Policy wording matters – US ruling offers cautionary tale for SA

Jean-Paul Rudd | Partner | Adams and Adams | mail me |

A recent decision from the United States Court of Appeals for the Seventh Circuit, in the matter between Hammond Power Solutions Inc. vs National Union Fire Insurance Co. (2025), provides important guidance on the interpretation of exclusions in commercial general liability (CGL) policies.

In particular, the case deals with exclusions relating to radiation. The ruling confirms that courts will enforce a broadly worded exclusion for “any form of radiation” as written. This applies even when the claim involves electromagnetic field (EMF) radiation rather than traditional radioactive sources. Policy wording matters.

Background of the case

Hammond Power Solutions Inc., a manufacturer of electric transformers, faced a lawsuit in New York State Court. The plaintiffs alleged that transformers installed near their residence emitted hazardous levels of EMF radiation. They claimed this radiation caused cancer.

Hammond requested defence and indemnity from its CGL insurer, National Union Fire Insurance Co. The policy included a “radioactive matter exclusion” endorsement. This endorsement excluded coverage for claims arising from exposure to “any radioactive matter or any form of radiation”.

National Union denied coverage, citing the exclusion. In response, Hammond initiated a coverage action. It argued that the exclusion should not apply to EMF radiation, or at the very least, should be interpreted narrowly.

The district court ruled in favour of the insurer. Hammond then appealed the decision to the Seventh Circuit.

Key policy language and arguments

The policy barred coverage for “bodily injury or property damage arising out of the actual, alleged or threatened exposure of person(s) or property to any radioactive matter or any form of radiation”.

Hammond argued for a narrow reading of the exclusion. It claimed that “any form of radiation” should be limited by the preceding reference to “radioactive matter”. Hammond also maintained that EMF radiation was not the kind of hazard the exclusion was meant to address.

In contrast, the insurer argued that the exclusion was unambiguous. It applied to all forms of radiation, including EMF, regardless of the source. Policy wording matters.

The Seventh Circuit’s decision

The Seventh Circuit upheld the district court’s decision. It held that the exclusion was clear and unambiguous. Policy wording matters.

The court’s analysis centred on several key points:

• The court stressed that the phrase “any form of radiation” is broad and contains no limiting language. It interpreted the word “any” in its ordinary sense. This interpretation encompassed all types of radiation, including EMF.
• The court rejected the argument that the phrase should be read in light of the preceding term “radioactive matter”. It noted that the disjunctive “or” made “any form of radiation” an independent ground for exclusion.
• The court found no ambiguity in the exclusion’s wording. There were no inconsistencies or alternative reasonable interpretations that could justify narrowing its scope.
• The court dismissed arguments related to the title of the endorsement (“radioactive matter exclusion”) and its placement in the policy. It emphasised that the operative language, not headings or location, governed the policy’s meaning.
• The court also rejected Hammond’s attempt to rely on its business model or expectations. It stated that the intent of the parties must be derived from the policy’s clear wording. Policy wording matters.

In addition, Hammond argued that applying the exclusion could lead to absurd results. It pointed to scenarios like sunburn or microwave burns. The court disagreed. It concluded that, given the breadth of the exclusion, these results were a natural consequence of the policy’s plain language.

Why EMF matters

Electromagnetic fields are generated by numerous everyday and industrial sources. These include power lines, transformers, mobile phone towers and wireless networks.

Although EMF exposure is a common feature of modern life, litigation alleging adverse health effects, such as cancer, has emerged in various jurisdictions. In South Africa, for example, residential and commercial properties often sit close to electrical infrastructure. Similar claims could therefore surface.

The Hammond Power Solutions ruling highlights the risk. When a policy exclusion is broadly drafted, such as one excluding “any form of radiation”, courts may apply it to EMF claims without limitation. This can leave policyholders without coverage. This highlights that policy wording matters.

In conclusion

The Hammond Power Solutions decision reaffirms a key legal principle. Insurance contracts will be interpreted according to their plain language, especially when it comes to exclusions.

For policyholders, the case serves as a cautionary tale. Broad exclusionary language can and will be enforced, even in situations that were not contemplated during contract negotiations.

For insurers, the case underscores the importance of precise and clear drafting. As claims involving EMF and other emerging risks become more frequent, both insurers and insureds must pay close attention to the wording of their insurance contracts. Ultimately, ensuring that coverage aligns with expectations and needs begins with one fundamental truth: policy wording matters.