I follow pollution exclusion cases very closely.  But despite how frequently they are handed down, I do not write about them too often in Coverage Opinions.  Most are too similar to be all that interesting. 

I need something a little unusual to have the mojo to write about a pollution exclusion case.  The Fifth Circuit’s decision in Eastern Concrete Materials, Inc. v. Ace American Insurance Company, No. 18-11043 (5th Cir. Jan. 17, 2020) fits that bill.  The decision started out fairly routine and it appeared that it was not going to make the cut.  But an interesting finish changed that.

At issue is coverage for Eastern Concrete, a company that operates a rock quarry in New Jersey.  It produces different sizes or gradations of stone.  The smallest are called “rock fines.”  For various reasons, substantial amounts of rock fines, contained in the company’s settling ponds, were released into Spruce Run Creek, causing “physical damage to the stream and stream bed by changing the flow and contours of the stream.” 

This got the attention of the New Jersey Department of Environmental Protection, which required Eastern Concrete to remove the rock fines and take preventative measures to stem downstream migration.

Eastern Concrete did so to the tune of $2 million.  The company’s primary insurer, ACE, concluded that coverage was owed under its $1 million policy.  Eastern then sought coverage from Great American Insurance Company, its umbrella insurer.

Great American filed an action seeking a declaration that it was not obligated to defend or indemnify Eastern Concrete.  GAIC maintained that the pollution exclusion in its policy precluded it from owing any coverage.  In pertinent part, the exclusion applied to liability “arising out of or in any way related to . . . discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’”  “Pollutants” is defined as “any solid, liquid . . . irritant or contaminant, including, but not limited to . . . waste material,” which “includes materials which are intended to be or have been recycled, reconditioned or reclaimed.”

A good chunk of the decision is devoted to a jurisdictional issue.  It’s deadly dull and I did not read it.  There is also a choice of law issue discussed.  Also dull – as choice of law issues tend to be -- but I read it.  The court held that Texas law applied, concluding that the state where the policy was issued controlled over the location of the insured risk.

The parties’ competing arguments came down to whether rock fines are “contaminates.”  Eastern Concrete maintained that they are not: “[r]ock fines are simply ‘small particles of rock,’ and thus ‘are not dangerous’ and ‘do not . . . contaminate.’  To hold otherwise, Eastern Concrete cautions, would be to adopt the district court’s reasoning that rock fines became ‘contaminants when they were discharged and dispersed where they did not belong,’ a theory Eastern Concrete casts as dangerously overbroad because it allows anything (even water or bricks) to become contaminants if left in an inappropriate place.”

GAIC’s position was that Eastern was “inventing a ‘hazardousness’ requirement: ‘[N]othing in the ordinary sense of the word ‘contaminant’ or in the caselaw imposes such a restriction.”

The Fifth Circuit looked at two definitions of “contaminant” and concluded that neither fit when applied to whether the quality of the water in Spruce Run Creek was affected. 

The court observed that, while the rock fines may have been undesirable, they did not make the creek impure or render it unfit for use.  Indeed, according to the New Jersey authorities, the rock fines posed no threat to drinking water. 

So it sounded like the court was headed for a decision that the pollution exclusion did not apply.  But not so fast.  The court concluded that, despite all that, the rock fines did in fact render the creek impure.  Maybe not for humans – but trout: “[W]hen we look at the effects on the overall ecosystem, rock fines are contaminants. Eastern Concrete’s own counsel described the incident as pumping ‘a deleterious substance resulting in a negative impact to a trout producing stream and a documented habitat for threatened or endangered species.’ And Eastern Concrete’s expert explained that the incident ‘chang[e]d the flow and contours of the stream, including areas used for trout spawning’ and ‘physically cover[e]d the micro and macro invertebrates that serve as a food source for fish and other species.’  The rock fines, in short, ‘render[e]d [the creek] unfit for use’ as a habitat for trout and other species. This explains why Eastern Concrete was required to remove the rock fines from Spruce Run Creek.”

Eastern Creek is an interesting decision, looking at the “contaminants” question from the perspective of a less traditional impact.  The rock fines posed no threat to drinking water, but the pollution exclusion still applied.