Pollution Exclusions

The Pollution exclusion often found in policies that are the subject of dispute provides:

It is agreed that this policy does not apply to liability for personal injury or property damage arising out of the discharge, dispersal, release, escape, or seepage of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water, unless such discharge, dispersal, release or escape is sudden and accidental. [Emerson Electric Co. v. Aetna Casualty & Surety Company, 319 Ill. App. 3d 218, 743 N.E. 2d 629, 252 Ill. Dec. 761 (Ill. App. 01/16/2001)].

Rarely has an issue spawned as many court decisions, and as many varied decisions, rationales and results as has the pollution-exclusion clause.[1]Of the states that have considered the exclusion, approximately half of them have determined that the clause is only meant to exclude coverage for traditional environmental pollution[2] while the remaining states seem to have concluded that the language of the clause excludes from coverage all forms of pollution.

Although a policy contained a clear and unambiguous pollution exclusion, the District Court for the Western District of Louisiana noted that the coverage offered under the Premises Operations Liability Endorsement and CGL policy, seem tailor-made for the insured’s risks and alleged losses. Given the insured’s line of business – the transport of oil – it could yield absurd results to interpret the endorsement in a way that gave it any independent effect while simultaneously barring any coverage for oil spills under the Pollution Exclusion. In other words, such a reading would require the court to find that Central Crude purchased an umbrella policy that provided no coverage for one of the major risks of its line of business. Louisiana law still permits further interpretation in light of the potential absurdity. Great American’s argument that the Pollution Exclusion must trump all other provisions of the policy cannot withstand these findings. Accordingly, it has not carried its burden on a motion for summary judgment. [Cent. Crude, Inc. v. Liberty Mut. Ins. Co. (W.D. La., 2019)] However, after trial the court may find no coverage at all.

In a case where the insurer’s position that the pollution exclusion applied to a loss was rooted in the literal language of the absolute pollution exclusion, the court found the actions of the insurer reasonable.[3] Reversing an $11 million judgment, the court applied the literal language of the exclusion the insurer would succeed and the exclusion would eliminate the duty to indemnify. Moreover, plain language remains an important principle of contract interpretation. Just two months before the MacKinnon decision, the California Supreme Court had enforced the plain language of a collapse provision in a homeowner’s insurance policy and, of course, the high court had invoked plain language as the governing rule numerous times before.[4]

The pollution exclusion exception reinstates coverage for toxic releases which are sudden and accidental. The Illinois court found that the term “sudden” in the pollution exclusion exception of CGL policies is ambiguous and construed it in favor of the insured to mean unexpected or unintended. [Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 154 Ill.2d 90, 180 Ill.Dec. 691 (Ill. 1992)]

The Louisiana Supreme Court clarified Louisiana law on the proper interpretation of total pollution exclusions.[5] It held that such clauses “w[ere] designed to exclude coverage for environmental pollution only” and cannot be “applied to all contact with substances that may be classified as pollutants.”[6] The Doerr court analyzed the history of total pollution exclusions, observing that such clauses originated in response to federal and state legislation, such as CERCLA, that assigned responsibility for the costs of cleaning up environmental pollution. The exclusions were designed to prevent insureds from shifting the risk of such cleanup costs to their general liability policies.

The Doerr court concluded that “[a] literal reading of the total pollution exclusions would alter the general scope and expectation of the parties.” An insured under a CGL Policy “expect[s] to be insulated generally from liability claims” and would not expect that policy to bar coverage for events that “one would not ordinarily characterize … as pollution.” The court gave examples of events that would not ordinarily be characterized as pollution, including the release of carbon monoxide from a small business owner’s delivery truck, a slip and fall on the spilled contents of a bottle of Drano, or bodily injury caused by an allergic reaction to the chlorine in a public pool.[7] Some limiting principle was necessary because a broad reading of total pollution exclusion clauses would lead to absurd results.

To determine whether a total pollution exclusion applies in Louisiana, consider the following:

·         Whether the insured is a “polluter” within the meaning of the exclusion;
·         Whether the injury-causing substance is a “pollutant” within the meaning of the exclusion; and
·         Whether there was a “discharge, dispersal, seepage, migration, release or escape” of a pollutant by the insured within the meaning of the policy.[8]