Allied Property And Casualty Insurance Company v. Zenith Aviation Corporation

Filing 50

MEMORANDUM OPINION and ORDER- It is ORDERED that Defendant Zenith Aviation, Inc.'s Motion for Partial Summary Judgment 20 be, and the same hereby is, GRANTED; and the Court concludes and declares that the Pollution Exclusion in the Policy does not apply to exclude coverage for Zenith's allegedlosses caused by concrete dust; and it is further ORDERED that Plaintiff Allied Property and Casualty Insurance Company's Motion for Summary Judgment 30 be, and the same hereby is, DENIED. Signed by District Judge Anthony J Trenga on 8/29/2018. (lcre, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Alexandria Division
ALLIED PROPERTY AND CASUALTY
INSURANCE CO.,
Plaintiff,
v.
ZENITH AVIATION, INC.,
Defendant.

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Case No. 1:18-cv-264 (AJT/IDD)

MEMORANDUM OPINION and ORDER
In this insurance coverage dispute, the parties have filed cross-motions for summary
judgment. [Doc. Nos. 20 and 30]. The dispositive issue is whether the “Pollution Exclusion” in
the insurance policy Zenith purchased from Allied applies to preclude the coverage that would
otherwise apply. For the reasons stated below, the Court concludes that the Pollution exclusion
does not apply. Accordingly, Defendant Zenith Aviation, Inc. is entitled to summary judgment in
its favor as to this coverage issue. 1
I. BACKGROUND
The following facts are undisputed unless otherwise noted.
Defendant Zenith Aviation, Inc. (“Zenith”) 2 is an aircraft parts distributor. In spring
2017, Zenith hired Abby Construction Company to install an elevator at its warehouse located in
Fredericksburg, Virginia. Abby “used jack hammers to cut the pit for the elevator but they later
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Both parties have filed requests for a declaratory judgment with respect to coverage: Allied, that it owes no duty to
indemnify Zenith for amounts sought under the Policy in connection with Zenith’s claimed loss; and Zenith, that
Allied owes a duty to indemnify Zenith for amounts sought under the Policy. Zenith has also asserted in its
counterclaim a claim for breach of contract and breach of the implied duty of good faith and fair dealing based on
Allied’s alleged failure to investigate adequately Zenith’s claim, but has not moved for summary judgment on those
claims.
2
Zenith incorporated under the laws of Delaware with its principal place of business in Fredericksburg, Virginia,
and is therefore a citizen of Virginia and Delaware.

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found out that they were eight inches short.” Zenith’s Mem. in Supp. [Doc. No. 22] Statement of
Undisputed Facts (“Zenith SOF”) ¶ 2. Abby “then used a wet saw to cut away the additional
eight inches of concrete, however they did not use any water with the wet saw.” Id. ¶ 3. As a
result, the saw generated a significant amount of concrete dust that billowed out of the
warehouse prompting surrounding businesses to contact the fire department believing the dust to
be smoke from a fire. Id. ¶ 4. The concrete dust particulate “settled on everything inside the
building including inventory, shelves, walls and ceilings[]” and as a result, damaged Zenith’s
airplane parts inventory stored in the warehouse as well as its “automated electronic retrieval
system.” Id. at ¶¶ 5–6.
Plaintiff Allied Property and Casualty Company, Inc. (“Allied”) 3 issued to Zenith a
commercial insurance policy number ACP CPPP 7183988475 for the policy period July1, 2017
to July 1, 2018 (the “Policy”). See Compl. Ex. A. Zenith seeks coverage under the Policy for the
losses caused by the concrete dust. 4
The Policy provides, in pertinent part:
A. Coverage
We will pay for direct physical loss of or damage to covered
Property at the premises described in the Declarations caused by or
resulting from any Covered Cause of Loss
...
Covered Causes of Loss
. . . Covered Causes of Loss means direct physical loss unless the
loss is excluded or omitted in this policy.
Zenith SOF ¶¶ 9, 10. The Policy also contains the following “Pollution Exclusion”:
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Allied is a company incorporated under the laws of Iowa with its principal place of business in Iowa and is
therefore a citizen of Iowa.
4
In the Complaint, Allied alleges that Zenith has claimed losses in the amount of $3.2 million, including $1.1
million for property damage, $1.4 million in business interruption losses, and $650,000 in extra expense losses.
Compl. ¶ 25.

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We will not pay for loss or damage caused by or resulting from
any of the following: . . .
discharge, dispersal, seepage, migration, release or escape of
“pollutants” unless the discharge, dispersal, seepage, migration,
release or escape is itself caused by any of the “specified causes of
loss.” But if the discharge, dispersal, seepage, migration, release or
escape of “pollutants” results in a “specified cause of loss,” we will
pay for the loss or damage caused by that “specified cause of loss.”
This exclusion . . . does not apply to damage to glass caused by
chemicals applied to the glass.
Id. at ¶ 13. The Policy defines “Pollutants” as follows:
Any solid, liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or
reclaimed.
Id. at ¶ 15. The Policy defines “specified causes of loss” as
fire; lightening; explosion; windstorm or hail; smoke; aircraft or
vehicles; riot or civil commotion; vandalism, leakage from fireextinguishing equipment; sinkhole collapse; volcanic action;
falling objects; weight of snow, ice or sleet; water damage . . . .
Id. at ¶ 14. The Policy does not define any of the terms used to define either “pollutants” or
“specified cause of loss,” including “smoke,” which appears in both.
II. LEGAL STANDARD
In reviewing a motion for summary judgment, courts must view the facts in the light most
favorable to the party opposing the motion. Porter v. U.S. Alumoweld Co., 125 F.3d 243, 245
(4th Cir.1997). Summary judgment is appropriate where “there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A “genuine” dispute as to a material
fact is present “if the evidence is such that a reasonable jury could ... return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When a motion

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for summary judgment is made and supported by affidavits, an adverse party may not rest upon
the mere allegations or denials of the adverse party’s pleading, but the adverse party’s response
must set forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e).
Unsubstantiated, conclusory claims without evidentiary support are insufficient to satisfy a nonmoving party’s burden on summary judgment. Carter v. Ball, 33 F.3d 450, 461–62 (4th
Cir.1994); Goldberg v. B. Green & Co., 836 F.2d 845, 848 (4th Cir.1988).
III. ANALYSIS
Allied acknowledges that Zenith has suffered a “direct physical loss” that would be
covered but for the application of the Pollution Exclusion. The central issue is therefore whether
the Pollution Exclusion applies to preclude coverage.
The Policy was issued and delivered in Virginia, and therefore Virginia law applies. See
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941) (holding that federal courts sitting in
diversity apply the choice of law rules of the state in which they sit); Lackey v. Virginia Sur. Co.,
167 S.E.2d 131, 133 (Va. 1969) (holding that the law of the place where an insurance contract is
written and delivered applies). Because no Virginia court has definitively ruled on the scope and
application of the Pollution Exclusion, or a close approximation, under facts comparable to those
presented here, the Court must predict how the Supreme Court of Virginia would decide the
issue, were presented to it. In making that determination, the Court must interpret and apply the
language of the Policy according to settled principles of Virginia law regarding the interpretation
of insurance policies. See Seals v. Erie Ins. Exch., 674 S.E.2d 860, 862 (Va. 2009); Lower
Chesapeake Assocs. v. Valley Forge Ins. Co., 523 S.E.2d 325 (Va. 2000). Under those settled
principles, the general rules that govern contract interpretation and construction apply, as
supplemented by the principles of construction particular to insurance contracts.

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“An insurance policy is a contract, and, as in the case of any other contract, the words
used are given their ordinary and customary meaning when they are susceptible of such
construction.” Hill v. State Farm Mut. Auto. Ins., 375, S.E.2d 727, 729 (Va. 1989). When
interpreting an insurance policy, a court’s ultimate purpose, as with contracts generally, is to give
effect to the parties’ mutual intent. Seals, 674 S.E.2d at 862. That intent is determined by
reference to the parties’ objective manifestations of that intent, as expressed in the language of
the policy, id at 860, and the meaning of policy language is determined by considering the policy
as a whole. Id. at 862. For that reason, the Court must not “examine certain specific words or
provisions in a vacuum, apart from the policy as a whole. Res. Bankshares Corp. v. St. Paul
Mercury Ins. Co., 407 F.3d 631, 636 (4th Cir. 2005) (applying Virginia law).
As with any contract, where the language of an insurance policy is unambiguous, courts
have no discretion but to apply the terms as written. See State Farm Fire and Cas. Co. v. Walton,
423 S.E.2d 188, 191 (Va. 1992). However, where policy language is ambiguous, “[t]he courts . .
. have been consistent in construing the language of such policies . . . in favor of that
interpretation which grants coverage, rather than that which withholds it.” St. Paul Fire &
Marine Ins. Co. v. S.L. Nusbaum & Co., 316 S.E.2d 734, 736 (Va. 1984). In that connection,
courts are to apply the rule of contra proferentem. Under that principle, “insurance policies are to
be liberally construed in favor the assured and exceptions and exclusions are to be strictly
construed against the insurer.” United Serv. Auto Ass’n v. Pinkard, 356 F.2d 35, 37 (4th
Cir.1966) (quoting Ayres v. Harleysville Mut. Cas. Co., 2 S.E.2d 303, 305 (Va, 1939)); see also
Jefferson-Pilot Fire & Cas. Co. v. Boothe, Pritchard & Dudley, 638 F.2d 670, 674 (4th Cir.
1980) (“[W]here two interpretations equally fair may be made, the one which permits a greater
indemnity will prevail.”). Based on that principle, policy language that purports to exclude a

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specific event from coverage is “construed most strongly against insurer.” St. Paul Fire &
Marine Co. v. S.L. Nusbaum & Co., Inc., 316 S.E.2d 734, 736 (Va. 1984); see Virginia Farm
Bureau Mut. Ins. Co. v. Williams, 677 S.E.2d 299, 302 (Va. 2009) (“Because insurance policies
usually are drafted by insurers, we construe ambiguous policy language purporting to exclude
certain occurrences from coverage most strongly against insurer.”).
Allied contends that the concrete dust released by the wet saw meets the definition of a
“pollutant,” viz., “any solid . . . or thermal irritant or contaminant,” and that no exception to the
Pollution Exclusion applies. Zenith disputes that the concrete dust constitutes a “pollutant,” as
defined in the Policy, but if it does, its loss was either caused by or resulted from “smoke,” a
“specified cause of loss” that removes its loss from the Pollution Exclusion.
The Policy defines “pollutant” as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Zenith
SOF ¶ 15 (emphasis added). Allied contends that the concrete dust meets the definition of a
“pollutant” since it is “a solid …[or] gaseous… irritant or contaminant.” See Allied Mem. in
Supp. [Doc. No. 31] 11–12. Zenith contends conclusorily that “[c]ement is not a pollutant and in
any event, Allied has offered nothing to support that it is.” Zenith Resp. [Doc. No. 38] 9.
Given the Policy’s definition of a “pollutant,” concrete dust is clearly a pollutant since it
can undoubtedly function as both an “irritant” and a “contaminant.” See Irritant, Oxford English
Dictionary (2d ed., 1989) (defining “irritant” in part as “in Path[ology] a poison, etc. which
produces irritation; in Physiol[ogy] and in Biol[ogy] anything that stimulates an organ to its
characteristic vital action.”); Contaminate, Oxford English Dictionary (2d ed., 1989) (defining
“contaminate” as “to render impure by contract or mixture; to corrupt, defile, pollute, sully, taint,

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infect.”). 5 There is no genuine issue of fact concerning whether the concrete dust “contaminated”
Zenith’s products and machinery. Zenith’s alleged losses, by its own description, resulted from
the concrete dust’s deleterious effect on its inventory and machinery. For these reasons, the
concrete dust meets the definition of a “pollutant” and therefore is within the operation of the
Pollution Exclusion.
The Pollution Exclusion removes from coverage any “loss or damage caused by or
resulting from [the] . . . dispersal . . . [or] migration . . . of ‘pollutants’” unless (1) the dispersal or
migration of a pollutant is itself caused by a “specified cause of loss” or (2) the dispersal or
migration of a pollutant results in a “specified cause of loss” and the “specified cause of loss”
causes the loss or damage. Here, the “pollutant” is the concrete dust. Zenith contends that the
Pollution Exclusion does not apply because of the causative role played by “smoke,” a “specified
cause of loss.” The issue then is whether (1) the dispersal or migration of the concrete dust was
itself caused by “smoke;” or (2) whether the dispersal or migration of the concrete dust resulted
in “smoke” and “smoke” caused Zenith’s loss. Allied contends that under the undisputed facts,
the concrete dust did not meet the definition of “smoke.”
As mentioned above, the Policy does not expressly define “smoke,” despite that term’s
appearance in both the definition of “pollutant” and “specified cause of loss.” Zenith contends
that the cloud of concrete dust released by the wet saw qualifies as “smoke,” and therefore is a
specified cause of loss. In support of this argument, Zenith relies heavily on Andrew Robinson
Int’l Inc. v. Hartford Fire Ins. Co., No. 030353, 2006 WL 1537382 (Mass. Super. Feb. 6, 2006),

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In its consolidated response to Allied’s Motion and reply in support of its own Motion, Zenith argues for the first
time that “[c]ement is not a pollutant and in any event, Allied has offered nothing to support that it is.” Zenith Resp.
9. However, the plain language of the Policy defines “pollutant” as including “any solid . . . irritant or contaminant.”
The Policy does not limit or qualify the term “pollutant,” and Virginia courts have declined to read limitations such
as “environmental pollution,” “industrial pollution,” or “indoor pollution” into similar pollution exclusion clauses.
See, e.g., PBM Nutritionals, LLC v. Lexington Ins. Co., 724, S.E.2d 707, 714 (Va. 2012).

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in which a Massachusetts state court concluded, based on a similar pollution exclusion, that
“smoke” could refer to “a cloud of fine particulate matter,” in that case lead dust. Quoting
Andrew Robinson Int’l, Zenith proposes that “‘smoke’ may mean ‘[a] cloud of fine particulate
matter,’ and ‘dust’ may mean ‘[f]ine, dry particles of matter’ or ‘[a] cloud of dust.’ Thus, under
certain circumstances, dust and smoke are interchangeable.” Zenith’s Mem. in Supp. 11 (quoting
Andrew Robinson Int’l, 2006 WL 1537382 at *9). In substance, Zenith contends that “smoke”
includes any visible suspension of solid particles in a gaseous medium, whether they are the
results of combustion or simply dust that has been agitated into the air. In advancing that
position, it essentially contends that “smoke” is at least ambiguous as to the scope of its
definition and under Virginia law that ambiguity must be resolved in favor of coverage.
Allied, on the other hand, contends that the word “smoke” is not ambiguous and
necessarily means within the context of the Policy the “visible products of combustion,” relying,
inter alia, on K & Lee Corp. v. Scottsdale Ins. Co., 769 F. Supp. 870 (E.D. Pa. 1991). The court
in K & Lee Corp concluded that “smoke” commonly refers to the products of combustion, but
more consistently refers to some visible phenomenon. Id. at 874 (“While smoke may result from
some chemical reactions, the common usage of the term refers to the products of combustion
and, more importantly, to matter that is visible.”). Because the vapor at issue in that case was
invisible, the K & Lee court did not have to consider, and did not conclude, that “smoke” referred
only to the products of combustion.
In substance, dictionaries define “smoke” as the visible phenomenon of particulate
suspended in a gas, typically, but not exclusively, as the products of combustion suspended in the
hot gasses from a fire or other pyrolysis. In short, definitions of “smoke” include “the gaseous
products of burning materials” and the more general “suspension of particles in a gas.” See e.g.,

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Smoke Definition, Merriam-Webster.com, https://www.merriam-webster.com/dictionary/smoke
(last visited August 27, 2018) (defining “smoke” as “the gaseous products of burning materials”
or “a suspension of particles in a gas”). Allied points to the more limited definition; Zenith, the
more general. The issue, then, is whether “smoke” as used in the Pollution Exclusion is limited
to smoke caused by “the gaseous products of burning materials,” or more generally to all visible
“suspensions of particles in a gas.” Id.
Allied argues that, while dictionaries are useful in interpreting contract language, “courts
generally have recognized that it is inappropriate to interpret an insurance policy by inserting any
conceivable dictionary definition of the term at issue.” Allied’s Mem. in Supp. 17 (citing United
States Fid. & Guaranty Co. v. First State Bank & Trust co., 125 F.3d 680 (8th Cir. 1997)). But
Allied offers nothing from the context or structure of the Policy that counsels in favor of the
more narrow definition of “smoke” it proposes, but simply relies on what it contends is its more
common usage. See Allied’s Mem. in Supp. 18–19 (“By contrast, the presence of dust in the air
is not normally associated with combustion, and instead, can merely mimic smoke in appearance,
. . . .”).
The applicable definition of “smoke” as used in the Pollution Exclusion is unclear, with
more than one reasonable definition. The text and structure of the Policy (including the other
“specified causes of loss”) are insufficient to conclude that the parties intended to adopt the more
narrow definition of “smoke” for the purposes of the Pollution Exclusion. Well-settled principles
of Virginia insurance law therefore require the Court to adopt the interpretation favoring
coverage; “smoke” as used in the Policy refers to any visible suspension of particles in a gas,
including the concrete dust suspended in ambient air in Zenith’s warehouse.

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Allied next contends that even if the concrete dust constitutes “smoke,” it does not fall
into either of the exceptions to the Pollution Exclusion. See Allied Mem. in Supp. 12–13 (“the
‘discharge, dispersal, seepage, migration, release or escape’ of the pollutant, regardless of
whether the concrete dust is considered an ‘irritant or contaminant’ or ‘smoke,’ and the
‘specified cause of loss’ cannot be one and the same. Instead, the discharge . . . must ‘result in’ a
specified cause of loss.”). In short, Allied argues that the concrete dust in the air, even if it were
considered “smoke,” does not “cause” a loss when it merely settles on to sensitive airplane parts,
contaminating them, because the concrete particulate in the air does not “result in” the dust on
the inventory and machinery since it is the dust.
The exceptions to the Pollution Exclusion require, as Allied contends, a causal nexus
between a specified cause of loss and the pollutant. As reflected in the stated facts, (1) Abby
Construction used a wet saw without water to cut concrete; (2) that saw “released” or
“dispersed” concrete particulate solids into the air; (3) that dust, rather than falling immediately
to the ground, “billowed” into a cloud of particulate, resulting in “smoke”; and (4) the particulate
from that cloud of smoke ultimately settled on Zenith’s products and equipment, contaminating
them and causing the loss.
Applying the plain text of the exceptions to the Pollution Exclusion, both exceptions
apply. As required by the first exception, Zenith’s loss resulted from the dispersal or migration of
a pollutant (i.e., the concrete particulate) onto its inventory and machinery and that dispersal or
migration was caused by a visible gaseous suspension of the concrete particulate in the air, i.e.,
smoke. The “dispersal” or “migration” of the concrete dust onto Zenith’s products was therefore
“itself caused by” the smoke from which it settled, and therefore the loss falls under the first
exception to the pollution exclusion. As required by the second exception, the “discharge,

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dispersal, seepage, migration, release or escape” of the concrete particulate dust from the wet
saw “result[ed] in” smoke, a specified cause of loss, which then caused Zenith’s loss. 6
Allied’s argument that “smoke” cannot simultaneously be both the “pollutant” and the
“specified cause of loss” (“smoke cannot ‘result in’ smoke”) mischaracterizes the required
analysis. The pollutant is the concrete particulate; the specified cause of loss is the visible
suspension of that particulate in a gas, i.e., smoke. Under the Pollution Exclusion, the “pollutant”
and “the specified cause of loss” are distinct elements of a causal chain relative to the claimed
loss. But given the Policy’s definitions of each of those elements, the Pollution Exclusion does
not preclude the concrete dust (the “pollutant”) from being a constituent part of the smoke (the
“specified cause of loss”). A “pollutant” is a substance that constitutes an “irritant or a
contaminant.” A “specified cause of loss” is an instrumentality of loss. The fact that the particles
that contaminated Zenith’s products and equipment were the same as the particles that were a
constituent part of the “smoke” does not mean that there is no causal separation between the
“pollutant” that was dispersed and the “specified cause of the loss” that dispersed it or resulted
from it.
For the above reasons, the Court concludes that the Supreme Court of Virginia would
conclude that the Pollution Exclusion does not apply and there is coverage under the Policy for
Zenith’s alleged losses. Zenith is therefore entitled to a declaration of coverage and summary
judgment in its favor on as to the parties’ respective requests for a declaratory judgment.

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“Falling objects” is also another “specified cause of loss.” The concrete particulate in the dust cloud are “solid[s].”
Because the loss was caused by the concrete particulate falling on to Zenith’s inventory, an alternative analysis that
arguably results in coverage is that the dispersal of the a “ pollutant,” i.e., the concrete particulate, resulted in a
“specified cause of loss,” i.e., “falling objects,” and Zenith’s loss is therefore within the second exception to the
Pollution Exclusion.

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IV. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that Defendant Zenith Aviation, Inc.'s Motion for Partial Summary Judgment
[Doc. No. 20] be, and the same hereby is, GRANTED; and the Court concludes and declares that
the Pollution Exclusion in the Policy does not apply to exclude coverage for Zenith's alleged
losses caused by concrete dust; and it is fmther
ORDERED that Plaintiff Allied Prope1ty and Casualty Insurance Company's Motion for
Summary Judgment [Doc. No. 30] be, and the same hereby is, DENIED.
The Clerk is directed to forward copies of this Order to all counsel of record.

Alexandria, Virginia
August 29, 2018

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