Christopher Roinestad and Gerald Fitz-Gerald were overcome by poisonous hydrogen sulfide gas while cleaning a large grease clog in a sewer near the Hog’s Breath Saloon & Restaurant. The district court concluded that Hog’s Breath caused respondents’ injuries by dumping substantial amounts of cooking grease into the sewer. On summary judgment, the district court found Hog’s Breath liable under theories of negligence and off-premises liability, and entered a damage award in respondents’ favor. Mountain States Mutual Casualty Company (“MSM”) sought a ruling that it had no obligation to indemnify Hog’s Breath and the district court agreed, holding that dumping substantial amounts of cooking grease constituted a discharge of a pollutant under the policy’s pollution exclusion clause. The court of appeals reversed. It held that the terms of the pollution exclusion clause were ambiguous and that its application to cooking grease could lead to absurd results and negate essential coverage. The parties took the case to the Colorado Supreme Court who, in Mountain States Mutual Casualty Company v. Christopher Roinestad and Gerald Fitz-Gerald, and Tim Kirkpatrick, D/B/A Hog’s Breath Saloon & Restaurant., 2013 CO 14 (Colo. 02/25/2013), resolved the dispute.
The Hog’s Breath Saloon discharged enough cooking grease into the sewer system to create a five to eight-foot clog that led to a dangerous buildup of toxic gas. The conduct violated a city ordinance prohibiting the discharge of a pollutant in an amount that creates an obstruction to the sewer flow. The trial court found that under the circumstances of this case the discharge of cooking grease amounted to a discharge of pollutant. Hog’s Breath caused respondents’ injuries by dumping substantial amounts of cooking grease into the sewer, thereby creating a five to eight-foot grease clog and consequent build-up of hydrogen sulfide gas.
Mountain States Mutual Casualty Company (“Mountain States”) insured Hog’s Breath. It sought a ruling that it had no obligation to indemnify Hog’s Breath arguing that Hog’s Breath’s conduct fell within the policy’s pollution exclusion clause, which excluded coverage for bodily injury arising out of the discharge of pollutants from the premises of an insured. The policy defined pollutants as any solid, liquid, gaseous, or thermal irritant or contaminant, or waste. The district court agreed with Mountain States, concluding that the pollution exclusion clause was unambiguous and that the dumping of substantial amounts of cooking grease into the sewer constituted a discharge of a pollutant under the policy’s pollution exclusion clause.
The court of appeals reversed. It held that the terms of the pollution exclusion clause were ambiguous and that its application to cooking grease—a common everyday waste product—could lead to absurd results and negate essential coverage.
The negligence per se claims were based on several La Junta city ordinances in effect at the time, including city ordinance 13.12.250(b), entitled “Restricted Discharges to Sewers,” which says:
(b) Substances which are prohibited are:
(3) Solid or viscous pollutants in amounts which will cause obstruction to the flow in the [Publicly Owned Treatment Works ("POTW")] or other interference with the operation of the POTW.
(5) Pollutants which result in the presence of toxic gases, vapor or fumes within the POTW in a quantity that may cause acute worker health and safety problems.
After respondents filed the lawsuit, Kirkpatrick notified his liability insurer, Mountain States, who had renewed a commercial general liability policy (the “insurance policy” or “policy”) issued to Hog’s Breath in 2003 that contained a pollution exclusion clause stating:
This insurance does not apply to:
(1) “Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:
(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;...Pollutants means 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.
Mountain States brought a declaratory judgment action in federal court asserting that it had no duty to defend Kirkpatrick based on the pollution exclusion clause. The federal court found Mountain States had no duty to defend because “under the plain meaning of the words and in the context of the facts and circumstances alleged in the Underlying Lawsuit…. [t]he grease and oil, in the quantities allegedly at issue,” are contaminants and therefore pollutants.
Thereafter, Mountain States did not defend Kirkpatrick and Hog’s Breath. After a one-day trial on damages, respondents obtained a monetary judgment against Kirkpatrick and were awarded costs. Apparently unable to collect from Kirkpatrick, respondents served a writ of garnishment on Mountain States.
The question here is whether the pollution exclusion clause at issue excludes the conduct that occurred in this case. Respondents do not dispute that cooking grease was “discharged” from the restaurant in quantities large enough to create the sewer clog, nor do they dispute their injuries “arose out” of such a discharge.
When interpreting an insurance contract, a court must first give effect to the plain meaning of its terms, and only find ambiguity where a term is reasonably susceptible to more than one meaning. While a resident of La Junta who dumps an occasional pan of greasy water into a sewer may not contaminate and therefore not pollute the sewer, a restaurant that repeatedly dumps large amounts of cooking grease or greasy water into a sewer over time, thereby creating a five to eight-foot clog, is dumping contaminants (and thus pollutants as defined by Mountain States’ insurance policy) into La Junta’s sewers.
Respondents seek to avoid this conclusion by invoking the reasonable expectations doctrine. They claim that pollution exclusion clauses were incorporated in commercial liability policies to relieve insurers of liability for clean-up and other costs associated with federal environmental protection laws such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). From this, they argue that a reasonable insured would expect pollution exclusion clauses to exclude coverage only for “traditional” pollution as contemplated by CERCLA, not cooking grease.
The reasonable expectations doctrine may override exclusionary policy language, where an ordinary, objectively reasonable person would be deceived into believing that he or she is entitled to coverage, while the insurer would maintain otherwise.
The pollution exclusion clause in the policy says nothing about federal environmental protection laws, or “traditional” pollution. Instead, the policy uses general language to exclude coverage for discharges of waste or substances that irritate or contaminate. The dumping of large quantities of cooking grease into the sewer such that a clog would form would run afoul of at least one city ordinance and should not cause an ordinary person to read the pollution exclusion clause to exclude “traditional” pollution but preserve coverage for conduct that violated a city ordinance prohibiting the discharge of “solid or viscous pollutants in amounts which will cause obstruction to the flow.”
The Supreme Court reasoned that an ordinary reasonable person would not have been “deceived” into thinking that there would be coverage for the dumping of cooking grease in such a great volume as to clog the sewer. Respondents, in addition, produced no facts in this case to suggest such deception.
The court of appeals based its decision on its concern that because cooking grease is a common everyday waste product, considering it to be “pollution” would lead to the negation of essential insurance coverage and absurd results. While the Supreme Court was mindful of the concerns expressed by the court of appeals, it found them inapplicable because, in this case, the restaurant discharged enough cooking grease into the sewer system to create a five to eight-foot clog that led to a dangerous buildup of toxic gas—conduct that violated a city ordinance prohibiting the discharge of a pollutant in an amount that creates an obstruction to the sewer flow.
The Supreme Court, therefore, agreed with the trial court that, under the circumstances of this case, the discharge of cooking grease amounted to a discharge of a pollutant. Concluding that the pollution exclusion clause bars coverage, and the insurance policy cannot be garnished to compensate respondents for their bodily injuries, the Supreme Court reversed the decision of the court of appeals.
Insurance policies are contracts that require interpretation with reason. Those who write insurance policies, and courts that interpret them, expect insurance contracts to be interpreted reasonably with common sense. Snake venom, for example, is a deadly poison that would seldom be considered medicinal. However, when injected into the facial tissue of an aging person it can tighten the skin and make the person look younger without harm.
Used bacon grease is healthful and often used to increase the flavors of other food products. However, when dumped improperly into a sewer where it builds up an eight-foot clog and mixed with the sewer water creates toxic gas is clearly a pollutant. The Supreme Court of Colorado, intelligently, interpreted the insurance policy to provide meaning to its clear and unambiguous terms. Insurance covers many risks of loss but can never cover every possible risk of loss.
About the Author
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He also serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and is the author of Insurance Claims: A Comprehensive Guide, Mold: A Comprehensive Claims Guide, and Construction Defects: Litigation and Claims.