Author: Randy Maniloff
Supreme Court Says that Home Heating Oil is Not a “Pollutant” (And Delivers the Line of the Year) Regan Heating & Air Conditioning v. Arbella Protection Ins. Co., 287 A.3d 502 (R.I. 2023) Regan Heating and Cooling
A pollution exclusion decision seems a curious selection for the annual insurance coverage hit parade. After all, the most important consideration, for selecting a case as one of the year’s ten most significant, is its potential ability to influence other courts nationally. The pollution exclusion [absolute and total] has been the subject of many hundreds of decisions nationally spanning three-plus decades. The policy provision has been sliced, diced, cut, chopped and pureed every way possible by policyholders and insurers.
So what’s left to be added to the stew? Are there really opportunities for one new decision to influence other courts nationally? Despite these questions suggesting a negative answer, I selected the Supreme Court of Rhode Island’s decision in Regan Heating & Air Conditioning v. Arbella Protection Ins. Co., addressing the pollution exclusion, as one the year’s ten most significant coverage decision.
At issue in Regan Heating was the applicability of the pollution exclusion to home heating oil. Home heating oil is hardly an obscure substance -- as some materials in pollution exclusion cases are -- and the bulk of the decisions nationally, that have addressed the issue, have concluded that the pollution exclusion bars coverage for damages caused by its spill. This is not surprising as heating oil has the earmarks of “traditional environmental pollution.” Therefore, the pollution exclusion should bar coverage even in states that apply a narrow interpretation.
But Regan Heating went against the grain and concluded that home heating oil is not a “pollutant.” That, and coming from a state high court, make the decision a seemingly attractive source for a court looking for guidance on the issue. For these reasons, I chose Regan Heating for the year’s Top 10 list.
Regan Heating sells and services residential heating systems. The company removed and replaced a heating system in a customer’s home. That evening the customer discovered 170 gallons of heating oil in his basement. Yikes. The customer demanded remediation and then filed suit against Regan Heating, which, in turn, sought a defense from its liability insurer, Arbella Protection Ins. Co. Arbella disclaimed coverage under a nothing-unusual-about-it Total Pollution Exclusion. Regan Heating filed a coverage action.
Arbella sought summary judgment. Its argument was simple: “[o]il, by its very nature, constitutes a liquid contaminant consistent with th[e] definition of pollutant found in the policy.” In support of its argument, Arbella pointed to the Massachusetts high court’s decision in McGregor v. Allamerica Insurance Co. (2007), which held that “spilled oil is a classic example of pollution, and a reasonable insured would understand oil leaking into the ground to be a pollutant.” The trial court granted Arbella’s motion.
The Supreme Court of Rhode Island reversed. Its first order of business was to distinguish McGregor, where oil that leaked from a furnace made its way into the ground under the house: “The home heating oil at issue here, according to O’Donnell’s complaint, leaked into O’Donnell’s basement and caused damage to his ‘home and personal property.’ We find the case at bar readily distinguishable from McGregor, where there was clearly an environmental impact from the oil leaking into the ground.”
Further, the court observed that “in many cases where a court determined that oil was a pollutant under the relevant policy’s definition, the facts involved traditional environmental pollution.”
After observing that, in general, courts around the country have taken different approaches to the pollution exclusion—this was the Rhode Island Supreme Court’s first time tackling the issue -- the Regan Heating court concluded that the definition of “pollution” was ambiguous as applied to the situation before it.
But that wasn’t the end of the court’s observation on conflicting judicial opinions. It added the insurance coverage line of the year: “This court has acknowledged that ‘diversity of judicial thought as to the meaning of terms in an insurance contract is proof positive of ambiguity.’” (citations omitted). Wow! Show me an issue in coverage where there isn’t “diversity of judicial thought as to the meaning of [a] term[] in an insurance contract.”
As a final and curious aside, in reaching its decision, the Regan Heating court made no mention whatsoever of the 2020 Rhode Island trial court decision in Dutchman Dental LLC v. Providence Mut. Fire Ins. Co. Sure, it’s a trial court decision, and not binding on the high court, but you would have thought that the court would have at least commented on it. The Dutchman Dental court stated: “[T]he Court does not believe that either party seriously questions whether home heating oil, released from holding into a building, is a pollutant. Several laws of this state consider expelled oil to be a pollutant, and RIDEM imposes civil penalties when oil is not handled properly. See G.L. 1956 §§ 46-12.5.1-1, -3, and - 6. The nearby jurisdictions of Massachusetts, Connecticut, New Hampshire, and Maine have also concluded that oil was a pollutant under similar circumstances. Thus, this Court concludes that oil is a pollutant under the Policy.”
Reprinted with permission from Randy Maniloff, Williams and White, from his Coverage Opinions newsletter, February 5, 2024. You can subscribe to his informative coverage newsletter at this link. _______________________________________________________________________________________________
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