Does environmental damage stemming from the abandonment of lead concentrate mined and processed on the insured’s property fall within the scope of the comprehensive general liability (CGL) policy’s absolute pollution exclusion? Yes, said the Eighth Circuit in Doe Run Resources v. Lexington Insurance Co (No. 12-2215, June 13, 2013).
Facts and Underlying Ruling
The insured mined and processed lead concentrate, which it either sold to market or transported to its smelting facility where it was processed into ingots, bars and other forms. A neighboring landowner subsequently sued the insured for environmental property damage allegedly arising from abandoned lead concentrate. Thereafter, the insured sought defense coverage for the suit under several CGL policies. The insurer, however, disclaimed coverage, arguing that the allegations in the environmental complaint fell squarely within the relevant CGL policy’s absolute pollution exclusion (APE). The district court sustained the insurer’s denial of any defense obligation, finding the APE to be applicable. The insured appealed to the Eighth Circuit, which affirmed the district court’s decision relieving the insurer of any duty to defend.
Eighth Circuit Decision
The central issue considered by the Eighth Circuit was whether the lead concentrate was a “product or pollutant” for purposes of the APE analysis. Predictably, the insured argued that lead concentrate was the insured’s product – indeed, its primary product. The Doe Run court, however, rejected the “primary product” argument, ruling that the insured had discarded or abandoned the pollution-causing lead contaminant: “Discarded or abandoned lead concentrate and tailings are not products [the insured] intends to sell. That its toxic or hazardous materials are valuable products if [the insured] properly contains them does not make them any less ‘pollutants’ when they are abandoned or released into the environment.”
The insured also argued that the APE was unambiguous because a separate, broader stand-alone lead exclusion in the original coverage had been subsequently deleted by endorsement. The insured maintained that, at a minimum, deletion of this lead exclusion created an ambiguity as to the APE’s applicability to liability arising from lead-based substances. In rejecting this argument, the Doe Run court stated: “The more specific lead exclusion, if included, would have overlapped the absolute pollution exclusion as it applies to the release of lead ‘pollutants,’ but the two exclusions would not have conflicted. The parties’ deletion of the lead exclusion left the remainder of the CGL policy in full force and effect, including its absolute pollution exclusion.”
Doe Run is in accord with an increasing number of better-reasoned decisions (many of which involve the leakage of gasoline from underground storage tanks), which have ruled that for purposes of assessing the applicability of an APE, even an indisputably commercial product (e.g., lead concentrate, gasoline) can be considered a “pollutant,” where, as here, it is discarded or abandoned and hence is no longer serving as a “useful product.”