Sunday, January 23, 2000


Are fumes a toxic release?

The Cincinnati Enquirer

        A case from Detroit illustrates the complex interplay among environmental hazards and liability insurance policies.

        Kopliku Painting Co. was sealing floors at Cass Technical High School in 1994 when teacher Roslyn Kellman blamed her respiratory problems on sealant fumes seeping into her classroom immediately below the work area.

        She sued in state court, but Kopliku's insurer, Meridian Mutual Insurance Co., refused to defend the company under Kopliku's commercial general liability policy.

        Instead, Meridian asked U.S. District Judge George E. Woods for a declaratory judgment that the policy's total pollution exclusion meant Meridian had no obligation to defend or reimburse Kopliku for Ms. Kellman's claims.

        Meridian chose federal court because the two companies were based in different states.

        Both companies agreed the sealer was a pollutant. The issue in federal court was whether movement of the vapors was a “discharge, dispersal, seepage, migration, release or escape” of pollutants excluded by the policy.

        Judge Woods sided with Kopliku:

        • The policy “is intended to exclude coverage only as it relates to environmental pollution,” the judge wrote.

        • “When a toxic substance is confined to an area of intended use it does not come within the exclusion clause.”

        • “The primer/sealer was used in its intended manner inside” the school.

        • “That the fumes from the primer allegedly injured Kellman one floor below does not turn the fumes into environmental pollution within the meaning of the total pollution exclusion clause.”

        Meridian appealed and lost again.

        In such cases, federal judges first apply state law. However, Michigan courts had not addressed the exclu sion question, and state and federal courts split on what is excluded by total pollution exclusions.

        Many courts, among them the 6th Circuit, say the pollution exclusion clause in a commercial general liability policy applies “only to injuries caused by traditional environmental pollution.”

        Others say exclusions bar coverage for all injuries caused by the release of contaminants, “even where the contaminant is dispersed into a confined or indoor area.”

        Frustrated by the uncertainties in environmental law, appellate Judges Boyce F. Martin Jr., Martha Craig Daughtrey and David A. Katz turned to Michigan's general principles of insurance policy interpretation:

        • Any ambiguity must be construed in favor of the policyholder and coverage.

        • Exemptions are strictly construed against the insurance company.

        • Courts grant coverage if “the policyholder, upon reading the contract language, is led to a reasonable expectation of coverage.”

        Judge Katz wrote “that the total pollution exclusion does not bar coverage for Kellman's injuries.”

        He and the other judges also concluded that “the policy is ambiguous as to whether it covered injuries caused by toxic chemicals in the immediate area of their intended use.”

        However, the 6th Circuit had a clear rule in 1994 — albeit arising from an Ohio case — that a pollution exclusion did not shield the insurer from liability for “injuries caused by toxic substances that are still confined within the area of their intended use.”

        All of that made Meridian liable.

        Meanwhile, Ms. Kellman won a default judgment against Kopliku and is waiting for a jury to decide how much she should be paid.

Bank statement case
        Perrysburg, Ohio, lawyer Norman Hartsell used a special bank account to embezzle funds from a charity run by Local 12 of the United Auto Workers in Toledo.

        He appealed, saying receiving bank statements did not constitute mail fraud.

        Federal law bars the use of mails for the “purpose of executing” any scheme to defraud or other fraudulent activity.

        Mr. Hartsell had statements and canceled checks mailed to him, and a federal judge said that was incidental to maintaining the account and furthered the fraud.

        Convicted of embezzlement and mail fraud, Mr. Hartsell appealed. He said the government failed to show that he used statements as part of the fraud.

        It was a new question for the 6th Circuit, but Judges Danny J. Boggs, Martha Craig Daughtrey and Joseph H. McKinley Jr. said other circuits were unanimous on this point: Mr. Hartsell was correct.

        “We agree ... that the bank account was an essential part of the defendant's scheme and that the mailing of the bank statements was incident to the maintenance of that account,” Judge McKinely wrote. “However, such a determination does not necessarily mandate the ultimate conclusion that the bank statements were used to aid or further the scheme.”

        The court overturned his mail fraud conviction but affirmed the embezzlement verdict and returned the case to U.S. District Judge John W. Potter for resentencing.


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