The U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) ruled on October 26 on a company’s Total Pollution Exclusion (“TPE”) policy on civil liability Commercial General (“CGL”). See Central Crude, Inc. v. Liberty Mutual Insurance Company, et al.no. 21-30707.
The question was whether a crude oil leak of unknown origin is encompassed by the TPE.
Central Crude, Inc. (“CCI”) discovered a crude oil leak in 2007 on its property and on nearby land owned by Chevron in Paradis, Louisiana. CCI reported the leak to the Louisiana Department of Environmental Quality and retained the services of an Environmental Contractor (“EC”) to undertake the repair. Approximately $1 million was paid to the EC to carry out corrective measures.
Remediation efforts are apparently still ongoing at the time of the advisory. Additionally, the source of the leak is listed as undetermined. In other words, it has not been determined whether the spill came from CCI pipelines or a Chevron well. An additional possible source has been stated to be oil seepage from the ground.
CCI is covered by Liberty Mutual Insurance Company (“Liberty”) under its CGL policy. The policy contains a TPE endorsement which limits coverage as follows:
This insurance does not apply: . . .
(1) “Personal injury” or “property damage” which would not have occurred in whole or in part but for the actual, suspected or imminent discharge, dispersion, infiltration, migration, release or escape of “pollutants “at any time.
(2) Any loss, cost or expense arising from:
(a) Request, require, direct or require by law or regulation that an Insured or others test, monitor, cleanse, remove, contain, treat, detoxify or neutralize, or react in any way, or assess the effects of “pollutants”; Where
. . . .
The costs incurred by CCI included the previously mentioned remediation expenses and a lawsuit by Columbia Gulf Transmission Company alleging that crude oil threatened its pipeline.
CCI filed a lawsuit that was returned to the Federal District Court (Western District of Louisiana) asking:
- Coverage of past and future expenses related to the cleanup of the spill
- Coverage of defense costs in the Columbia Gulf Transmission lawsuit
- Damages, Penalties, and Attorneys’ Fees for Liberty’s Bad Faith Denial of Coverage
The federal district court determined that the TPE precluded coverage for CCI’s claims and entered summary judgment in favor of Liberty Mutual.
The Fifth Circuit, in dealing with CCI’s appeal on the issue of coverage, referred to Louisiana law which states that an insurance policy is a contract:
. . . between the parties and is interpreted according to the same general rules of interpretation of contracts.
- The intention of the party, as reflected in the terms of the policy, determines the coverage
- A policy that is clear and expresses the intent of the parties should be enforced as written.
- An insurance policy should not be interpreted to achieve an absurd result
- Since the purpose of liability insurance is to provide protection against damage claims, policies should be construed to effect, not deny, coverage
- An insurer has the right to limit cover in any way it wishes, unless the limitations conflict with law/public order
- CCI, as the party seeking coverage, bears the burden of proving that the event falls within the terms of the policy
- Liberty is responsible for proving the applicability of the TPE
The fifth circuit quotes Doerr v. Mobil Oil Corp., 774 So. 2d 119, 124 (La. 2000) as the key Louisiana case interpreting TPE. This decision gave rise to an in-depth discussion on the text, history and purpose of the TPE. The decision would have specified that the courts should:
. . . construe a pollution exclusion in light of its general purpose, which is to exclude coverage for environmental pollution, and on such interpretation the clause will not apply to all contact with substances that may be classified as pollutants.
The doer identified three factors to consider:
- If the insured is a “polluter” within the meaning of the exclusion;
- Whether the substance causing injury is a “pollutant” within the meaning of the exclusion; and
- If there has been “release, dispersion, infiltration, migration, discharge or leak” of a pollutant by the insured within the meaning of the policy.
The Fifth Circuit in the application of the doer factors to CCI’s assertions states that:
- CCI is a pipeline company transporting large volumes of hydrocarbons which present a risk of pollution and is therefore a polluter within the meaning of the TPE
- Crude oil is a pollutant
- A crude oil spill dispersion occurred that impacted four or five acres of property, resulting in the removal of more than 25,000 gallons of liquid
The Fifth Circuit rejects the TCC’s argument that the TPE is applicable only if the insured is found liable for the release or release of the pollutant. He quotes doer language directing the courts to review the actions of the alleged polluter. CCI was clearly considered a suspected polluter.
The Fifth Circuit argues that the TPE unambiguously excludes coverage for CCI’s costs of cleanup or removal of the crude oil as well as for any property damage that would not have occurred in whole or in part but for the release or leak. crude oil. Moreover, it submits that Liberty has no duty of defense towards CCI.
A copy of the notice can be downloaded here.