In a recent decision issued by the Supreme Court of New Hampshire, losses caused by a persistent odor can be considered a “physical loss” and thus covered under a homeowner’s insurance policy if the smell distinctly and demonstrably changes the condition of the property. While some jurisdictions may disagree, the decision serves as an important guide for courts dealing with policy interpretation issues.
In the case, Mellin v. N. Sec. Ins. Co., Inc., the owners of a condominium unit brought a declaratory judgment action against their homeowner’s insurer, Northern Security Insurance Company, Inc., asserting that Northern was required to reimburse them for losses resulting from cat urine odor that had entered their condominium from the unit below, where a neighbor kept two cats.
The policyholders had leased their unit to a tenant who first detected the odor and ultimately moved out as a result. The policyholders then moved into the unit and also detected the order.
A health inspector advised them that they had “a health problem existing” and should move out of the unit temporarily while it was cleaned. Unfortunately, the remediation efforts were unsuccessful. The policyholders were unable to find new tenants and ultimately they were forced to sell the condo at a significant loss.
The policyholders sought coverage from Northern under their homeowner’s policy, which provided coverage for “direct physical loss” to the property. Northern denied the claim, stating coverage did not apply because the alleged odor did not constitute a “physical loss” and, even if it did, the damage was excluded under the policy’s pollution exclusion.
The trial court agreed with Northern and issued summary judgment in favor of the insurer. The policyholders appealed and in a 3-2 decision the New Hampshire Supreme Court reversed the decision finding in favor of the policyholders on the coverage issue, and remanding back to the trial court for further factual determinations.
The high court agreed with the policyholders that the type of “physical loss” covered by the policy includes those caused by pervasive odors. The court found that the phrase “physical loss” need not be limited to tangible changes that can be seen or touched, but can also encompass changes perceived by smell.
Pointing to what it described as a “substantial body of case law,” the high court held that a variety of contaminating conditions, including odors, constitute physical loss to a property. Specifically, the court cited a New Jersey case, Gregory Packaging, Inc. v. Travelers Property Casualty, which found that an ammonia spill constituted a physical loss since it “physically transformed the air” rendering the property “unfit for occupancy.” The court also cited cases in Colorado, Virginia and Oregon, each of which found pervasive odors to be considered a “physical loss.”
Offering some additional guidance, the court said that evidence showing a change which rendered the property temporarily or permanently unusable or uninhabitable may support a finding that the loss was a physical loss to the property.
The court also found that the policy’s pollution exclusion could not be read as to include the odor of cat urine as an excluded pollutant. The pollution exclusion held that coverage was not available for losses caused by “pollutants,” which it defined as “an…irritant or contaminant, including…vapor…[and] fumes.” However, the court noted that, if taken at face value, that language could be read to include such items as “soap, shampoo, rubbing alcohol, and bleach insofar as these items are capable of reasonably being classified as contaminants or irritants.”
Instead, the court found that the plain and ordinary meaning of the term “pollutant” did not include the smell of cat urine. Pollutants, the court said, could reasonably be understood as odors coming from industrial or commercial facilities, not odors resulting from “everyday activities gone slightly awry.”
If you would like assistance in addressing your insurance questions, or in reviewing your current insurance coverage, please feel free to contact Anna Z. Skelton, Esq. an associate of Shapiro, Sher, Guinot & Sandler, P.A.’s Insurance Practice Group, at 410-385-4229, or by email at firstname.lastname@example.org.