court, involving a personal injury situation arising from a homeowner’s claim. The name of the case is Xia v. Probuilders Specialty Insurance Company, which was decided in April of this year.
The case involved a woman who bought a townhouse. She became gravely ill after moving in: the manner in which the water heater was installed in her home was causing a release of carbon monoxide.
Mrs. Xia notified the townhouse management company, which was responsible for the negligent installation of the water heater. The management company notified their insurance company under their liability policy. The insurance company said that Mrs. Xia’s claim was not covered because of a pollution exclusion in the policy. They denied having any duty to cover her claim.
Well, the Supreme Court of the State of Washington said, hey, insurance company. You are not looking at this claim the right way. While carbon monoxide may be a pollutant under the policy, you have to look at the cause of the loss, and the cause of the loss was the negligent installation of a hot water heater. The fact that the negligent installation caused the release of a pollutant that’s otherwise not covered does not change the fact that the negligent installation of the water heater was covered under the policy.
Rather than summary judgment being granted to the insurance company, the highest court of the State of Washington granted summary judgment on liability for the loss to Xia and deemed that the townhouse company was negligent in installing the hot water heater. The Court also sent the case back for a trial on both compensatory damages and damages for bad faith denial of the claim.
So, the insurance company’s determination to rely on this exclusion, even though the exclusion was arguably applicable to the loss, can still be found by a jury to be bad faith. This is a lesson in understanding how insurance policies can be read certain ways to create coverage, where insurance companies think the coverage does not exist.
The Supreme Court of the State of Washington certainly thought coverage existed, in spite of the fact that the pollutant that caused the injuries to Mrs. Xia was excluded under the pollution exclusion. This will be a very costly misinterpretation for this insurance company and an important lesson for all insureds and insurance companies in Washington State.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack