The plaintiffs filed suit against their insurer, Auto-Owners, for breach of contract and bad faith, claiming that Auto-Owners was liable for the total loss of their vacation home that was uninhabitable and unsaleable as a result of the accumulation of bat guano between the home’s siding and walls. The Supreme Court of Wisconsin was asked to resolve the question whether the pollution exclusion in the Auto Owners policy defeated the claim in Joel Hirschhorn and Evelyn F. Hirschhorn v. Auto-Owners Insurance Company, 2012 WI 20 (Wis. 03/06/2012).
Auto-Owners moved for summary judgment, which the circuit court initially denied. Upon reconsideration, however, the circuit court agreed with Auto-Owners that its insurance policy’s pollution exclusion clause excluded coverage for the Hirschhorns’ loss. The court of appeals reversed, concluding that the pollution exclusion clause is ambiguous and therefore must be construed in favor of coverage.
Beginning in 1981, the Hirschhorns owned a vacation home in the town of Lake Tomahawk, Wisconsin. At all relevant times, the home was covered by a homeowners insurance policy issued by Auto-Owners. The policy insured the Hirschhorns against the risk of loss of the home, along with structures and personal property located at the insured premises, against “accidental direct physical loss.” However, the policy contained a pollution exclusion clause that excluded from coverage any “loss resulting directly or indirectly from the “[d]ischarge, release, escape, seepage, migration or dispersal of pollutants . . . .” The policy, also defined “pollutants” as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, gases and waste and described waste as including materials to be recycled, reconditioned or reclaimed.
In May 2007, Joel Hirschhorn met with a real estate broker to list the home for sale. At that time, the broker inspected the home and saw no signs of bats. However, in July 2007, upon inspecting the home again, the broker discovered the presence of bats and bat guano. The broker attempted to remove the bats and clean the home. The broker’s efforts failed.
The Hirschhorns and their family stayed at their vacation home between August 9 and 14, 2007. During their stay, they noticed a “penetrating and offensive odor emanating from the home.” Upon leaving on August 14, 2007, they arranged for a contractor to conduct a more thorough inspection of the home. The contractor determined that the cause of the odor was the accumulation of bat guano between the home’s siding and walls. The contractor provided the Hirschhorns a remediation estimate but could not guarantee that cleaning up the bat guano would rid the home of its odor.
Subsequently, on October 23, 2007, the Hirschhorns filed with Auto-Owners a notice of property loss. The notice described the loss as resulting from the discovery of bats in the Hirschhorns’ home and specifically stated, “smell awful and [insured] cannot stay in house . . . .” Auto-Owners denied the claim three days later, reasoning that the accumulation of bat guano was “not sudden and accidental” and, in any case, resulted from “faulty, inadequate or defective” maintenance within the terms of the policy’s maintenance exclusion clause.
On November 4, 2007, the Hirschhorns entered into a contract with a builder to demolish their existing vacation home and construct a new one in its place. In his affidavit, Joel Hirschhorn explained that he thought it was more practical financially to demolish the home than to spend the money to make it habitable again.
After the home’s demolition, on February 22, 2008, Auto-Owners sent to the Hirschhorns a revised denial letter. Auto-Owners denied the Hirschhorns’ claim on the additional ground that “[b]at guano is considered a pollutant” within the terms of the policy’s pollution exclusion clause.
The parties did not dispute the material facts giving rise to the Hirschhorns’ loss. Rather, the sole issue presented to the Supreme Court was whether the pollution exclusion clause in Auto-Owners’ insurance policy excluded coverage for the loss of the Hirschhorns’ home that allegedly resulted from the accumulation of bat guano.
Since Auto-Owners’ insurance policy defines “pollutants” and lists waste as one such irritant or contaminant in its definition of “pollutant” the Supreme Court analyzed whether bat guano was the type of waste excluded by the policy.
Noting that the reach of the pollution exclusion clause must be limited by reasonableness, or everyday incidents may be characterized as pollution and the contractual promise of coverage reduced to a fantasy. For example, exhaled carbon dioxide, while potentially harmful in a confined and poorly ventilated area, is universally present and generally harmless since every animal, including people, exhale carbon dioxide. .
The ordinary meaning of “irritant” is a condition of inflammation, soreness, or irritability of a bodily organ or part. The Supreme Court concluded that bat guano falls unambiguously within the term “pollutants” as defined by Auto-Owners’ insurance policy. Bat guano is composed of bat feces and urine. Bat guano is or threatens to be a solid, liquid, or gaseous irritant or contaminant. That is, bat guano and its attendant odor make impure or unclean the surrounding ground and air space and can cause inflammation, soreness, or irritability of a person’s lungs and skin. The Supreme Court noted that the Wisconsin Department of Health & Family Services in cooperation with the Agency for Toxic Substances & Disease Registry, Indoor Air and Health Issues concluded that people who live around large quantities of bat wastes are more likely to become ill with histoplasmosis; people who contact mites that live in bat wastes may get skin rashes; and molds that grow in moist, warm, highly organic situations may increase asthma attacks in affected people.
The Supreme Court noted that these points cannot be seriously contested by the Hirschhorns because they alleged in their complaint that the odor of bat guano was so penetrating and offensive as to render their vacation home and unfit place to live. As a result the Supreme Court concluded that a reasonable person in the position of the insured would understand bat guano is waste. Since bat guano is composed of bat feces and urine bat guano is commonly understood to be waste.
The Hirschhorns argue, and the court of appeals agreed, that the term “waste” does not necessarily call to mind feces and urine, given the policy’s other examples of irritants and contaminants. The Supreme Court disagreed because, unlike exhaled carbon dioxide, bat guano is not universally present and generally harmless in all but the most unusual instances. To the contrary, bat guano is a unique and largely undesirable substance that is commonly understood to be harmful. A reasonable homeowner should understand bat guano to be a pollutant.
The Supreme Court’s conclusion that bat guano falls unambiguously within the policy’s definition of “pollutants” was not enough to resolve the dispute. The court needed to determine whether the Hirschhorns’ alleged loss resulted from the “discharge, release, escape, seepage, migration or dispersal” of bat guano under the plain terms of the policy’s pollution exclusion clause.
The policy does not define “discharge,” “release,” “escape,” “seepage,” “migration,” or “dispersal.” The Supreme Court was required, therefore, to construe these terms according to their plain and ordinary meanings as understood by a reasonable person in the position of the insured. As their dictionary definitions make clear, the six terms are often synonymous with one another and taken together constitute a comprehensive description of the processes by which pollutants may cause injury to persons or property.
The bat guano, deposited and once contained between the home’s siding and walls, emitted a foul odor that spread throughout the inside of the home, infesting it to the point of destruction. The Hirschhorns acknowledged as much in their complaint. They alleged that “the drapes, carpets, fabrics and fabric furnishings in the home were rendered unusable as a result of the absorption of the bat guano odor.” Accordingly, implicit in their complaint is an allegation that the bat guano somehow separated from its once contained location between the home’s siding and walls and entered the air, only to be absorbed by the furnishings inside the home.
Interestingly, as noted in a footnote to the opinion the Supreme Court noted that the Hirschhorns helped the court decide against their position by by conceding that a reasonable insured may understand the pollution exclusion to include human excrement. They failed to explain, however, why the policy’s definition of “pollutants” should be interpreted differently for feces and urine from humans is more a pollutant than feces and urine from to bats.
There should be no question that a collection of excrement from any animal, whether human, bird, bat or aardvark, if collected sufficiently in a home to make the dwelling incapable of sustaining life comfortably in the structure is both waste and a pollutant. The Wisconsin court clearly applied the the common meaning of a group of unambiguous terms.
© 2012 – Barry Zalma
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.
Mr. Zalma can also be seen on World Risk and Insurance News’ web based television program “Who Got Caught” with copies available at his website at http://www.zalma.com.