09.22.2017

United States District Court for the Eastern District Washington Applies Xia v. ProBuilders Specialty Insurance Company RRG

In the matter of The Dolsen Companies, et al. v. Bedivere Insurance Company, et al., Case No. 1:16-CV-3141-TOR, 2017 WL 3996440 (E.D.Wash. September 11, 2017) (ECF 70), the United States District Court for the Eastern District of Washington addressed the application of an absolute pollution exclusion to claims for defense and indemnity of a lawsuit alleging environmental contamination and liability under the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq. (“RCRA”), the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq. (“EPCRA”), and the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (“CERCLA”).

The underlying lawsuit alleged that the plaintiffs, three dairy farm operations (“the Dairy Farms”), caused contamination to ground water and drinking water through their use and storage of liquid manure. The Dairy Farms submitted the claim to several insurers who had issued policies covering after the year 2000 (“Insurers”). The Insurers denied both defense and indemnity based, in part, on the absolute pollution exclusion contained in the policies. The Dairy Farms sued the Insurers and the parties cross moved on summary judgment to determine whether the absolute pollution exclusion applied to preclude coverage for the environmental contamination claims under the policies.

The Court first construed the language of the absolute pollution exclusion and found that it was unambiguous in the context of the environmental contamination claims. The Court considered and rejected the Dairy Farms’ argument that cow manure did not qualify as a “pollutant” under the policy because it has a beneficial non-polluting use. The Court also analyzed and rejected the Dairy Farms’ argument that coverage should be afforded under the policies because a reasonable purchaser of a farm policy would not expect to have part of their operations excluded from coverage. The Court noted that Washington Courts have expressly declined to adopt the “reasonable expectation” line of reasoning.

Citing to Kent Farms v. Zurich Ins. Co., 140 Wn.2d 396 (2000) and Quadrant Corp. v. Am. States Ins. Co., 154 Wn.2d 165 (2005), the Court held that absolute pollution exclusions apply to traditional environmental harm arising from a pollutant acting as a pollutant. The Court found that the underlying environmental claims clearly alleged that manure was acting as a pollutant when it caused the loss at issue.

The Court then turned to the efficient proximate cause analysis as set out in Xia v. ProBuilders Specialty Insurance Company RRG, 2017 WL 3711907, at *4 (April 27, 2017), originally published at 188 Wn.2d 171 (2017), as modified (August 16, 2017).  The Court stressed:

The distinguishing feature between these two lines of cases is the relation between the initial act and the pollutant causing harm—viz., whether the initial peril was the polluting act (i.e., whether the incident involved pollutants in the first place) or whether the initial peril was some other act that incidentally led to a polluting harm. Although subtle, this framework is workable and leads to a clear result in this case: the initial act was intimately tied to the pollutant and thus the initial peril was the polluting act.

Applying this framework to the environmental claims at issue, the Court found that the initial act giving rise to the environmental harm (the storage and application of liquid manure) was an excluded harm and there was no other covered occurrence that otherwise led to the harm. The Court rejected the argument that the negligent construction of the storage facilities for the manure presented a separate cause of the loss, instead finding that the absolute pollution exclusion specifically excluded coverage for the seepage of pollutants stored or processed as waste.

The Court also rejected the Dairy Farms’ argument that under American Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693 (2010), the Insurers had a duty to defend because a Washington case had not yet determined that cow manure was a “pollutant” as defined by the policies, and at least one case from a different jurisdiction had found that pig manure was not a pollutant.   The Court rejected this argument and found “a different approach in another state does not create lack of clarity where the underlying rules are much different and are clearly inconsistent with the approach in Washington.”

Accordingly, the Court found that the absolute pollution exclusion applied and that the Insurers had no duty to defend or indemnify the Dairy Farms for the environmental contamination claims.

Posted by Jennifer Dinning