(Article from Insurance Law Alert, May 2025)
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Holding
The Tenth Circuit ruled that pollution exclusions in two liability policies were unambiguous and precluded coverage for underlying environmental contamination. Chisholm’s-Village Plaza LLC v. Cincinnati Insurance Co., 2025 U.S. App. LEXIS 9625 (10th Cir. Apr. 23, 2025).
Background
Chisholm’s Village Plaza was named as a defendant in a suit alleging contamination under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). The complaint alleged that a dry-cleaning business located on Chisholm’s property released hazardous substances into surrounding soil, thereby contaminating local water sources.
Chisholm turned to its liability insurers, Fidelity and Cincinnati, for defense of the suit. The insurers denied coverage, asserting that pollution exclusions in the policies barred coverage. Chisholm sued, alleging breach of contract and bad faith. A New Mexico district court granted Chisholm’s summary judgment motion, ruling that the pollution exclusions were ambiguous and construing the provisions in favor of coverage. The Tenth Circuit reversed.
Decision
The Tenth Circuit ruled that the New Mexico Supreme Court would find that the policies unambiguously precluded coverage for the CERCLA claims as a matter of law.
Fidelity’s policy contained an absolute pollution exclusion, which applied to property damage “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.” The term “pollutant” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant.” The court reasoned that the underlying allegations, relating to water contamination caused by the release of hazardous substances, fell squarely within the plain terms of the exclusion. The court rejected Chisholm’s claim (and the district court’s holding) that the terms “pollutant” and “contaminant” were ambiguous. The district court reasoned that ambiguity arose because of the exclusion’s failure to list the exact type of pollutant at issue by name. The Tenth Circuit rejected this “outlier” approach as inconsistent with logic and New Mexico law. Along similar lines, the Tenth Circuit rejected the argument that the absence of a definition for the term “contaminant” rendered it ambiguous, noting that, under New Mexico law, undefined terms are given their usual, ordinary meaning.
Applying the same reasoning to Cincinnati’s policy, the court likewise concluded that Cincinnati had no duty to defend. The pollution exclusion in Cincinnati’s policy included similar language to that in Fidelity’s policy, but also contained a provision stating that relevant parts of its exclusion did not apply “to liability for damages because of ‘property damage’ that the insured would have in the absence of such a request, demand, order or statutory or regulatory requirement, or such claim or ‘suit’ by or on behalf of a governmental authority.” The district court held that this provision created a common law tort exception to the pollution exclusion, such that the exclusion would not bar coverage if the underlying complaint alleged common law liability for nuisance or trespass. The district court further reasoned that there was a “potential” that such common law claims could brought by private parties, which triggered Cincinnati’s duty to defend.
Rejecting this reasoning, the Tenth Circuit emphasized that the complaint alleged only CERCLA claims, not claims for negligence or tort-based liability. Equally important, the Tenth Circuit held that the district court’s holding directly conflicted with New Mexico law, under which an insurer’s defense obligations are determined by the allegations in the complaint, rather than theoretical future claims “based on facts that are neither known to the insurer nor pleaded in the complaint.”
Accordingly, the Tenth Circuit reversed the district court’s grant of summary judgment in Chisholm’s favor and its denial of the insurers’ summary judgement motions. The court also denied Chisholm’s motion to certify questions about the pollution exclusion to the New Mexico Supreme Court.
Comments
The decision reinforces two important principles relating to arguments regarding ambiguity. First, breadth of a policy term (whether defined or not) does not necessarily render it ambiguous. The court acknowledged the breadth of the ordinary meaning of the term “contaminant,” but rejected the argument that such breadth warranted a finding of ambiguity. Second, the decision makes clear that a disagreement among jurisdictions does not, without more, create ambiguity. The district court ruled that ambiguity arose not only from policy verbiage, but also because of a split in authority regarding interpretation of pollution exclusions across other jurisdictions. The Tenth Circuit emphasized that a split in authority, standing alone, is insufficient to find ambiguity.
Chisholm also highlights the limitations of an insurer’s duty to defend. The Tenth Circuit not only ruled that the insurers had no duty to defend the CERCLA suit, but also that they had no duty to investigate further before denying a defense. The court explained that where, as here, the allegations in the complaint align squarely with exclusionary language, insurers need not conduct an additional investigation to determine their defense obligations.