Absolute Pollution Exclusion Bars Coverage of Environmental Property Damage Claims against Lead Producer, Circuit Holds

June 30, 2013 | Insurance Coverage

The U.S. Court of Appeals for the Eighth Circuit has ruled that absolute pollution exclusions in commercial general liability (“CGL”) insurance policies issued to a lead producer unambiguously barred coverage of claims alleging environmental property damage stemming from the insured’s operation of a mill.  

The Case 

Nadist, LLC, sued Doe Run Resources Corporation, the largest integrated lead producer in the Western Hemisphere, alleging environmental property damage resulting from Doe Run’s operation of the Sweetwater Mine and Mill near Viburnum, Missouri. 

Doe Run tendered defense of the Nadist lawsuit to Lexington Insurance Company under CGL policies Doe Run had previously purchased.  Lexington denied coverage.  Doe Run sued. The district court granted summary judgment dismissing the complaint.  It concluded that Lexington had no duty to defend because the policies’ absolute pollution exclusions unambiguously barred coverage of all claims asserted by Nadist.  Doe Run appealed. 

The Circuit Court’s Decision 

The circuit court affirmed. 

The circuit court found that the general fact allegations in Nadist’s pleading reflected a “prototypical complaint for relief from environmental property damage.”  Each of Nadist’s six tort causes of action, including common law trespass and nuisance claims, were entirely premised on allegations that Doe Run was liable to Nadist for causing the “release” or “discharge” of “hazardous wastes,” “toxic substances,” and “contaminants.” These terms mirrored the language of Lexington’s absolute pollution exclusions.  Indeed, the circuit court suggested it was “hard to imagine a more perfect overlap between the allegations in a third party’s underlying complaint and the operative language of a pollution exclusion.” 

The Eighth Circuit next rejected Doe Run’s reasonable expectations argument.  Doe Run claimed that Lexington’s pollution exclusions were ambiguous as applied to the Nadist lawsuit because Doe Run was in the business of producing lead concentrate, and that in purchasing a CGL policy, Doe Run would reasonably believe that its product was not an excluded “pollutant.”  The circuit court was not persuaded.  Doe Run was a “sophisticated insured.”  Plus, the Nadist lawsuit asserted the kind of underlying environmental liability claims “that the exclusion was primarily intended to exclude.” 

Finally, the circuit court rejected Doe Run’s argument that the deletion of a specific lead exclusion in Lexington’s CGL policies created an ambiguity that precluded application of the absolute pollution exclusion to liability claims relating to lead-based substances.  The circuit court noted that under applicable Missouri law, an exclusion had “no function to endow coverage.”  The circuit court declared that because Doe Run was in the business of mining, processing, and selling lead products, the specific lead exclusion “was, understandably and necessarily, deleted.” It then concluded that the parties’ deletion of the lead exclusion left the remainder of the CGL policy in full force and effect, including its absolute pollution exclusion. 

The case is Doe Run Resources Corp. v. Lexington Ins. Co., No. 12-2215 (8th Cir. June 13, 2013).

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