Mellin v Northern Security Insurance Co., Inc., __ A.3d __, 2015 WL 1869572 (N.H. April 24, 2015)
Plaintiffs filed a declaratory judgment action against Defendant asserting that their homeowner’s insurance policy required Defendant to reimburse them for loses to their condominium caused by a cat urine odor. Plaintiffs’ downstairs neighbor owned two cats. Plaintiffs leased their condominium to a tenant who detected a cat urine odor in 2009 or 2010. The tenant moved out in November of 2010 due to the cat urine odor. In December of 2010, Plaintiffs filed a claim under the Policy which was denied. On December 22, 2010, a health inspector opined that the odor caused the condominium to have an existing health problem and instructed the Plaintiffs to move out and have the odor terminated. The Plaintiffs temporarily moved out of the condominium, but remediation was unsuccessful. The Plaintiffs continued to reside in the condominium until February 1, 2011. Ultimately, they sold the condominium for significantly less than that of a comparable unit unaffected by the odor of cat urine. Plaintiffs asserted that the odor of cat urine caused a physical loss to their property under the Policy. They also asserted a loss of use claim under the Policy. Defendant asserted that Plaintiffs did not suffer a direct physical loss. Defendants also asserted that Plaintiff’s claim was barred by the pollution exclusion clause. The trial court agreed with the Defendant and granted its Motion for Summary Judgment. Plaintiff appealed.
The Court considered three issues: (1) whether Plaintiffs can recover under the Policy due to a physical loss to their property; (2) whether Plaintiff’s claim is barred by the pollution exclusion clause; and (3) whether the Plaintiffs can recover for the loss of use of their property. The Court held that a physical loss can be demonstrated by a distinct and demonstrable alteration to the property, such as a perceived smell. As a result, this Court vacated and remanded the trial court’s decision as to this issue. Next, the Court held that the pollution exclusion clause at question was ambiguous when applied to the facts of this claim and did not preclude coverage. The Court reasoned that pollution exclusion clauses typically referred to traditional environmental pollutants. The Court concluded that there were multiple reasonable interpretations of these exclusions and as a result, the language must be construed in favor of the insured. Finally, the Court vacated the trial court’s ruling that Defendant was entitled to judgment as a matter of law as to the loss of use claim. The Court held that as a threshold condition there must be a determination as to whether a physical loss occurred. As the trial court applied the wrong definition of physical loss, their ruling as to this issue was vacated.