Sometimes the truth is stranger than fiction, and that seems particularly true in insurance coverage cases. Earlier this month, the Colorado Court of Appeals, Division Two, tackled the troublesome absolute pollution exclusion in Roinestad v. Tim Kirkpatrick d/b/a Hog's Breath Saloon & Restaurant, 2010 Colo. App. LEXIS 1508 (Oct. 14, 2010). As discussed in prior e-mail alerts, courts around the country continue to split over the scope of this particular exclusion; insurers want it as broad as possible, and insureds want it limited to more traditional pollution scenarios.
The facts in Roinestad revolve around the Hog's Breath dumping kitchen grease into the city's sewer system. In October 2003, the city embarked on a sewer rehabilitation project. Two city employees were working on the sewer line outside the Hog's Breath to remove a grease clog. When the clog broke free, both employees were overcome with hydrogen sulfide. They survived but sustained serious injuries. Now the strange part of the story.
The employees sued the Hog's Breath, and the restaurant turned to its insurer for a defense and indemnity. In a federal declaratory judgment action by Mountain State Mutual Casualty Company against the Hog's Breath, the federal court determined that the pollution exclusion barred coverage. Ultimately, the two city employees won a large judgment against the Hog's Breath for $2.1 and $1.7 million respectively, and proceeded to seek to garnish the restaurant's insurance policy issued by Mountain State Casualty.
It would seem certain that since Mountain State Casualty had prevailed once it would do so again regarding coverage and application of the pollution exclusion. While the trial court agreed that the exclusion barred coverage, the Colorado appellate court disagreed. The court issued an interesting ruling that should be welcome by policyholders. It acknowledged the split among the courts around the country in applying the absolute pollution exclusion.
The court noted in its opinion, "[c]ourts that have construed pollution exclusion clauses like that at issue here are split as to whether the clause is ambiguous." The Colorado court determined "that the appropriate inquiry is whether the exclusion is ambiguous when applied to the facts and circumstances presented in a particular case." Id. at *13.
In reviewing the facts surrounding the Hog's Breath's actions, the court decided that the cooking oil and grease did not fall within the general definition of a contaminant. As most readers are aware, the standard pollution exclusion defines "pollutants" to mean "any solid, liquid, gaseous or thermal irritant or contamination, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." The court determined that the definition of a contaminant includes four various definitions, and was thus ambiguous when applied to this situation presented before it. Id. at *14.
The court was very cognizant of other case law warning that if read literally, the pollution exclusion would lead to absurd results. If the words within the exclusion are not applied in context, then certain risks, such as a landfill, would be uninsurable according to the court. Id. at *16.
The court also ruled that the insurer in this instance, Mountain State Casualty, failed to prove that the hydrogen sulfide was discharged from the Hog's Breath. In making its ruling, it cites to Firemen's Ins. Co. v. Kline & Son Cement Repair, Inc., 474 F.Supp.2d 779, 798 (E.D. Va. 2007), for an analysis of the words "discharge," "dispersal," "seepage," "migration," "release," and "escape." The interesting point is that the court in Kline & Son adopted a very broad interpretation of the pollution exclusion to deny coverage to that insured.
This case demonstrates the danger in relying on CGL policies to provide coverage for pollution, which is a term usually defined very broadly in the insurance realm. Clearly in this instance, the employees would have likely lost in federal court. Businesses need to determine the requirement for specialized insurance coverage that will provide protection against pollution claims when developing their insurance program.
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