Natural Gas Leak Was a “Pollution Condition” under Contractors’ Pollution Liability Policy, Wisconsin Supreme Court Decides

March 31, 2015 | Insurance Coverage

The Wisconsin Supreme Court, reversing a decision by an intermediate appellate court, has ruled that a natural gas leak was a “pollution condition” under a contractors’ pollution liability insurance policy.

The Case

Dorner, Inc., a construction company, contracted with the Wisconsin Department of Transportation to perform road construction, including underground excavation. While Dorner’s employees were excavating a portion of a street in Oconomowoc, Wisconsin, they allegedly discovered a pressurized natural gas pipe, attempted to move it, and damaged it in the process, leading natural gas to escape. The natural gas that leaked out of the pipe exploded,causing a fire that damaged various buildings and injured some people at the scene.

Four lawsuits were filed against Dorner. Dorner’s insurance carrier, Acuity, A Mutual Insurance Company, undertook the defense. Acuity then filed a third-party complaint against Chartis Specialty Insurance Company, which had issued Dorner a contractors’ pollution liability (“CPL”) policy, seeking a declaration that Chartis had a duty to defend and indemnify Dorner in the four lawsuits and seeking reimbursement from Chartis for one-half of the defense fees incurred in representing Dorner and one-half of the indemnity payments made on Dorner’s behalf.

Chartis denied coverage under its CPL policy, asserting that neither the natural gas-fueled explosion and fire nor the resulting bodily injury and property damage were “caused by pollution conditions” as required by the CPL policy.

The trial court entered summary judgment in favor of Acuity. It determined that the natural gas that had leaked from the damaged pipe constituted a “contaminant” under the CPL policy and, thus, that its release from the damaged pipe was a “pollution condition” under the policy. The trial court explained, “[N]atural gas doesn’t belong floating around in the street, or in the church, or in the air around this area because it might blow up. So it’s a contaminant in that sense, it’s certainly dangerous.”

The trial court then entered an order instructing Acuity and Chartis to split the cost of defending and indemnifying Dorner “on a 50-50 basis.”

An intermediate appellate court reversed, concluding that the four lawsuits against Dorner alleged bodily injury and property damage “due only to the explosion and fire, not to contact with the escaped natural gas itself because the gas intrinsically is an ‘irritant or contaminant.'” Thus, the appellate court continued, coverage under Chartis’ CPL policy was not “fairly debatable” and Chartis had no duty to defend Dorner in the underlying lawsuits.

The dispute reached the Wisconsin Supreme Court.

The Wisconsin Supreme Court’s Decision

The Wisconsin Supreme Court reversed, concluding that the natural gas leak was a pollution condition under Chartis’ CPL policy and that this pollution condition caused the bodily injury and property damage alleged in the four lawsuits.

In its decision, the court explained that the term “pollution conditions” was defined by Chartis’ CPL policy as the “release or escape of any … gaseous … irritant or contaminant … [into] the atmosphere … provided such conditions are not naturally present in the environment in the concentration or amounts discovered.” Thus, the court reasoned, whether the escape of natural gas from the damaged pipe constituted a pollution condition depended on whether the natural gas that escaped from the damaged pipe was an “irritant or contaminant” for purposes of Chartis’ policy. 

The court noted that the policy did not define the words “irritant” or “contaminant.” The court pointed out, however, that it previously had interpreted the words “irritant” and “contaminant” in the context of pollution exclusion clauses in general liability policies, and said that its interpretation in cases involving pollution exclusion clauses was “instructive.”

The court then ruled, using the dictionary definition of “contaminant” it had applied in those other cases, that natural gas released into the air from a damaged gas pipe constituted a contaminant. Natural gas, the court said, rendered the surrounding ground and air space “impure or unclean” because natural gas was “extremely flammable and explosive.” An explosion and fire resulted in “great harm,” the court added.

The court further observed that, to qualify as a pollution condition under Chartis’ CPL policy, the contaminant also had to be released in concentrations above those naturally found in the environment. The court found that the natural gas released at the site of the explosion and fire “indisputably occurred in concentrations above those ‘naturally found in the environment.'”

Accordingly, the court held that the escape of natural gas from the damaged pipe was a pollution condition under Chartis’ CPL policy.

The court also determined that the alleged bodily injury and property damage were “caused by” pollution conditions, noting that each of the four lawsuits against Dorner alleged that its employees’ actions had led to a natural gas leak that ultimately had resulted in an explosion and fire, causing bodily injury and property damage. The court concluded that Chartis’ CPL policy covered the insured’s liability arising from the natural gas-fueled explosion and fire. Therefore, Chartis had to pay its share of the defense fees and indemnity payments as ordered by the trial court.

The case is Acuity, A Mut. Ins. Co. v. Chartis Specialty Ins. Co., No. 2013AP1303 (Wis. March 17, 2015).

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