The Mississippi Supreme Court has found the pollution exclusion to be ambiguous because it was found to be susceptible to more than one reasonable interpretation. Omega Protein, Inc. v. Evanston Ins. Co., No. 2020-CA-01097-SCT, 2022 Miss. LEXIS 90 (Mar. 31, 2022).
Omega Protein, Inc. (Omega) entered into a contract with Accu-fab to perform welding and other fabrication work at their facility. Accu-fab was required to have a CGL policy naming Omega as an additional insured. Accu-fab also purchased an additional $1 million primer policy from Colony Insurance Company and a $5 million excess policy issued by Evanston Insurance Company.
Accu-fab performed welding and other fabrication work on a large metal storage tank used for the temporary storage of stickwater, a liquid composed of water, fish oil and fish solids. An explosion occurred at the Omega plant while Accu-fab workers were welding and grinding on the tank. One worker, Jerry Lee Taylor, was killed, one was seriously injured, and others suffered from less serious injuries.
Omega was sued in various lawsuits, and tendered the defense of those suits to Colony and Evanston. Colony filed a declaratory judgment action seeking a declaration that there was no coverage due to the pollution exclusion. Evanston intervened, also arguing that the claim was barred by its pollution exclusion. Omega and the estates of Jerry Taylor settled with Colony contributing its policy limits of $1 million.
Omega filed motions for partial summary judgment alleging that the pollution exclusion did not apply. Evanston also filed a motion for summary judgment arguing that Omega was not an additional insured under either Colony policies. Evanston also argued that Omega was not entitled to indemnity because there were no factual allegations of negligence against Accu-fab in the underlying cases, and also because its own pollution exclusion barred Omega's claims.
A special master was appointed to address the motions for summary judgment, and recommended that coverage was barred under the pollution exclusion and that Omega qualified as an additional insured under the policy in addition to Evanston's coverage being triggered by the $1 million payment by Colony. The trial court granted Evanston's motion for summary judgment, Omega appealed, Evanston cross-appealed.
The pollution exclusion did not apply to "ultimate net loss" . . . "arising out of or contributed to in any way by the actual, alleged or threatened discharge, dispersal, release, migration, escape or seepage of pollutants." Stickwater was a byproduct of the fish meal and fish oil production process. The stickwater produced methanethiol, hydrogen sulfide, and methane – all three of which were extremely flammable.
Omega asserted that the gasses that the stinkwater tank emitted were not irritants or contaminants because they were found naturally in the ambient air. Further, the gasses in the stinkwater tank were not irritants or contaminants under the pollution exclusion since they were properly contained within the tank and were not contacting, contaminating, or irritating anything. Evanston argument was that the gasses emitted from the tank fit squarely within the language of the pollution exclusion.
The court considered dictionary definitions and then determined that the pollution exclusion was susceptible to more than one reasonable interpretation and, therefore, ambiguous. Accordingly, it was construed in favor of coverage.
Then the court determined that Evanston's excess policy was not triggered because there was no exhaustion of the underlying policy. Nor was there a showing of negligence by Accu-fab.
Lastly, the court found that Omega was not an additional insured under Accufab's policies. Omega was an additional insured only if there was a determination of negligence on Accu-fab's part. The underlying policy, and Evanston's following form policy, required a determination that Omega incurred liability on behalf of negligence attributed to Accu-fab. But there was never any adjudication made regarding negligence of Accu-fab because of the settlement. Therefore, Evanston failed to prove that Omega was not covered under the excess policy.
However, Evanston intervened in the declaratory judgment suit and assumed the burden of proof. Because there was no adjudication of fault or negligence attributed to Accu-fab, Evanston failed to prove that Omega was not covered under the excess policy. The trial court erred by finding that Omega qualified as an additional insured under the excess policy.
Editor's note:
While the pollution exclusion seems to be obvious and direct, it is not always as clear-cut as it seems. Courts routinely turn to dictionary definitions when a term is not defined in a policy. We don't know what dictionary the court used, but we looked at Merriam Webster online for the definitions of irritant and contaminant. Irritant is defined as: causing irritation specifically : tending to produce physical irritation. We don't have much experience with stickwater, and we agree that fish oil and solids are probably quite fragrant we can see how they may not be irritants. Contaminant is defined as: something that contaminates, and contaminate is: to soil, stain, corrupt, or infect by contact or association, or to make inferior or impure by admixture. This one is a little tricker, as we can see it going both ways. Our sister publication FC&S Expert Coverage Interepretation has long held that exclusions must be read narrowly. You may find the following interesting: