Polluter Must Pay

Pollution Exclusion Applies

It is axiomatic that insurance companies have the right to limit coverage in any manner they desire, so long as the limitations do not conflict with statutory pro- visions or public policy. People who are sued have a problem with the concept when the policy wording does not apply to the allegations of the suit.

In Lodwick, L.L.C. v. Chevron U.S.A., Inc., 48, 312-CA (La.App. Cir.2 10/02/2013) four different defendants, Admiral Insurance Company (hereinafter referred to as “Admiral”), Steadfast Insurance Company (hereinafter referred to as “Steadfast”), ACE American Insurance (hereinafter referred to as “ACE”), and Oracle Oil, L.L.C. (here- in after referred to as “Oracle”), appeal a single judgment granting Oracle’s motion for partial summary judgment against Admiral and ACE, denying Oracle’s motion for partial summary judgment against Steadfast, and granting Steadfast’s motion for summary judgment against Oracle. All of the motions addressed the same issue–the duty to defend.

Facts

This case involves a “legacy lawsuit” by a group of land owners against a group of oil and gas operators who have worked in and around the Bellevue Field in Bossier Parish since the 1930s. The plaintiffs filed suit against various defendants, including Oracle, seeking damages related to defendants’ oil and gas production and exploration activities. These activities include the construction and operation of pits, wells, sumps, pipelines, flow lines, tank batteries, well heads, measuring facilities, separators, and injection facilities. Plaintiffs allege that the operation of these facilities, including the spillage and/or disposal of toxic oil field wastes, caused pollution damages on or adjacent to their property.

In particular, plaintiffs allege that from 1978 to 1990, Oracle’s facilities were sources of pollution which have migrated and caused damage to the soils and groundwaters underlying plaintiffs’ property.

Four different insurers provided insurance to Oracle between 2000 and 2011. Upon receiving notice of the lawsuit, Oracle wrote its insurers seeking defense and indemnification. In time, Admiral, Steadfast, and ACE each responded, denying coverage based on certain exclusions, conditions, or endorsements in their policies.

The trial court eventually granted Oracle’s motion as to Admiral and ACE, finding a duty to defend existed. However, the trial court denied Oracle’s motion for partial summary judgment as to Steadfast and granted Steadfast’s cross-motion for summary judgment based solely on the “Other Insurance” provision in the Steadfast policy.

Interpretation of Insurance Contracts

An insurance policy is a contract be- tween the parties, and should be construed using the general rules of interpretation of contracts. The parties’ intent, as reflected by the words of the policy, determines the extent of the coverage. If the policy wording at issue is clear and expresses the intent of the parties, the agreement must be enforced as written. The purpose of liability insurance is to afford the insured protection from damage claims. Policies therefore should be construed to effect, and not to deny, cover- age. Thus, if a provision which seeks to narrow the language of the exclusion is subject to two or more reasonable interpretations, that which favors coverage must be applied. Of course, it is equally well settled that insurance companies have the right to limit coverage in any manner they desire, so long as the limitations do not conflict with statutory provisions or public policy.

Discussion

Here, there is one issue on appeal– whether Admiral, Steadfast, and ACE owe Oracle a duty to defend. In Louisiana, the duty to defend is determined by the allegations of the injured plaintiff ’s petition, with the insurer being obligated to furnish a defense unless the petition unambiguously excludes coverage. This is known as the “eight corners rule,” whereby an insurer must look to the “four corners” of the plaintiff ’s petition and the “four corners” of its policy to determine whether it has a duty to defend. In this analysis, the allegations of the petition are liberally interpret- ed in determining an insurer’s duty to defend arises whenever the pleadings against the insured disclose even a possibility of liability under the policy. If, assuming all the allegations of the petition to be true, there would be both coverage under the policy and liability of the insured to the plaintiff, the insurer must defend the insured regardless of the outcome of the suit.

Plaintiffs’ Petition

Similar to most legacy lawsuits, plain- tiffs raise a plethora of allegations and theories of recovery against numerous oil and gas operators for pollution damage to their property. The crux of Oracle’s argument is that plaintiffs’ petition raises separate causes of action that may be totally unrelated to pollution, such as breach of con- tract and trespass. It is Oracle’s position that if plaintiffs’ allegations go beyond pollution damages, then the possibility of coverage and thus the duty to defend remains.

Plaintiffs make no demands for dam- ages concerning defendants’ operations other than those related to the seepage or migration of pollutants. In fact, plaintiffs specifically describe the alleged trespass at issue as the “continued presence of oilfield wastes on plaintiffs’ lands,” and the civil fruits that are alleged to be due are described as the unauthorized “storage of toxic pollution and wastes in the ground- waters and soils.” Therefore, the appellate court concluded that all of the different theories of recovery and allegations are a direct result of defendants’ alleged contamination and pollution damages.

Admiral, Steadfast, and ACE all argue that each of their respective policies issued to Oracle contain applicable provisions which in some way exclude coverage for long-term, environmental pollution dam- ages. The court of appeal agreed and specifically found that all of the allegations set forth above fit squarely within the clear language of each insurer’s pollution exclusion contained within each policy issued to Oracle.

If the policy wording at issue is clear and expresses the intent of the parties, the agreement must be enforced as written. When compared against plaintiffs’ petition for damages, the court of appeal found that coverage is unambiguously excluded under the clear terms of the policies. There is no question that this legacy lawsuit would not have arisen but for the “actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.” The materials alleged in the lawsuit are, at the very least, contaminants, chemicals, or wastes. Therefore, coverage is unambiguously excluded based on the clear terms of the pollution exclusion, and accordingly the insurers owe no duty to defend Oracle in the instant matter.

As a final matter, we reject Oracle’s contention that according to Doerr v. Mobil Oil Corp., 2000-0947 (La. 12/19/00), 774 So.2d 119, the pollution exclusions found within the policies are inapplicable to the facts of this case. In Doerr, the seminal case addressing pollution exclusions, the Louisiana Supreme Court detoured from its previous stance that total pollution exclusions were intended to be read strictly to exclude coverage for all interactions with irritants or contaminants. Rather, the Supreme Court narrowed its application of the exclusions and clarified that the purpose of the pollution exclusion was to exclude coverage for environmental pollution. It was also meant to strengthen environmental protection standards by imposing the full risk of loss due to personal injury or property damage from pollution upon the polluter by eliminating the option of spreading that risk through insurance coverage. In its reasoning, the court explained that pollution exclusions were born out of the environmental movement of the 1970s and were shaped in response to legislation designed to prompt the cleanup of hazardous waste sites and impose cleanup costs on responsible parties.

Notably, Doerr did not involve the type of claims for which the exclusion was designed; it was a personal injury case, not an environmental pollution case as alleged here. Thus, guided by the principles set forth in Doerr, the court of appeal found that when long term pollution damages are alleged, such as the case with legacy law- suits, pollution exclusions are applicable to exclude coverage.

Conclusion

For the foregoing reasons, the court concluded that the pollution exclusions within the Admiral, Steadfast, and ACE policies unambiguously exclude coverage, and thus the trial court erred in granting Oracle’s motions for summary judgment on the issue of the insurers’ duty to defend. Accordingly, the judgment of the trial court granting Oracle’s motions for summary judgment is reversed, and summary judgment is hereby granted in favor of Admiral, Steadfast and ACE. All costs of this appeal are assessed to Oracle.

Zalma Opinion

Insurers in the 1970s were inundated with hundreds of pollution lawsuits on policies the insurers thought had excluded such risks of loss. When the courts forced the insurers to pay they rewrote their policies with exclusions like those involved in this case, including exclusions called the “total pollution exclusion.” With wording that is so clear and in an eight corners rule state like Louisiana, if the original suit only claims pollution damages the exclusions will apply and the polluters will be required to pay for the damage caused rather than pass it on to an insurer.