Supreme Court seeks to clarify insurance exclusions

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Two cases pending in the Wisconsin Supreme Court this term should clarify the meanings of two common exclusions in insurance policies: pollution exclusions in homeowner policies and motorized vehicle exclusions in farm policies.

Homeowner policies

At issue in Hirschhorn v. Auto-Owners Insurance Co. is the scope of a pollution exclusion. Specifically, the court will decide whether bat guano is “waste” and therefore “pollution.” More broadly, the court’s opinion may decide whether the products of natural biological processes are categorically not “pollution.”

The insured’s vacation home was rendered worthless because of a bat infestation and the inevitable consequence:  an accumulation of bat feces and urine. Their insurer denied coverage, pursuant to a standard exclusion for pollution. The policy’s definition of “pollution” included “waste.”

The Court of Appeals held that, although dictionaries include excrement within the definition of “waste,” it was not reasonable to include excrement within the definition of “waste” in the context of a clause excluding coverage for pollution. Adopting a biological processes exception to the definition of “pollution,” the court held the insurer was held liable for covering the damages.

Before the Supreme Court, the insurer argues there is no basis for such an exception. The genesis of the exception is Donaldson v. Urban Land Interests Inc., 211 Wis.2d 224, 564 N.W.2d 728 (1997). There, the Supreme Court held that the accumulation of carbon dioxide in a building, as a result of human respiration, was not “pollution.”

The insurer argues the Court of Appeals read too much into Donaldson: In its brief, it argues, “The Court of Appeals decision forces insurers to provide coverage for damages caused by common household pollutants such as bacteria, viruses, fungi, mold, dust mites, sewage containing any form of excrement, human or animal, and virtually all unwanted organic substances. This result is wholly at odds with the language of the pollution exclusion.”

The insurer contends, “In the context of home ownership and a homeowner’s policy of insurance, accumulations of animal feces are just not comparable to carbon dioxide emitted by human beings.”

The homeowners defend the Court of Appeals’ decision based on their reasonable expectations.

“Surely no reasonable insured homeowner … would want or expect bats or bat guano and the odors emanating therefrom, in their home,” they stated, “but the accumulation of same (much like the accumulation of carbon dioxide in Donaldson) was sudden and unexpected, interfered with the use, occupancy and marketability of the house, and thus a reasonable insured would believe same to be covered under the policy s/he purchased and paid for.”

Motor vehicle exclusions

At issue in Olson v. Farrar is a motorized vehicle exception in a farm policy. Farm policies typically contain such exceptions, with the expectation that motor vehicles are to be insured separately.

The insured was sued for damages allegedly caused by his negligent use of a tractor to pull a trailer. The insurer denied coverage, contending the tractor was a motorized vehicle within the meaning of the farm policy’s exclusion.

The Court of Appeals held that the tractor was not a motorized vehicle, because it was not designed for use on the highway.

In its brief to the Supreme Court, the insurer argues that this is contrary to Wisconsin case law interpreting “motor vehicle” to include tractors and statutes governing the use of tractors on roadways, such as sec. 347.22. That statute requires lights on tractors if operated on a public road at night.

The insurer argues that, by doing so, the Legislature has implicitly recognized tractors to be motor vehicles designed for use on public roads.

The insured contends that a reasonable insured person would not expect tractors to be included within the definition of a “motorized vehicle.”

He argues in his brief, “Farm tractors, especially older models, are designed for off-road use. … This was a vehicle of inherent low speed, instability and a high center of gravity, without basic public road safety features and designed and equipped as a farm tractor for off-road use on the farm. While it may occasionally and momentarily be taken out on a public road, it was not designed for use on public roads.”