Last week, I wrote about how California courts are interpreting Additional Living Expenses provisions. In the instance of ALE, courts have held that policies should be interpreted according to a layperson’s reasonable understanding. California courts are taking the same approach in applying property policy exclusions.

On August 17, 2011, the California Court of Appeals examined the matter of The Villa Los Alamos Homeowners Association v. State Farm General Insurance Company.1 The homeowners association operated a condominium complex and was insured under a State Farm policy. The policy excluded any loss caused by "pollution," but covered first party and third party liability claims.

The homeowners association contracted with a third party to scrape acoustical ceilings which contained asbestos. The governing Bay Area Air Quality Management District cited the third party and ordered the homeowners association to perform a comprehensive abatement. The association hired another party to perform the abatement and tendered claims to State Farm.

When State Farm denied coverage, the association filed suit. As in the ALE matters discussed last week, the Court specifically examined the exclusionary clause by "putting itself in the position of a layperson and to understand how he or she might reasonably interpret the exclusionary language."
The Court found that a reasonable layperson would find that the asbestos in the popcorn ceilings constituted an environmental pollution, so it fell within the policy’s definition of pollutant, as well as definitions under federal and state laws. The Court found that the trial court properly granted summary judgment to State Farm.

1 Villa Los Alamos Homeowners Assn. v. State Farm General Ins. Co., 198 Cal. App. 4th 522 (2011).