Is My Drywall Chinese? - HB Litigation Conferences

Setting aside expectations of coverage, policyholders, the public, and the courts have the
right to rely upon the representations made by insurers (and others) during the state regulatory
process. ISO never even hinted that its “pollution exclusion” would be interpreted to exclude
coverage for ordinary premises risks or liability for products or completed operations.
Moreover, there is no danger of a “significant destabilizing effect” as policyholders typically
advocate a method of insurance policy interpretation that will lead to results that are consistent
with insurance industry representations.
THE APE IN THE 1990s
Louisiana Department of Insurance Advisory Letter
Despite these representations to state insurance departments in the 1980s, insurance
companies have used the exclusion to disclaim coverage for policyholder liability for products,
completed operations, and off-premises discharges of pollutants. Such disclaimers led the
Louisiana Supreme Court to conclude in South Central Bell Telephone Co. v. Ka-Jon Food
Stores, 28 that the exclusion was ambiguous as a matter of law and so broad as to “eviscerate” the
coverage promised under the commercial general liability insurance policy as a whole:
The all inclusiveness of the words used in the exclusion are
adverse to both the policy’s nature and its primary purpose which
is to insure [the policyholder] against fortuitous accidents and
incidental business risks of running its [business]. The literal
application of the exclusion’s words leads to absurd consequences
and is at odds with the policy’s nature. CGL policies protect
against the premises, operations, products, completed operations
and independent contractor hazards of the insured. No reasonable
(. . . cont’d)
company’s burden to prove that an exception to coverage applies and that its interpretation is the
only reasonable one.
28
644 So. 2d 357, vacated on reh’g, remanded, 644 So. 2d 368 (La. 1994).
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