STATE APPEALS COURTS FAVOR INSURERS IN POLLUTION EXCLUSION DISPUTES

STATE APPEALS COURTS FAVOR INSURERS IN POLLUTION EXCLUSION DISPUTES

Appellate courts in Texas and Louisiana have ruled that policyholders should not be compensated for environmental losses under commercial general liability policies containing pollution exclusions.

In Texas, Tri County Service Co., a paving company working as a subcontractor on a parking lot, filed a claim with Nationwide Mutual Insurance Co. after oil that was sprayed onto unfinished pavement at a construction site in 1990 was washed into a nearby creek by heavy rains.An exclusion clause said the policy would not cover damage arising out of the escape of pollutants from any site "occupied by" the insured or at which the insured was "performing operations," Judge Ron Carr wrote for the 4th Court of Appeals District of Texas in San Antonio.

The court rejected the subcontractor's argument that it did not "occupy" the site because it held no property interest in it. It also claimed it was not "performing operations" at the time of the contamination because the rainstorm occurred at night and there were no employees present at the time.

The judge said that construction work at the site continued for almost two months after the incident and that "on the basis of the plain language of the exclusion in question . . . it precludes all coverage of any liability arising out of the release of pollutants."

Meanwhile, in Louisiana, the Court of Appeals for the 1st Circuit overturned a lower court ruling that found ambiguity in the pollution exclusion.

The appeals court agreed with State Farm Fire & Casualty Co. that its policy did not cover insured, Ka-Jon Food Stores of Louisiana, for damage to underground telephone cables due to the leakage of gasoline from underground storage tanks it leased.

In a unanimous opinion, the appeals court said the language of the pollution exclusion was clear: The policy does not cover "bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, spill, release or escape of smoke, vapors, soot, fumes or pollutants . . . at or from premises owned, rented or occupied by the named insured."