The California Court of Appeal has held that a pollution exclusion relieved an insurer of any duty to defend or indemnify an insured against claims for injuries caused by offensive odors and excessive dust emanating from the insured’s compost facility. ( Cold Creek Compost, Inc. v. State Farm Fire and Casualty Company (2007) WL 4105551)
Facts
Cold Creek Compost, Inc. (Cold Creek) operated a facility that composted organic materials including animal waste, grape pomace and yard trimmings. Plaintiffs, a group of individuals living within two miles of Cold Creek’s facility, filed an action for nuisance against Cold Creek, seeking both damages and injunctive relief. Plaintiffs alleged that Cold Creek had imported and stored on its property huge quantities of animal waste, grape pomace and yard trimmings, and that the composting materials caused noxious odors and excessive dust which injured the plaintiffs.
Cold Creek tendered defense of the action to its business liability insurer, State Farm Fire and Casualty Company (State Farm). The State Farm policies covered an insured’s liability for “bodily injury,” “property damage” and “personal injury,” but excluded coverage for liability “arising out of the actual, alleged or threatened discharge, seepage, migration, dispersal, spill, release or escape of ‘pollutants’.” The policies defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste included material to be recycled, reconditioned or reclaimed.” In response to the tender, State Farm agreed to defend Cold Creek under a reservation of rights.
The plaintiffs proceeded to trial against Cold Creek. Following trial, the jury awarded five of the plaintiffs a total of $125,000 for injuries caused by the odors and dust. At that point, State Farm concluded that plaintiffs’ claims against Cold Creek were barred from coverage by the policies’ “pollution” exclusions. State Farm thus withdrew from Cold Creek’s further defense and refused to indemnify Cold Creek for the damages awarded to the plaintiffs.
Cold Creek later filed an action against State Farm for breach of contract and bad faith, alleging that State Farm had wrongfully failed to defend and indemnify Cold Creek in the underlying action brought by the plaintiffs. The trial court ruled in favor of State Farm, finding that policies’ pollution exclusions barred coverage for any liability Cold Creek might have to plaintiffs in the underlying action. Cold Creek appealed.
Holding
The Court of Appeal affirmed. According to the appellate court, to the extent the plaintiffs suffered bodily injury arising from noxious odors and excessive dust emanating from Cold Creek’s compost facility, the odors and dust would be considered “pollutants” within the meaning of the pollution exclusions in the State Farm policies. Because the pollution exclusions clearly and unambiguously barred coverage for any liability Cold Creek might have had to the plaintiffs in the underlying action, State Farm had no duty to defend or indemnify Cold Creek in that action. Thus, State Farm could not be liable to Cold Creek for either breach of contract or bad faith.
Comment
In California, a pollution exclusion only bars coverage for injuries arising from “traditional environmental pollution” into the air, water and soil, and does not bar coverage for injuries arising from the “negligent use or handling of toxic substances that occur in the normal course of business.” (See MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635.) In this case, the appellate court concluded that the insured’s alleged widespread dissemination of offensive odors and excessive dust from its compost facility was “traditional environmental pollution” under MacKinnon , and thus excluded from coverage by the pollution exclusion in the policies.