District Court Rejects Pollution Exclusion In Worker Exposure Case

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This environmental coverage action arose from a worker’s exposure to corrosive chemicals while cleaning a tank and involved, in pertinent part, application of the pollution exclusion.  As background, the claimant’s employer specialized in cleaning mud tanks used in oil and gas drilling operations.  The claimant was not informed by the policyholder, JCI, that the subject mud tank contained large quantities of caustic materials, and based on that representation, he entered the mud tank without proper safety equipment.  As a result, the claimant was exposed to the caustic materials and suffered severe burns to and loss of large portions of his skin.

The insurer asserted that it did not owe JCI a duty to defend in the underlying personal injury action due to the pollution exclusion, which applied to any injury that would not have occurred but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants.”  The insurer contended that the pollution exclusion precluded coverage because the caustic materials were “pollutants” that were “dispersed” in the mud.  JCI did not dispute that the caustic materials qualified as “pollutants” under the policy; rather, it argued that the claimant’s injuries did not result from the dispersal of the “pollutants.”

The district court held that the pollution exclusion was inapplicable because, in pertinent part, the underlying complaint did not allege that caustic materials were “dispersed” in the mud in the tank.  The district court began with the understanding that a pollutant is dispersed if it is broken up and scattered about.  Because the underlying complaint alleged that the “mud tanks contained large quantities of caustic materials” and the claimant merely came into direct contact with the caustic materials, there was no “dispersal” of the “pollutants.”  Thus, the insurer was required to defend the policyholder in the underlying action.

This decision’s significance is in revealing how courts approach the Pollution Exclusion and its various parts.  The district court here afforded the exclusion an unusually restrictive interpretation of the mechanism component.

The Burlington Ins. Co.  v. JC Instride, Inc. et. al. 
(USDC, Southern District Texas, July 7, 2014)