Last week, the Wisconsin Supreme Court issued two opinions in which it held that pollution exclusions barred coverage for third-party claims resulting from alleged contamination of water due to the seepage of cow manure and septage, respectively. As addressed in Chief Justice Shirley S. Abrahamson’s dissents to the two decisions, the majority’s opinions in both cases – Wilson Mutual Insurance Co. v. Falk, Nos. 2013AP691, 2013AP776, 2014 WL 7375656 (Wis. Dec. 30, 2014), and Preisler v. General Casualty Insurance Co., No. 2012AP2521, 2014 WL 7373070 (Wis. Dec. 30, 2014) – were faulty for a number of reasons.
Notably, Preisler considered whether there was insurance coverage available for claims against companies that haul, store, and/or dispose of septage. As the Chief Justice explained, “[t]hese septic companies purchased general liability policies to insure their business operations, that is, they purchased insurance policies to cover damage they might cause in the ordinary course of their hauling, storing, and disposing of septage.” But when that very damage occurred, the majority held that septage was a “pollutant” and that coverage for the claims was therefore barred by the applicable pollution exclusion.
This thinking is deeply disconcerting as it overlooks the very reason that these companies would have purchased insurance. Indeed, Justice Abrahamson observed:
I conclude that a reasonable person in the position of the insureds, two companies in the business of hauling, storing, and disposing of septage, would not consider septage a pollutant under the pollution exclusion clause of general liability policies they purchased to cover liability for damage caused by their septic business operations.
Justice Abrahamson was right to consider why the companies would have purchased insurance in the first instance. Indeed, in assessing the application of a pollution exclusion, it is imperative that a court consider the nature of the business in which the policyholder is engaged. It would seem troubling to conclude, for example, that an insurer can take a policyholder’s premium and then invoke a pollution exclusion to bar coverage for the very business that the policyholder is engaged in and the very risk for which the policyholder needed insurance in the first instance.
Better reasoning was offered by the Indiana Court of Appeals in Great Lakes Chemical Corp. v. International Surplus Lines Insurance Co., 638 N.E.2d 847 (Ind. Ct. App. 1994), a case deciding whether there was coverage available to a chemical company for claims alleging that the company’s pesticide contaminated soil and groundwater. That court opined:
[The chemical company], like most manufactures, purchased liability insurance to protect itself from damage caused by its products. Here, because of the nature of the product and its intended use, the damage caused by [the pesticide] was environmental pollution. However, simply because the damage alleged in the underlying lawsuits is environmental damage does not mean that the pollution exclusion clauses should automatically apply to exclude coverage. In this case, the underlying claims against [the chemical company] are not in the nature of intentional or negligent environmental pollution; they are essentially product liability claims. To hold that the pollution exclusion clauses bar coverage to [the chemical company] for the [pesticide] claims would render the insurance coverage purchased [by the chemical company] illusory.
As in Great Lakes Chemical, just because the damage at issue in the Wisconsin cases is damage to the environment, that does not mean that the pollution exclusion must necessarily bar coverage.