Trucking sales company’s insurer off the hook due to pollution exemption
August 14, 2020
A federal appeals court recently ruled that an insurance company does not have to cover damages to a Mississippi truck sales and service company due to a pollution exemption. It all comes down to the definition of “smoke.”
On July 31, the Fifth Circuit Court of Appeals affirmed a Mississippi district court’s decision dismissing a lawsuit filed by Laurel, Miss.-based Burroughs Diesel. The company, which sells and services Western Star trucks, sued Travelers Indemnity Co. of America for refusing to cover damages caused by a nearby chemical spill. However, the insurer argued that a pollution exemption takes them off the hook.
The lawsuit centered on an incident that occurred in October 2016. More than 5,000 gallons of hydrochloric acid had leaked from a nearby storage tank. The liquid acid turned into a chemical cloud that moved across the street and engulfed Burroughs Diesel property. That cloud caused extensive damage to its buildings, vehicles, inventory, tools, machines and equipment. The company filed a claim with Travelers Indemnity.
An engineer for Travelers Indemnity concluded that the hydrochloric acid cloud did in fact damage Burroughs Diesel’s property. Regardless, the insurer denied coverage, pointing to a pollution exclusion in the policy.
Burroughs Diesel insisted that Travelers Indemnity was liable to pay for damages from the pollution and filed a lawsuit in a Mississippi federal court. A district court dismissed the case in favor of the insurer, finding the pollution exclusion valid. Burroughs Diesel appealed.
Definition of ‘smoke’ in pollution policy
During the appeal, the Fifth Circuit had to interpret provisions in the policy exactly as written. In this case, that came down to definitions of “smoke” and “pollutants” within the pollution exemption.
“Pollution” is defined as “discharge, dispersal, seepage, migration, release or escape of ‘pollutants,’” according to the policy. However, there is an exemption within the exemption if pollution is caused by one of the specified causes of loss. The definitions section of the policy was the determinating factor in the case.
The relevant specified cause of loss in this case was smoke. In the policy, smoke is listed as “including the emissions or puff back of smoke, soot, fumes or vapors from a boiler, furnace or related equipment. Pollutants include “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, waste and any unhealthful or hazardous building materials.” The key issue was whether the specified cause of loss of smoke overrode the pollution exclusion of acids.
Although hydrochloride acid is clearly an acid, Burroughs Diesel argued that the cloud derived from the acid spill constitutes as smoke, which would be covered by the policy.
Aside from what is included to be smoke, the policy does not clearly define the term smoke. Burroughs Diesel argued smoke has many definitions. Therefore, the ambiguity should lead to a resolution in favor of coverage.
When the liquid acid leaked, it “turned into gas particulate upon contact with the ambient heat/humidity and formed a white smoke cloud of gas particles suspended in water vapor (gas) that traveled across the street,” Burroughs Diesel claimed.
To clear the air on the definition of smoke, the Fifth Circuit looked for “the ordinary, popular or logical meaning of ‘smoke’ by turning to the Merriam-Webster dictionary. The first definition states “the gaseous products of burning materials,” the court found. Based on that definition, the cloud derived from the acid contacting ambient conditions is not excluded from the pollution exemption.