Doug and Gayle Mellin owned a condominium unit in Epping, New Hampshire. The Mellins leased their unit to a tenant who complained about the odor of cat urine emanating from a downstairs neighbor’s condominium. The tenant moved out of the unit, and the Mellins took occupancy. The Mellins also noticed the odor and determined that it entered their unit through an open plumbing chase servicing the kitchen. The Mellins filed a claim under their homeowner’s insurance policy in December 2010, which was denied. The Mellins’ insurance policy covered “direct physical loss” to the unit and contained a pollution exclusion clause that denied coverage for losses caused by “discharge, dispersal, seepage, migration, release or escape of pollutants.” In December 2010, Epping’s building and health inspector sent a letter to the Mellins stating that the unit posed a health problem and that they should vacate the unit until such time as the problem could be remediated. Remediation proved unsuccessful, and the Mellins continued to reside in the unit until February 2011.

The Mellins claimed that they could not lease the unit or occupy it themselves due to the odor. The Mellins sold the unit for a price less than that for a comparable condominium in the area which was unaffected by cat urine odor. The Mellins sued their insurer, Northern Security Insurance Company, and sought a declaration that they were entitled to coverage because they experienced a “direct physical loss”

to the unit as a result of the cat urine odor. Northern argued that the odor did not constitute a “physical loss” and that the pollution exclusion clause barred recovery. The trial court agreed with Northern, and the Mellins appealed. How should the appellate court decide this case? Did the odor constitute a “physical loss” such as to trigger coverage? Did the pollution exclusion clause bar the Mellin’s recovery?