Expert Commentary

Pollution Exclusion Bars Coverage for Damage Caused by Dirt and Rocks

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.


Environmental
March 2007

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?


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