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Pollution exclusions after MacKinnon

02.05.09 | INSIGHTS

By Samuel H. Ruby
Shareholder-in-Charge, San Francisco 415.352.2723

The court in MacKinnon embraced the view that the exclusion was intended “primarily to exclude traditional environmental pollution rather than all injuries from toxic pollution.” Surveying the legal landscape, the California court found other jurisdictions that had considered the issue roughly divided into two camps. The court said, “One camp maintains that the exclusion applies only to traditional environmental pollution into the air, water or soil, but generally not to all injuries involving the negligent use or handling of toxic substances that occur in the normal course of business. The other camp maintains that the [pollution exclusion] applies equally to negligence involving toxic substances that occur in the normal course of business.” The court sided with the position that the exclusion should be applied narrowly based on: (1) its examination of the exclusion’s history; (2) a wide scope interpretation of “pollutant” as literally any contaminant or irritant would bring virtually any chemical within the exclusion; and (3) the phrase “discharge, dispersal, release or escape” could imply “expulsion over a considerable area rather than a localized toxic accident occurring in the vicinity of intended use.”

In examining the progeny of MacKinnon in California, the commentary reviews cases involving allegations of: (1) silica-related injuries and damages suffered by workers; (2) the discharge of leftover dirt and rocks from quarrying operations into an adjacent creek; (3) “foul and noxious” odors from composting operations; and (4) the release of methylene chloride into a public sewer system. The conclusion of that examination is that “[i]ntermediate appellate courts in California have found the [California] Supreme Court’s ‘narrow’ interpretation still to be broad enough to encompass a range of circumstances.” Thus, lethal chemicals are not the only substances that may qualify as “pollutants” under MacKinnon. In certain circumstances, a commonplace natural material like silica and even foul odors may qualify as pollutants entitling insurers to deny coverage under pollution exclusion clauses. Moreover, the pertinent “discharge” or “dispersal” need not b eintetnionla nor result in wholesale environemtnal degradation but could involve construction activity in a defined area, a small stretch of road adjacent to a creek, or a one-time negligent release of a chemical onto a nearby worker.

The commentary further reviews how the MacKinnon decision has been received outside of California, more specifically by courts in Missouri, Tennessee, and Virginia. The commentary concludes with significant advice to attorneys for policyholders and insurers as to how to assess the reach of the MacKinnon decision. In a case involving lead paint poisoning, the Missouri Court of Appeals distinguished MacKinnon found it distinguishable because the policy at issue expressly defined “pollutant” to include lead. The Tennessee Court of Appeals found that an accident involving the discharge of the policyholder’s sulphuric acid met both the narrow interpretation of the pollution exclusion espoused in MacKinnon as well as the broader interpretation adopted in other jurisdictions. The federal court for the Eastern District of Virginia predicted that the Virginia Supreme Court would enforce the literal, broad definition of “pollution.”

The commentary concludes by warning those that thought the MacKinnon decision would limit the application of the pollution exclusion to “major environmental nightmares” should “reconsider the case’s impact on claims involving lesser situations.”

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