Federal Court In Texas Holds Pollution Exclusion Applies To Contaminated Stormwater Runoff

A federal district court in Texas granted an insurer’s motion for summary judgment under a CGL policy and commercial umbrella liability policies because of the primary policy’s unambiguous pollution exclusion against a claim for property damage from contaminated stormwater. Liberty Mutual Fire Insurance Co. v. Copart of Connecticut, Inc., 3:19-cv-2748-E, 2021 U.S. Dist. LEXIS 157457 (N.D. Tex. Aug. 20, 2021).

The underlying petition alleged property damage to the plaintiff’s property from the “the flow of stormwater laden with soil, sediment and harmful chemicals.” Scientific tests on samples collected on the insured’s property revealed significant levels of “heavy metals and other dangerous elements.” In coverage litigation, both parties moved for summary judgment regarding the duty to defend.

The court found that the pollution exclusion in the CGL policies applied under the “eight-corners” rule because the complaint did not allege damage only from water. It rejected the argument that the complaint alleged “harm caused by stormwater” because it was not a factual allegation in the complaint, but rather a quote from a statement about South Carolina law. The court also rejected the argument that the umbrella policies’ defense was triggered because they contained an exception to the pollution exclusion for property damage arising out of “the escape of fuels, lubricants or other operating fluids that are needed to perform normal electrical, hydraulic or mechanical functions necessary for the operation of ‘mobile equipment.’” The court reasoned that the umbrella policies would provide a defense only if the retained limit had been exhausted, which had not happened.