Tuesday, December 5, 2017

Doe Run Resources Corporation v. American Guarantee & Liability Insurance

            The Supreme Court of Missouri considered whether a pollution exclusion in a commercial general liability policy issued to Doe Run barred coverage for bodily injury caused by exposure to toxic emissions stemming from Doe Run's lead production facilities in Peru.  The pollution exclusion defined pollutant to mean "any solid, liquid, gaseous, or thermal irritant or contaminant."  At issue was whether lead, emitted in its particulate form, was an "irritant or contaminant."  The court applied the dictionary definition of those terms and concluded that the pollution exclusion applied to bar coverage.

I.        Facts and Holding
Doe Run is a Missouri corporation that produces lead and lead concentrate through its mining operations.[1]  Doe Run also has a metallurgical complex located in Peru.[2]  In 2007, several individuals filed lawsuits against Doe Run (“the Reid lawsuits”) alleging Doe Run released harmful substances, such as heavy metals and sulfur dioxide, into the environment.[3]  The plaintiffs claimed these emissions created dust that infiltrated the air and water.[4]  This dust then invaded the plaintiffs’ houses and their furniture, clothing, water and crops.[5]
Doe Run had a commercial general liability policy with St. Paul Fire and Marine Insurance Company.[6]  They sought to add St. Paul to the lawsuit in 2012.[7]  St. Paul denied coverage on the basis that the underlying claims were barred by the pollution exclusion.[8]  St. Paul also argued the “other insurance” provision eliminates any duty to defend when they are an excess carrier and not a primary insurer.[9]  The pollution exclusion language was as follows:

Pollution injury or damage. We won't cover injury or damage or medical expenses that result from pollution at, on, in[,] or from any[ ] protected person's premises.
Pollution means any actual, alleged, or threatened discharge, dispersal, escape, migration, release, or seepage of any pollutant.

Pollutant means any solid, liquid, gaseous, or thermal irritant or contaminant, including[ ] smoke, vapor, soot, fumes[,] acids, alkalis, chemicals[,] and waste.

Protected person's premises means any premises, site, or location that is or was at any time owned, rented, leased, borrowed, or occupied by any protected person.[10]

Doe Run argued the language of the pollution exclusion was ambiguous, and therefore St. Paul had a duty to defend under the policy.[11]  They also argued St. Paul was a primary insurer.[12]  The trial court entered summary judgment in favor of Doe Run.[13]  St. Paul appealed, and the Missouri Court of Appeals, Eastern District, held St. Paul had a duty to defend.[14]  The Supreme Court of Missouri found in favor of St. Paul and held the pollution exclusion unambiguously barred coverage and St. Paul had no duty to defend Doe Run in the underlying lawsuits.[15]  The issue of primary versus excess coverage was not addressed as the pollution exclusion issue was dispositive.[16]

II.     Legal Background
The doctrine of contra proferentum controls when policy language is ambiguous.[17]  Under this doctrine, ambiguous terms are construed against the drafter (here, the insurance company), and in favor of the insured.[18]  When the meaning is clear and unambiguous, the policy language must be construed as written.[19]  Courts cannot create an ambiguity when no ambiguity exists.[20]
The issue of whether the pollution exclusion applies when there is an alleged ambiguity regarding the word “pollutant” was addressed in Hocker Oil Company, Inc. v. Barker-Phillips-Jackson, Inc.[21]  The insured in that case was a gas station company.[22]  Hocker had a liability policy with Ranger, which contained a pollution exclusion that defined pollutants as “…any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”[23]  One of the drain plugs on a gasoline storage tank failed, causing approximately 2,000 gallons of gasoline to leak into the ground and onto adjacent property.[24]  The owners of the adjacent property filed suit for personal injuries and property damage caused by the leak.[25]  Ranger denied coverage and declined to defend, citing the pollution exclusion.[26]  Hocker responded that “gasoline is a product, not a pollutant,” and a loss caused by a gasoline leak was covered under the policy.[27] 
The Missouri Court of Appeals, Southern District, held the policy language was ambiguous as “gasoline” was not specifically listed as a pollutant.[28]  The court noted it would be odd for a liability policy to exclude the insured’s major source of liability.[29]  Hocker’s primary business was selling and storing gasoline, so in Hocker’s environment, gasoline is a product and not a pollutant.[30]  Because the pollution exclusion was ambiguous, Ranger should have provided coverage and defended Hocker in the underlying suit.[31]

III.  Instant Decision
Doe Run relied heavily on the Hocker Oil case in its argument that St. Paul’s policy language was ambiguous.[32]  The court disagreed, and pointed out two key distinctions between the Hocker Oil case and Doe Run’s facts.[33]  First, lead, as a particulate, is clearly an irritant or contaminant when released into the environment.[34]  While the words “irritant” or “contaminant” weren’t specifically defined in the policy, lead as a particulate is an irritant or contaminant under the words’ ordinary meanings.[35]  Therefore, the emissions from Doe Run’s facilities are also pollutants.[36]
Second, the toxic emissions released from Doe Run’s facilities were not “business products.”[37]  While the lead itself is a business product, the complaint does not allege injury from the lead Doe Run produced.[38]  The injuries alleged were related to the “toxic metals and gases and other toxic substances” the plaintiffs were exposed to.[39]  As the court pointed out, Doe Run was not in the business of polluting the environment, and the toxic emissions were not products that Doe Run intended to sell.[40]  Hocker Oil, therefore, does not apply to this set of facts.[41]  Because the language in the pollution exclusion was unambiguous, coverage was properly denied under the pollution exclusion and St. Paul had no duty to defend the underlying suit.[42]

IV.  Comment
Doe Run attempted to broaden the holding of the Hocker Oil case in making the argument that the pollution exclusion language was ambiguous.  In Hocker Oil, the commodity in its sellable form leaked from underground storage tanks.  However, in Doe Run's case, the final, sellable product was not what caused the toxic emissions.  It was the byproduct, which could not be constrained or marketed, that allegedly caused the bodily harm.  These facts distinguish Doe Run’s argument from Hocker Oil
In holding the pollution exclusion was not ambiguous, the court declined to broaden the Hocker Oil holding.  Since Doe Run's facts were not analogous to Hocker Oil, the court did not need to address whether they would take a "plain meaning" approach when interpreting a pollution exclusion in a claim where the insured's actual product caused the injury.  Whether Hocker Oil continues to be valid precedent or becomes obsolete remains to be seen in subsequent litigation regarding the interpretation of the pollution exclusion.
-          Jessica Peterman

[1] Doe Run Res. Corp. v. Am. Guarantee & Liab. Ins., No. SC 96107, 2017 WL 5078078, at *1 (Mo. Oct. 31, 2017).
[2] Id.
[3] Id.
[4] Id.
[5] Id,
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id. at *2.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id. at *6.
[16] Id.
[17] See Mendenhall v. Prop. and Cas. Ins. Co. of Hartford, 375 S.W.3d 90, 92 (Mo. banc 2012).
[18] Id.
[19] Id.
[20] See Todd v. Mo. United Sch. Ins. Council, 223 S.W.3d 156, 160 (Mo. banc 2007).
[22] Id. at 512.
[23] Id.
[24] Id.
[25] Id.
[26] Id.
[27] Id. at 513.
[28] Id. at 517.
[29] Id.
[30] Id.
[31] Id.
[32] Doe Run Res. Corp. v. Am. Guarantee & Liab. Ins., No. SC 96107, 2017 WL 5078078, at *3 (Mo. Oct. 31, 2017).
[33] Id. at *3-5.
[34] Id. at *3.
[35] Id. at *3-4.
[36] Id. at *4.
[37] Id. at *5.
[38] Id.
[39] Id.
[40] Id.
[41] Id.
[42] Id. at *6.