In its recent decision in Demaray v. De Smet Farm Mut. Ins. Co., 2011 S.D. LEXIS 98 (S.Dak. July 20, 2011), the South Dakota Supreme Court addressed whether the phrase “sudden and accidental,” as used in a pollution exclusion, is ambiguous.
The insureds, who ran a cattle operation, were sued for alleged intermittent, repeated and continuing discharge of animal and other wastes and process waste water into lakes and streams on the claimant’s property. The insureds sought coverage under the liability coverage of a policy issued by De Smet Fam Mutual Insurance Company. De Smet, in turn, denied coverage on the basis of the policy’s pollution exclusion applicable to the “the discharge, dispersal, release, or the escape of pollutants into or upon land, water or air.” The exclusion, however, contained an exception for “bodily injury or property damage arising out of the sudden and accidental discharge, dispersal, release or escape into or upon land . . . of pollutants used in or intended for use in normal and usual farming activities[.]” The insureds argued that the exception applies because the pollution alleged in the underlying complaint failed to allege that the pollution was the result of intentional conduct.
The court acknowledged that matter was one of first impression as no South Dakota court previously addressed the phrase “sudden and accidental” in the context of a pollution exclusion. The court therefore looked to the two lines of “sudden and accidental” case law in other jurisdictions. The first line of cases holds that the phrase “sudden and accidental” is ambiguous since the word sudden can have several meanings, including accidental and abrupt. In light of this ambiguity, these courts construe the phrase in the insured’s favor to mean accidental, and as such, the phrase “sudden and accidental” means “unexpected or unintended.” By contrast, the other line of cases holds that the phrase is unambiguous and that the term “sudden” refers solely to a temporal element. The court agreed with the latter line of cases.
Thus, agreeing that the phrase “sudden and accidental” has a temporal element, the court looked to the allegations in the underlying complaint to determine whether any of the alleged discharges could be describe as “abrupt or immediate and unexpected or unintended.” The court held that no such conduct was alleged. Rather, the underlying complaint alleged intermittent and continuous discharges which the court explained was not “sudden and accidental”:
No language in the Alvine complaint arguably supported a cause of action for a "sudden and accidental" discharge of pollutants. "Intermittently" cannot be construed to mean abrupt or immediate. The complaint clearly made claims against Demaray and Hagemann for "past and continuing" and "repeated" discharges that "will continue." There is no immediacy or abruptness with a discharge that is intermittent, repeated, and likely to continue.
The court further rejected the insureds’ attempt to point to single “sudden and accidental” events within the larger course of systemic conduct, such as a sudden and violent rainstorm that caused waste to be discharged onto the claimant’s property. The court explained that it would not engage in “microanalyzing” the insureds’ long-term routine of waste disposal in order to find one single, discrete instance of a “sudden and accidental” discharge.