Fifth Circuit Decision Excluding Coverage under Pollution Exclusion for Damage to Stream Caused by Rock FinesIn a sweeping decision, the U.S. Court of Appeals for the Fifth Circuit extended the absolute pollution exclusion to the unplanned discharge of “rock fines,” pellets produced during quarry operations, and denied coverage for the cost of removing the rock fines and defending a state law claim against the insured.

The insured, Eastern Concrete Materials, Inc., operates rock quarries in New Jersey. In July 2018, anticipating substantial rain, Eastern Concrete began to lower the water levels in the settling ponds that hold rock fines. Rock fines are the smallest particles resulting from drilling, blasting, and crushing pieces of stone off the face of a rock formation. Due to an operational error, substantial amounts of rock fines were released into a nearby stream, causing “physical damage to the stream and stream bed by changing the flow and contours of the stream.” The New Jersey Department of Environmental Protection issued Notices of Violation and required Eastern Concrete to remove the rock fines and take measures to prevent downstream migration. The department also found Eastern Concrete liable for statutory violations, including violations of the New Jersey Water Control Act.

Eastern Concrete remediated and sought coverage under a commercial umbrella insurance policy that incorporated an absolute pollution exclusion with standard wording. Rather than provide coverage, the insurer instead filed a declaratory judgment action arguing that the pollution exclusion abrogated coverage. After a lengthy discussion regarding personal jurisdiction and another determining that Texas law governed, the Fifth Circuit turned to the coverage question. The court recognized that the rock fines posed “no threat to drinking water, not to anyone who would use the area for fishing nor to the fish that they might catch.” But then the court concluded that the rock fines are excluded contaminants when looking “at the effects on the overall ecosystem” because their entry into the stream negatively impacted the stream and rendered the stream unfit for use as a habitat for trout and other species. So, the pollution exclusion eviscerated coverage for the accidental release of rock fines into the stream. Presumably all sorts of stones, stone dust, and anything else related to quarrying could be next. Insureds with quarrying operations should take note and steps to preserve coverage, because this broad interpretation of the pollution exclusion could eviscerate virtually all coverage for accidents relating to quarrying if adopted by other courts.

Katherine Henry, the author, representing amicus Gases and Welding Distributors Association (the umbrella membership association for welding rod distributors and manufacturers) and the policyholder, Clendenin Brothers, Inc., successfully persuaded Maryland’s highest court that a total pollution exclusion in a commercial general liability policy did not relieve the insurer of its duties to defend and insure the welding distributor against welding liability claims. Ms. Henry was retained after the policyholder lost the case at summary judgment. She persuaded the district court to certify the question to the state court, and persuaded Maryland’s highest court to reverse the lower court ruling; she also recovered all damages and attorneys’ fees for her client. This case remains a landmark decision. Clendenin Brothers, Inc. v. United States Fire Insurance Co., 390 Md. 449 (Md. 2005).