New York Court Holds that Contamination Exclusion Operates to Preclude Coverage for Damage Caused by Airborne Particulate Released as a Result of the Collapse of the World Trade Center
December, 2005
by Mark S. Wolf
The United States District Court for the Southern District of New York recently held that the contamination exclusion contained in a property policy operated to preclude coverage for physical damage to a building that was caused by the introduction of airborne particulate released as a result of the collapse of the World Trade Center on September 11, 2001. See Parks Real Estate Purchasing Group, et al. v. St. Paul Fire and Marine Insurance Company, 2005 U.S. Dist. LEXIS 21872 (S.D.N.Y. September 28, 2005).
Plaintiffs owned a building located at 90-100 John Street in downtown Manhattan (“John Street building”). The John Street building is located just a few short blocks from the World Trade Center. On January 15, 2001, St. Paul issued a property policy to Plaintiffs that provided potential coverage “…against risks of direct physical loss or damage…” subject to certain exclusions. The policy contained a contamination exclusion that stated, in pertinent part: “[St. Paul] will not cover any loss or damage caused by or made worse by any kind of contamination” (“Contamination Exclusion”).
Plaintiffs claimed that as a result of the collapse of the World Trade Center on September 11, 2001, certain airborne particulate matter (i.e., the pulverized components and contents of the fallen towers) caused damage to both the interior and exterior of the John Street building -- including damage to the façade, elevators, and mechanical and electrical systems. On September 18, 2001, Plaintiffs filed a claim for the alleged property damage. St. Paul subsequently provided Plaintiffs with payment for undisputed damages in the amount of $1,915,914.00. Nevertheless, Plaintiffs claimed that the $1,915,914.00 payment did not cover the full scope of damage that had been sustained at the John Street building. Accordingly, Plaintiffs filed suit in the United States District Court for the Southern District of New York. St. Paul subsequently moved for summary judgment on the grounds that coverage for the disputed damages was precluded pursuant to the operation of the Contamination Exclusion contained in the policy.
Plaintiffs contended that three factors served to bar entry of summary judgment: (1) the Contamination Exclusion was ambiguous; (2) the damage sustained at the John Street building could not reasonably be deemed to be “contamination”; and (3) the efficient (proximate) cause of the damage was the collapse of the World Trade Center (a covered event under the policy) rather than the introduction of the airborne particulate to the John Street building. The court rejected all of Plaintiffs’ arguments and granted summary judgment to St. Paul.
In rendering its decision regarding the scope and applicability of the Contamination Exclusion, the court noted that pursuant to New York law it was obligated to construe the terms contained in the insurance policy at issue as they are used in common speech. 2005 U.S. Dist. LEXIS at *7-8 (citing Throgs Neck Bagels, Inc. v. GA. Insurance Company of New York, 241 A.D.2d 66, 671 N.Y.S.2d 66, 69 (N.Y. App. Div. 1998)). The court stated that courts in other jurisdictions have consistently adhered to this interpretive methodology in the present context and that they “‘…have almost uniformly construed the term [contamination] in insurance policies in light of modern dictionary definitions and [have] concluded that it is unambiguous.’” 2005 U.S. Dist. LEXIS at * 8 (citing, e.g., Richland Valley Products, Inc. v. St. Paul Fire & Casualty Co., 201 Wis.2d 161, 548 N.W.2d 127, 131 (Wis. Ct. App. 1996)).
Specifically, the court found that two basic definitions of the term “contamination” (as it is utilized in exclusionary clauses) have been established. First, “contamination” has been defined as “…to render unfit for use by the introduction of unwholesome or undesirable elements.” 2005 U.S. Dist. LEXIS at *8 (citing J.L. French Automotive Castings, Inc. v. Factory Mutual Ins. Co., 2003 U.S. Dist. LEXIS 13060 at *6-7 (N.D.Ill. July 23, 2003)). The court also relied upon Hi-G, Inc. v. St. Paul Fire and Marine Ins. Co., 391 F.2d 924, 925 (1st Cir. 1968) (wherein the First Circuit Court of Appeals defined “contamination” as the introduction of a foreign substance that injures the usefulness of [a given] object). Moreover, the court went on to state that the term “contamination” has also been defined as “…a condition of impurity resulting from the mixture or contact with a foreign substance.” 2005 U.S. Dist. LEXIS 21872 at *8-9 (citing American Casualty Co. of Reading, PA v. Myrick, 304 F.2d 179, 183 (5th Cir. 1962)). Indeed, the court pointed out that certain other courts have even expressed their approval of the simultaneous application of the substance of both of the definitions referenced above. See, e.g., Richland Valley, supra., 548 N.W.2d at 131.
The court held that the disputed damages allegedly sustained by Plaintiffs clearly fell within the scope of both of the definitions of the term “contamination” as are described above. For example, the court noted that Plaintiffs’ expert report concluded that the introduction of the airborne particulate from the World Trade Center -- which consisted of substances such as quartz, mineral wool and glass fibers -- generated leakage currents (i.e., electrical irregularities), corrosion and abrasion that both precipitated component failures and shortened machinery lifetimes at the John Street building. Additionally, Plaintiffs’ expert expressly characterized the particulate constituents in question as “hazardous.” 2005 U.S. Dist. LEXIS 21872 at *11.
The court also held that in light of those facts, “…it is clear that the [John Street] Building [was] ‘rendered unfit for use by the introduction of unwholesome or undesirable elements’ and that the Building suffers from ‘a condition of impurity resulting from…contact with a foreign substance.’” 2005 U.S. Dist. LEXIS 21872 at *13. The court went on to hold that regardless of whether the airborne particulate in question was corrosive, abrasive or erosive, the damage sustained at the John Street building could only be categorized as one thing: contamination.
The court rejected Plaintiffs’ attempts to rely upon cases involving the interpretation of the industry standard pollution exclusion in support of the assertion that the Contamination Exclusion in question was ambiguous. The court pointed out that the standard pollution exclusion -- which has been deemed to be ambiguous by courts in the Southern District of New York and elsewhere -- contains language that was simply not included in the Contamination Exclusion at issue in Parks Real Estate. Accordingly, the court concluded that the cases cited by Plaintiffs were irrelevant to the analysis at hand. Utilizing a “plain language” analysis, the court held that the term “contamination” (as referenced in the exclusion in question) was not ambiguous. Thus, based upon the reasoning discussed above, the court also held that the Contamination Exclusion clearly operated to preclude coverage.
The court also concluded that the language of the Contamination Exclusion rendered the issue of efficient (proximate) cause irrelevant. Specifically, the court stated that even assuming arguendo that the efficient cause of the loss was the collapse of the World Trade Center -- and the court went on to make it clear that it was not -- the damage sustained by Plaintiffs was, at a minimum, “made worse” by contamination. 2005 U.S. Dist. LEXIS 21872 at *15. Accordingly, the court held that even under such an (assumed) efficient cause analysis, the Contamination Exclusion -- pursuant to its express terms -- would be triggered and coverage would therefore be precluded.
Notwithstanding that holding, and as noted, the court went on to conclude that the efficient cause of Plaintiffs’ loss was indeed contamination. The court stated that pursuant to well-established New York law, “[o]nly the most direct and obvious [efficient] cause should be looked to for purposes of [analyzing the applicability] of [an] exclusionary clause.” 2005 U.S. Dist. LEXIS 21872 at *14 (citing Kula v. State Farm Fire and Casualty Co., 212 A.D.2d 16, 628 N.Y.S.2d 988, 991 (N.Y. App. Div. 1995); Album Realty Corp. v. American Home Assur. Co., 592 N.Y.S.2d 657, 80 N.Y.2d 1008, 607 N.E.2d 804 (N.Y. 1992)). Guided by that principle, the court flatly rejected Plaintiffs’ argument that the efficient cause of the loss was the collapse of the World Trade Center. The court articulated its view that Plaintiffs’ contention inherently served to improperly attenuate the efficient cause analysis itself. Specifically, the court concluded that once the inquiry extends beyond the introduction of the airborne particulate to the John Street building, the issue of the efficient cause of the loss essentially becomes an open-ended question. The court noted that pursuant to the (flawed) reasoning espoused by Plaintiffs, the cause of the loss could variously be deemed to be (amongst other things) the prevailing winds on the morning of September 11, 2001, the fires that occurred in the towers of the World Trade Center, the explosions of the fuel tanks within the hijacked airplanes and/or the actual hijacking of the airplanes themselves. Accordingly, the court held that pursuant to New York law, the efficient (proximate) cause of Plaintiffs’ loss was the contamination that was precipitated by the introduction of the airborne particulate to the John Street building.
Learning Point:
New York courts have demonstrated a recent amenability toward interpreting contamination exclusions through the utilization of a “plain language” analysis. That practice conforms with the currently prevailing national trend. Additionally, New York courts continue to apply the well-established principle of efficient (proximate) cause in connection with the determination of the applicability of exclusions contained within property policies.
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