WISCONSIN SUPREME COURT: both septage and cow manure, respectively, are “pollutants,” as defined in commercial general liability (CGL) policies and that, accordingly, property damage resulting from those substances is excluded from coverage.
January 8, 2015
On December 30, 2014, the Wisconsin Supreme Court
decided two cases in which the central issue was whether the substance
responsible for the alleged property damage constitutes a “pollutant”
sufficient to invoke pollution exclusions in relevant insurance
policies. In Preisler v. General Casualty Ins. Co., et al., 2014 WI 135, and Wilson Mutual Ins. Co v. Falk,
2014 WI 136, the Court held that both septage and cow manure,
respectively, are “pollutants,” as defined in commercial general
liability (CGL) policies and that, accordingly, property damage
resulting from those substances is excluded from coverage.
Preisler Background
The Preislers, operators of a dairy farm, sued
their neighbors, the Kuettels, who operate their own farm as well as a
septic service operation. The Kuettels’ facility stores, transports, and
disposes of septage. The Kuettels had received permission from the
Wisconsin DNR to apply septage as a fertilizer at a rate not to exceed
13,000 gallons per acre per week, with a total of 39,000 gallons per
acre annually. The Kuettels applied septage on the Preislers’ farm as
fertilizer for several years, apparently without incident.
In 2008, however, the Preislers allegedly
experienced problems with their well water and claimed their cattle
began to die at an alarming rate. August 2008 testing showed that the
Preislers’ well water contained elevated levels of nitrates, a
by-product of decomposing septage. The Preislers sued in 2010, naming
the Kuettels’ homeowner’s and CGL insurers.
The CGL policies1 contain similarly worded
pollution exclusions that exclude harm “arising out of the actual,
alleged or threatened discharge, dispersal, seepage, migration, release
or escape of ‘pollutants.’” The policies further define “pollutants” as
“any solid, liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or
reclaimed.”
The Circuit Court held that the pollution
exclusion clauses apply to preclude coverage for losses allegedly
arising out of storage of septage and application of septage to farm
fields. The Preislers and Kuettels appealed, arguing that septage is not
a pollutant and, therefore, the exclusion does not bar coverage. The
Court of Appeals affirmed the Circuit Court’s judgment.
Preisler Decision
The issue before the Wisconsin Supreme Court
in Preisler was whether decomposing septage is a pollutant as defined by
the CGL policies. The majority first analyzed whether the alleged harm
in this case was the result of an “occurrence,” as defined by the
policies, despite the fact that no party had disputed that the water
contamination emanated from an “occurrence.”
Next, the Court applied the two-step analysis from Hirschhorn v. Auto-Owners Ins. Co., 2012
WI 20, 338 Wis. 2d 761, 809 N.W.2d 529, to determine whether the
Preislers’ claim is precluded by the policies’ pollution exclusions.
First, the Court looked at whether the substance in question is a
pollutant. The parties did not dispute the second step in the
analysis—that the alleged damage resulted from the “discharge,
dispersal, seepage, migration, release or escape” of decomposing
septage.
In a nearly unanimous opinion authored by Justice
Roggensack (only Chief Justice Abrahamson dissented), the Supreme Court
upheld the Court of Appeals’ decision, concluding that a reasonable
insured would understand that decomposing septage leaking into a water
supply is a “contaminant” and, therefore, a “pollutant” as defined by
CGL policies.
Justice Bradley wrote a separate concurrence,
criticizing the majority’s analysis of the underlying “occurrence.” She
stated that she found the analysis to be “unclear,” “unnecessary to the
decision,” and “inconsistent withFalk, decided the same day, with the
same issue.”
In a strongly worded dissent, Chief Justice
Abrahamson also criticized the majority’s “occurrence” analysis and went
on to state that the decision “unnecessarily departs from precedent,
undercuts the limiting principles our prior cases have applied to
pollution exclusion clauses, and further confuses this murky area of
law.” Focusing on the nature of the Kuettels’ business, the Chief
Justice stated that they would not consider “septage a pollutant under
the pollution exclusion clause of general liability policies they
purchased to cover liability for damage caused by their septic business
operations.”
Falk Background
The insureds in Falk owned and operated a dairy
farm, including over 600 cattle and 1670 acres of land. The Falks
obtained a “farm” insurance policy from Wilson Mutual to provide
property and personal liability coverage. It included a pollution
exclusion that excludes from coverage losses resulting from the
“discharge, dispersal, seepage, migration, release, or escape of
‘pollutants’ into or upon land, water or air” and “any loss, cost, or
expense arising out of any … claim or suit by or on behalf of any
governmental authority related to testing for, … cleaning up, removing …
or in any way responding to or assessing the effects of ‘pollutants.’”
“Pollutant” is defined in the policy as “any solid, liquid, gaseous …
irritant or contaminant, including … waste. Waste includes materials to
be recycled, reclaimed, or reconditioned, as well as disposed of.”
The policy also contained a “Farm Chemicals
Endorsement,” which provides coverage for damages for physical injury to
property if “[t]he injury is caused by the discharge, dispersal,
release, or escape of chemicals, liquids, or gases into the air from the
‘insured premises.’” The Farm Chemicals Endorsement also included a
pollution exclusion.
In early 2011, the Falks used manure to fertilize
their fields. In May 2011, the Wisconsin DNR notified them that “the
manure from [their] farm had polluted a local aquifer and contaminated
their neighbors’ water well.” The neighbors demanded compensation, and
the Falks filed a claim with their insurer, Wilson Mutual, who denied
coverage because cow manure is a pollutant excluded from coverage under
the applicable policy.
The Circuit Court agreed with Wilson Mutual.
According to the Circuit Court, “[a] reasonable person in the position
of the Falks would understand cow manure to be waste.” The Court of
Appeals, relying on the Supreme Court’s decision in Hirschhorn, reached
the opposite conclusion, determining that cow manure is not a
“pollutant” under the policy exclusion. According to the appellate
court, a reasonable farmer would not consider cow manure to be a
“pollutant,” an “irritant,” a “contaminant,” or “waste.” For a farmer,
“manure is an everyday, expected substance … that is not rendered a
pollutant under the policy merely because it may become harmful in
abnormally high concentrations or under unusual circumstances.”
Falk Decision
The Wisconsin Supreme Court, in reversing the
Court of Appeals, held that “cow manure falls unambiguously within the
policy’s definition of ‘pollutants’ when it enters a well” and,
therefore, coverage for the harm caused by the manure is precluded by
the policy’s pollution exclusion.
As in Preisler, the Court held the occurrence to
be the seepage into the wells. Following the analysis in Hirschhorn, the
Court next considered whether an insured would consider cow manure to
be a pollutant in the context of the occurrence. The Court concluded
that, while a reasonable insured may not consider manure safely applied
on a field to be a pollutant, a reasonable insured would consider manure
in a well to be a pollutant.2
Justice Abrahamson’s dissent analyzed the position
of the reasonable insured and concluded that a reasonable person in the
position of the Falks, farmers insured under a farmowner’s policy,
would not consider manure a pollutant under the policy’s pollution
exclusion clause. She also noted that, even if coverage was barred by
the pollution exclusion, coverage would be available under the
incidental coverages section and the Farm Chemicals Endorsement.
Justice Bradley also concurred in Falk, taking
issue with the occurrence analysis. She stated that the majority “strays
from its original occurrence analysis,” and she agreed with the dissent
regarding the Farm Chemicals Endorsement.
1 The homeowners insurance policies did not
contain pollution exclusions, but the Circuit Court held that other
exclusions operated to preclude coverage. The parties did not appeal
that holding.
2 The Falk court found coverage, however,
under the policy’s incidental coverages provision. The limit for each
occurrence under incidental coverages was only $500.