Recent Eighth Circuit Decision on Total Pollution Exclusion Limits CGL Insurance Coverage for Contaminated Product Claims
On Monday, April 29, 2019, the Eighth Circuit ruled that the “total pollution exclusion” (CG 21 49 or similar) to a CGL insurance policy eliminated coverage for claims against a policyholder that supplied a contaminated ingredient incorporated in livestock feed. See Restaurant Recycling, LLC v. Employer Mutual Casualty Co., No. 17-2792, __ F. 3d. __, 2019 WL 1890022 (8th Cir. April 29, 2019). We believe Restaurant Recycling is significant. The circumstances justifying application of the exclusion under the Restaurant Recycling analysis are seemingly prevalent in many suits involving contaminated foods/beverages, pet food, and livestock feed. While there have been few reported decisions involving disputes about the pollution exclusion in these contexts, Restaurant Recycling may well embolden CGL insurers to apply the pollution exclusion more liberally.
In Restaurant Recycling, the policyholder collected waste cooking oil, which it processed into fat products and sold for use in blending livestock feed. New Fashion Pork bought the ingredient, and blended it into a swine feed product, which it fed to sows. The sows and their nursery pigs allegedly suffered various adverse effects, including an increased incidence of death in nursery pigs. The ingredient supplied by the policyholder was apparently contaminated by “lascadoil” and “lasalocid”, which New Fashion Pork alleged caused the damage.
New Fashion Pork sued the policyholder. The policyholder’s CGL insurer, EMC, disclaimed coverage. The policyholder sued EMC in the District of Minnesota seeking a declaratory judgment in favor of coverage. EMC moved for judgment on the pleadings based on the total pollution exclusion, which precluded coverage for “‘bodily injury’ or ‘property damage’ 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’ at any time” (emphasis added). Judge Doty granted EMC’s motion, and the policyholder appealed to the Eighth Circuit.
While the Eighth Circuit considered whether “lasolocid” and “lascadoil” were “pollutants” within the meaning of the exclusion, the policyholder’s admission that lascadoil was a pollutant made this part of the decision limited to the particular facts of the case. In contrast, the court’s application of the term “dispersal” is more interesting and potentially more significant. The Eighth Circuit held that the fact that the policyholder “collect[ed] waste cooking oil and processe[d] that waste oil into fat products for use in animal feed” and that “New Fashion Pork blended the contaminated fat into its feed and transported the feed” constituted “dispersal” within the meaning of the exclusion. The court noted that these combined actions “involve the breaking up and distributing of the lascadoil throughout the processed fat product and New Fashion Pork’s swine feed”, which the court reasoned are consistent with the meanings ascribed to “dispersal” under common dictionary definitions.
The decision is odd. While the total pollution exclusion would seem to focus on how the “pollution” made its way into the processed fat ingredient (e.g., by discharge, dispersal, seepage, migration, release or escape), the Eighth Circuit ignored those circumstances. Instead, the court focused on the “dispersal” of the post-contamination ingredient and finished product. We’d like to think that polluted livestock feed (or, by analogy, a polluted river) is still livestock feed (or a river) and not merely “pollutants”, while the Eighth Circuit seems to believe that polluted livestock feed (or a polluted river) constitutes “pollutants.”
It would seem that most claims based on ingredient-related pollution contamination of finished food products would involve post-contamination “dispersal” of the ingredient and finished product, as interpreted by the Eighth Circuit. After all, these types of claims all involve the incorporation of contaminated products into the finished product (by blending or otherwise) and further distribution of the finished product (by movement, including transportation or otherwise). The Eighth Circuit’s focus on “dispersal” of the ingredient and finished product, as opposed to the dispersal of the pollutants, would seemingly expand the universe of cases in which the total pollution exclusion might be applied to contaminated product cases.
It’s probably folly to expect that the Eighth Circuit would revisit the Restaurant Recycling decision. But we can offer some practical information and useful advice. The “total pollution exclusion” at issue in Restaurant Recycling is typically added by the “Total Pollution Exclusion Endorsement” (CG 21 49) to the Commercial General Liability Coverage Form (CG 00 01). In contrast, the pollution exclusion found in Section I, Paragraph 2, Exclusion f., of the (unendorsed) Commercial General Liability Form would appear to be less susceptible, if not impervious, to the Eighth Circuit’s construction. The language in the CGL Form’s pollution exclusion clearly applies to pollutants, themselves, eminating from specified premises and not to the dispersal of contaminated ingredients or finished products. Businesses in the food & beverage, pet food, and livestock feed industries likely will not be able to avoid some form of the pollution exclusion in their CGL coverage. But by resisting insurer attempts to add the Total Pollution Exclusion Endorsement, those businesses hopefully would be able to fend off the potentially harmful application of Restaurant Recycling.