Insurer: Victims of Houston office fire died from 'pollution' Insurance loophole claimed in fire deaths

Company says smoke that killed 3 was 'pollution'

An insurance company with a potential $25 million liability from a 2007 Houston office fire is claiming smoke that killed three people was "pollution" and surviving families shouldn't be compensated for their losses since the deaths were not caused directly by the actual flames.

Great American Insurance Company is arguing in a Houston federal court that the section of the insurance policy that excludes payments for pollution — like discharges or seepage that require cleanup — would also exclude payouts for damages, including deaths, caused by smoke, or pollution, that results from a fire.

"This is shocking. It's an extraordinary effort by an insurance company to avoid paying on a contract for insurance," said Randy Sorrels, who represents several family members in wrongful death lawsuits from the fire in a six-story atrium building on the North Loop.

Great American has asked U.S. District Judge Lee Rosenthal to find that the deaths caused by the smoke, fumes and soot from the March 2007 fire set by a nurse working in the building will not be covered by the policy because there is a specific exclusion for pollution and it mentions smoke, fumes and soot.

'We think it is wrong'

"This took me by surprise," said Don Jackson , the Houston lawyer for building owners Boxer Property Management Corp. He said the insurance company that has the primary $1 million policy on the premises hasn't made this argument and he disagrees with the effort by excess insurance carrier Great American.

"We think it is wrong. It's inappropriate for the insurance company to try to run and hide now," said Jackson.

In October, vocational nurse Misty Ann Weaver was sentenced to 25 years in prison after pleading guilty to three counts of felony murder and one count of first-degree arson for setting the fire to conceal that she had failed to complete paperwork on time.

Great American's legal request, filed in late November and set for hearings in February, notes that there are four pending lawsuits against the property owners for wrongful death and injury, and contends that the insurance company should not have to pay on any of them.

Kevin Sewell, the Dallas lawyer who filed the request, did not return phone calls Tuesday afternoon. Great American spokeswoman Diane Weidner said company policy is to not comment on pending litigation.

Seth Chandler, a University of Houston Law Center professor who teaches insurance law, said while the insurance company's maneuver wasn't out of bounds, it will test the limits of the law.

"This is pushing the boundaries of the absolute pollution exclusion," Chandler said. "We're going to have a battle between the literal language of the policy and the way people speak of pollution."

A question of semantics

He said the issue is an ongoing conversation between the courts and the insurance industry. Chandler said he doesn't know of any other Texas cases on this issue. Nationwide, he said, even carbon monoxide poisoning has been found to be covered by insurance despite a pollution exclusion.

Tom Baker, an insurance law expert who teaches at Penn Law school, said property insurance has a long history of being designed for fire coverage and excluding a fire's smoke is applying the law too broadly.

But, he said, smoke can be tricky and Texas may be a state where the literal meaning could be considered rather than common understanding.

"The purpose of a pollution exclusion is not to not cover people who die from smoke inhalation in a fire," Baker said. "I would hope they (the insurers) lose this."

mary.flood@chron.com