Carbon monoxide was released into a newly constructed home due to incorrect installation of a water heater vent. The commercial general liability (CGL) carrier for the contractor declined to defend and indemnify the contractor against a suit for the homeowner’s injuries. The Supreme Court of Washington State held that although a broad, absolute pollution exclusion in the contractor’s policy was clearly enough written to bar coverage for such pollution, it could not be applied to this situation because “negligent installation” was the proximate cause of the claimed loss, and that was a “covered occurrence” under the policy regardless of whether that covered occurrence happened to cause injuries due to pollution. Zhaoyun Xia v. ProBuilders Specialty Insurance Company RRG, 188 Wash. 2d 171 (2017).

After suing the contractor for her injuries, the homeowner entered into a settlement agreement with the contractor for stipulated damages in the amount of $2million, with a covenant not to execute or enforce the judgment in exchange for assignment of first-party rights to claim against the contractor’s CGL carrier.

Duty to Defend versus the Duty to Indemnify

The court began its analysis by explaining that “the duty to defend is different from and broader than the duty to indemnify,” stating that, “The duty to indemnify exists only if the insurance policy actually covers the insured’s liability, whereas the duty to defend arises when the policy could conceivably cover allegations in a complaint.” (emphasis in original). “Accordingly, an insurer must defend a complaint against its insured until it is clear that the claim is not covered.” Thus, said the court, “If there is any reasonable interpretation of the facts or the law that could result in coverage, the insurer must defend.”

Efficient Proximate Cause was Covered Occurrence

The court stated that under Washington law, the rule of efficient proximate cause provides coverage “where a covered peril sets in motion a causal chain, the last link of which is an uncovered peril.” “If the initial event, the ‘efficient proximate cause,’ is a covered peril, then there is coverage under the policy regardless whether subsequent events within the chain, which may be causes-in-fact of the loss, are excluded by the policy.”

The court went on to state, “Like any other covered peril under a general liability insurance policy, an act of negligence may be the efficient proximate cause of a particular loss. Having received valuable premiums for protection against harm caused by negligence, an insurer may not avoid liability merely because an excluded peril resulted from the initial covered peril.”

“The [pollution] exclusion cannot eviscerate a covered occurrence merely because an uncovered peril appears later in the causal chain. The efficient proximate cause rule exists to avoid just such a result, ensuring that an insurance policy offering indemnity for a covered peril will provide coverage when a loss is proximately caused by that covered peril.”

If the insurance company wanted to avoid liability for damages resulting from particular acts of negligence, the court stated the carrier could have written specific exclusions stating so. For example, the policy could have excluded “acts of negligence relating to the installation of home fixtures generally or hot water heaters specifically.” But absent such exclusion, there is coverage for the uninsured peril of carbon monoxide poisoning that results from the insured period of negligent installation of the water heater.


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of Report and may be reached at or by calling 703-623-1932.  This article is published in Report, Vol. 19, No. 9 (Sep 2017).

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