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Missouri Courts’ Application of the Pollution Exclusion: A Contrast of Two Very Different Approaches to Insurance Policy Interpretation

November 14, 2017

In its October 31, 2017, opinion in Doe Run Resources Corp. v. American Guarantee & Liability Ins., the Missouri Supreme Court considered whether a general liability policy’s pollution exclusion barred coverage for alleged bodily harm caused by exposure to toxic emissions emanating from Doe Run’s lead production facilities in La Oroya, Peru. The exclusion removed coverage for “injury or damage or medical expenses that result from pollution at, on, in…or from any…protected person’s premises.” The policy defined “pollution” to mean “any actual, alleged, or threatened discharge, dispersal, escape, migration, release, or seepage of any pollutant.” It further defined “pollutant” to mean “any solid, liquid, gaseous, or thermal irritant or contaminant…” (emphasis added). Applying dictionary definitions of the terms “irritant” and “contaminant,” the court concluded that the pollution exclusion applied to bar coverage.

In arriving at this holding, the Supreme Court seemingly distinguished an older Missouri appellate court opinion in Hocker Oil Co., Inc. v. Barker-Phillips-Jackson, Inc., 997 S.W.2d 510 (Mo. App. S.D. 1999), that refused to apply a similar pollution exclusion to property damage caused by leaks from a gasoline station’s underground storage tanks.

Doe Run and Hocker Oil illustrate how Missouri courts can interpret similar policy language very differently, depending on the approach to policy interpretation applied by the court. Indeed, Missouri caselaw provides support for at least two different, sometimes conflicting, approaches to policy interpretation. One approach can be labeled the “textual,” “formalist,” or “plain meaning” approach. Under this approach, courts try to interpret insurance provisions literally as they are written on the page by employing various canons or maxims of construction and by consulting common language reference materials such as dictionaries. The other approach can be described as the “realist” or “functional” approach. This method takes into account consumer and industry expectations and norms when interpreting policies. Courts applying this approach explicitly consider the practical consequences of a given interpretation. (For a further discussion of how Missouri courts apply these different approaches to policy interpretation, see our prior article on same in Missouri Organization of Defense Lawyers Newsletter.)

Both of these approaches are on vivid display in Doe Run and Hocker Oil. As mentioned above, the policy at issue in Doe Run defined “pollution” to include an “irritant” or “contaminant,” but the policy did not further define those terms. The Supreme Court held that “[w]hen a policy does not define a particular term, courts use the ordinary meaning of the word as set forth in the dictionary.” In a textbook example of plain meaning policy interpretation, the court then turned to Webster’s Third New International Dictionary to define these terms: an irritant is “something that irritates or excites” or “an agent by which irritation is produced”; to “irritate” is “to cause (an organ or tissue) to be irritable” or “to produce irritation”; and to “[c]ontaminate” is “to soil, stain, corrupt, or infect by contact or association” or “to render unfit for use.”

The Supreme Court noted that the Doe Run plaintiffs “allege toxic chemicals are present in the air, water, and surrounding environment and these toxic chemicals are harmful to the individuals who breathe them.” The court held that these claims “certainly allege the existence of an irritant or contaminant under the ordinary meanings of the words; these emissions could be understood to both ‘produce irritation’ and ‘corrupt’ the breathable air, making it ‘unfit for use.’” The Supreme Court concluded that “the toxic emissions expelled from Doe Run’s facilities are unequivocally a pollutant under the plain meaning of the term.” By doing so, the Supreme Court certainly seemed to embrace the plain meaning approach.

 On the other hand, when considering whether a similar pollution exclusion applied to property damage arising from a gasoline leak, the Missouri appellate court in Hocker Oil noted that other jurisdictions had relied on dictionary definitions but ultimately refused to do so itself. Specifically, the court in Hocker Oil referenced a Georgia appellate court opinion’s in Truitt Oil & Gas Co., Inc. v. Ranger Ins. Co., 231 Ga.App. 89, 498 S.E.2d 572 (1998), that relied on the definition of “gasoline” from Webster’s Ninth New Collegiate Dictionary. That dictionary defined “gasoline” as “a volatile flammable liquid hydrocarbon mixture blended from natural gas and petroleum.” With that definition in mind, the Georgia court concluded gasoline was a “liquid or gaseous contaminant” and thus a “pollutant.” The Missouri appellate court, however, declined to adopt that interpretation.

Instead, the appellate court in Hocker Oil relied heavily upon consumer expectations in arriving at its policy interpretation, seemingly adopting a functional approach to policy interpretation. The court noted that the insured in that case was in the business of transporting, selling and storing gasoline. The court agreed with the insured’s argument that it “would not have paid a substantial premium for a liability policy that would not afford coverage for damages resulting from gasoline leaks from its storage tanks.” As the appellate court put it, “Gasoline is not a pollutant in [the insured’s] eyes. Gasoline is the product it sells.” Because the policy did not specifically include gasoline in the definition of “pollutant,” the court held that it was reasonable for the insured to expect that the policy would provide coverage for gasoline-related claims. It “would be an oddity for an insurance company to sell a liability policy to a gas station that would specifically exclude that insured’s major source of liability,” the appellate court commented. By embracing consumer expectations instead of dictionary definitions, Hocker Oil is a good exemplar of the functional approach to policy interpretation.

Although Doe Run and Hocker Oil seem to approach the pollution exclusion very differently, the Supreme Court in Doe Run did not necessarily overturn the limited holding from Hocker Oil. The insured in Doe Run tried to raise the Hocker Oil argument that the pollution exclusion should not apply to lead production claims because lead was a product that had significant commercial value. Rather than outright reject that argument under its plain meaning interpretation of “irritant” and “contaminant,” the Supreme Court seemed to distinguish the holding from Hocker Oil on the facts:

The only exposure the plaintiffs had to Doe Run’s lead products was via its release of toxic substances into the environment. And because Doe Run is not in the business of polluting the environment, these toxic emissions are not products Doe Run intends to sell. “That its toxic or hazardous materials are valuable products if Doe Run properly contains them does not make them any less ‘pollutants’ when they are abandoned and released into the environment.” …

The Supreme Court held that because “toxic lead byproducts” are not Doe Run’s business commodities, Hocker Oil did not apply. In doing so, the Supreme Court did not yet go as far as the Eighth Circuit a few years ago in United Fire and Casualty Company v. Titan Contractors Service, Inc., 751 F.3d 880 (8th Cir. 2014) (applying Missouri law), in which it declined to follow Hocker Oil and adopted a broader interpretation of a pollution exclusion to include claims arising out of one of the insured’s products (discussed in more detail in our prior blog post).

Interestingly, the Supreme Court ultimately concluded that “[t]hough lead does have commercial value – particularly to Doe Run, a lead mining and smelting corporation – it is undoubtedly an irritant or contaminant when released as particulate matter into the environment” (emphasis added). The court did not necessarily address if it would apply the pollution exclusion to a claim where the insured’s actual product—rather than its “byproducts”—caused injury to persons or property, mostly because the court indicated those facts were not present in Doe Run. Should a Missouri court apply Doe Run’s plain meaning interpretation of “irritant” or “contaminant” from the pollution exclusion to a claim involving an insured’s actual product, however, Hocker Oil’s remaining days as a case of precedential effect may be numbered.

In the meantime, the Supreme Court’s opinion in Doe Run is a good reminder to insureds, insurers and their coverage counsel that any evaluation of or argument for the meaning of an insurance policy provision needs to take into account both the plain meaning and functional approaches to policy interpretation.