Written as Part of Extended Coverage
Summary: A standard feature of property insurance forms is coverage for direct physical loss of or damage to covered property caused by or resulting from smoke. This provision was originally one of the extended coverages that first expanded the scope of the fire policy. The following article discusses smoke damage and offers some case law on its interpretation as to coverage.
Topics covered:
Brief history
Smoke or vapor?
Industrial operations and agricultural smudging
Brief History
At one time, smoke damage referred only to sudden and accidental smoke from the faulty operation of a heating or cooking unit at the insured premises. Damage resulting from smoke from a fireplace was excluded. In current property forms, sudden and accidental smoke damage from almost any source is covered, except for agricultural smudging (e.g., the use of smudge pots to produce a smoky fire for protecting certain crops from frost or insects) and industrial operations. Smoke damage from these sources is excluded because such operations represent constant or constantly recurring exposures. Damage is certain to occur, so there is no risk (only a certainty); and there can be no insurance where there is no risk.
Smoke or Vapor?
“Smoke” is generally undefined in the policies, leading to some confusion over the nature of the peril. Many courts have followed a definition similar to this one from Webster's Ninth New Collegiate Dictionary: “the gaseous products of burning carbonaceous materials made visible by the presence of small particles of carbon.”
Although courts usually apply a definition of smoke that requires a visible product of combustion, Henri's Food Products Co. v. Home Insurance Co., 474 F.Supp. 889 (D.C. Wis. 1979) held that the insured was covered for smoke damage when the outside of bottles of salad dressing stored in a warehouse were contaminated by the vaporization of agricultural chemicals also stored in the warehouse. The court did not discuss its reasoning in any depth, stating only that it “reviewed the definitions of both these words [smoke and vapor] in the unabridged version of Webster's Third International Dictionary, the caselaw definitions listed in West's publication Words and Phrases were also examined.” The court used the research and its own understanding of the word “smoke” to determine that the vapor produced was considered smoke.
However, the opposite conclusion was reached in United States Fidelity and Guaranty Co. v. First State Bank and Trust Co., 125 F.3d 680 (8th Cir. 1997). In this case, a metal building owned by First State was used by Mission Fabricated Products as a plant for producing metal wheels. The metal used to create the wheels was coated with grease for protection, but the grease had to be removed by a degreaser for the wheel parts to be assembled and painted. A vat of trichloroethane (TCE) was brought to a boil by electrical coils. The TCE evaporated, creating a vapor, which dissolved the grease. A condensing ring with cold water running through it caused the TCE to condense and fall into the vat. When work was finished, the electrical coils were turned off, and when the TCE vapor was no longer present, the cold water to the condenser was turned off.
At the end of one workday, experts determined that the heating element had not been turned off, but the cold water was. Thus, the TCE continued to vaporize, rose, and escaped the vat. An employee who was driving by the plant and noticed lights still on, entered the building and discovered that it was smoky. He called the fire department, and the fire chief testified that shutting off the degreaser dissipated the smoke and that “the 'smoke' was not very dense and had an unusual odor.” No flame or fire was seen, and no fire equipment or water was used to extinguish the source of the smoke.
USFG denied coverage for the damage caused by the TCE vapor and stated, among other things, that the TCE vapor was not smoke, which was a covered cause of loss under the policy. First State argued that the term was not defined in the policy and “should thus be interpreted, under its ordinary meaning, to include the gaseous by-product of the exothermic chemical reaction described by the expert witnesses.” The court, though, ruled that the ordinary meaning should be derived from the interpretation of a lay person, not by a dictionary definition. The court said, “The vapor produced by the boiling liquid TCE is analogous to steam produced by boiling water, which most people would not consider 'smoke' despite its smoky appearance.” Thus, the court ruled that vapor did not constitute smoke.
A similar ruling was reached in K & Lee Corp. v. Scottsdale Ins. Co., 769 F.Supp. 870 (E.D.Pa. 1991). The court in that case held that an invisible chemical vapor was not smoke.
Industrial Operations and Agricultural Smudging
Another problem is raised by the term “industrial operations.” This term, in Georgia Farm Bureau Mutual Ins. Co. v. Washington , 243 S.E.2d 639 (Ga. App. 1978), was held by a Georgia court of appeals not to apply to what the court described as a small neighborhood bakery. The insured was a dress shop owner whose merchandise was damaged by smoke that escaped from the faulty exhaust vent of the nearby bakery. The trial court held for the insured, and the court of appeals affirmed with little comment. The trial court had held that exclusions and exceptions must be taken more strongly against the insurer, and that a layman's reasonable reading of words in an insurance contract, in their plain, ordinary and popular sense, prevails.
Aside from the reference to agricultural smudging or industrial operations, smoke damage from any other source is covered—as long as the damage is sudden and accidental. There are no other qualifications or limitations with respect to this peril. Thus, even when smoke originates away from the insured premises—at an adjacent building or even at a more distant location—smoke damage is covered.