Source: http://www.lexology.com, December 24, 2013
By: Loren S. Cohen, Carl J. Pernicone and Jacob R. Graham, Wilson Elser
In Country Mutual Insurance Company v. Hilltop View, LLC , 2013 IL App (4th) 130124, an intermediate Illinois appeals court held that the absolute pollution exclusion in an umbrella policy did not preclude coverage for a claim by neighbors for unpleasant manure odors arising out of the insured’s confinement hog farm.
Facts and Court Opinion
Fourteen neighbors sued the insured, an owner of a confinement hog farm, under theories of negligence and nuisance for fumes from the hogs’ manure interfering with the neighbors’ enjoyment of their property and life. The insured tendered the claim to its umbrella insurer, which denied coverage based on the umbrella policy’s absolute pollution exclusion, which barred coverage for “personal injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release, or escape of pollutants.” “Pollutants” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fume, acids, alkalis, chemicals, and waste materials. Waste material includes materials that are intended to be or have been recycled, reconditioned, or reclaimed.” After the issue was joined, the insurer sought summary judgment that the absolute pollution exclusion barred coverage for hog manure odor claims. The trial court denied the insurers’ motion. On appeal, the Fourth District appeals court affirmed the ruling on the pollution exclusion but remanded back to the trial court for consideration of other insurance defenses.
In so ruling, the Country Mutual court relied principally on the Illinois Supreme Court’s seminal decision in American State Insurance Co. v. Koloms, 687 Ill.2d 72 (1997), restricting the pollution exclusion’s purported limitless application to only “traditional environmental pollution.” Later Illinois cases have interpreted this phrase to mean claims involving hazardous material discharged into the land, atmosphere, or any watercourse or body of water.” See, e.g., Kim v. State Farm Fire and Cas. Co., 728 N.E.2d 530 (1st Dist. 2000).
Rejecting this principle because the hog farm’s manure could be beneficial to land or detrimental to water, the appeals court found that the insured’s use of hog manure on land failed to satisfy the Koloms definition of a “traditional environmental pollution.” Instead, the Country Mutual court noted the difference between naturally occurring odors, e.g., odors emanating from hog manure, and non–naturally occurring contamination. Nevertheless, in dictum, the court noted that it was not saying a hog farm could never pollute: “For example if a hog farmer dumped hog manure into a creek instead of spreading it on his fields, it might be difficult not to categorize the contamination of the creek as a form of traditional environmental pollution.” In the end, though, because these hog farms provided food – not pollution – in the court’s eyes, hog manure was not “traditional environmental pollution.”
Country Mutual teaches this practical lesson for insurers: At least in Illinois, where an insurer seeks to invoke the applicability of an absolute pollution exclusion to a claim involving an obnoxious odor emanating from a naturally occurring substance (e.g., manure), courts are likely to find the exclusion inapplicable on the theory that the claim does not involve the kind of “traditional environmental pollution” required by Koloms. This is particularly true where, as here, the source of the alleged pollutant (hog farm) has been a fixture in the community for a long time and provides an important benefit (a source of food).
The Second Circuit took a similar approach in Barney Greengrass, Inc. v. Lumbermens Mutual Casualty Company, No. 10-3467-cv (2nd Cir. Nov. 4, 2011), when it refused to extend the definition of a pollutant to restaurant odors, distinguishing such odors from “traditional environmental pollutions to which exclusions apply.”
Other courts, however, have taken a different view. Focusing on the definitions in the absolute pollution exclusion as opposed to the context of the claim, these cases hold the exclusion to be unambiguous. For instance, in a 2012 case with nearly identical facts, a Pennsylvania Federal Court held that “noxious odors produced by pig excrement (or waste) that cause bodily injury and property damage appear to fit squarely within the definition of pollutant under the policies.” Travelers Property Cas. Co. of Am. V. Chubb Custom, 864 F. Supp. 2d 301 (E.D. Pa. 2012). The Travelers court emphasized the bodily injury allegedly caused by the odor from the manure – a point not asserted by the underlying claimants in Country Mutual.
Similarly, in a recent Wisconsin Supreme Court decision, the court found that bat guano “unambiguously” constitutes an “irritant” or “contaminant” because the policy listed “waste” as an irritant or contaminant (as opposed to the more detailed definition of “waste material” in Country Mutual). Hirschhorn v. Auto-Owners Ins. Co., 809 NW 2d 529 (Wis. 2012). Likewise, in an unpublished opinion, the Eleventh Circuit looked to the policy’s definition and found that “curry aroma” is a pollutant. Maxine Furs, Inc. v. Auto-Owners Ins. Co., 2011 U.S. App. LEXIS 6706 (11th Cir. March 31, 2011).
Country Mutual is a good reminder to insurers that the application of a pollution exclusion does not always entail a straightforward legal analysis based on a court’s interpretation and construction of the subject policy. More often than not, it involves a highly fact-sensitive inquiry that will turn on a careful, case-by-case review of the record.