The United States Court of Appeals for the Fifth Circuit has affirmed the lower court ruling and determined that the Great American Insurance Company is not required to defend or indemnify a concrete company under a pollution exclusion included in the commercial general liability policy, after a New Jersey stream was polluted. The case is Eastern Concrete Materials, Inc. v. Ace Am. Ins. Co., No. 18-11043, 2020 U.S. App. LEXIS 1680 (5th Cir. Jan 17, 2020).
Eastern Concrete operates rock quarries in New Jersey. It purchased a commercial umbrella insurance policy from Great American Insurance Company, that included an "absolute pollution exclusion." Eastern Concrete was also insured by ACE American. At one of Eastern Concrete's rock quarries in NJ, it drills and blasts large pieces of rock that are crushed to different sizes. The smallest pieces of rock are categorized as "rock fines." These pieces are gathered into settling ponds which are removed and dried to be used at the quarry or sold.
In July 2017, anticipating rain, Eastern Concrete began to lower water levels in the settling ponds by pumping water into a nearby water body, Spruce Run Creek. The pump was not shut off before it began to pump rock fines into the creek, which caused physical damage to the stream and stream bed by changing the contours and flows of the creek.
The New Jersey Department of Environment Protection gave violation notices to Eastern Concrete, requiring it to remove the rock fines and prevent the migration of fines downstream. The DEP also found it liable for violating several state statutes.
Eastern Concrete complied with the demands of the DEP and then notified Great American of the incident, and sought reimbursement of clean-up costs and defense of the claim. Eastern Concrete also notified Ace American of the claim, which concluded that there was coverage under its policy but the $2 million incident exceeded the $1 million policy limits.
Great American filed in a Texas U.S. District Court, seeking a declaration that the incident fell squarely within the pollution exclusion in the policy.
Great American argued that its exclusion barred coverage for liability related to the discharge of "pollutants," defined in the policy as any contaminant including "waste material," and "includes materials which are intended to be, or recycled reconditioned or reclaimed."
Eastern Concrete argued that the rock fines are not contaminants as they come from natural materials that could be found in the creek. The court found that when it examined effects that the rock fines had on the ecosystem as a whole, the rock fines were indeed contaminants under Texas and Federal law, and contaminants were excluded by the policy.
The district court ruled in favor of Great American and the appeals court panel upheld that ruling.
Editors Note: One of the reasons that the pollution exclusion is so interesting and sometimes sparks so much commentary, is because there is so much variation in the substances being considered. In this case, as in so many others, the discussion sparked from a question of whether something as seemingly insignificant as rock dust can count as pollution. Here, the factor of importance was the amount of the "pollutant" that was introduced into the stream, and rock dust was determined to be a pollutant despite being organic material because the quantity introduced was enough to change the layout of the creek.
In a similar vein, read the strangest case of the pollution exclusion that this editor has encountered, where the appellate court affirmed the ruling of the lower court that the smell of curry was, in fact, a pollutant.
You can read the other three cases mentioned in the puzzler today here: