Jan. 2, 2015 – In the second of two cases involving pollution exclusion clauses in insurance policies held by dairy farmers, the Wisconsin Supreme Court has ruled that the farmers are only slightly covered for damages caused by liquid manure, used as a fertilizer, which seeped into and contaminated water wells owned by neighbors.
In the first case, a 6-1 majority ruled that a septage company that spread septage as fertilizer on a dairy farm – which led to the death of dairy cows from increased nitrates in the water supply – was not covered because septage was excluded as a “pollutant.”
In the second case, Wilson Mutual Insurance Co. v. Falk, 2014 WI 136 (Dec. 30, 2014), a majority ruled that two dairy farmers are insured up to $500 for each neighboring water well that was contaminated after they negligently spread liquid manure as fertilizer on their own farm. But a pollution exclusion clause bars coverage beyond that.
“We hold that the pollution exclusion clause in the [farm insurance] policy issued to the Falk’s unambiguously excludes coverage for well contamination caused by the seepage of cow manure,” wrote Justice Michael Gableman for the four-justice majority.
An appeals court held that the farmers, Robert and Jane Falk, were covered because farmers consider manure as “liquid gold” and not a pollutant. Thus, the farmers obtaining insurance would reasonably believe they were covered for this accident.
But the supreme court reversed. “We conclude that manure is unambiguously a pollutant when it seeps into a well,” Justice Gableman wrote.
The pollution exclusion clause excluded liability coverage for damages caused by the release of “pollutants” into land, water, or air.
The Falks argued that manure could not be a “pollutant,” as that term is used, because manure is a valuable asset in the operation of a farm. But the majority ruled that the liquid manure turned into a pollutant once it infiltrated the water wells.
“While when safely and beneficially applied, manure may be universally present, desirable, and generally harmless substance, this ignores the occurrence for which the Falks seek coverage,” Justice Gableman wrote. “A reasonable insured would not view manure as universally present and generally harmless when present in a well.”
A separate endorsement covered the Falks for physical injury to property by chemicals and liquids, but an exclusion applied for cost recovery requests by others. The court ruled that this exclusion applied because the neighbors were seeking clean-up costs.
However, the Falks may receive up to $500 for each well that was contaminated under a “damage to other property clause,” the court noted, rejecting Wilson Mutual’s argument that there was just one “occurrence” so recovery was capped at $500.
Finally, the court ruled that Wilson Mutual must defend the entire suit under the incidental coverage section unless it settles each claim for the maximum of $500.
Concurrence and Dissent
Chief Justice Shirley Abrahamson dissented. “By contending that at the moment the substance contaminates it becomes a pollutant under the policy, the majority opinion allows the pollution exclusion clause to extend far beyond the limited scope we have permitted in prior cases, leading to absurd results,” the chief justice wrote.
Abrahamson, like the appeals court, said that a reasonable person in the Falks’ position would believe they were covered for this type of accident, especially because “manure” is not specifically mentioned as a “pollutant” under the policy.
She also said that the chemical and liquid spill endorsement applied with no exclusion because the exclusion only applies when a party is ordered to undertake remediation.
“The exclusion does not bar coverage when, as in the instant case, the claimants seek to recover money damages,” the chief justice wrote. “By overlooking this distinction, the majority opinion renders the endorsement illusory and mere surplusage.”
On the number of “occurrences,” the chief justice said the record does not support the conclusion that five occurrences took place. It could be more or less, she said, depending on what constitutes an “occurrence” and what the “accident” was.
Finally, Chief Justice Abrahamson said the court’s procedures for opinion preparation left this case and the similar case of Preisler v. Kuettel’s Septic Service LLC, 2014 WI 135 (Dec. 30, 2014), “on different orbits” and thus inconsistent in the application of the law. She called for a new procedure, which is outlined in a different opinion.
Justice Ann Walsh Bradley did not disagree that the pollution exclusion clause applied, but said the endorsement for chemical and liquids applies and no exclusion bars coverage. She deferred to the chief justice’s analysis on that issue.