Is My Drywall Chinese? - HB Litigation Conferences

Absolutely Not Total:
Rejecting Insurance Company Arguments to Disclaim Coverage for
Chinese Drywall Claims Based on Absolute” and “Total” Pollution Exclusions
by Lorelie S. Masters 1
INTRODUCTION
As shown by decisions by the high courts in California, New York and the District of
Columbia, state appellate courts – the arbiters of state law – often limit “absolute” and “total”
pollution exclusions to true “environmental pollution.” This trend accords with the historical
representations that the insurance industry made in seeking the required regulatory approval of
the exclusions from the state insurance commissions in the 50 states.
At the time of first approval in the 1980s, the insurance industry represented that the
“absolute pollution exclusion” (“APE”), though “overdrafted,” precluded coverage only for
industrial or environmental pollution. Notwithstanding these representations to insurance
regulators in the 1980s, insurance companies have used APEs and “total pollution exclusions”
(“TPEs”) to reject coverage for products liability and other claims unrelated to environmental
pollution. Although courts in the late 1980s and early 1990s often accepted the insurance
industry’s rhetorical excess in naming these exclusions (“absolute” must mean “absolute”!), the
insurance industry’s chronic abuse of these exclusions has increasingly led courts, particularly
state courts which determine the law applicable to this issue, to limit the scope of these
exclusions to true “environmental pollution.”
As shown below, use of the APE, first promulgated in 1986 (the “1986 exclusion”), to
preclude coverage for ordinary claims like products liability and premises-operations claims,
1 Ms. Masters is a partner at Jenner & Block LLP, in Washington, D.C., where she advises and
represents policyholders in insurance coverage matters. She is co-author of a treatise entitled
Insurance Coverage Litigation and served for three years, from 2000-2003, as the Policyholder
Chair of the Insurance Coverage Litigation Committee of the ABA’s Section of Litigation.