On June 28, 2023, the Eleventh Circuit Court of Appeals issued an opinion in Southern-Owners Insurance Co. v. Waterhouse Corp. affirming that fungi or bacteria exclusions did not apply because a cooling tower that allegedly contained Legionella bacteria was neither a “building” nor a “structure” within the meaning of the exclusions.

In Waterhouse, a horticultural manufacturer hired Waterhouse Corp. to perform monitoring, maintenance, and water treatment services for the cooling tower located on its property. Nonparty Del-Air Heating and Air Conditioning was also hired to perform certain work on the cooling tower.

After performing work in and around the cooling tower, a Del-Air employee was hospitalized and diagnosed with Legionnaires’ disease. Water samples from the cooling tower confirmed the presence of the same type of Legionella bacteria that was found in the employee’s urine when he was hospitalized. The employee later brought a negligence lawsuit against the manufacturer that owned the cooling tower and Waterhouse.

At the time the employee contracted Legionnaires’ disease, Waterhouse was insured under commercial general liability and umbrella policies issued by Southern-Owners Insurance Co. The commercial general liability policy contained a fungi or bacteria exclusion for bodily injury or property damage arising out of any fungi or bacteria on or within a building or structure. Waterhouse’s commercial umbrella policy contained a similar fungi or bacteria exclusion for bodily injury, property damage, personal injury, or advertising injury arising out of any fungi or bacteria within or on a structure or building.

In March 2021, Southern-Owners filed a declaratory judgment suit seeking a declaration that the employee’s claims in the underlying lawsuit were excluded by the fungi or bacteria exclusions in its policies. Southern-Owners moved for summary judgment, arguing that the underlying lawsuit fell within the exclusions because the cooling tower is a “structure.”

The district court denied Southern-Owners’ motion for summary judgment after determining that the fungi or bacteria exclusions did not apply because the cooling tower was large-scale machinery, not a “building” or “structure.”

On appeal, the Eleventh Circuit affirmed. The court explained that, under Florida law, insurance contracts are construed in accordance with the plain meaning of the language used. The court noted that the term “structure” could be broadly interpreted to include a cooling tower or could be narrowly interpreted to mean something more akin to a building. Accordingly, the court found the fungi or bacteria exclusions were ambiguous, and, under Florida law, construed them strictly against Southern-Owners and liberally in favor of coverage.

The court also applied the doctrine of noscitur a sociis (a word is known by the company it keeps) and explained that the word “structure” must be examined in relation to the word “building” to derive its meaning. After examining the purpose and function of a cooling tower — which is primarily used for heating, ventilation, air conditioning, and industrial purposes — the court determined that a cooling tower is not similar to a building. Accordingly, “a cooling tower constitutes large-scale machinery or equipment rather than a building or building-like structure.”

Therefore, the court held that the “building” or “structure” language in the fungi or bacteria exclusions does not include a cooling tower and the employee’s underlying claims were not excluded from coverage.