(Article from Insurance Law Alert, January 2015)
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Preisler v. Gen. Cas. Ins. Co., 2014 WL 7373070 (Wis. Dec. 30, 2014), a septic service company sought general liability coverage for claims alleging that its negligent application of septic waste for fertilization purposes harmed a dairy farm. The insurers denied coverage on the basis of pollution exclusions that precluded coverage for harm "arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’" The septic company did not dispute that the septic material was dispersed onto the farmland, but argued that that material was not a "pollutant" because it had been used as fertilizer. A trial court disagreed, and ruled in favor of the insurers. An appellate court and the Wisconsin Supreme Court affirmed.
The decision is significant in several respects. First, the Wisconsin Supreme Court ruled that in construing whether a substance is a pollutant, the court must evaluate the substance "at the point it harms the interests of another" rather than "on an initial event that may have involved a beneficial use of the substance." The court therefore deemed it irrelevant that the septic waste had been applied for fertilization. Second, in concluding that a reasonable insured would consider decomposing septage as a pollutant when it seeps into a water supply, the court noted that septage handling is regulated by the Environmental Protection Agency. As discussed in our December 2013 Alert, courts disagree as to whether federal or state classifications of material should factor into a pollution exclusion analysis. Third, the court distinguished cases in which a harm-causing substance (such as carbon dioxide) was not deemed a "pollutant" because it is "universally present and generally harmless in all but the most unusual circumstances." The court noted that although individual components of septage are common, decomposing septage can release high levels of nitrates, which are not considered "generally harmless" or "pervasive."
On the same day, the Wisconsin Supreme Court employed similar reasoning and issued a second opinion addressing the pollution exclusion, holding that it unambiguously applied to claims alleging well water contamination caused by the use of cow manure as fertilizer. Wilson Mut. Ins. Co. v. Falk, 2014 WL 7375656 (Wis. Dec. 30, 2014). The court reasoned that although farmers may consider manure to be a "universally present, desirable and generally harmless substance," a reasonable insured would consider manure in a well to be a pollutant. The court noted that the pollution exclusion analysis focuses on the occurrence that caused property damage–i.e., the seepage of the manure and resultant contamination of neighboring wells–not on the initial application of the manure.
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