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Supreme Court, Appellate Division, First Department, New York.

REPUBLIC FRANKLIN INSURANCE COMPANY, Plaintiff-Appellant, v. L & J REALTY CORPORATION, et al., Defendants-Respondents.

Decided: February 13, 2001

NARDELLI, J.P., WILLIAMS, ELLERIN, WALLACH and FRIEDMAN, JJ. Maureen E. Scott, for Plaintiff-Appellant. Michael B. Doyle, for Defendants-Respondents.

Order, Supreme Court, Bronx County (Kenneth Thompson, Jr., J.), entered April 18, 2000, which denied plaintiff-insurer's motion for summary judgment declaring that it is under no obligation to defend or indemnify defendant insureds in the underlying action and to dismiss pursuant to CPLR 3211 defendants' counterclaims for bad faith denial of coverage, unanimously modified, on the law and upon a search of the record, to grant defendant insureds summary judgment declaring that, under the subject policy of insurance, plaintiff insurer must defend and indemnify them in the underlying action and to grant plaintiff insurer's motion insofar as it seeks dismissal of defendants' counterclaims pursuant to CPLR 3211, and otherwise affirmed, without costs.

 Defendant building owners and operators, during the relevant period, were insured under a general business policy issued by plaintiff that contains a pollution exclusion clause.   That clause was properly found by the IAS court to be inapplicable to relieve plaintiff insurer of its obligation to defend and indemnify in the underlying personal injury action since the plaintiff in that underlying action did not allege injury attributable to a pollutant that had either emanated from a source outside the building or in some manner escaped from defendant insureds' premises, but rather to fumes that remained contained within the premises (see, Vigilant Ins. Co. v. V.I. Technologies, Inc., 253 A.D.2d 401, 676 N.Y.S.2d 596;  see also, Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652-655, 593 N.Y.S.2d 966, 609 N.E.2d 506).

 Plaintiff's motion to dismiss defendants' counterclaims should, however, have been granted.   In view, inter alia, of the fact that plaintiff insurer has defended the underlying personal injury action while litigating the issues respecting the scope of its obligation under the subject policy, defendants possess no sustainable claim for a bad faith denial of coverage.