The federal district court determined that coverage was properly denied under the pollution exclusion of the policies. Headwaters Resources, Inc. v. Illinois Union Ins. Co., 2014 U.S. App. LEXIS 20060 (10th Cir. Oct. 20, 2014).
Over 400 residents of Chesapeake, Virginia, filed two lawsuits against the insured, Headwaters, alleged property damage and bodily injury due to pollution generated in connection with the development of a golf course. The complaints alleged that between 2002 and 2007, the defendants used 1.5 million tons of toxic fly ash during construction of a golf course. The insured allegedly transported the fly ash to an open pit adjacent to residential neighborhoods. The chemicals from the fly ash leached into the ground water, damaging the private wells. The fly ash pit also released airborne contaminants that produced a strong smell of ammonia. As a result of the alleged contamination, the property values of plaintiffs' homes depreciated and members of the community faced increased risk of serious bodily injuries caused by exposure to the fly ash.
The insurer denied coverage and Headwaters filed suit. The district court found that the pollution exclusions unambiguously applied to bar coverage. The exclusions barred coverage for "bodily injury" and "property damage" that stemmed from "actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants." The underlying complaints alleged bodily injury and property damage arising out of the actual or threatened dispersal of pollutants from waste that was processed by Headwaters. These allegations fell within the pollution exclusions of the policies.
Headwaters argued that the pollution exclusions were so broad that they barred from coverage events arising from the insured's regular business activities. The Tenth Circuit determined there was no rule that prohibited a normal business activity from also producing pollution, or a product from also being classified as a pollutant.
The language of the pollution exclusions were unmistakably plain both on their face and as applied to the facts. Because that clear language applied to the causes of action alleged in the complaints, the insurer was not required to defend the underlying lawsuits.