The Rhode Island case of Regan Heating and Air Conditioning, Inc. v. Arbella Protection Insurance Company, Inc., et. al.1 provides much-needed guidance regarding ambiguity and the term “pollution.”
In Regan, the Rhode Island Supreme Court held that a pollution exclusion contained in the Plaintiff’s “Commercial Package Policy” was ambiguous as to whether home heating oil that escaped into a customer’s basement constituted a “pollutant” under the policy.
This case stems from a 2015 incident wherein Regan was in the process of removing an older heating system and installing a new heating system in a customer’s home when that customer discovered 170 gallons of home heating oil in his basement. The customer sued Regan, alleging negligence and demanding remediation for the property damage caused by the oil leak.
Regan thereafter demanded that Arbella defend and indemnify it against the customer’s property damage claim, but Arbella refused to do so. Instead, Arbella took the position that the loss was “not a covered occurrence” pursuant to the total endorsement because, according to the defendant, it was “clear under Rhode Island law that ‘oil’ is a pollutant” defined in the policy and, therefore, the total endorsement excluded coverage. Further, Arbella maintained that Regan’s commercial policy does not cover “‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”’ Id. (quoting Arbella’s June 2015 Denial Letter).
The liability insurance policy at issue in Regan did not cover “‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” Under the policy, “‘Pollutants’ mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” Oil, and more specifically home heating oil, was not explicitly listed as a pollutant within the policy’s definition.
Comparing the relevant policy language to the facts of the underlying claim, the Rhode Island Supreme Court found that Arbella’s policy was, in fact, ambiguous with respect to whether the home heating oil spill at Regan’s customer’s home constituted a “pollution” event as required for Arbella to successfully enforce the pollution exclusion.
Rhode Island is now split with neighboring Massachusetts with respect to whether a pollution exclusion can ever be ambiguous.
In McGregor v. Allamerica Insurance Co.2 the Massachusetts Supreme Judicial Court upheld an insurer’s application of a pollution exclusion where home heating oil leaked into the ground below a home, prompting involvement from the MA Dept. of Environmental Protection.
Unlike in McGregor, the home heating oil that escaped in Regan leaked only into the insured’s customer’s basement (and not through the foundation into the ground), causing property damage to that customer’s property alone.
In Regan, the Rhode Island Supreme Court specifically distinguished the facts at issue there from the facts of McGregor, noting that “the facts and reasoning in McGregor suggest that the case turned, at least in part, on the environmental impact and location of the oil leak.”3
In concluding that the facts in Regan did not clearly amount to “pollution,” the Rhode Island Supreme Court acknowledged that there have been “decades of litigation on this very issue,” and that “‘diversity of judicial thought as to the meaning of terms in an insurance contract is proof positive’ of ambiguity.’”4 As such, the Regan court concluded that “[a]t a minimum, it is apparent that the policy is “reasonably susceptible of different constructions” and that “[t]he policy must, therefore, be strictly construed in favor of plaintiff.”5
This may not mean every oil leak claim in Rhode Island is covered.
Given the Court’s clear emphasis on the fact that the home heating oil in Regan did not seep into the ground beneath the customer’s home, the Regan decision appears to leave open the question of whether home heating oil would be considered a “pollutant” in Rhode Island if it escaped into the ground below the customer’s basement or caused some other environmental impact beyond just property damage to a single customer’s home.
For more information, contact Kayla O’Connor at KOConnor@sdvlaw.com.
1No. 2020-170-Appeal (PC 15-4811) (R.I. January 27, 2023)
2868 N.E.2d 1225 (Mass. 2007)
3Regan at 15, citing McGregor, 868 N.E.2d at 1226, 1228 (“[S]pilled oil is a classic example of pollution, and a reasonable insured would understand oil leaking into the ground to be a pollutant. The location of an oil spill at a residence, rather than an industrial or manufacturing site, does not automatically alter the classification of spilled oil as a pollutant.”)).
4Id. at 18 quoting Textron, Inc. v. Aetna Casualty and Surety Company, 754 A.2d 742, 749 (R.I. 2000).