A recent decision by the Eighth Circuit Court of Appeals confirms that when it comes to coverage for environmental contamination claims, the so-called “absolute” pollution exclusion aren’t always absolute.  (The Doe Run Resources Corp. v. Lexington Ins. Co., 2013 BL 155849 (8th Cir., June 13, 2013).)

Doe Run Resources is the largest lead producer in the Western Hemisphere.  It operates facilities in Missouri that extract and crush lead ore to make lead concentrate.  The leftover material, called chat, and tailings are deposited by Doe Run into a mammoth 500 acre waste pile.  The waste pile material can be sold for certain commercial uses.

Two environmental lawsuits – the Briley and McSpadden lawsuits – were filed against Doe Run seeking damages suffered by minors exposed to lead and other toxic substances arising out of Doe Run’s lead operations.  Doe Run turned to Lexington for coverage, but Lexington refused to defend Doe Run, citing absolute pollution exclusions in its policies which (a) in the later policies excluded coverage for injuries “which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants,” and (b) in the earlier policies also required a “discharge, dispersal, release, or escape” of “pollutants or contaminants.”  These exclusions are sometimes referred to as “absolute” pollution exclusions because they do not contain an exception found in earlier vintage policies for a discharge, dispersal, release, or escape that is “sudden and accidental.”

Doe Run filed a declaratory relief action against Lexington to enforce its duty to defend Doe Run.  The trial court granted summary judgment to Lexington, finding that the absolute pollution exclusions in its policies barred coverage for both the Briley and McSpadden lawsuits.  Doe Run appealed.

Applying Missouri law, the Eighth Circuit compared the allegations in the Briley and McSpadden lawsuits with the language of the Lexington pollution exclusions.  The Briley lawsuit asserted various tort claims all premised on allegations that Doe Run is liable for causing the release, transport, and deposition of hazardous wastes, metals, and other toxic substances from the waste pile onto other property.  The Eighth Circuit upheld the trial court’s grant of summary judgment to Lexington with regard to the Briley lawsuit, finding that these allegations fell within Lexington’s pollution exclusions.

On the other hand, the McSpadden lawsuit, despite having been filed by the same law firm and containing allegations similar or identical to those in the Briley lawsuit, also contained allegations not found in the Briley lawsuit.  Specifically, the McSpadden lawsuit alleged that Doe Run (a) permitted the waste pile to be left open and available for public use as a park (including for sledding, riding four-wheelers and dirt bikes, and generally playing as if the waste pile were sand at a beach), and (b) distributed the waste pile material for use throughout the county on roads, in buildings, and in children’s sandboxes.

The Eighth Circuit found that these additional allegations made a difference:  

To the extent the McSpadden complaint alleged bodily injury or property damage resulting from the release of hazardous wastes or toxic substances, the pollution exclusions bar coverage…  [But] the McSpadden complaint [also] alleged bodily injury or property damage from two causes that did not necessarily entail a “release” of hazardous wastes or toxic substances…  First, plaintiffs alleged that Doe Run distributed chat and other toxic substances into the community…  “Distribute” is not among the transitive verbs that trigger the pollution exclusion.  Furthermore, the distribution of material from the [waste pile] for use as a product is markedly different than the inadvertent “discharge, dispersal, seepage, migration, release or escape” of those waste materials.

In other words, unlike the Briley lawsuit, the McSpadden lawsuit was not premised solely on an alleged release of hazardous materials.  Rather, it included allegations that Doe Run distributed the hazardous materials into the community, and also that Doe Run caused injuries when it left the waste pile open and available for use by the public.  Since, under Missouri law, the broad duty to defend “arises whenever there is a potential or possible liability to pay based on the facts at the outset of the case,” the Eighth Circuit ruled that Lexington must defend Doe Run against the McSpadden lawsuit.  Accordingly, the court reversed the summary judgment dismissing Doe Run’s coverage claims relating to the McSpadden lawsuit.

In sum, despite the fact that the McSpadden lawsuit alleged injuries due to environmental contamination, the insurer’s absolute pollution exclusions did not bar the insurer’s broad defense obligations.  Rather, because the lawsuit included allegations of injuries from hazardous wastes that had not been “released” by the policyholder, the insurer was bound to defend its insured.  Thus, complaints alleging harm from environmental contamination should be reviewed carefully from a coverage perspective, even where modern vintage CGL policies are involved, since absolute pollution exclusions aren’t always absolute.