United States: Is Manure a "Pollutant?"

\Ma*nure"\, n. Any matter which makes land productive; a fertilizing substance, as the contents of stables and barnyards, dung, decaying animal or vegetable substances, etc. Webster’s Revised Unabridged Dictionary (1997 Ed.)

Manure–once regarded by Indiana’s small farmers as a blessing–has become a source of strife between Indiana’s large confined animal feeding operations (CAFOs) and their suburban neighbors. Manure is produced by CAFOs in quantities far outstripping amounts seen by farmers even thirty years ago. Manure is now a regulated substance. See 327 IAC 16 et seq. If a pork, poultry or dairy CAFO has a manure spill, the farmer’s insurer may claim there is no coverage for his or her claim on account of a "pollution exclusion." This article shows that at least in Indiana, the modern "absolute" pollution exclusion in commercial general liability (CGL) insurance policies does not exclude recovery for loss or damage resulting from a spill of "manure."

A typical CGL policy contains an exclusion for claims "arising out of the actual, alleged or threatened discharge, seepage, migration, dispersal, release or escape of ‘pollutants’." "Pollutants" is typically defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed." "Manure" is generally not a specifically listed pollutant. Whether it falls within or outside of a pollution exclusion is a legal matter for a court to determine.

No published Indiana decision has specifically addressed the issue of whether animal manure constitutes "waste", "waste material" or "pollutant" under an absolute pollution exclusion. The Indiana Supreme Court’s decision in American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1996), holds that this exclusion is overbroad and ambiguous.  In Kiger, the court was called on to determine whether "gasoline" was a "pollutant." The court began by examining the plain and ordinary language of the pollution exclusion and determined that it did not "obviously" include gasoline. At the same time, the pollution exclusion was literally so broad that it included virtually all substances, and was thus overbroad and "ambiguous." Id. at 948. In Indiana, ambiguous policy terms are construed "in favor of the insured and against the insurer who drafted it." Id. Likewise, coverage exclusions are construed "strictly against the insurer and in favor of coverage." Id. at 949. The court held that if the policy intended on excluding coverage for gasoline leakage, the language of the policy must be explicit. This rule is driven by the fact that "the insurer drafts the policy and foists its terms upon the customer." Id. at 947. The court concluded that "gasoline," a term not expressly excluded in the policy, was not a "pollutant" under the policy’s "pollution exclusion."

Indiana courts have rejected subsequent attempts by insurance carriers to limit the holding of Kiger to its facts and circumstances. In Seymour Mfg. Co., Inc. v. Commerical Union Ins. Co., 665 N.E.2d 891, 892 (Ind. 1996), the Indiana Supreme Court held that Kiger’s holding extended not only to indemnity, but also to the duty to defend. Expressly following Kiger and Seymour, the Court of Appeals in Travelers Indem. Co. v. Summit Corp., 715 N.E.2d 926, 935 (Ind. Ct. App. 1999) held that "environmental claims" are not excluded by the absolute pollution exclusion because it is "ambiguous." Finally, in Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002) the Supreme Court summarily affirmed the Court of Appeal’s holding that "fumes emanating from carpet glue" were not included in the definition of "pollutants." Id. Again finding the pollution exclusion to be "ambiguous," the Supreme Court construed the policy language in favor of coverage. Id. Freidline’s holding stands out as a noticeable extension of Kiger, because "fumes" were specifically excluded by the absolute pollution exclusion. Yet even then, the Supreme Court held the absolute pollution exclusion was ambiguous and unenforceable.

In Employers Mutual Casualty Co. v. DFX Enterprises, Inc., No. 20D03-9505-CP-406 (Elkhart Superior Court, April 24, 1997) an Indiana trial court concluded raw sewage was excluded under a pollution exclusion, after tenants of a mobile home park sued the park’s owner for exposure "harmful bacteriological and virological agents." The trial court’s holding was based on its finding that the "pollution exclusion clause in . . . [the] policy [is] unambiguous within the facts of this case." The DFX opinion was sharply criticized by the court in Governmental Interinsurance Exchange v. City of Angola, 8 F.Supp.2d 1120 (N.D. Ind. 1998) which found it to be irreconcilable with Kiger and Seymour. "Kiger is clear and controlling." Id. at 1128. The court held that pollution exclusions like those found in Kiger are ambiguous as a matter of law. Id.

A similar case from the Arkansas Supreme Court agrees that human septic sewage is not a pollutant or waste under an insurance policy’s definition of "pollutants." See Minerva Enterprises, Inc. v. Bituminous Coal Corp., 851 S.W.2d 403 (Ark. 1993). In Minerva, a tenant sued his mobile home park owner after returning to his home to find that a defective septic system had caused an overflow of liquid and solid sewage in his home. The park owner’s insurance carrier refused to provide defense and indemnity because of a pollution exclusion. The Arkansas Supreme Court disagreed, finding the pollution exclusion to be ambiguous. The court held that the pollution exclusion was intended to exclude industrial wastes, not household wastes. Moreover, "the pollution exclusion was never intended to cover those who are not active polluters but had merely caused isolated damage by something that could otherwise be classified as a ‘contaminant’ or ‘waste.’" Id. at 404.

For the same reasons "gasoline" was not a "pollutant" in Kiger, "fumes" were not a "pollutant" in Freidline, and "human sewage" was not a "pollutant" in Minerva, an Indiana court would conclude "animal manure" is not "waste" or a "pollutant" in a pollution exclusion. First, the definition of pollutants is so overbroad as to be unenforceable as a matter of law. Read literally, "pollutants" would include virtually any substance. Second, "animal manure" is not obviously excluded from the plain meaning of "waste" or "pollutant." Indiana law requires interpretation of plain meaning from the standpoint of the policyholder. Ordinary dictionary definitions suggest "waste" is a valueless substance: "[a] A useless or worthless by-product; [b] Garbage; trash; [c] The undigested residue of food eliminated from the body." American Heritage Dictionary, (2d College Ed. 1985). Most policyholder farmers likely don’t consider manure useless or discarded "waste" or a "pollutant" but a beneficial substance–a natural form of fertilizer. Indeed, before the introduction of modern chemical fertilizers, manure was the source for enriching cropland. Finally, "manure" is also not explicitly excluded from coverage. Thus, interpretation that favors the policyholder–that manure is not "waste" or a "pollutant"–would control.

The public policy underpinning Kiger also supports the proposition that manure is not a "pollutant" under Indiana law. In Kiger, the Indiana Supreme court was troubled by the fact the insurer had sold a gasoline station a policy that, if interpreted as excluding coverage from gasoline spills (the interpretation suggested by the insurer), would have provided no coverage for a large segment of the gas station’s business operations. Id. at 949. "That an insurance company would sell a ‘garage policy’ to a gas station when that policy specifically excluded the major source of potential liability is, to say the least, strange." Id. at 948. This same "strange" situation would arise if an insurer attempted to assert manure is was not a "pollutant" under a CAFO operator’s insurance policy. A hog, poultry, or dairy farmer needs protection from a number of risks, but manure spills likely are among the largest.

There are two public cases outside of Indiana that have discussed whether manure is pollutant or waste for purposes of pollution exclusions. The Iowa Supreme Court confronted this issue and determined that hog manure, when spilled on a public road, is "waste material" for purposes of construing a "pollution exclusion." See Weber v. IMT Ins. Co., 462 N.W.2d 283 (Iowa 1990). In that case, a sweet corn grower brought a nuisance action against a hog farm alleging that odor from manure contaminated his sweet corn crop. The hog farm utilized a public road near the sweet corn field and dropped and tracked manure onto the road. The sweet corn grower claimed the odor made his corn unmarketable. The hog farm tendered its claim to its liability insurer, which denied coverage due to a "pollution exclusion."

The Iowa Supreme Court agreed with liability insurer. "Waste material" was an undefined term in the policy at issue. Examining the ordinary meaning of "waste material," the court concluded the term was not ambiguous and "encompasses the hog manure that was spilled on the road." Id. at 286. The court recognized the then-emerging line of cases that interpreted pollution exclusions less broadly, and concluded by strictly limiting its holding to the facts in that case: "There may be circumstances when hog manure should be classified as something other than waste material, but when it is spilled on the road it unambiguously constitutes waste." Id. Interestingly, the court ultimately found coverage for the hog farmer under a separate umbrella policy, and made no discussion of the pollution exclusion and its presence, or absence, from that policy. See also Space II v. Farm Family Mut. Ins. Co., 652 N.Y.S.2d 357 (N.Y. App. Div. 1997) (New York appellate court determined that "cow manure" was a "pollutant" after neighbors sued a farmer claiming that liquified cow manure contaminated their well).

In light of the Indiana Supreme Court’s holdings in Kiger, Seymour, and Freidline that the absolute pollution exclusion is ambiguous and unenforceable, Indiana courts would reach a different result than Weber and Space II. Weber is distinguishable because the Iowa Supreme Court held the pollution exclusion to be unambigous in that case. Moreover, Weber’s holding was also expressly limited to facts of that case, manure spilled on public thoroughfare. Similarly, Space II is irreconcilable with Kiger and subsequent decisions. The New York appellate court held that liquid manure was a "waste material," "pollutant" or "contaminant" with no discussion as whether the pollution exclusion in that case was ambiguous.

Fortunately for Indiana farmers, Indiana courts have determined that ambiguous insurance policy terms should be construed in favor of coverage. Indiana courts strive to find indemnity where possible. These same rules that provided coverage to a family-run gas station in Kiger would provide a basis for coverage for an Indiana farm in the event of an accidental manure spill. For those farmers who have purchased insurance to protect against these risks, manure can remain a blessing.

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