In its recent decision in Wilson Mutual Ins. Co. v. Falk, 2013 Wisc. App. LEXIS 1031 (Wis. App. Dec. 11, 2013), the Court of Appeals for Wisconsin had occasion to consider whether cow manure generated at a dairy farm constitutes a pollutant for the purpose of a pollution exclusion.
Wilson Mutual issued a farmowners policy to Jane and Robert Falks, insuring their dairy farm operations.The policy’s liability part contained an exclusion applicable to “losses resulting from the "discharge, dispersal, seepage, migration, release, or escape of 'pollutants' into or upon land, water, or air" as well as for "any loss, cost, or expense arising out of any … claim or suit by or on behalf of any governmental authority relating to testing for, … cleaning up, removing, … or in any way responding to or assessing the effects of ‘pollutants.’” The term “pollutant” was defined in the policy as “any solid, liquid, gaseous … irritant or contaminant, including … waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of.”
In early 2011, the Falks began using manure generated by their cattle for crop fertilizer. Their fertilizer plan was prepared by an agronomist and approved by their local county’s land and water conservation division. Several months later, however, the Wisconsin Department of Natural Resources notified the Falks that manure runoff from their farm contaminated a local aquifer and polluted their neighbors’ wells. These neighbors asserted claims against the Falks, who in turn sought coverage under their policy. Wilson Mutual disclaimed coverage for the claims on the basis of its policy’s pollution exclusion. In the ensuing coverage litigation, the trial court granted summary judgment in Wilson Mutual’s favor, concluding that cow manure constitutes waste for the purpose of the exclusion, and that the exclusion, therefore, barred coverage for the underlying claims.
On appeal, Wisconsin’s Court of Appeals agreed that manure came within the plain terms of the policy definition of “pollutant,” since manure “is certainly gaseous, often liquid, solid in winter, and can be both an irritant and a contaminant.” (Emphasis in original.) This, however, did not end the court’s inquiry, as it noted that in Peace v. Northwestern Nat'l Ins. Co., 596 N.W.2d 429 (1999), Wisconsin’s Supreme Court articulated a standard requiring a more exacting analysis of what constitutes a “pollutant,” since “there is virtually no substance or chemical in existence that would not irritate or damage some person or property.” The Peace court reasoned that “the reach of the pollution exclusion clause thus must be circumscribed by reasonableness, lest everyday incidents be characterized as pollution and the contractual promise of coverage be reduced to a dead letter.” In other words, determining whether a substance qualifies as a pollutant for the purpose of the exclusion must be viewed in terms of the understanding of a “reasonable person in the position of the insured.”
Looking to the holdings in Peace and its progeny, the court noted diverging results as to what substances qualify as pollutants. For instance, Wisconsin courts have held that carbon monoxide released indoors is not a pollutant, whereas lead paint chips are properly considered a pollutant. Further, in a 2012 decision, the Wisconsin Supreme Court held that bat guano would reasonably be considered a pollutant by a homeowner. With these decisions in mind, the court reasoned that a dairy farmer likely would not cow consider manure to be a pollutant, explaining:
Manure is a matter of perspective; while an average person may consider cow manure to be "waste," a farmer sees manure as liquid gold. Manure in normal, customary use by a farmer is not an irritant or a contaminant, it is a nutrient that feeds the farmer's fields that in turn feeds the cows so as to produce quality grade milk. Manure in the hands of a dairy farmer is not a "waste" product; it is a natural fertilizer. While bat guano is "waste" to a homeowner, and lead paint chips are universally understood by apartment building owners to be dangerous and pollutants, manure is beneficial to a dairy farmer. Manure, by act of nature, has always been universally present on dairy farms and, if utilized in normal farming operations, is not dangerous
In reaching its holding that manure is not a pollutant and that the exclusion was inapplicable, the court noted that Wilson Mutual acknowledged the value of manure to the Falks, since the policy insured several pieces of equipment used in the manure fertilizer process; namely, the farm’s manure tank, the manure pump, manure spreaders and two manure tankers. The court observed that by taking premium for this risk, Wilson Mutual expressed an understanding that manure spreading was a part of the Falks’ operations. As such, explained the court, Wilson Mutual “cannot now seriously contend that paying claims related to the Falks' manure spreading is ‘a risk it did not contemplate and for which it did not receive a premium.’”