Pollution Exclusion Not Applicable To Personal Injury

General Liability	Traditional Environmental
Separate Exposure Less Than 48-Hours	Single Continuous Exposure

NAV-ITS, Inc. (Nav-Its) was a construction contractor specializing in tenant "fit out" work, such as building partitions, laying concrete, installing doors and applying finishes, such as paint, sealants and coatings. In April 1998, Nav-Its contracted to do fit-out work at the Parkway Shopping Center (Center) in Allentown, Pennsylvania. Nav-Its' Comprehensive General Liability (CGL) insurance coverage was with Selective Insurance Company of America (Selective). The policy had the standard pollution exclusion with an exception allowing coverage when the injury took place inside a building within a single 48-hour period, and the exposure occurred within the same 48-hour period. The coverage period was May 7, 1998, to May 7, 1999.

Nav-Its subcontracted the floor painting, sealing and coating to T. A. Fanikos Painting (Fanikos), which did that work from July 27, 1998, to August 5, 1998. During that time, Dr. Roy Scalia (Scalia), a physician with office space at the Center, alleged exposure to fumes released while Fanikos worked. As a result of that exposure, he suffered from nausea, vomiting, light-headedness, loss of equilibrium and headaches and sought medical treatment for these conditions in September 1998.

In December 2000, Scalia filed a complaint against Nav-Its and several others for personal injuries arising out of his exposure to fumes at his office from July 27-31 and August 3-5, 1998. Nav-Its forwarded the complaint to Selective, seeking defense and indemnification. Selective declined both coverage and defense, citing the policy pollution exclusion. Scalia resolved his case against Nav-Its through binding arbitration, and Nav-Its then filed an action against Selective.

Nav-Its sought a declaratory judgment that Selective was obligated to defend and indemnify it in connection with Scalia's underlying personal injury action, as well as reimbursement for incurred costs in defending the suit brought by Scalia. Selective moved for summary judgment, and Nav-Its filed a cross motion for partial summary judgment. The trial court denied Selective's motion and granted Nav-Its partial summary judgment, finding Selective obliged to defend and indemnify Nav-Its in accordance with the policy. Selective's move for reconsideration was denied, because the trial court reasoned and concluded that the pollution exclusion clause applied only to traditional environmental claims. It also found that the exception to the exclusion applied because Scalia suffered individual exposure every day he entered his office. Each exposure began and ended in less than 48-hour periods.

On appeal, the Appellate Division reversed, finding pollution exclusions are not necessarily limited to only the clean up of traditional environmental damage. However, it found that a jury must decide if each period of time Scalia was at work was a separate exposure of less than 48-hours or if it was a single continuous exposure. Nav-Its' petition for certification and Selective's cross petition was referred to the New Jersey Supreme Court.

Nav-Its cited conflicting case decisions on the application of the pollution exclusion but maintained that it should only be applied to traditional types of environmental claims. This was consistent with the reasonable expectation that coverage applied to claims arising from the normal work of the insured. Nav-Its also argued that, even if the pollution exclusion was interpreted to exclude nontraditional environmental pollution claims, Scalia's claim came within the exception to the exclusion. Selective argued that the exclusion contained plain terms that do not limit it to traditional environmental claims. Insurance companies and policyholders are entitled to have their rights protected in court, and when insurance companies draft clear and unambiguous policies, they should be enforced as written. In addition, the analysis of the 48-hour exception should not be reached unless there has been a pollution release beginning and ending within a single 48-hour period.

The Supreme Court did not find any compelling evidence for the pollution exclusion to be read as broadly as Selective urged. To accept their interpretation would be to exclude all pollution hazards except those falling within the limited exception for exposures within a structure resulting from a release of pollutants within a 48-hour period. It rejected Selective's interpretation as overly broad, unfair and contrary to the objectively reasonable expectations of New Jersey and other state regulatory authorities that were given the opportunity to disapprove it. Exclusions for avoiding catastrophic environmental claims should not also be used to exclude claims reasonable policyholders expect to be covered by the insurance policy. Traditional environmental pollution events consistent with those indicated in the clause, such as "discharge, dispersal, release or escape," should dictate its application. The court also found no need to address the ramifications of the 48-hour exception and whether it should be read to expand the pollution clause. It felt if the pollution exclusion itself did not apply, the exception to the exclusion also did not apply.

The Appellate Division judgment was reversed, and the case was remanded to the trial court for further proceedings consistent with the Supreme Court opinion.

NAV-ITS, Inc., Plaintiff-Appellant and Cross-Respondent, v. Selective Insurance Company Of America, Defendant-Respondent and Cross Appellant. New Jersey Supreme Court. No. A-20/21-04. Filed April 7, 2005. On certification to the Superior Court, Appellate Division. Reversed and remanded. 2005 CCH Personal and Commercial Liability Cases. Paragraph 16,019.