United States: Where There’s Fire, There’s Smoke: Michigan Appeals Court Rejects Insurers’ Attempt To Apply Pollution Exclusion To Residential Fire Claim

You cannot separate smoke from fire. It's seemingly an unremarkable proposition—yet one the Michigan Court of Appeals had to explain to insurers who denied coverage for smoke inhalation injuries sustained in an apartment fire.

In an unpublished decision in Hobson v. Indian Harbor Ins. Co., et al., the appellate court rejected the insurers' reading of the pollution exclusion in the landlords' commercial general liability policy. As the trial court had pointed out, the insurers' reading would have led to the "absurd result" of denying coverage if the tenants inhaled smoke, but providing coverage if they only sustained burn injuries. In affirming that decision, the appellate court explained that the exclusion is understood to limit the insurers' liability for environmental harms, and refused to "extend the scope of the pollution exclusion beyond the scope of its original intent and beyond the plain meaning of the language contained in the exclusion."

The pollution exclusion bars coverage for injuries caused by the "discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time." Smoke was defined by the policy as a "pollutant." The Court of Appeals explained, however, that the exclusion "applies to 'occurrences' involving the pollutant as a pollutant." The exclusion does not mean, as the insurers would have it, "that any 'pollutant' involved in the causal chain [of the injuries] negates their liability." The tenants alleged that their injuries were caused by the landlord's negligence, which caused the fire. The Court of Appeals pointed out that smoke existed only because of the fire: the tenants were injured "when the fire and smoke engulfed them. It did not pollute them."

The Court's holding is consistent with the interpretation of the pollution exclusion in other jurisdictions, including Washington, Pennsylvania, New York and Connecticut, and underscores the limits to its application against policyholders.

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