Why We Could Cry Over Spilled Milk

By: Summer Frederick

Most general liability policies exclude coverage for “bodily injury” and “property damage” arising out of pollution.  The words “pollution” and “pollutants” tend to generate thoughts of smokestacks and haze.  Unsurprisingly, courts typically construe pollution exclusions to encompass smokestack pollution.  Depending on a policy’s definition of “pollutant” and the particular exclusion in the policy, however, bodily injury and property damage caused by a variety of materials and substances also potentially could be excluded.      

A common pollution exclusion provides that “[t]his insurance does not apply to ‘bodily injury’ or ‘property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants….’”[i]  The same form defines “pollutants” 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.”  This is not the only exclusion that may appear in commercial general liability policy forms.

In Great American Insurance Company v. ACE American Insurance Company, the United States District Court for the Northern District of Texas recently considered coverage for a claim involving the discharge of rock fines (a waste material generated during the crushing process) into a river.[ii]  It was alleged that the insured’s dispersal of the rock fines caused physical damage to the stream and stream bed.  The insurer declined to defend, citing an absolute pollution exclusion.  The exclusion barred coverage for liability “arising out of or in any way related to … discharge, dispersal, seepage, migration, or release or escape of ‘pollutants,’ however caused.”  “Pollutant” was defined as “any solid … irritant or contaminant …” and included “materials which are intended to be or have been recycled reconditioned or reclaimed.” 

The court determined that rock fines were pollutants.  It acknowledged that the rock fines were wanted or useful, but noted that this did not change their nature as pollutants.  They were still irritants or contaminants when discharged and dispersed where they did not belong.  The court stated:  “The word ‘pollution’ is not a term of art.  Rather, substances can constitute pollutants regardless of their ordinary usefulness.” 

Great American is consistent with other Texas cases in which courts have held that a variety of substances can be pollutants based on policy language.  Among others, these substances include asbestos,[iii] mothballs and mothball fumes,[iv] smoke and odor eliminator fogger,[v] and toluene fumes.[vi]  If innocuous substances with ordinary usefulness become “pollutants” when discharged where they do not belong, it stands to reason that injury caused by the proverbial “spilled milk” could be excluded.