GrafTech went to court, seeking a declaration of its rights.

The trial court concluded that exposure to coal-tar pitch allegedly suffered by the employees was "pollution" that was excluded from coverage. It rejected GrafTech's argument that it should use the word "environment" in the exclusion in a more expansive sense to encompass the "natural world" and not the workplace. The trial court noted that the parties had defined the word "environment" to include "any air, land, structure or the air therein, watercourse or water, including underground water." Under this definition, a factory or plant was a "structure," and the issuance of coal-tar pitch into the air inside the factory or plant constituted "pollution" under the policy, the trial court decided.

GrafTech appealed.

The Pacific Policy

The Pacific policy stated:

This insurance does not apply to any injury, damage, expense, cost, loss, liability or legal obligation arising out of or in any way related to pollution, however caused.

Pollution includes the actual, alleged or potential presence in or introduction into the environment of any substance if such substance has, or is alleged to have, the effect of making the environment impure, harmful, or dangerous. Environment includes any air, land, structure or the air therein, watercourse or water, including underground water.

* * *

We have no duty to defend any suit arising out of or in any way related to pollution excluded by this endorsement.

One of the complaints against GrafTech alleged the following about the aluminum manufacturing process and how coal-tar pitch was used:

Coal tar pitch plays a prominent and omnipresent role in the aluminum manufacturing process, and is used to line the pots and to make both anodes and cathodes. The plant used green anode blocks consisting of coke bound together with coal tar pitch. When the anodes were baked, hydrocarbon volatiles were released. Coal tar pitch was also used to make the cathodes, to cover all the pots during the baking process, and applied to all of the metal columns and even the ventilation systems throughout the plant as an anti-corrosive, and was additionally used as insulation to prevent corrosion and fires in the manufacturing process. The application of high temperatures to coal tar pitch released dangerous hydrocarbons, which could reach the plaintiff's decedent and others by way of respiration and by physical contact with the skin.

Coal tar pitch is used throughout Alcoa's production process. Alcoa had production pots in service at the time of Plaintiff's employment. A production pot is a large trough approximately 40 feet long and 12 feet wide and 4 feet deep with nothing inside. Because of their number, workers were continually stripping and relining the pots. To reline the pots, the Rockdale plant used seam mix, which contained coal tar pitch. At all material times, each of the 19 pots were re-lined with approximately 5000 lbs of seam mix. The relining process required the workers to use coal tar pitch, which exposed Plaintiff's decedent and other employees by emitting vapors into the air and dust onto their clothing and skin.

Another complaint made similar allegations about the aluminum manufacturing process:

Aluminum is made from an anode and a cathode, which form what is called a pot. The anode (or positive electrode) is a large block of carbon made from coke and coal tar pitch. It is inserted in a steel box lined with carbon made by baking a mixture of metallurgical coke and coal tar pitch. The lining is called the cathode (or negative electrode). Between the anode and the cathode is a space filled by electrolyte, which is [sic] mixture that when heated melts into molten aluminum. It produced aluminum using the Soderberg process, which uses a continuous anode that is baked from the heat from the electrolyte cell. During electrolysis, coal tar pitch in the form of a paste is continuously added to the anode. During the baking process, the application of high temperatures to the coal tar pitch causes coal tar volatiles to be emitted in the form of polycyclic aromatic hydrocarbonates (PAHs). Several of the PAHs emitted from the pots are carcinogenic.

The Appellate Court's Decision

The appellate court affirmed, concluding that coverage for coal-tar pitch was excluded by the pollution exclusion and, therefore, that Pacific had no duty to defend or pay for GrafTech's legal representation.

In its decision, the appellate court, examining the allegations against GrafTech, reasoned that the alleged toxic exposure had occurred in a "large-scale, industrial setting for the manufacture of aluminum" that was a "prime example" of a "traditional" case of environmental pollution.

The appellate court was not persuaded by GrafTech's contention that a "localized exposure" of substances in one part of an aluminum manufacturing plant was insufficient to constitute a fouling of the "environment" under the policy because some of the substances may have traveled only a few feet.

As the appellate court pointed out, the Pacific policy defined the word "environment" to mean, among other things, any "structure or the air therein." According to the appellate court, nothing in the words used in the policy suggested that the "air" inside a "structure" was intended to make the pollution exclusion inapplicable to minimal, localized releases of pollutants into the air within a structure.

In the appellate court's view, for purposes of the Pacific policy, the air in a structure could be polluted in part – even a "minimal, localized release of pollutants" could render the air within a structure harmful or impure. It added that nothing in the way the policy defined the word "pollution" made the pollution exclusion apply only to a release of pollutants in a structure that was so pervasive that it rendered the air "throughout the entire structure" harmful or impure. The Pacific policy required only that the particles made the air inside the structure (the plant) impure or harmful, the appellate court concluded.

The case is GrafTech International, Ltd. v. Pacific Employers Ins. Co., No. 105258 (Ohio Ct.App. Dec. 28, 2017). Attorneys involved include: FOR APPELLANTS: Richard D. Milone, Jones Day, Washington, D.C.; Robert P. Ducatman, Ryan A. Doringo, Jones Day, North Point, Cleveland, OH. FOR APPELLEES: John G. Farnan, Weston Hurd, L.L.P., Cleveland, OH; Shane Robert Heskin, White and Williams, L.L.P., Philadelphia, PA; Rema A. Ina, Gallagher Sharp, Cleveland, OH.