In the Fifth Circuit Court of Appeals, Liberty Mutual has successfully argued the application of a total pollution exclusion to a claim by Central Crude, Inc. for costs related to environmental remediation and litigation defense. The case is called Central Crude, Inc. v. Liberty Mutual Ins. Co., 51 F.4th 648 (5th Cir. 2022).
Central Crude found an oil leak on its Paradis, Louisiana property in January 2007; the leak also extended to a neighboring piece of property owned by Chevron. Though Central Crude paid a contractor more than $1 million to fix the problem, the spill was not entirely remediated.
Central Crude filed a claim for the remediation costs under its CGL policy with Liberty Mutual the same year the spill was discovered, but the claim was ultimately denied under the total pollution exclusion. In January 2008, Columbia Gulf Transmission Company sued Central Crude and other entities connected to the oil spill. Though the suit claimed the spill itself physically occurred on Chevron's tract, not Central Crude's, the spill's origins had to have come from either Central Crude's or Chevron's oil wells. When Central Crude sought defense costs from Liberty Mutual, the claim was again denied on the basis of the total pollution exclusion.
Central Crude sued Liberty Mutual for coverage of both clean-up costs related to the spill and defense costs for the Columbia Gulf suit, as well as bad faith denial. The judges of the Western District of Louisiana sided with Liberty Mutual, holding that the total pollution exclusion precluded coverage for both the clean-up and the defense costs and granting Liberty Mutual's motion for summary judgment. Central Crude appealed.
The Fifth Circuit looked to Doerr v. Mobil Oil Corp., 774 So. 2d 119 (La. 2000), where the Supreme Court of Louisiana gave three factors to consider when determining "whether a case involves environmental pollution" to which the total pollution exclusion may apply: whether the insured could be considered a "polluter" in the context of the exclusion; whether the complained-of substance was a "pollutant"; and "[w]hether there was a 'discharge, dispersal, seepage, migration, release or escape' of a pollutant by the insured within the meaning of the policy." (quoting Doerr). Though there was no dispute that there had been environmental pollution under the Doerr factors, Central Crude argued that the total pollution exclusion only applied to an incident where the insured was specifically at-fault for the pollution.
The judges of the Fifth Circuit disagreed. There was no provision in Central Crude's policy that required the allocation of responsibility for pollution be determined, only that pollution occurred. The lower court's decision was affirmed.
Editor's Note: The facts in any loss are critical to determining coverage. The court looked at whether environmental pollution existed, was the insured a polluter within the context of the exclusion and whether the substance itself was a pollutant. The trigger for most claims is an occurrence that causes injury or damage, and not the assignment of fault. In this case, pollutants escaped causing damage, but because of the total pollution exclusion there was no coverage for the loss.
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