                                                   130 Nev., Advance Opinion 42
                       IN THE SUPREME COURT OF THE STATE OF NEVADA


                CENTURY SURETY COMPANY,
                Appellant,
                                                                      No. 6062f           !LED
                vs.                                                                 MAY 2 9 2014
                CASINO WEST, INC.,                                                  ACVE K. LINDEMAN
                                                                             CLE
                Respondent.
                                                                             BY
                                                                                  CHIEF        LER




                            Certified questions, in accordance with NRAP 5, regarding the
                interpretation of exclusionary provisions in an insurance policy. United
                States Court of Appeals for the Ninth Circuit; Carlos F. Lucero, Consuelo
                M. Callahan, and N. Randy Smith, Judges.
                            Questions answered.

                McDonald Carano Wilson LLP and James W. Bradshaw and Debbie A.
                Leonard, Reno; Woolls & Peer and H. Douglas Galt, Los Angeles,
                California,
                for Appellant.

                Burton Bartlett & Glogovac and Scott A. Glogovac, Reno,
                for Respondent.

                Armstrong Teasdale LLP and Kevin R. Stolworthy and Conor P. Flynn,
                Las Vegas,
                for Amicus Curiae Complex Insurance Claims Litigation Association.




                BEFORE THE COURT EN BANC.

                                                  OPINION

                By the Court, DOUGLAS, J.:
                            The United States Court of Appeals for the Ninth Circuit has
                certified questions of law to this court regarding the interpretation of two
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                      exclusionary provisions in a motel's insurance policy issued by appellant
                      Century Surety Company: the absolute pollution exclusion and the indoor
                      air quality exclusion. The certified questions ask:
                                  (1) Does the pollution exclusion in Century's
                                  insurance policy exclude coverage of claims arising
                                  from carbon monoxide exposure?
                                  (2) Does the indoor air quality exclusion in
                                  Century's insurance policy exclude coverage of
                                  claims arising from carbon monoxide exposure?
                      We determine that, when applied to the facts of this case, both exclusions
                      are ambiguous because they are subject to multiple reasonable
                      interpretations; therefore, under the circumstances presented, we answer
                      these questions in the negative.

                                                    BACKGROUND
                                  Four people died from carbon monoxide poisoning while
                      sleeping in a room directly above a pool heater in the Casino West Motel,
                      the respondent here. Casino West sought coverage for the deaths from its
                      insurer, Century Surety Company, but Century denied the claims based
                      on two provisions of Casino West's general liability policy: the absolute
                      pollution exclusion, which excludes coverage for "'[b]odily injury' or
                      'property damage' arising out of the actual, alleged or threatened
                      discharge, dispersal, seepage, migration, release or escape of 'pollutants,'
                      and the indoor air quality exclusion, which excludes coverage for "Th]odily
                      injury,' property damage,' or 'personal and advertising injury' arising out
                      of, caused by, or alleging to be contributed to in any way by any toxic,
                      hazardous, noxious, irritating, pathogenic or allergen qualities or
                      characteristics of indoor air regardless of cause." After Century denied
                      coverage, it brought a declaratory relief claim in the federal district court.


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                      In response, Casino West filed a counterclaim. Century then moved for
                      summary judgment on both its claim and Casino West's counterclaim
                                   The federal district court denied Century's motion. The court
                      determined that the policy exclusions were ambiguous and interpreted the
                      ambiguity in Casino West's favor. With permission from the federal
                      district court to appeal the interlocutory decision, Century sought review
                      in the Ninth Circuit Court of Appeals, which certified the aforementioned
                      questions to this court after determining that existing Nevada law did not
                      clearly resolve the issue. We subsequently accepted the questions and
                      directed briefing.'

                                                    DISCUSSION
                                   The purpose of contract interpretation is to determine the
                      parties' intent when they entered into the contract.      See Sheehan &
                      Sheehan v. Nelson Malley & Co., 121 Nev. 481, 488, 117 P.3d 219, 224
                      (2005). We interpret an insurance policy "from the perspective of one not
                      trained in law or in insurance, with the terms of the contract viewed in
                      their plain, ordinary and popular sense."   Siggelkow v. Phoenix Ins. Co.,
                      109 Nev. 42, 44, 846 P.2d 303, 304 (1993). And we consider the policy as a
                      whole "to give reasonable and harmonious meaning to the entire policy."
                      Id.   Further, an insurance policy's interpretation should not lead to an
                      absurd or unreasonable result. Reno Club, Inc. v. Young Inv. Co., 64 Nev.
                      312, 325, 182 P.2d 1011, 1017 (1947).




                             'The Complex Insurance Claims Litigation Association filed an
                      amicus curiae brief supporting Century's interpretation of the provisions
                      at issue.

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                            If an insurance policy is unambiguous, we interpret it
                according to the plain meaning of its terms. Powell v. Liberty Mitt. Fire
                Ins. Co., 127 Nev. „ 252 P.3d 668, 672 (2011). An insurance policy
                is considered ambiguous if "it creates [multiple] reasonable expectations of
                coverage as drafted."    Id.   A seemingly clear policy can be rendered
                ambiguous when applying the policy to the facts leads to multiple
                reasonable interpretations. See Rubin v. State Farm Mitt. Auto. Ins. Co.,
                118 Nev. 299, 303-04, 43 P.3d 1018, 1021 (2002). We interpret
                ambiguities in an insurance contract against the drafter, which is typically
                the insurer. Powell, 127 Nev. at ,252 P.3d at 672. So, if an insurance
                policy has any ambiguous terms, this court will interpret the policy to
                effectuate the insured's reasonable expectations. Id.; see also Farmers Ins.
                Exch. v. Young, 108 Nev. 328, 330, 832 P.2d 376, 377 (1992).
                            Clauses providing coverage are broadly interpreted "so as to
                afford the greatest possible coverage to the insured, [and] clauses
                excluding coverage are interpreted narrowly against the insurer."      Nat'l
                Union Fire Ins. Co. of the State of Pa., Inc. v. Reno's Exec. Air, Inc., 100
                Nev. 360, 365, 682 P.2d 1380, 1383 (1984). Any exclusion must be
                narrowly tailored so that it "clearly and distinctly communicates to the
                insured the nature of the limitation, and specifically delineates what is
                and is not covered." Griffin v. Old Republic Ins. Co., 122 Nev. 479, 485,
                133 P.3d 251, 255 (2006) (internal quotation marks omitted). To preclude
                coverage under an insurance policy's exclusion provision, an insurer must
                (1) draft the exclusion in "obvious and unambiguous language," (2)
                demonstrate that the interpretation excluding coverage is the only
                reasonable interpretation of the exclusionary provision, and (3) establish



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                that the exclusion plainly applies to the particular case before the court.
                Powell, 127 Nev. at     , 252 P.3d at 674 (2011).

                The absolute pollution exclusion
                            The absolute pollution exclusion in Casino West's insurance
                policy provides that the policy does not apply to
                            (1) "Bodily injury" or "property damage" arising
                            out of the actual, alleged or threatened discharge,
                            dispersal, seepage, migration, release or escape of
                            "pollutants":
                                (a) At or from any premises, site or location
                            which is or was at any time owned or occupied by,
                            or rented or loaned to, any insured. However, this
                            subparagraph does not apply to:
                                    (i) [Building-heater exception:] "[b]odily
                            injury" if sustained within a building caused by
                            smoke, fumes, vapor or soot from equipment used
                            to heat that building.
                The policy defines a pollutant as "any solid, liquid, gaseous or thermal
                irritant or contaminant, including smoke, vapor, soot, fumes, acids,
                alkalis, chemicals, and waste."
                            The parties have competing interpretations of the absolute
                pollution exclusion. Casino West argues that the absolute pollution
                exclusion only applies to traditional environmental pollution because the
                exclusion contains environmental terms of art. Casino West notes that
                other courts have interpreted similar exclusions to apply only to
                traditional forms of pollution. Casino West also contends that the fact
                that it and Century disagree on the exclusion's applicability demonstrates
                the policy's ambiguity. To the contrary, Century asserts that the absolute
                pollution exclusion applies to this case to exclude coverage because carbon
                monoxide is a "pollutant" under the policy's terms Further, Century

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                contends that the building-heater exception demonstrates that the
                drafters intended the absolute pollution exclusion to apply to both indoor
                and outdoor pollution. Specifically, Century asserts that, if the absolute
                pollution exclusion applied only to traditional environmental pollution, the
                building-heater exception would be unnecessary, as harm from a
                building's heating system would not fall within the absolute pollution
                exclusion.
                             The absolute pollution exclusion is a standard provision in
                general commercial liability policies. See Apana v. TIG Ins. Co., 574 F.3d
                679, 680 (9th Cir. 2009). Its scope is a matter of first impression in
                Nevada, but it has been heavily litigated in numerous other jurisdictions,
                resulting in conflicting outcomes. See id. at 682 (collecting cases). Some
                courts have found that the exclusion is unambiguous and applies to all
                types of pollution. Id. But others have concluded that its application is
                limited to situations involving traditional environmental pollution, either
                because they find that the exclusion's terms are ambiguous or because the
                application of the exclusion to nontraditional forms of pollution would
                contradict the policyholders' reasonable expectations. Id.
                             As drafted here, the absolute pollution exclusion permits
                multiple reasonable interpretations of coverage. As relevant here, the
                exclusion's language can be read to support Century's interpretation.
                Initially, it is reasonable to categorize carbon monoxide as a pollutant
                because it is a gaseous element that contaminates the air, making it
                dangerous and sometimes deadly to breathe.       See Midwest Family Mut.
                Ins. Co. v. Wolters, 831 N.W.2d 628, 637 (Minn. 2013) (noting that both the
                federal Clean Air Act and the Minnesota Pollution Control Agency treat
                carbon monoxide as a pollutant). And the exclusion precludes coverage for

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                    any injury resulting from a pollutant. Therefore, it is reasonable to
                    conclude that the policy would not cover any damage that carbon
                    monoxide caused. But Casino West's interpretation that the exclusion's
                    applicability is limited only to claims for traditional environmental
                    pollution is also reasonable. Taken at face value, the policy's definition of
                    a pollutant is broad enough that it could be read to include items such as
                    soap, shampoo, rubbing alcohol, and bleach insofar as these items are
                    capable of reasonably being classified as contaminants or irritants. So, if
                    no limitations are applicable, the pollution exclusion would seem to
                    preclude coverage for any accident stemming from such items, including a
                    person slipping on a puddle of bleach or developing a skin rash from using
                    a bar of soap. Such results would undoubtedly be absurd and contrary to
                    any reasonable policyholder's expectations. See Reno Club, 64 Nev. at 325,
                    182 P.2d at 1017 (explaining that insurance contracts should not be
                    interpreted to require an absurd or unreasonable result). The dictionary
                    definition of "pollutant" supports Casino West's proposed limitation on the
                    absolute pollution exclusion. See Merriam-Webster's Collegiate Dictionary
                    961 (11th ed. 2012) (defining "pollute" as "to contaminate (an
                    environment) esp[ecially] with man-made waste" and a "pollutant" as
                    "something that pollutes"). Therefore, a reasonable policyholder could
                    construe the absolute pollution exclusion to only apply to traditional
                    environmental pollution.
                                The absolute pollution exclusion's drafting history further
                    supports the conclusion that the exclusion was designed to apply only to
                    outdoor, environmental pollution.         Cf. J.E. Dunn Nw., Inc. v. Corus
                    Constr. Venture, L.L.C., 127 Nev. „ 249 P.3d 501, 505 (2011)
                    (providing that, when interpreting statutes, we look to the statute's

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                legislative history for guidance to determine the law's proper scope).
                Other courts have recognized that the pollution exclusion was
                traditionally included in insurance policies to avoid the potentially grand
                expense resulting from environmental litigation.        Am. States Inc. v.
                Koloms, 687 N.E.2d 72, 81 (Ill. 1997). The theory underlying such
                exclusions appears to be that, if an insured knows that his or her policy
                covers any type of pollution, he or she may take fewer precautions to
                ensure that such environmental contaminations do not occur.            Waste
                Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 381 (N.C.
                1986). Thus, in the absence of an exclusion covering environmental
                pollution, an insurer could incur huge financial costs for litigation
                stemming from such pollution. Id. In light of these principles, courts have
                determined that—from the insurers' standpoint—the exclusion was
                designed to protect against the "yawning extent of potential liability
                arising from the gradual or repeated discharge of hazardous substances
                into the environment." Id. (emphasis added).
                            Moreover, while Century's argument that the building-heater
                exception demonstrates that the exclusion applies to both external and
                internal contamination is reasonable, the building-heater exception does
                not necessarily preclude this court from concluding that Casino West's
                interpretation is equally reasonable. In particular, one reasonable
                explanation for the inclusion of the building-heater exception is that it was
                meant to clarify that the absolute pollution exclusion does not apply to a
                particular situation, rather than to expand the absolute pollution
                exclusion's scope beyond the parameters of how that exclusion has
                previously been interpreted.      See Wolters,    831 N.W.2d at 635 n.2



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                 (recognizing that courts have limited the absolute pollution exclusion to
                 "situations involving traditional environmental pollution").
                             In light of the exclusion's ambiguity, we must interpret the
                 provision to effectuate Casino West's reasonable expectations. See Powell,
                 127 Nev. at 252 P.3d at 672. When considering the significant
                 amount of authority interpreting the absolute pollution exclusion to apply
                 only to traditional environmental pollution, see id., one cannot rely on an
                 exception to prove that the exclusion also applies to indoor pollution. To
                 demonstrate that the absolute pollution exclusion applies to
                 nontraditional indoor pollutants, an insurer must plainly state that the
                 exclusion is not limited to traditional environmental pollution. See id. at
                 , 252 P.3d at 674 (providing that to preclude coverage under an
                 insurance policy, an insurer must draft the exclusion in "obvious and
                 unambiguous language"). Accordingly, we determine that the absolute
                 pollution exclusion does not bar coverage for the injuries caused by carbon
                 monoxide in this case.

                 The indoor air quality exclusion
                             The indoor air quality exclusion has not been as heavily
                 litigated as the absolute pollution exclusion, so we do not have the benefit
                 of other courts' interpretations of similar provisions. Under the indoor air
                 quality exclusion, Casino West's insurance policy does not apply to


                                   b. "Bodily injury[,]" "property damage[,]" or
                             "personal and advertising injury" arising out of,
                             caused by, or alleging to be contributed to in any
                             way by any toxic, hazardous, noxious, irritating,
                             pathogenic or allergen qualities or characteristics
                             of indoor air regardless of cause ...


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                            Century contends that the indoor air quality exclusion is
                unambiguous and that the "regardless of cause" policy language precludes
                liability for any injury suffered from indoor air quality issues, without
                limitation. Casino West argues that Century's interpretation is overly
                broad and that the air quality exclusion should be limited to preclude only
                injuries arising from inherent and continuous air quality issues.
                            Like the pollution exclusion, the indoor air quality exclusion is
                subject to multiple reasonable interpretations. In line with Century's
                interpretation, one could read the exclusion's language to exclude coverage
                for any injury caused by any condition of the air, regardless of whether the
                condition is permanent or temporary. Specifically, the policy states that it
                excludes coverage of any bodily injury resulting from hazardous air
                quality, and the "regardless of cause" language indicates that no
                limitations restrict the exclusion's applicability. On the other hand,
                Casino West's interpretation—limiting the exclusion's applicability only to
                inherent and continuous air quality issues—is also reasonable. As with
                the pollution exclusion, the indoor air quality provision is drafted so
                broadly that, if no limitations are applied to it, its applicability could
                stretch well beyond a reasonable policyholder's expectations and lead to
                absurd results. For instance, read to exclude coverage for any condition of
                the air, the policy would not cover any injury resulting from a guest's
                inhalation of smoke from a fire inside the motel, but would cover any burn
                injuries caused by that same fire. Such potentially absurd results
                illustrate the need for some limitations on the exclusion's applicability.
                See Reno Club, 64 Nev. at 325, 182 P.2d at 1017 (insurance contracts
                should not be interpreted to require an absurd or unreasonable result).



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                             The indoor air quality exclusion's ambiguity requires us
                interpret the provision to effectuate Casino West's reasonable expectation
                that the exclusion only applies to inherent and continuous conditions. The
                indoor air quality provision excludes coverage for certain types of air
                "qualities or characteristics." As relevant here, a "quality" refers to the
                "peculiar and essential character" or "an inherent feature" of something.
                See Merriam-Webster's Collegiate Dictionary 1017 (11th ed. 2012). And a
                "characteristic" is "a distinguishing trait, quality, or property." Id. at 207.
                These definitions evoke the idea of something that is permanently present
                in the air, rather than a temporary condition. Thus, a policyholder could
                reasonably expect that the indoor air quality exclusion applies only to
                continuously present substances that render the air harmful, and that the
                policy allows recovery for an unexpected condition that temporarily affects
                the air quality inside of a building. See id. at 207, 1017. Accordingly, we
                conclude that the indoor air quality exclusion does not bar coverage for the
                injuries at issue in this case. 2




                      2 To  the extent that the parties disagree over whether the carbon
                monoxide in this case was temporarily or continuously present in the air,
                that question presents a factual issue, which is outside our province in
                answering the certified questions. See In re Fontainebleau Las Vegas
                Holdings, L.L. C., 127 Nev. „ 267 P.3d 786, 795 (2011) (adopting the
                majority view "that this court is bound by the facts as stated in the
                certification order and its attachment Es] and that this court cannot make
                findings of fact in responding to a certified question"). Thus, for the
                purpose of answering this certified question, we accept the Ninth Circuit's
                factual conclusion that carbon monoxide entered the decedents' room from
                Casino West's pool heater room "because the air intake openings had been
                blocked," which seems to indicate that the condition was temporary and
                unexpected, rather than a permanent air quality issue.

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                                                  CONCLUSION
                              For the reasons discussed herein, we conclude that neither the
                absolute pollution exclusion nor the indoor air quality exclusion clearly
                excludes coverage for carbon monoxide exposure under this case's
                circumstances. Therefore, we answer the certified questions in the
                negative.




                                                         Douglas




                                                  C.J.



                                                   J.
                Pickering


                                fre.t.42\          J.
                Hardesty



                Parraguirre


                                              ,    J.



                                                   J.
                Saitta
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