CAN POLLUTION NOT BE POLLUTION?

Some times, court decisions can be difficult to understand and explain. For example, recently an appellate court in essence held that pollution is not pollution.

Neighbors of a hog confinement facility sued the operators of the facility and owners of land on which hog manure was applied. Plaintiffs complained that odors were a nuisance that were causing loss of enjoyment of their property. The operators' insurance company declined to defend the suit, citing the "pollution exclusion" provision in the operators' umbrella insurance policy.

The Appellate Court held that the pollution exclusion did not apply because the alleged odor pollution was not "traditional pollution." * The Court relied upon a prior state Supreme COurt decision which held that: "Given the historical background of the absolute pollution exclusion and the drafters' continued use of environmental terms of art, we hold that the exclusion applied only to those injures caused by traditional environmental pollution." The Supreme Court did not define "traditional pollution", but found that the accidental release of carbon monoxide due to a broken furnace does not constitute the type of environmental pollution contemplated by the pollution exclusion provision. **

Te Appellate Court stated that "we do not find the hogs, their manure, nor the smells associated with these things constitute traditional environmental pollution." The Court acknowledged that the state Environmental Protection Act deemed odor a contaminant that would constitute air pollution if it unreasonably interfered with the enjoyment of life or property. However, it said, "even if the odors at issue in this case constituted air pollution for purposes of the Act, this does not mean the odors constitute 'traditional environmental pollution.'...Generally speaking, the scope of the things seen as hazardous to the environment, as reflected in environmental protection laws today, is far greater than what wee conclude our supreme court had in mind when it spoke of 'traditional environmental pollution.'"

If odors associated with hog processing do not constitute "traditional pollution", does this mean that odors from a wastewater treatment facility also do not constitute "traditional pollution?" In any case, how can any allegation of a violation of environmental statutes or regulation not be deemed "traditional pollution" when those laws essentially define what is "traditional pollution."? Or does all of this mean that , if sewage odors do not constitute "traditional pollution", then the only basis for challenging odor is through a nuisance theory, not through regulatory air pollution violation?

Some times, court decisions are difficult to understand and explain.

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* Country Mutual Insurance Company v. Hilltop View,
2013 Ill.App.(4th)130124

** American States Insurance Co. v. Koloms,
177 Ill.2d 473 (1997)

BEWARE OF THE POLLUTION EXCLUSION

Last year, I discussed a federal court's application in the Scottsdale case of the "pollution exclusion" to deny insurance coverage to a water utility of alleged claims that it furnished water containing a contaminant. ("Insurance Pollution Exclusion Applied To Water Supply Contamination", April 23, 2012)

In February of this year, an Illinois state appeals court reached the same conclusion regarding the same municipal-owned water utility.
The village sought insurance company defense or indemnity of suits alleging that it had knowingly and routinely mixed polluted water into its distributed water. The appeals court affirmed the trial court's decision that all such claims fell within the absolute pollution exclusion provisions of the insurance policies involved and, therefore, the insurance companies had no responsibility for the claims. (Village of Crestwood v. Ironshore Specialty Insurance Company, 2013 IL App (1st) 120112 February 22, 2013)

The village argued that the pollution exclusion was developed in the insurance industry to deal with "traditional environmental pollution" which could have significant impacts on land, water and air, with substantial resulting costs. It asserted that the alleged water contamination by it did not fall within traditional pollution excluded from insurance coverage by prior court decisions.

The Illinois court rejected the village's argument. It stated that the cases "make clear that the Village's knowing contamination of the Crestwood water supply with chemical-laden groundwater and subsequent distribution of that contaminated combination is a textbook example of 'traditional environmental pollution.' It is undisputed that the chemicals in the Crestwood water supply were contaminants or pollutants as those terms were used in the insurance policies at issue. The policies define 'pollutants' as 'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste material.'" The court stated that the pollution exclusion "is unqualified and absolute and entirely precludes coverage for bodily injuries or property damage."

In passing, the court distinguished two out of state decisions relied on by the village that appear to suggest that coliform bacteria and giardia parasites in water are not "pollutants" within the scope of a pollution exclusion. I would find it difficult to assert that bacteria and substances such as giardia and cryptosporidium are not "pollutants".

Apart from the usual insurable risks, water utilities have two unique risks. First, they furnish a product--water That water must be in compliance with the Safe Drinking water Act provisions. But it also may contain unregulated constituents that could be subject to alleged claims. Further the water may have to meet certain pressure and volume requirements, the failure to attain may also result in claims. Second, water utilities can impact adjoining properties if, for example, there is a chlorine leak.

The resulting conclusion from these cases is that an diligent water utility will assure that any pollution exclusion is deleted from its insurance coverage and that it obtains product liability insurance coverage sufficient to protect against estimated liability risks.

INSURANCE POLLUTION EXCLUSION APPLIED TO WATER SUPPLY CONTAMINATION

Certain residents sued their village and village officials seeking damages for alleged contamination of water furnished by the municipal water system. The village continued to use for many years a well contaminated by perc, a dry cleaning solvent, which had migrated into the soil and ground water. The state also sued the village to compel remediation.

The insurer for the village sued in federal court for a declaration that the insurer had no duty to defend the suits against the village or to indemnify the village if the residents and the state should prevail in their suits.

The insurance policies at issue were public entity general liability policies issued to municipalities. They contained a pollution exclusion of the same kind found in commercial general liability policies. The pollution exclusion excluded from coverage bodily injuries, property damage and personal injuries arising from the discharge and dispersal of pollutants and also excluded expenses arising from orders to clean up or respond to the effects of pollution.

THe federal Seventh Court of Appeals affirmed the District Court holding that the pollution exclusion applied to relieve the insurers from any responsibility for the suits by the residents and the state against the village. The Court stated: "There is no doubt that perc is a 'contaminant' within the meaning of the policies; and the tort plaintiffs are complaining about its 'dispersal' by the Village from the contaminated well to their homes via the system of water mains that connects the well to the homes."

THe Court explained that a prime rationale for the pollution exclusion relates to the impossibility of adjusting insurance premiums for the greater risk of loss potential from high risk insurance customers. Thus, the exclusion forces high risk potential polluters to self identify by buying pollution coverage. (Scottsdale Indemnity Co. and National Casualty Co. v. Village of Crestwood, US Ct App, 7th Cir., Nos. 11-2385, 11-2556,11-2583, March 12, 2012)

The lesson of this decision for a water utility, of course, is twofold: first, read and understand the utility's general liability policy, including the pollution exclusion; and second, purchase a pollution coverage rider sufficient to cover potential contamination issues.