Federal court holds pollution exclusion does not apply to injuries caused by direct, personal exposures
In Canal Indemnity Company v. CalJet II, 4:2019cv02945 (opinion available on PACER), a Texas federal judge recently held pollution exclusions did not bar coverage for a suit involving a truck driver who allegedly died from cancer caused by exposure to the carcinogen benzene in gasoline, a cargo the driver loaded and unloaded. Although Texas courts have previously held that pollution exclusions are not limited to typical cases of environmental pollution, U.S. District Judge Alfred H. Bennett of the Southern District of Texas in Houston, held that such exclusions do not apply to injuries incurred by direct, personal exposure – such as inhalation and absorption through the skin – rather than movement from place to place.
Elwyn Webb was employed for over 30 years as a “gasoline truck driver” for freight carriers, including Coastal Transportation Co. His work entailed loading and unloading gasoline at facilities operated by ConocoPhillips Co. (“Conoco”) and others. He was allegedly exposed to benzene by inhalation and dermal absorption and contracted blood and bone marrow cancer as a result of those exposures. He died in 2016 and his son and estate sued, alleging, among other things, that Conoco and the other defendants failed to warn Webb despite the fact that they knew of the risks of handling the benzene-laden gasoline.
Canal Indemnity Company had issued to Coastal various auto liability and CGL policies for the relevant periods, which contained additional insured endorsements and standard pollution exclusions. Coastal had motor carrier service agreements with Conoco requiring the former to list the latter as an additional insured on the Coastal policies. for any bodily injury or property damage claims attributable to the “discharge, dispersal, seepage, migration, release or escape” of pollutants.
Phillips demanded a defense to the suit from Coastal and its insurers, and Canal ultimately agreed to defend under reservation of rights. Phillips ultimately settled with Webb’s son and estate for an undisclosed sum. Canal then filed this coverage suit seeking declarations that it had no duty to defend Phillips and certain co-defendants in the Webb suit. In the coverage suit, Canal asserted Conoco and the other underlying defendants were not additional insureds under the Coastal policies, but the Court rejected those arguments and turned to the pollution exclusions.
Canal argued benzene is a pollutant and contended coverage for the underlying suit was precluded by the pollution exclusions in the policies. The Court treated the pollution exclusions in the auto and CGL polices together due to the similarities in their terminology – those in the auto policies excluded coverage for bodily injury arising out of the “discharge, dispersal, release or escape” of pollutants and the CGL policies excluded coverage for injury “which 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.” The court held the underlying claims were not within the exclusions because Webb was allegedly exposed to benzene via the inhalation of fumes and absorption through the skin. Thus, Webb’s exposure to the toxin was direct and did not involve the movement of a pollutant from one location to another, as required by the exclusion:
In other words, even if the court were to assume that benzene is a pollutant in this situation, the bodily injury was allegedly caused by direct exposure to gasoline, not by the ‘discharge, dispersal, seepage, migration, release or escape’ of benzene – as required by the Pollution Exclusions.Order at 12. The Court granted summary judgment for Phillips on breach of the duty to defend as well as on the prompt payment claims.
The Court distinguished several key Texas pollution cases on grounds that they all involved “alleged movement of a pollutant.” Order at 11. Included among those cases were two that involved similar direct, personal exposure injuries, but the court did not explain the distinction or its narrow interpretation of dispersal. Id. (citing Nautilus Ins. Co. v. Country Oaks Apartments, Ltd., 566 F.3d 452, 453 (5th Cir. 2009) (underlying complaint alleged that carbon monoxide gas dispersed into an apartment, causing injury); United Nat. Ins. Co. v. Hydro Tank, Inc., 525 F.3d 400, 401 (5th Cir. 2008) (underlying complaint alleged that toxic levels of hydrogen sulfide gas or other chemicals and vapors spread throughout a tank, causing injury after direct exposure)). Arguably, the gasoline fumes had to disperse through the air in order for Webb to inhale them and the fuel itself had to “seep” or “escape” from pumping equipment in order to contact Webb’s skin. Nautilus and Hydro Tank were both decided by the Fifth Circuit, so please continue to watch this space for an update on how the appellate court responds.