Pollution Exclusion: Indoor Air Exclusion Does Not Violate Oklahoma Public Policyshoke2013
Exclusion bars coverage for both permanent and sudden and accidental occurrences including carbon monoxide leaks.
In a 5-4 opinion, the Supreme Court of Oklahoma held that Oklahoma public policy does not prohibit the enforcement of an Indoor Air Exclusion. Public policy was raised as a concern because, under the district court’s interpretation, the Indoor Air Exclusion at issue barred coverage not only for permanent conditions of the air, but also for sudden and accidental occurrences, such as a carbon monoxide leak.
In early 2013, several guests at the Siloam Springs Hotel, L.L.C. (“Siloam”) hotel suffered bodily injury due to carbon monoxide poisoning. The carbon monoxide allegedly escaped into the air due to a leak from the hotel’s indoor swimming pool heater. Century Surety Company (“Century”) issued a Commercial Lines Policy to Siloam which included general liability insurance coverage for Siloam’s hotel. The policy’s coverage was modified by an “Arkansas – Special Exclusions and Limitations Endorsement” which added certain exclusions to the policy, including an Indoor Air Exclusion. Siloam sought coverage under the Century policy for the claims related to the carbon monoxide poisoning and Century denied based on the Indoor Air Exclusion. Siloam filed suit in Oklahoma state court seeking a declaration that the policy provides coverage for the claims related to the carbon monoxide leak. Century removed the case to federal court. Both parties moved for summary judgment. The district court found that the Indoor Air Exclusion was not ambiguous and that the exclusion applied to the claims for bodily injury caused by carbon monoxide poisoning. Therefore, Century’s policy provided no coverage for the loss. Siloam appealed. The 10th Circuit did not rule on the merits because it noted an error in the notice of removal. It sent the matter back to the district court with the instruction to determine whether there was federal jurisdiction at the time of filing the complaint. The 10th Circuit also noted that the issue on the merits was not devoid of public policy implications and that the district court should consider certifying the question to the appropriate state’s supreme court. On remand, the district court found that there was diversity jurisdiction, but it agreed that the public policy issue would be better answered by the Oklahoma Supreme Court.
The certified question before the Oklahoma Supreme Court was as follows:
Does the public policy of the State of Oklahoma prohibit enforcement of the Indoor Air Exclusion, which provides that the insurance afforded by the policy does not apply to “‘bodily injury,’ ‘property damage’, or ‘personal and advertising injury’ arising out of, caused by, or alleging to be contributed to in any way by an toxic, hazardous, noxious, irritating pathogenic or allergen qualities or characteristics of indoor air regardless of cause”?
The Oklahoma Supreme Court held that public policy does not prohibit the enforcement of the Indoor Air Exclusion. According to the majority, “[o]nly a specific Oklahoma court decision, state legislative or constitutional provision, or a provision in the federal constitution that prescribes a norm of conduct for the state can serve as a source of Oklahoma’s public policy.” Under Oklahoma law, “a contract violates public policy only if it clearly tends to injure public health, morals, or confidence in the administration of law, or if it undermines the security of individual rights with respect to either personal liability or private property.” Siloam argued that the Indoor Air Exclusion violated public policy as applied to sudden and accidental occurrences because it potentially denies compensation to victims when they would reasonably expect that liability insurance would be available to compensate. The majority disagreed and noted that there is nothing in the exclusion that prevents the hotel guests from being compensated directly from the hotel. The majority found that there is no public policy in the Oklahoma statutes or otherwise that is violated by an air quality exclusion in a liability insurance policy.
According to the partial dissent, the court should have reformulated the question to determine the scope of the Indoor Air Exclusion. The dissent would have found that exclusion was ambiguous, and thus, it would have interpreted it in favor of the insured and found that the Indoor Air Exclusion does not exclude coverage for a sudden carbon monoxide leak. Siloam Spring Hotel, LLC, v. Century Surety Co., No. 114872 (Ok. Feb. 22, 2017).