Third Circuit Holds Pollution Exclusion Unambiguous: Precludes Coverage for Claims Arising from Exposure to Construction Dust and Fumes

On June 8, 2010, the Third Circuit held that a total pollution exclusion within a contractor's commercial general liability policy (the "Policy") barred property damage and bodily injury claims related to dust and fumes dispersed from a construction site. See Devcon Int'l. Corp., et al. v. Reliance Ins. Co., et al., Nos. 07-4602/08-1996, __ F.3d __ (3d Cir., June 8, 2010). Central to that holding was the court's determination that the pollution exclusion is unambiguous and must be interpreted pursuant to the plain meaning of its terms. In so holding, the Third Circuit criticized opinions from other courts finding pollution exclusions ambiguous, not for want of clarity in the text, but due to the belief that a literal reading of the exclusions could bar claims for damages beyond the catastrophic environmental pollution claims that the exclusions were intended to address.

The coverage action in Devcon arose from bodily injury and property damage claims asserted against V.I. Cement, a subsidiary of Devcon International Corporation (collectively referred to as "Devcon"). The Virgin Islands Port Authority ("VIPA"), which operates an airport on St. Croix, hired Devcon to act as general contractor on a runway extension project. The construction generated large quantities of dust, as well as vehicle and equipment exhaust that drifted over surrounding properties. Nearby residents and property owners filed suit against Devcon, alleging that the dust contaminated their drinking water, that the dust and exhaust caused breathing disorders, and that the construction noise deprived them of the quiet enjoyment of their land.

Devcon tendered the underlying action to its insurer, Reliance Insurance Company ("Reliance"). Reliance accepted the tender pursuant to a full reservation of rights, prompting Devcon to file a declaratory judgment action in the United States District Court for the District of the Virgin Islands. The district court resolved the coverage litigation on summary judgment, holding that the Policy's pollution exclusion relieved Reliance of any obligation to defend or indemnify Devcon in the underlying lawsuit. The Policy's pollution exclusion provided as follows:

This insurance does not apply to:

"Bodily injury" or "property damage" which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time. Any loss, cost or expense arising out...