National Cas. Ins. Co. v. Orior Transport, Inc. No. H-09-1539 (S.D. Tex. Feb. 22, 2010), see Decision
The so-called "absolute pollution" exclusion has become a fixture in commercial liability insurance policies for the last two decades. It is called "absolute" because it excludes damage or injury caused by all releases of pollutants, including the "sudden and accidental" variety that had been routinely covered before the 1990's. A "pollutant" includes just about any solid, liquid, or gaseous substance more noxious than water, dirt, or pure oxygen. And a "release" can be no more than an inch or two movement from point A to point B. In a word, the insurance industry has successfully plied the absolute pollution exclusion to deny claims having nothing to do with environmental pollution, such as the painter who falls off a scaffold from dizziness (caused by paint fumes), and the laborer unloading bags of cement who sustained eye injuries from the dust.
This case went in favor of the policyholder following some very close parsing by the trial judge. A trucking company in the business of hauling away salt water refuse from oil wells hired a welding contractor to repair one of its trailers. Unfortunately, the tank had not been completely emptied from its last job, and some "potentially explosive residue" remained in the trailer. During the repair, the potential became actual, and an explosion killed the welder. The decedent's family sued the trucking company who sought coverage under a commercial auto policy with an absolute pollution exclusion. The insurer refused coverage arguing that the explosion resulted from a release of the gaseous residue.
Before looking at the court's resolution, we need to look at the language of the exclusion itself, which has a few wrinkles found only in some auto policies. The policy excludes:
"Bodily injury" . . . arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants" that are, or that are are contained in any property that is: (1) being transported or towed by, handled, or handled for movement into, onto or from, the covered "auto"; . . . [or] (3) being stored, disposed of, treated or processed in or upon the covered "auto."
This exclusion is triggered only if the pollutant release occurs during one of the enumerated activities.
The judge probably could have decided the issue without considering any of the activities. The petition simply alleges that the explosion of the residue occurred while the welding was being done -- no explicit allegation of any "discharge, dispersal, seepage, migration, release or escape." The insurer argued that some kind of release must be inferred. How else can the welder's spark outside the trailer ignite fumes unless the fumes had escaped from inside the trailer?
Without conceding the insurer's argument, the judge proceeded to the enumerated activities and found that the residue was not being transported, handled, stored, disposed of, treated or processed. The insurer again argued that that one had to infer that the residue was present in the trailer only because one of the activities had occurred. The salt water had been transported for disposal, and the stuff that exploded was residue of those activities. Therefore, the residue should be treated as the equivalent of the salt water.
The court was unpersuaded. Orion's motion for summary judgment was granted.
Although the court didn't elaborate, at work here is the principle that, when determining an insurer's duty to defend, reasonable inferences should be drawn in favor of the policyholder, not the other way. The insurer's arguments were plausible. But the right question is whether the court could reasonably determine that, at the moment of the explosion, the residue was not being transported, handled, stored, treated or processed.
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