Carbon monoxide poisoning coverage not barred by “indoor air” exclusion

The Tenth Circuit, applying Oklahoma law, held that a policy exclusion for injuries due to “qualities or characteristics of indoor air” was ambiguous because it was susceptible to multiple reasonable interpretations.  The Tenth Circuit held that the exclusion should be interpreted in favor of coverage, and therefore, the “indoor air” exclusion did not bar coverage for claims stemming from carbon monoxide poisoning.

Several guests at a hotel owned by Siloam Springs Hotel, L.L.C. (“Siloam”) allegedly sustained injuries due to carbon monoxide being emitted from an indoor-swimming-pool heater.  Siloam sought coverage under its policy issued by Century Surety Company (“Century”).  Century denied based on the exclusion in its policy for injuries “arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, irritating, pathogenic or allergen qualities or characteristics of indoor air regardless of cause.”

The Siloam filed suit in Oklahoma state court, but the insurer removed the action to the federal district court.  In May 2014, the district court held that the policy unambiguously excluded claims based on the release of carbon monoxide into the air.  Summary judgment was granted in favor of the insurer.  Shortly thereafter, the Nevada Supreme Court considered the identical issue in a case involving the same insurance company’s denial of coverage for a different hotel that also faced claims that hotel guests were poisoned by carbon monoxide.  In that case, the Nevada Supreme Court unanimously held that the exclusion was ambiguous and should be interpreted to meet the reasonable expectations of the policyholder.

Siloam then appealed this district court’s ruling.  On appeal Tenth Circuit remanded with an instruction to determine whether there was complete diversity at the time of filing and stated that it would be a good idea to consider whether the state’s interest in insurance regulation would be best certifying the coverage questions at issue in the case.  After determining that there was complete diversity, the district court certified a question regarding public policy to the Oklahoma Supreme Court.  The Oklahoma Supreme Court held that the exclusion at issue in the case – however interpreted – should not be voided based on public policy concerns.  Siloam then again appealed to the Tenth Circuit.

According to Oklahoma law, the question in determining if policy language is ambiguous is whether the language of the policy on its face is “subject to multiple reasonable interpretations.”  The Tenth Circuit predicted that the Oklahoma Supreme Court would agree with the Nevada Supreme court’s analysis that the exclusion for “qualities or characteristics of indoor air” has at least two possible meanings.  It could be interpreted to refer to any substance that is ever found in the air.  Or, as Siloam argued, it could reasonably be interpreted to refer only to an inherent feature or other long-lasting trait of the air.  The Tenth Circuit found that the exclusion should be construed in favor of coverage and noted that it believed the Oklahoma Supreme Court would interpret the exclusion to be inapplicable in cases, such as the one at hand, in which the “injury arose from a ‘sudden, isolated, and temporary’ release of a substance into the air, not an ‘ongoing condition’ or inherent feature of the air.”  Thus, the Tenth Circuit held that Siloam was entitled to coverage for the injuries caused by carbon monoxide.  Siloam Springs Hotel, L.L. C. v. Century Sur. Co., 2018 U.S. App. LEXIS 29013 (10th Cir. Oct. 16, 2018).