In its recent decision in Colony Insurance Company v. Bear Products, Inc., 2013 U.S. Dist. LEXIS 43716 (E.D. Okl. Mar. 26, 2013), the United States District Court for the Eastern District of Oklahoma had occasion to consider the application of a pollution exclusion containing a limited exception for specifically defined pollution events.

Colony insured Bear Products under a primary general liability policy for the period March 16, 2007 to March 16, 2008.  While the policy originally contained a total pollution exclusion, Bear paid an additional premium to have the pollution exclusion deleted and replaced with an endorsement titled Pollution Exclusion – Limited Exception for a Pollution Event.  This revised exclusion contained the standard pollution exclusion language barring coverage for bodily injury or property damage resulting from a discharge, dispersal, seepage, migration release or escape of “pollutants,” but contained an exception for a “pollution event” resulting “from waste transported, handled, stored, treated, disposed of, or processed at saltwater disposal wells or sediment ponds, operated by you in conformance with applicable laws, rules and regulations … .”  The endorsement defined “pollution event” as:

… the actual and accidental discharge, release or escape of pollutants directly from the place, container, system or media designed to hold or handle such "pollutants" which:

  1. Begins during the policy period,
  2. Begins at an identified time and place,
  3. Ends, in its entirety, at an identified time within forty-eight (48) hours of the commencement of the discharge, dispersal, release or escape of the "pollutants",
  4. Is not a repeat or resumption of a previous discharge, dispersal, release or escape of the same pollutant from essentially the same source within twelve (12) months of a previousdischarge, dispersal, release or escape,
  5. Does not originate from an "underground storage tank",
  6. Is not heat, smoke or fumes from a "hostile fire", and
  7. You have discovered the occurrence of such "pollution event" within seven (7) days of its commencement[.]

To be a "pollution event, the discharge, dispersal, release or escape of "pollutants" need not be continuous. However, if the discharge, dispersal, release or escape is not continuous, then all discharges, dispersals, releases or escapes of the same "pollutants" from essentially the same source, considered together, must satisfy Provisions a. through f. of this definition to be considered a "pollution event"[.]

Bear was named as a defendant in a class action regarding disposal of hazardous waste materials resulting from oil and gas well drilling operations.  The underlying complaint specifically alleged that beginning in 2003, and for a period of seven years, Bear and other defendants transported and disposed of hazardous waste materials at a disposal pit in the vicinity of plaintiffs’ homes.

The court agreed that the underlying complaint contained allegations of discharges of pollutants and thus initially fell within the pollution exclusion.  Bear argued, however, that it paid an additional premium for “pollution event” coverage, and that as such, Colony was obligated to defend it in the underlying action.  The court disagreed, noting that the “pollution event” exception to the exclusion is limited to discrete pollution events that happen during the policy period, that are not continuous in nature, and that are discovered within seven days.  Given that the use of the disposal site was alleged to have begun in 2003 – prior to the policy’s commencement – the first of the “pollution event” prongs was not satisfied.  The court further concluded that even if each separate transfer of materials to the disposal facility could be considered a separate event, these separate events would still be considered “repeat” events within a twelve (12) month period, which would not satisfy prong (d) of the definition of “pollution event.”  The court also held that Bear’s discharge of hazardous materials could not be considered “accidental” as required by the definition of “pollution event,” but instead was intentional conduct, even if the subsequent bodily injury and property damage was not intended.