Pollution exclusion clauses are an insurance industry staple and are often contained in commercial general liability insurance policies. While one might think that raw sewage would be considered a pollutant, under current Alabama case law, raw sewage is not a pollutant for the purposes of the pollution exclusion under a commercial general liability policy. This somewhat counterintuitive interpretation of a pollutant was recently applied by the United States District Court for the Middle District of Alabama.
In this suit, Evanston Insurance Company sought a declaration of its obligation to defend and/or indemnify J&J Cable and/or Dixie Electric under a commercial general liability insurance policy. J&J Cable and Dixie Electric had filed for coverage from Evanston Insurance in connection with pending state court lawsuits against them for bodily injury and property damage caused by a sewer pipe broken by J&J Cable. As a result of the broken sewer pipe, raw sewage backed up into two homes.
Evanston Insurance filed a motion for summary judgment arguing that there was no coverage for J&J Cable or Dixie Electric based in part on the pollution exclusion clause of their insurance policy. The Middle District turned to Alabama law in answering whether the pollution exclusion language unambiguously included sewage as a pollutant. The test in Alabama for determining whether there is ambiguity is what a reasonably prudent person applying for insurance would have understood the words to mean. State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 308 (Ala. 1999). The policy in this case contained the following language for its pollution exclusion:
(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants.”
“Pollutants” is defined by the policy as: any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.
Here, the Middle District relied on the Alabama Supreme Court’s instructive analysis in Porterfield v. Audubon Indem. Co., 856 So. 2d 789 (Ala. 2002) to determine the applicability of Evanston Insurance’s pollution exclusion clause. Porterfield’s analysis directed courts to look at previous Alabama Supreme Court interpretations of the pollution exclusion. In looking to prior interpretations of what is considered a pollutant, the Middle District relied upon United States Fidelity and Guar. Co. v. Armstrong, 479 So. 2d 1164 (Ala. 1985), where the Alabama Supreme Court found that sewage was not a pollutant as a matter of law and that a reasonably prudent person would understand that “pollutant” was not intended to include sewage.
Despite the fact that the pollution exclusion clause in Armstrong was different from the clause in the instant case, and despite the fact that the pollution in Armstrong was industrial sewage and not residential sewage—potentially creating an ambiguity in the pollution exclusion’s application for this case—the Middle District applied the Alabama Supreme Court’s findings that sewage is not considered a pollutant. Therefore, because under Alabama law sewage was not considered a pollutant, the Middle District held that Evanston Insurance could not rely on the pollution exclusion in its comprehensive general liability policy to preclude coverage for J&J Cable or Dixie Electric.
While the Middle District’s holding of what constitutes a pollutant might seem contrary to what a reasonably prudent person might believe, the Middle District was bound by the Alabama Supreme Court’s prior interpretations of the pollution exclusion clause, however illogical those prior interpretations might seem.Matthew A. Barley