Insurer Failed To Establish Applicability Of Pollution Exclusion Involving Construction Debris Disposal

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Sierra Recycling & Demolition, Inc. v. Chartis Specialty Lines Ins. Co.

(United States District Court, E.D. California, November 3, 2011)


The issue in this environmental coverage dispute was whether the policy’s pollution exclusion applied to cover alleged losses stemming from the disposal of certain hazardous debris.  Specifically, a third party hired plaintiff policyholder to transport construction debris from a demolition site.  The policyholder hauled the construction debris from the site to Metropolitan Recycling Center, a private company which is not owned, leased or rented by the policyholder.  Prior to transportation, policyholder Sierra removed from the debris materials it deemed hazardous.  The policyholder transported approximately 300 tons of construction debris to the Metropolitan facility, which is not a landfill, as all materials must be sold, recycled or otherwise transferred to other facilities.  Subsequently, Metropolitan informed Sierra that a sample collected from the debris pile indicated elevated levels of lead and zinc. 


The issue was whether Exclusion U of the policy barred the policyholder’s claim for the cleanup costs. The insurer contended that the exclusion unambiguously barred Sierra’s claim because Sierra’s “final disposal” of the debris was at Metropolitan, a site Sierra did not own, lease or rent.  The insurer asserted that Exclusion U applied unambiguously to any site, not only landfills, where the insured ultimately disposes its materials.   The policyholder, however, contended that Exclusion U is ambiguous and did not bar its claims because “final disposal” was limited to the final disposal of material in landfills, not the final disposal as to the insured. 


Exclusion U states: This insurance does not apply to … “U” Non-owned Site Disposal – Bodily injury, property damage or environmental damage arising from the final disposal of material and/or substances of any type (including but not limited to any waste) at any site or location which is not owned, lease or rented by you. 


Sierra further argued that Metropolitan is a recycling facility, not a landfill site, and all material on its site must be sold, recycled, or otherwise transferred to other facilities.  Sierra specifically emphasized the interpretation of the word “final” in “final disposal” asserting that the plain language in the exclusion excludes coverage for a materials’ final disposal site, i.e., a landfill, not a processing facility such as Metropolitan.  In contrast, the insurer argued that interpreting the policy as a whole, Exclusion U was intended to exclude the insured’s final relinquishment of debris or waste, whether at a landfill or otherwise not owned, leased, or rented by the policyholder.  In supporting its interpretation, the insurer emphasized the phrase “any site or location” in the exclusion.  Also, the insurer highlighted the phrase “including but not limited to any waste” as it would be unnecessary to include it if the exclusion was intended to only cover landfills.  Lastly, the insurer argued that if Sierra wanted policy coverage for non-owned facilities it could have secured same under Coverage D of the policy.


While the court determined both interpretations to be reasonable, the court held that the exclusion was ultimately ambiguous. Specifically, the court held that defendant did not meet its burden under the law to make Exclusion U plain and clear, noting that the exclusion was neither plain or clear whether it is limited to Sierra’s final disposal of material, whether it includes disposal at non-owned landfills, or whether it would include a recycling processing facility such as Metropolitan.  Therefore¸ it could not preclude the policyholder’s claim.


For a copy of the decision click here


Paul Steck and Tom Segalla