A federal district court judge has dismissed one of a poultry farm’s claims for “remediation costs” against its insurer with prejudice, but allowed the other to proceed. In Rembrandt Enterprises, Inc. v. Illinois Union Insurance Company, Rembrandt brought suit against its insurer for losses it sustained after a bird flu epidemic broke out at its farms in 2015. Regulators ultimately ordered Rembrandt to quarantine its facilities and put down millions of birds, forcing Rembrandt to spend millions of dollars to purchase new chicks to repopulate its farms.

Rembrandt submitted a claim to Illinois Union for the entire $7 million limit under its Premises Pollution Liability Insurance Policy: $5 million for business-interruption losses and $2 million for remediation expenses. The parties agreed to split the matter and address liability first and damages second. United States District Judge Paul A. Magnuson denied Rembrandt’s and Illinois Union’s cross-motions for summary judgment on liability, holding that genuine issues of material fact remained for the jury to decide whether (1) bird flu had “dispersed, released, migrated, or seeped” onto or into Rembrandt’s farms, and (2) the virus had spread due to human activity, which would trigger a policy exclusion.

Regarding the damages issue, Illinois National moved for partial summary judgment, arguing that Rembrandt could not recover the $2 million it sought for “remediation costs.” The policy defined “remediation costs” as “reasonable expenses required to restore, repair, or replace real or personal property to substantially the same condition it was in prior to being damaged during the course of responding to a pollution condition.” The key issue was whether Rembrandt’s property was “damaged during the course of responding to a pollution condition.”

Illinois National did not dispute that the diseased birds were Rembrandt’s “personal property,” or that bird flu was a “pollution condition.” Instead, Illinois National tried to hatch another argument: that the “pollution condition” itself – bird flu –and not the response to that “pollution condition,” caused Rembrandt to incur the remediation costs. In Illinois National’s view, all of Rembrandt’s poultry became damaged the instant that bird flu arrived at Rembrandt’s farms, and as a result, the birds were already damaged when the remediation commenced. By the insurer’s logic, therefore, none of the birds could have been damaged “during the course of responding to [the] pollution condition.”

Judge Magnuson clipped that argument. First, he noted that it appeared “undisputed that at least some of Rembrandt’s birds were not infected with [bird flu] when government officials ordered – and Rembrandt completed – the entire flock’s euthanization.” As a result, at least some of the birds were not at all damaged by the “pollution condition” itself (the bird flu), but instead were “damaged during the course of responding to” the pollution condition (i.e., when Rembrandt was forced to put down all of the fowl after the bird flu epidemic had begun).

Rembrandt also sought coverage for “remediation costs” in the form of $800,000 it spent to heat its barns after it put down all of its birds. Normally, Rembrandt’s farms hold hundreds of thousands of birds, from which the body heat alone is enough to heat Rembrandt’s barns. But with its flock euthanized, there were no birds to heat the barns, so Rembrandt incurred costs in supplying heat for its barns, without which additional damage would have been sustained.

Judge Magnuson cooled on this argument, holding that Rembrandt’s barns sustained no “damage […] [prior to or] during the course of responding to [the] pollution condition” (emphasis added). This was plainly distinguishable from Rembrandt’s birds, which did sustain damage (they were destroyed) when Rembrandt responded to the bird flu. According to the language of Rembrandt’s policy, coverage was not afforded for the prospective heating costs that Rembrandt incurred to prevent damage from occurring to its barns. Rather, coverage extended only to retroactive costs incurred to “restore, repair, or replace” property “damaged during the course of responding to a pollution condition.” As a result, Judge Magnuson dismissed with prejudice Rembrandt’s claim to recover barn-heating expenses as “remediation costs,” but allowed Rembrandt’s claim for the euthanized birds to go forward.

You can read Judge Magnuson’s order here.