In Mountain States Mutual Casualty Co. v. Roinestad, No. 10SC853, 2013 Colo. LEXIS 166 (Colo. Feb. 25, 2013), the Colorado Supreme Court held that a pollution exclusion’s application was not limited to “traditional” pollution, but also barred coverage under a commercial general liability policy for bodily injuries suffered from exposure to gases caused by the long-term disposal of cooking grease in a public sewer.
Plaintiffs in the underlying case sought recovery for injuries arising from hydrogen sulfide exposures sustained while attempting to clean a clog in a municipal sewer system. 2013 Colo. LEXIS 166, at *5. Subsequent investigations revealed that the clog was caused by the repeated disposal of cooking grease into the sewer system by the policyholder, a restaurant. Id. at *5-6. A restaurant employee testified that the owner “instructed [restaurant] employees to dump greasy water down the [sewer] cleanout—which employees did regularly.” Id. at *6. The injured men sued the restaurant owner, d/b/a the restaurant, in state court for negligence, negligence per se and off-premises liability. Id.
The restaurant’s insurer initially defended the underlying action pursuant to a reservation of rights. The insurer subsequently brought a declaratory judgment action in federal court against the policyholder, but not the underlying plaintiffs, arguing that it had no duty to defend based on the policy’s pollution exclusion. That exclusion barred coverage for “‘[b]odily injury’ or ‘property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants …. at or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured; ….” Id. at *8. The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste . . . .” Id. Ultimately, the federal court held that there was “no duty to defend because ‘under the plain meaning of the words and in the context of the facts and circumstances alleged in the Underlying Lawsuit . . . . [t]he grease and oil, in the quantities allegedly at issue,’ are contaminants and therefore pollutants.” Id. at *8-9 (quoting Mountain States Mut. Cas. Co. v. Kirkpatrick, No. 06-CV-00221, 2007 WL 2506640, at *4 (D. Colo. Aug. 30, 2007)).
In the underlying state court action, the plaintiffs prevailed on summary judgment against the policyholder and, after apparently being unable to collect from the restaurant, served a writ of garnishment on its insurer. Id. at *9. The insurer appeared in the underlying action to argue that it had no duty to indemnify the restaurant in light of the pollution exclusion and the federal court ruling. Id. at *9. The state trial court agreed, but the Court of Appeals of Colorado reversed, holding that “the terms of the pollution exclusion clause were ambiguous and that its application to cooking grease—a common everyday waste product—could lead to absurd results and negate essential coverage.” Id. at *10 (citing Roinestad v. Kirkpatrick, No. 09CA2179, 2010 Colo. App. LEXIS 1508, at *19 (Colo. Ct. App. Oct. 14, 2010)). The state appellate court acknowledged the federal court ruling on the pollution exclusion issue, but noted that it was not binding because plaintiffs were not named therein. See Roinestad, 2010 Colo. App. LEXIS 1508, at *4-5.
The Colorado Supreme Court granted certiorari and reversed, holding that the cooking grease constituted a “pollutant”—specifically a “contaminant.” 2013 Colo. LEXIS 166, at *11. Although the policy at issue did not define the term “contaminant,” the court considered the word’s plain meaning, citing decisions construing pollution exclusions and the dictionary definition, and held that “[t]hese definitions alone suggest that cooking grease becomes a contaminant when discharged into a sewer in quantities sufficient to create a clog.” Id. at *13. The court further concluded that the term was unambiguous based on the facts of the case—relying in part on a city ordinance banning the discharge of pollutants in amounts that caused obstruction to the flow of the sewer. Id. at *13-14.
The court declined to credit plaintiffs’ arguments, based on the reasonable expectations doctrine, that because the pollution exclusion was added to CGL policies to prevent insurers from being liable for clean-up costs associated with federal environmental statutes such as CERCLA, a reasonable insured would expect the exclusion to apply only to “traditional” environmental pollution. Id. at *14. The court stated that the doctrine could override exclusionary policy language in two circumstances:
(1) where an ordinary, objectively reasonable person would, based on the language of the policy, fail to understand that he or she is not entitled to the coverage at issue; and (2) where, because of circumstances attributable to an insurer, an ordinary, objectively reasonable person would be deceived into believing that he or she is entitled to coverage, while the insurer would maintain otherwise.
Id. at *15 (citing Bailey v. Lincoln Gen. Ins. Co., 255 P.3d 1039, 1048-49 (Colo. 2011)). The court found no reason to believe, based on the plain language of the policy, that an ordinary person would understand the pollution exclusion to be so limited, especially since Colorado courts had interpreted the exclusion broadly “since at least the 1990s.” Id. at *15-16 (citation omitted). Furthermore, “[a]n ordinary person could not read the pollution exclusion clause to exclude ‘traditional’ pollution but preserve coverage for conduct that violated a city ordinance prohibiting the discharge of ‘solid or viscous pollutants in amounts which will cause obstruction to the flow.’” Id. at *16. The court found that the plaintiffs failed to produce any facts suggesting that a reasonable person would have been “deceived” into thinking the policyholder’s discharge of cooking grease would be covered. Id. at *16-17. The court further found the Court of Appeals’ concern about the negation of coverage “inapplicable,” since the extent of the policyholder’s discharge of cooking grease, in apparent violation of the city ordinance, constituted the discharge of a “pollutant.” Id. at *18.
The Roinestad ruling makes clear that, under Colorado law, the pollution exclusion in a CGL policy is not limited to “traditional” environmental pollution, and limits the applicability of the “reasonable expectations” doctrine under Colorado law.