Pollution Exclusion upheld by the United States Court of Appeals, Fifth Circuit

Pollution Exclusion upheld by the United States Court of Appeals, Fifth Circuit:

Liberty Mutual Insurance Co. v. Linn Energy, L.L.C.; Linn Operating Inc., 2014 WL 2925162

 

Shannon Howard-EldridgeIn an unpublished opinion issued by the Fifth Circuit Court of Appeals on June 30, 2014, the Court considered a declaratory judgment action filed by Liberty Mutual Insurance Company against its insureds, Linn Energy, L.L.C and Linn Operating Inc. (collectively “Linn”).  The district court had summarily determined that the commercial insurance policy issued by Liberty Mutual to Linn did not require Liberty Mutual to defend and indemnify Linn in a lawsuit pending in Louisiana state court where the complainants alleged that Linn’s pipeline leaked saltwater, brine and other contaminants, polluting complainants’ property.

Linn challenged the district court’s ruling that an endorsement to the policy (Underground Resources and Equipment Coverage) did not supersede the Total Pollution Exclusion in the policy. The Total Pollution Exclusion excludes coverage for “property damage” that “would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” The Underground Resources and Equipment Coverage endorsement extended coverage for property damage to specific types of underground resources.

The Court of Appeal affirmed the district court’s ruling. Applying Texas law, the Court considered that two provisions of an insurance policy are irreconcilable only when they contradict to the point that one would completely negate or render superfluous the additional coverage provided by the other.  In the Louisiana case against Linn, the Total Pollution Exclusion did not render the Underground Resources and Equipment Coverage meaningless because the Underground Resources and Equipment Coverage provided coverage for non-pollution property damage. The Court of Appeals found that the two policy endorsements co-exist in harmony and that allowing the Underground Resources and Equipment Coverage endorsement to trump the Total Pollution Endorsement would rob the Total Pollution Endorsement of its meaning.

Although the decision applied Texas law, the reasoning of the Court would likely apply in other States. Generally, the Total Pollution Exclusion is enforced to exclude coverage where the circumstances of the claim evidence that coverage was clearly and unambiguously excluded under the policy. The coordination of the Underground Resources and Equipment Coverage endorsement to extend coverage for those damages NOT excluded by the Total Pollution Exclusion is likely demonstrative of how other Courts would handle similar issues.

Shannon Howard-Eldridge
July 2, 2014