ZHAOYUN XIA, a single person; ISSAQUAH HIGHLANDS 48, LLC, a Washington limited liability company; ISSAQUAH HIGHLANDS 50, LLC, a Washington limited liability company; GOTTLIEB ISSAQUAH HIGHLANDS 48, LLC, a Washington limited liability company; and GOTTLIEB ISSAQUAH HIGHLANDS 50, LLC, a Washington limited liability company, Petitioners,
PROBUILDERS SPECIALTY INSURANCE COMPANY RRG, a foreign insurance company authorized to conduct business within the State of Washington; OLYMPIC ADVANTAGE, INC., a Washington corporation; TREACY DUERFELDT and JANE DOE DUERFELDT, husband and wife, and the marital community composed thereof; LAMBIN INSURANCE SERVICES, INC., a Nevada corporation doing business in the State of Washington; FL YING EAGLE INSURANCE SERVICES INC., a Nevada Corporation licensed to do business in the State of Washington; and DA YID W. LAMBIN and JANE DOE LAMBIN, husband and wife, and the marital community composed thereof, Respondents.
case asks us to clarify the applicability of a broad,
absolute insurance pollution exclusion clause to a claim
based on negligent installation of a hot water heater that
led to the release of toxic levels of carbon monoxide in a
residential home. The primary questions are: Does the
specific pollution exclusion include the carbon monoxide in
this case, and does the exclusion preclude coverage when the
cause of the loss was a covered occurrence under a different
provision? Answering these questions requires that we
reaffirm the importance of examining and understanding the
causal chain of events leading to the claimed injury and
nonpolluting event that is a covered occurrence causes toxic
pollution to be released, resulting in damages, we believe
the only principled way for determining whether the damages
are covered or not is to undertake an efficient proximate
cause analysis. We have long utilized the "efficient
proximate cause" rule for determining coverage, and we
see no reason why this case should turn on a different
analysis. Allstate Ins. Co. v. Raynor, 143 Wn.2d
469, 479, 21 P.3d 707 (2001). Under these facts, ProBuilders
Specialty Insurance Co. correctly identified the existence of
an excluded polluting occurrence under the unambiguous
language of its policy. However, it ignored the existence of
a covered occurrence- negligent installation-'that was
the efficient proximate cause of the claimed loss.
Accordingly, coverage for this loss existed under the policy,
and ProBuilders's refusal to defend its insured was in
bad faith. We therefore reverse the decision of the Court of
Appeals with regard to the duty to defend and remand the case
for further proceedings.
and Procedural History
2006, Zhaoyun "Julia" Xia purchased a new home
constructed by Issaquah Highlands 48 LLC. Issaquah Highlands
carried a policy of commercial general liability insurance
through ProBuilders. Soon after moving into her home, Xia
began to feel ill. By December 8, a service technician from
Puget Sound Energy investigated Xia's home and discovered
that an exhaust vent attached to the hot water heater had not
been installed correctly and was discharging carbon monoxide
directly into the confines of the basement room.
26, 2007, Xia notified Issaquah Highlands of her injuries and
provided details as to how the hot water heater exhaust vent
had been discovered. On June 12, 2008, the claims
administrator for ProBuilders, NationsBuilders Insurance
Services Inc. (NBIS), mailed a letter to Xia indicating that
coverage was not available under the Issaquah Highlands
policy. As a basis for its declination of coverage, NBIS
rested on two exclusions under the policy: a pollution
exclusion and a townhouse exclusion. NBIS refused to either
defend or indemnify Issaquah Highlands for Xia's loss.
commenced a lawsuit against Issaquah Highlands and provided a
courtesy copy of the summons and complaint to NBIS.
ProBuilders (through NBIS) continued to rely on its original
denial of coverage and refused to indemnify Issaquah
Highlands. Ultimately, Xia entered into a settlement
agreement with Issaquah Highlands for stipulated damages in
the amount of $2 million. In exchange for a covenant not to
execute or enforce the judgment, Issaquah Highlands assigned
to Xia all first-party rights, privileges, claims, and causes
of action against its insurer, ProBuilders. On June 8, 2011,
Xia filed suit against ProBuilders, seeking declaratory
judgment with regard to coverage and alleging breach of
contract, bad faith, and violations of both the Consumer
Protection Act (CPA), chapter 19.86 RCW, and the Insurance
Fair Conduct Act (IFCA), RCW 48.30.010-.015.
discovery, both Xia and ProBuilders brought cross motions for
summary judgment. The trial court entered summary judgment in
favor of ProBuilders and dismissed Xia's claims on the
basis that the townhouse exclusion applied. Division One of
the Court of Appeals reversed in part, finding that although
the townhouse exclusion did not apply, the pollution
exclusion did. ZhaoyunXia v. ProBuilders Specialty Ins.
Co., No. 71951-3-1, slip op. at 17-18 (Wash.Ct.App. Aug.
24, 2015) (unpublished), http://www.courts.wa.gov/
opinions/pdf/719513.pdf. Accordingly, the Court of Appeals
held that ProBuilders did not breach its duty to defend.
Id. at 34.
accepted discretionary review to determine whether the
pollution exclusion relieved ProBuilders of its duty to
defend Issaquah Highlands against Xia's claims and
whether this court's opinion in Quadrant Corp. v.
American States Insurance Co., 54 Wn.2d 165');">154 Wn.2d 165, 110 P.3d
733 (2005), conflicts with its opinion in Kent Farms,
Inc. v. Zurich Insurance Co., 140 Wn.2d 396, 998 P.2d
292 (2000). ZhaoyunXia v. ProBuilders Specialty Ins.
Co., 185 Wn.2d 1024, 369 P.3d 502 (2016).
an insurer breach its duty of good faith by refusing to
defend its insured when an alleged prior act of negligence
may be the efficient proximate cause of a loss?
this court's opinion in Quadrant conflict with
its opinion in Kent Farms'?
reviewing a trial court's decision on a motion for
summary judgment, we engage in the same inquiry as the trial
court. Int'l Bhd. of Elec. Workers, Local
Union No. 46v. Trig Elec. Constr. Co., 142 Wn.2d 431,
434-35, 13 P.3d 622 (2000), abrogated on other grounds by
W.G. Clark Constr. Co. v. Pac. Nw. Reg'l Council of
Carpenters, 180 Wn.2d 54, 64, 322 P.3d 1207 (2014).
Summary judgment is appropriate when there are no genuine
issues of material fact and the moving party is entitled to
judgment as a matter of law. CR 56(c); Trig Elec,
142 Wn.2d at 435. Interpretation of an insurance contract is
a question of law subject to de novo review. See Overton
v. Consol. Ins. Co., 145 Wn.2d 417, 424, 38 P.3d 322
Pollution exclusion clauses
first step in this court's analysis is to review our
history of applying pollution exclusion clauses. We have
sought to strike a balance between the application of the
policy's plain language, the underlying purpose of
pollution exclusion clauses, and the expectations of the
consumer purchasing insurance. Ultimately, what matters most
is whether the occurrence triggering coverage originates from
a pollutant acting as a pollutant. Quadrant, 154
Wn.2d at 179.
first notable example is Cook v. Evanson, 83 Wn.App.
149, 920 P.2d 1223 (1996). In Cook, a contractor
applied toxic commercial sealant to the outside of a building
yet negligently failed to seal off a fresh air intake, which
drew air into the building. Id. at 151. As a result,
a number of occupants suffered serious respiratory damage
when the fumes entered their work spaces. Id. The
building occupants filed suit against the contractor and
building owners, alleging that defendants
"'negligently allowed toxic vapors from the [sealant
to] enter the HVAC [(heating, ventilation, and air
conditioning)] system.'" Id. at 152. After
obtaining default judgments, the occupants attempted to
enforce the judgments against the insurer. Id. In
response, the insurer defended on the grounds that its
pollution exclusion clause barred coverage under the policy.
Id. The Court of Appeals held that the pollution
exclusion of the contractor's insurance policy applied
under the policy's plain language. Id. at 154.
The commercial sealant clearly fit the definition of a
pollutant because the sealant itself was described as a
'"[r]espiratory irritant'" and the
manufacturer's information expressly warned that use of
the product may cause respiratory irritation. Id. at
151 (alteration in original).
years later, Division Two upheld the Cook analytical
framework in determining that noxious odors emanating from a
toxic waste plant constituted "pollution" under an
insurance policy's plain language. City of Bremerton
v. Harbor Ins. Co., 92 Wn.App. 17, 963 P.2d 194 (1998).
In Harbor Insurance, residents filed a complaint
against the city of Bremerton for damages when the city's
toxic waste plant emitted "'noxious and toxic
fumes.'" Id. at 19. When the city's
insurance carrier denied coverage as a result of its
pollution exclusion, the city filed suit for declaratory
judgment. Id. at 20. The Court of Appeals held that
the policy language was unambiguous and that vapors, fumes,
and gases released by the waste plant fell squarely within
the insurance policy's pollution exclusion. Id.
at 22-23. In reaching this decision, the court applied the
same plain language analysis as Division One in Cook.
Id. at 23.
2000, this court decided Kent Farms. In Kent
Farms, a fuel delivery driver had just filled a storage
tank with diesel fuel and started to remove the delivery hose
when a defect in the intake valve caused fuel to backflow
over him. 140 Wn.2d at 397-98. While the delivery driver
struggled to replace the hose and prevent thousands of
gallons of diesel fuel from spilling, the fuel engulfed him
and was driven into his eyes, his lungs, and his stomach.
Id. When the delivery driver sued, Kent Farms sought
a declaratory judgment against its insurer, which in turn
defended on the basis of a pollution exclusion. Id.
at 398. The trial court entered summary judgment in favor of
the insured, and the Court of Appeals upheld the decision,
finding that diesel fuel '"is not a pollutant when
used as intended'" and thus the policy's
pollution exclusion did not apply. Id. (quoting
Kent Farms, Inc. v. Zurich Ins. Co., 93 Wn.App. 414,
419-20, 969 P.2d 109 (1998)). This court granted review to
determine whether the exclusion applied to a claim not based
on environmental damage but on personal injury rooted in
began our analysis by considering the intent of the parties,
which necessarily required an examination of the historical
context of pollution exclusions in general. Id. at
400. We held that the original intent of pollution exclusions
in the insurance context, as well as the intent of the
exclusion in the case of Kent Farms, was to
specifically address those situations in which injury was
caused by environmental damage. Id. at 401. Further,
we noted that the exclusion applied "to
'occurrences' involving the pollutant as a
pollutant.'" Id. at 402. Under the facts of
Kent Farms, the diesel fuel acted not as a pollutant but
as a high-pressure jet of liquid that struck, engulfed, and
choked the victim-but it did not pollute him. Id. at
years later, this court decided Quadrant. In facts
notably similar to those in Cook, a tenant in an
apartment building became ill from fumes after a restoration
company applied sealant to a nearby deck. Quadrant,
154 Wn.2d at 167. After settling the claims with the tenants,
the owners of the deck sought to apply the coverage of their
business liability insurance to the loss. Id. The
owners argued that the insurer's pollution exclusion
applied only to '"traditional environmental
harms.'" Id. After the trial court granted
summary judgment in favor of the insurers and the Court of
Appeals affirmed, we granted discretionary review.
Id. at 170.
extensively on the language of Kent Farms, we held
that the exclusion was designed to preclude coverage in the
case of traditional environmental harms or where the
pollutant acted as a pollutant. Id. at 178. With
this in mind, we determined that the facts in Kent
Farms were distinguishable. Id. at 184. Unlike
the diesel fuel in Kent Farms, the chemical sealant
in Quadrant was clearly a pollutant acting as a
pollutant when, as part of its normal use, it created fumes
capable of irritating the respiratory tract and, in high
concentrations, causing central nervous system depression.
Id. at 168, 179 (noting that the sealant was "a
substance whose toxicity could cause injury even when used as
intended"). The plain language of the pollution
exclusion in Quadrant anticipated harm from this
type of pollutant, stating that liability coverage did not
apply to bodily injuries "arising out of the dispersal,
seepage, migration, release, or escape of a gaseous irritant,
including vapors, fumes and chemicals." Id. at
180 (emphasis omitted). Thus, we "distinguished between
cases in which the substance at issue was polluting at the
time of the injury and cases in which the offending
substance's toxic character was not central to the
injury." Id. at 182.
argues that the opinions in Kent Farms and
Quadrant are in conflict and should be reconciled
with a new rule. We disagree. As discussed in
Quadrant, the facts in Kent Farms did not
result in a pollutant acting as a pollutant in such a way
that would trigger the pollution exclusion. If the diesel
fuel in Kent Farms had been replaced with water, for
example, the liquid would still have struck, choked, and
engulfed the victim just as surely as the diesel fuel-albeit
with less severe consequences. As this court noted, the toxic
nature of the pollutant was not central to the event that
triggered coverage under the insurance policy. Id.
Kent Farms neither explicitly nor implicitly
rejected the reasoning of Cook and Harbor
Insurance as they relate to pollutants acting as
pollutants-a fact identified by this court in Quadrant,
Id. at 182. Thus, the choice of analysis under Kent
Farms versus Quadrant and the antecedent
"fumes" cases, Cook and Harbor
Insurance, necessarily turns on a determination of
whether an occurrence, as defined under the policy, stems
from either a traditional environmental harm or a pollutant
acting as a pollutant. If the answer to this inquiry is yes,
barring any ambiguities in the policy language, courts must
apply the plain language of the pollution exclusion to
determine whether the exclusion applies to the facts at hand.
even if the court applies the exclusionary language correctly
to the facts at hand, the analysis does not end. Courts must
next consider whether, pursuant to established Washington
insurance law, the excluded ...