Fifth Circuit Rejects Argument That Total Pollution Exclusion Creates Illusory Coverage

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The Fifth Circuit affirmed the district court’s grant of summary judgment in favor of Liberty Mutual, finding that Liberty Mutual had no duty to defend or indemnify Linn Energy in connection with the underlying lawsuit, which alleged leakage of saltwater, brine and other contaminants from Linn Energy’s pipeline onto the complainants’ properties.  Notably, the Liberty Mutual policy issued to Linn Energy contained an Underground Resources and Equipment Coverage endorsement, which included in the definition of “property damage” damage to particular types of underground resources.  Nonetheless, the policy included a Total Pollution Exclusion which precluded coverage for “property damage” that “would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”

The district court held that the Total Pollution Exclusion precluded coverage for the underlying lawsuit, despite the alleged damage to underground resources.  The Fifth Circuit agreed, reasoning that the Total Pollution Exclusion did not render the Underground Resources and Equipment Coverage endorsement “wholly meaningless” because the policy still provided coverage for non-pollution property damage to underground resources, such as the depletion of a reservoir.  Because the two provisions could co-exist harmoniously, the Fifth Circuit rejected Linn Energy’s illusory coverage argument, explaining that Linn Energy’s proposed interpretation allowed the Underground Resources and Equipment Coverage endorsement to trump the Total Pollution Exclusion which “rob[s] the latter of its meaning in contravention of the policy’s plain language.”

This decision is a significant victory for insurers, as Texas courts continue to uphold total pollution exclusions as clear and unambiguous with a broad application.

Liberty Mutual Ins. Co. v. Linn Energy, LLC.
(5th Cir. June 30, 2014)