Oct. 25, 2010 – An insurance policy that excluded coverage for damage caused by “pollution” did not exclude coverage for damage caused by bat guano, the District III Wisconsin court of appeals recently held.
In Hirschhorn v. Auto-Owners Insurance Co., 2009AP2768 (Oct. 19, 2010), the appeals court reversed a circuit court ruling that Joel and Evelyn Hirschhorn’s insurance policy with Auto-Owners Insurance did not cover the bat guano damage that forced them to raze their house.
The Hirschhorns planned to sell their Oneida County vacation home in 2007, but their real estate broker noticed bat guano, which later caused a foul odor. They undertook remediation, and filed a property loss claim with Auto-Owners Insurance.
However, Auto-Owners denied the claim, stating that the policy did not cover accumulation of bat guano under the policy’s pollution exclusion clause.
That clause excluded coverage for “loss resulting directly or indirectly from: … discharge, release, escape, seepage, migration or dispersal of pollutants …” and defined pollutants as “as solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, gasses and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”
The Hirschhorns sued for breach of contract and bad faith. The circuit court, after reconsideration, concluded that bat guano was considered “waste” under the policy’s pollution exclusion clause, and denied the Hischhorns’ claim. They appealed.
In ruling that bat guano was not “waste” under the pollution exclusion clause, the appeals court looked to Donaldson v. Urban Land Interests, Inc., 211 Wis. 2d 224, 564 N.W.2d 728 (1997).
In that case, a building defect caused excessive accumulation of exhaled carbon dioxide, and the insurer attempted to escape coverage under the policy’s pollution exclusion clause. But the Wisconsin Supreme Court refused to characterize exhaled carbon dioxide as a pollutant.
In Donaldson, the supreme court wrote: “The reach of the pollution exclusion clause must be circumscribed by reasonableness, lest the contractual promise of coverage be reduced to a dead letter.” Responding to the rationale of Donaldson, the appeals court wrote: “Here, we conclude excreted bat guano is akin to exhaled carbon dioxide, both biologically and as a reasonable insured homeowner would view it regarding the pollution exclusion.”
Auto-Owners argued that policy defined waste as an “irritant” or “contaminant” and bat guano was both. But the appeals court disagreed.
Applying the ejusdem generis rule – requiring that words in a list be interpreted in light of the other listed terms – the court concluded: “[I]n the context it is presented here, when a person reading the definition arrives at the term ‘waste,’ poop does not pop into one’s mind,” the appeals court explained.
The court reasoned that Auto-Owner’s policy failed to adequately suggest that a “biological process” is a “waste” contemplated by the pollution exclusion clause and thus a person might “reasonably interpret the pollution exclusion as not contemplating bat guano.”