On December 30, 2014, the Supreme Court of Wisconsin issued two decisions – Preisler v. General Casualty Ins. Co., 2014 WL 7373070 (Dec. 30, 2014), and Wilson State Ins. Co. v. Falk, 2014 WL 7375656 (Dec. 30, 2014) – in which it found septage and manure to be “pollutants” within the meaning of standard pollution exclusion language.
In Preisler, the plaintiffs operated a dairy farm across the street from the insureds, the operators of a farm and septic pumping service. Preisler, 2014 WL 7373070, at *1. For several years, the insureds applied septage to the plaintiffs’ farm as fertilizer. Id. at *2. In 2008, the plaintiffs experienced problems with their well water, including adverse effects on cattle that drank the well water. Id. Testing showed that the well water contained elevated levels of nitrate, which had been produced as the seepage decomposed. Id. The plaintiffs sued the owners of the septic pumping service and the company it hired to dispose of septage, and the defendants’ insurers were later added to the suit. Id.
The insurance policies at issue excluded harm “arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’” Id. The policies defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste” and stated that “[w]aste includes materials to be recycled, reconditioned or reclaimed.” Id. After the insurers moved for summary and declaratory judgment on their duty to defend and indemnify on the basis of the policies’ pollution exclusions, the circuit court ruled in their favor, and the appeals court affirmed. Id.
The Wisconsin Supreme Court also affirmed, holding that a reasonable insured would understand decomposing septage to be a pollutant when it seeps into a water supply. Id. at *12. The court discussed two “limiting principles” that guided its analysis in determining whether a substance is a “pollutant.” Id. at *9-10. First, it noted that, when a substance is “universally present and generally harmless in all but the most unusual circumstances,” courts are generally hesitant to conclude that the substance is a pollutant. Id. at *9. Second, it noted that, if the harm in question results from “everyday activities gone slightly, but not surprisingly, awry,” a reasonable insured would not necessarily understand the substance to be a pollutant. Id. at *10. The court found that exposure of decomposing septage to the plaintiffs’ water supply did not fall within either scenario. Id. at *9-10. The court noted that the plain and ordinary meaning of “waste” provided further support for its conclusion that a reasonable insured would understand that decomposing septage is a pollutant when it seeps into a water supply. Id. at *10.
In Falk, the court addressed similar issues, in considering whether an insurer had a duty to defend or indemnify where seepage of cow manure contaminated a well. In that case, unlike in Preisler, the appellate court had ruled in favor of the insured. The Wisconsin Supreme Court reversed, finding that cow manure, like septage, “unambiguously” fell within the insurance policy’s definition of pollutants when it entered a well. Falk, 2014 WL 7375656, at *1.
The insureds in Falk owned and operated a dairy farm that they fertilized with manure. Id. at *1. Neighbors complained that the insureds’ fertilizer was contaminating nearby wells. Id. at *2. The farmowner policies at issue included pollution exclusions with language substantially similar to that in the policies at issue in Preisler. Id.
In considering whether manure is a “pollutant” within the meaning of the pollution exclusion, the appellate court had focused on the fact that the manure had been put to a beneficial use, noting that, to a farmer, manure is “liquid gold” when applied to a farm field. Id. at *4. The Wisconsin Supreme Court, however, stressed the need to consider this issue in the context of the occurrence for which the insured sought coverage – here, the seepage of manure into wells. Id. at *6. As in the Preislerruling, the court noted that prior pollution exclusion cases required it to consider whether: (1) the substance is largely undesirable and not universally present in the context of the occurrence; and (2) a reasonable insured would consider the substance causing the harm involved in the occurrence to be a pollutant. Id. at *10-11.
The court then concluded that manure, when present in a well, is clearly undesirable and commonly understood to be harmful. Id. at 10. It then concluded: “A reasonable insured may not consider manure safely applied on a field to be a pollutant; however, a reasonable insured would consider manure in a well to be a pollutant.” Id. at *11 (emphasis in original).
In both Falk and Preisler, the court noted that its rulings were consistent with Wisconsin precedent, including cases where bat gauno in a home, lead paint that had chipped and otherwise become dispersed from a wall, and fabric softener that had contaminated ice cream cones, had all been held to be pollutants. See Falk, at *9; Preisler, at *6-8. It distinguished cases involving the release of carbon monoxide and carbon dioxide, which were found to fall within the limiting principles described above, since those gases were considered to be universally present and generally harmless in all but the most unusual circumstances. See Falk, at 10; Preisler, at *9.
The Preisler and Falk rulings reaffirm that, under Wisconsin law, the question of whether a substance is a “pollutant,” within the meaning of the pollution exclusion, must be determined in the context of the occurrence for which the insured seeks coverage. Thus, a substance may be a pollutant in one context, even if it has beneficial uses in other contexts.