In Scottsdale Insurance Co. v. Morrow Land Valley Co., No. 11-905 (Ark. May 31, 2012), the Arkansas Supreme Court held that an insurance policy’s pollution exclusion was fairly susceptible to more than one reasonable interpretation, and thus was ambiguous under Arkansas law. The presence of the ambiguity in determining whether certain activities were excluded raised the possibility of coverage and triggered the insurer’s duty to defend. Defendant in the underlying litigation owned and operated a concentrated animal-feeding operation (“CAFO”). A group of plaintiffs brought suit against defendant alleging that the CAFO constituted a public and private nuisance, specifically that its operation generated “noxious gases, smoke, dust, fumes, odors and particulate in great quantities, which migrate off the property and are disseminated in great quantities through the surrounding environment.” Plaintiffs claimed to have suffered harm in the form of nausea, sleep disturbance, and diminished use and enjoyment of their property as a result of defendant’s operations. Defendant sought defense costs and indemnity for its insurer, and the insurer, Scottsdale, denied both based in part on the policy’s pollution exclusion. Defendant filed a declaratory judgment action against its insurer and moved for summary judgment. The circuit court granted partial summary judgment in favor of defendant on the duty to defend and found the pollution exclusion ambiguous, but denied summary judgment with respect to the duty to indemnify due to the presence of genuine issues of material fact. The insurer appealed. Relying on three of its prior decisions, the Arkansas Supreme Court affirmed, holding the pollution exclusion at issue to be ambiguous. The exclusion precluded coverage for “bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.” The term “pollutants” was further defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” The court ruled that this ambiguous language created the possibility that the injuries and damages alleged in the underlying lawsuit fall within the policy’s coverage, therefore, the insurer had a duty to defend its policyholder.
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Arkansas Supreme Court finds the pollution exclusion ambiguous, triggering the insurer’s duty to defend
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