The Wisconsin Supreme Court recently addressed the pollution exclusion in two similar decisions involving contaminated well water.
First, in Preisler v. General Casualty Insurance Co. et al., 2014 WI 135, the Supreme Court affirmed an order of summary judgment in favor of Rural Mutual Insurance Company, Regent Insurance Company, and General Casualty Company, finding that the pollution exclusion barred coverage.
The underlying suit arose out of tainted well water that caused Fred and Tina Preisler’s cattle to die at an unexpected rate. The contamination to the well on the Preislers’ dairy farm originated from septage applied to their farm as fertilizer by Kuettel’s Septic (Duke, Doug, Dale, and Cheryl Kuettel lived on a farm across the street from the Preisler’s). Septage is primarily composed of human urine and fecal material as well as other materials commonly disposed in septic tanks, grease interceptors, and portable restrooms. In 2008, testing revealed that the well water was contaminated by the septage. Thereafter, the Preislers filed suit against, inter alia, Kuettel’s Septic, the Kuettels individually, and the parties’ insurers alleging claims of “negligence in storing and applying septage resulting in nuisance and trespass.” The insurers’ motion for summary judgment was granted, and the court of appeals affirmed.
Regarding the pollution exclusion, the Wisconsin Supreme Court reviewed “whether, at the time of the occurrence that triggered coverage, the decomposing septage is a pollutant within the policies’ definition.” In concluding that the septage was indeed a pollutant under the policies, the court determined that the substance should be analyzed at the point it harms the interests of another. Cognizant of the beneficial usages of the septage, the court compared the facts in this case to analogous situations where a useful product (i.e., lead paint; fabric softener) can be considered a pollutant in another context (i.e., lead paint chips in the home; fabric softener contaminating ice cream cones). Therefore, since at the time of the occurrence the septage was infiltrating the well causing illness to cattle, it was properly considered a pollutant.
In addition, the court concluded that septage constituted a pollutant under the plain and ordinary meaning of the term as understood by a reasonable insured. Wisconsin courts impose a reasonableness requirement on the reach of the pollution exclusion so that commonplace, ubiquitous substances are not improperly excluded (e.g. exhaled carbon dioxide). Further, the court recognized that a reasonable insured “would not understand exposure of water supplies to decomposing septage as ‘an everyday activity gone slightly, but not surprisingly awry.’” As a result, the court concluded that the Preisler’s septage claims unambiguously fell within the pollution exclusion.
Second, in Wilson Mutual Insurance Co. v. Falk, 2014 WI 136, the Supreme Court concluded that well contamination caused by the seepage of cow manure fell within the pollution exclusion. The underlying dispute involved Robert and Jane Falk applying cow manure to their farm fields, which then allegedly polluted their surrounding neighbors’ wells. The circuit court granted an order of declaratory judgment in favor of the insurer, Wilson Mutual Insurance Company (Wilson Mutual), stating that it had no duty to defend or indemnify the Falks. The court of Appeals reversed, “concluding that a reasonable farmer would consider cow manure to be ‘liquid gold’ and not a pollutant when applied to a farm field.”
In addressing the pollution exclusion question, the Supreme Court stated that it only needed to review whether manure was a pollutant at the point it entered the wells of the injured parties. Notably, the court outlined a two-part test to determine if a substance is a pollutant: “(1) [if] the substance is largely undesirable and not universally present in the context of the occurrence that the insured seeks coverage for; and (2) whether a reasonable insured would consider the substance causing the harm involved in the occurrence to be a pollutant.”
Analyzing step one, the court stated that the Falks are not seeking coverage for applying manure to their farm field, but rather for the harm the manure did to their neighbors’ wells. The court reasoned, “While when safely and beneficially applied, manure may be a universally present, desirable, and generally harmless substance on a farm field, this ignores the occurrence for which the Falks seek coverage.” Therefore, the court deemed step one satisfied since manure is seen as largely undesirable and understood to be harmful to wells.
With regard to step two, the court determined a reasonable insured would consider improperly applied manure to be a pollutant although beneficial uses of manure clearly exist. Also, the court dismissed the Falks’ and the injured parties’ argument that the nitrates, not the manure caused the harm. The court found such view overly narrow because it discounted the fact that absent the manure, the excess level of nitrates would not have occurred.
These two cases reveal a broad application of the Pollution Exclusion under Wisconsin law. By focusing on the nature of the substance at the time it contaminated the claimants’ property, this approach undertaken by Wisconsin courts appears much more favorable to insurers than the approach undertaken by neighboring states’ courts, especially those in Illinois and Indiana.