Pollution Exclusion Bars Coverage for Damage Caused by Dirt and Rocks
March 2007
The case of Ortega
Rock Quarry v. Golden Eagle Insurance Corp., 141 Cal. App. 4th 969, is
another example of courts recognizing the plain intent of the pollution exclusion
to exclude coverage for situations even when the "pollutant" is naturally occurring.
by J.
Kent Holland Jr.
ConstructionRisk.com
LLC
The U.S. Environmental Protection Agency (EPA) issued an administrative order
to the operator of a rock quarry, and subsequently filed a lawsuit, alleging
that the operator had, without a permit, discharged fill material consisting
of dirt and rocks into a creek. The quarry operator tendered defense to its
commercial general liability (CGL) insurers. The insurers denied coverage based
on pollution exclusions in their policies. In the quarry operator's suit against
the insurers for breach of contract, the trial court granted summary judgment
in favor of the insurers. This judgment was affirmed on appeal.
The rocks and dirt in question were placed by the operator along a stream
bed to fill in the main access road to the quarry which had been washed out
by the overflowing creek during severe storms. Some of these fill materials
then apparently eroded into the creek. The EPA order directed the quarry operator
to cease the discharge of fill material and submit an erosion control plan and
site restoration plan for both the site and for the creek. The EPA asserted
that the dirt and rocks "are dredged and fill material, hence, pollutants within
the meaning of sections 301(a) and 404" of the Clean Water Act (CWA).
The insurers asserted that dirt and rocks were pollutants within the policy
definitions and thus subject to the pollution exclusion. It did not matter that
dirt and rocks are naturally occurring in nature. The fact that they were dumped
by the operator into the waterway made them pollutants.
The quarry operator (Ortega) argued that the pollution exclusion could not
be enforced to bar coverage because it was ambiguous in that it failed to adopt
the definition of pollutants set forth in the CWA. Ortega also argued that because
the rocks and dirt were naturally occurring, they could not be considered pollutants.
Finally, Ortega argued that because the pollution exclusion of the policy listed
examples of pollutants that were not covered, anything that was not listed as
an example could not be deemed a pollutant under the definition. The appellate
court rejected each of Ortega's arguments as explained below.
Failure To Incorporate Statutory Definitions of "Pollution"
Using the definition of pollutants found in the CWA for insight into the
scope of the policy definition of pollutant is useful. It defines pollutants
as:
- dredged spoil, sewage sludge, munitions, chemical wastes, biological
materials, radioactive materials, heat, wrecked or discarded equipment,
rock, sand, cellar dirt and industrial, municipal and agricultural waste
discharged into water.
From this definition, it is readily apparent that rocks and dirt such as
that involved in this case are within the definition of pollutant under the
CWA.
The court concluded that state and federal environmental laws may provide
insight into the scope of the policies' definition of pollutants without being
specifically incorporated into the definitions. Failure to specifically incorporate
statutory definitions does not make the language of the pollution exclusion
ambiguous.
Application of Pollution Exclusion to Natural Materials
Natural dirt and rocks are pollutants within the meaning of the CWA when
placed in waters of the United States. A creek such as that involved here is
considered "waters of the United States" within the meaning of the Act. Previous
decisions in the courts have held that naturally occurring substances can be
pollutants when they are moved to a place differing from where they occur naturally.
For example, natural organic fertilizer has been held to be a pollutant within
the meaning of CGL pollution exclusions when the fertilizer leached into groundwater
or contaminated water sources. (See Space v. Farm Family
Mutual Ins., 235 A.D.2d 797).
It has also been held that naturally occurring hazardous substances are deemed
pollutants when an "unnatural process," such as mining, causes them to be found
in a location other than where they originally naturally occurred. (See Gold Fields Am. Corp. v. Aetna Casualty, 295
A.D.2d 289).
In the current case, the appellate court held the trial court was correct
in concluding that because the rocks and dirt had been moved from their natural
location into the stream bed, they became pollutants within the meaning of the
pollution exclusion of the policies.
Doctrine of Ejusdem Generis
Ortega argued that because the pollution exclusion used the word "including"
immediately before the list of examples of pollutants that were excluded, this
list was exclusive, and that anything not listed was therefore not deemed a
pollutant. As the court explained, "Ortega contended, the only ‘irritants' or
‘contaminants' that are excluded from coverage are those that are enumerated
after the word ‘including,' i.e., ‘smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste.'"
Under the principle of ejusdem generis,
the more particular expressions in a contract qualify those that are general.
Thus, in an insurance policy:
- specific provisions rather than general provisions govern the insurance
contract relating to a particular subject, even though the general provision,
standing alone, would be broad enough to include the subject to which the
more specific provision relates.
The term "including" preceding a list of examples is not always, says the
court, used as a term of limitation. For example, the word "including" when
used in a statute is typically a term of enlargement rather than one of limitation.
The doctrine of ejusdem generis does not
apply to create a limitation on the general exclusion when the context demonstrates
a contrary intention. In this case, the court found that "the intention that
damages caused by discharge of any irritant or contaminant be excluded is manifest.
In looking at other decisions from various state jurisdictions, this court
noted that this same question has been raised and answered with courts repeatedly
holding that the exclusion is not ambiguous and that the listing of pollutants
is not exclusive. One decision cited by the court that appeared to be directly
on point explained that:
- defendant disregards the controlling term that precedes the list of
examples. The definition clearly states that pollutants shall consist of
"any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor…. In context,
the term "including" clearly signifies that the ensuing list is not one
of limitation. (See Pa. Nat'l Mut. Cas. Ins. Co.
v. Triangle Paving, Inc., 973 F. Supp. 560).
For all these reasons, the court concluded that the pollution exclusion was
not ambiguous and that the trial court properly ruled that it excluded coverage
for the quarry activities that resulted in rocks and dirt being put into the
stream.
Comment
The court cites examples of other naturally occurring materials that become
"pollutants" when they end up in a place such as groundwater or a stream where
they would not naturally be located. Mine tailings consisting of sand, silt,
clay, and trace metals have been held to be pollutants within the meaning of
insurance policy pollution exclusions similar to the ones at issue in this case.
Sand and gravel have also been found to be pollutants within the meaning of
the pollution exclusion.
Once again, this case demonstrates that courts are recognizing the plain
intent of the pollution exclusion to exclude coverage for situations such as
that involved here even though the "pollutant" is naturally occurring and is
not a substance that was man-made, such as chemical or hazardous wastes. And
once again, the solution for an operator of a facility like a rock quarry is
to purchase pollution insurance coverage such as a pollution legal liability
policy, specifically designed to provide pollution coverage. After all these
years of pollution exclusions being enforced by courts, I find it surprising
that so many cases like this one are continuing to be filed.
I am starting to wonder if perhaps it is appropriate to begin filing lawsuits
against plaintiffs who sue their insurers for pollution coverage when courts
have repeatedly interpreted and applied identical or virtually identical pollution
exclusions to bar coverage for virtually the same matters. At what point is
it an abuse of process to sue an insurer, demanding coverage for something one
knows or should know is not covered under the terms of the policy as commonly
understood, and as commonly applied by the courts in that jurisdiction?
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.