Chemical or Biological Materials Exclusion Unambiguous and Defeats Claim of Reasonable Expectations
Courts are often faced with claims from insureds that claim their reasonable expectations of coverage should supersede the policy wording when the clear and unambiguous language of the policy establish that the expectations of the insured are not reasonable nor correct. It is a problem I have written about often: people who buy insurance do not read the policy, before or after acquiring it. Over the 53 years I have worked in the insurance business I have asked hundreds, if not thousands, of individuals if they read and understood their policy. Only two answered in the affirmative — both lied.
In Lang Fur Farms, Inc., et al. v. Bird Island – Hawk Creek Mutual Ins. Co., A20-0683, State Of Minnesota In Court Of Appeals (February 8, 2021) insureds challenge the partial summary judgment granted to the insurer, arguing that the district court erred in concluding that the chemical-or-biological-materials and anti-concurrent-causation exclusions apply to their vandalism claim relating to their mink farms.
Lang Fur Farms and one of its owners, Daniel Lang, obtained an insurance policy (the policy) from respondent Bird-Island Hawk Creek Mutual Insurance Company, a township mutual insurance company. The policy contained a “Chemical or Biological” exclusion, which reads, “Regardless of the amount of damage or loss, this exclusion applies to any losses that are carried out or caused by dispersal or application of pathogenic or poisonous biological or chemical materials.”
In addition, the policy contained a “Concurrent Causation” exclusion, which provides that, if any one exclusion applies, respondent does not cover the loss resulting directly or indirectly from any concurrent cause, i.e., it does not cover a loss “[i]f one or more of the exclusions apply to the loss, regardless of other causes or events that contribute to or aggravate the loss whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.”
In July 2017, a herbicide containing the chemical glyphosate was introduced into the water systems for the minks’ cages on appellants’ two farms. Appellants filed a claim for the cost of replacing the water systems. Respondent investigated and denied the claim.
Lang sued seeking a declaratory judgment stating that their loss and damages were covered and claiming breach of contract, joint enterprise, joint venture, and a right to an order for appraisal. The insurer answer answered, alleging that the policy exclusions barred coverage. Following a hearing, the district court issued an order and a memorandum that granted the insurer’s motion for partial summary judgment based on the chemical-or-biological exclusion and the anti-concurrent-cause exclusion and awarded the insurer recoverable costs and expenses.
The “Chemical or Biological” Exclusion
The policy excludes coverage for “any losses that are carried out or caused by dispersal or application of pathogenic or poisonous biological or chemical materials.” The district court concluded that glyphosate, an ingredient of the herbicide poured into the damaged watering system, was a pathogenic or poisonous chemical material that was dispersed through the water in the system and that “the incident at Lang Fur Farms was a dispersal of a chemical and is subject to the Chemical or Biological Exclusion.”
In the chemical or biological exclusion, the word “dispersal” occurs in the phrase “dispersal or application,” and the critical inquiry for applicability of the exclusion was the deposit of glyphosate into the watering systems, not its “escape” into them.
Lang’s argument that glyphosate was not poisonous conflicted with their previous position that the vandals “took specific action to kill, maim, and release the mink. . . . [T]hey tainted their drinking water and made mink very sick and many died” and that “[I]t is true that the mink at issue got very sick, were rendered blind, and many died after drinking the water.” Having represented to the district court that glyphosate was a poisonous chemical, the insured may not argue that it is not a poisonous chemical within the meaning of the exclusion.
Appellants also argued that, because the damage was the result of vandalism, a “covered peril,” it is covered, and that the means chosen by the vandal(s), i.e., dispersing a poisonous chemical through the watering system, cannot vitiate this coverage.
The Concurrent-Causation Exclusion
The insureds argued that “[w]hen property damage is caused by the acts of vandals, vandalism coverage applies and there is no ‘concurrent cause’ sufficient to trigger that exclusion.” But the concurrent-causation exclusion says there is no coverage when any other exclusion applies to a damage claim, regardless of when that excluded event occurred. Here, there is no coverage for vandalism that occurred before and during the excluded dispersal of a chemical.
Minnesota has adopted the concurrent-causation doctrine, which directs that an insured is entitled to recover from an insurer when cause of the loss is not excluded under the policy. However, parties may include “anti-concurrent causation” language in contacts to prevent the application of the concurrent causation doctrine; however, in those cases where courts have found the contract contains an anti-concurrent causation clause, the language used is clear and specific.
Experience of more than 53 years allows the conclusion that the party purchasing insurance would assume that the coverage extended to vandalism damage, regardless of the method in which the vandals acted. The Court of Appeal, like me, concluded that many fail to read their policy after purchase. Even fewer would read a sample policy prior to purchase and fully understand the coverage that they are purchasing. Even for those who would read a policy prior to purchase, the likelihood that they would anticipate a loss of this nature, and the application of an exclusion, would be unfathomable. But, the Court of Appeal concluded, the language of the policy is there, and it governs the claim.
The Reasonable Expectations doctrine provides that the objectively reasonable expectations of insureds regarding the terms of insurance contracts will be honored even though the painstaking study of the policy provisions would have negated those expectations.
The exclusions in this policy were not “obscurely placed”: they are under the boldface heading “GENERAL EXCLUSIONS” that “apply to all coverages” on pages 14 and 16 of the 30-page “General Policy Provisions.”
In no case has the court used the doctrine of reasonable expectations to provide coverage in contravention of unambiguous policy terms. Commentators also have reasonably and cogently expressed concern that the doctrine enables courts to vitiate the unambiguous terms of a policy simply to achieve desirable outcomes.
The court was unwilling to expand the doctrine of reasonable expectations beyond its current use as a tool for resolving ambiguity and for correcting extreme situations where a party’s coverage is significantly different from what the party reasonably believes it has paid for and where the only notice the party has of that difference is in an obscure and unexpected provision.
The district court did not err in concluding that, under Minnesota law, the chemical-or-biological exclusion and the anti-concurrent-causation exclusion apply to prevent insurance coverage for this loss. Because the court agreed that the exclusions apply and there is no insurance coverage. The Court of Appeal affirmed the partial summary judgment; because we agree that the claims involving the bank should be dismissed,
Not all states allow the concurrent cause analysis in first party claims like Minnesota, California, for example, that first stated the doctrine, has limited it to only apply to third party claims. All allow concurrent cause exclusions. Although vandalism is a covered peril that damaged and killed some of the insured’s minks, they did so by using a poisonous chemical that was clearly and unambiguously excluded and because of the exclusion the concurrent cause doctrine did not apply. People who acquire insurance should read it, or hire a professional risk manager to read it for them, to ascertain that they have obtained the insurance they expected to acquire. Lang did not and as a result lost.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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