On December 30, 2014, the Wisconsin Supreme Court decided two cases in which the central issue was whether the substance responsible for the alleged property damage constitutes a "pollutant" sufficient to invoke pollution exclusions in relevant insurance policies. In Preisler v. General Casualty Ins. Co., et al., 2014 WI 135, and Wilson Mutual Ins. Co v. Falk, 2014 WI 136, the Court held that both septage and cow manure, respectively, are "pollutants," as defined in commercial general liability (CGL) policies and that, accordingly, property damage resulting from those substances is excluded from coverage.
The Preislers, operators of a dairy farm, sued their neighbors, the Kuettels, who operate their own farm as well as a septic service operation. The Kuettels’ facility stores, transports, and disposes of septage. The Kuettels had received permission from the Wisconsin DNR to apply septage as a fertilizer at a rate not to exceed 13,000 gallons per acre per week, with a total of 39,000 gallons per acre annually. The Kuettels applied septage on the Preislers’ farm as fertilizer for several years, apparently without incident.
In 2008, however, the Preislers allegedly experienced problems with their well water and claimed their cattle began to die at an alarming rate. August 2008 testing showed that the Preislers’ well water contained elevated levels of nitrates, a by-product of decomposing septage. The Preislers sued in 2010, naming the Kuettels’ homeowner’s and CGL insurers.
The CGL policies1 contain similarly worded pollution exclusions that exclude harm "arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’" The policies further define "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."
The Circuit Court held that the pollution exclusion clauses apply to preclude coverage for losses allegedly arising out of storage of septage and application of septage to farm fields. The Preislers and Kuettels appealed, arguing that septage is not a pollutant and, therefore, the exclusion does not bar coverage. The Court of Appeals affirmed the Circuit Court’s judgment.
The issue before the Wisconsin Supreme Court in Preisler was whether decomposing septage is a pollutant as defined by the CGL policies. The majority first analyzed whether the alleged harm in this case was the result of an "occurrence," as defined by the policies, despite the fact that no party had disputed that the water contamination emanated from an "occurrence."
Next, the Court applied the two-step analysis from Hirschhorn v. Auto-Owners Ins. Co., 2012 WI 20, 338 Wis. 2d 761, 809 N.W.2d 529, to determine whether the Preislers’ claim is precluded by the policies’ pollution exclusions. First, the Court looked at whether the substance in question is a pollutant. The parties did not dispute the second step in the analysis—that the alleged damage resulted from the “discharge, dispersal, seepage, migration, release or escape” of decomposing septage.
In a nearly unanimous opinion authored by Justice Roggensack (only Chief Justice Abrahamson dissented), the Supreme Court upheld the Court of Appeals’ decision, concluding that a reasonable insured would understand that decomposing septage leaking into a water supply is a “contaminant” and, therefore, a “pollutant” as defined by CGL policies.
Justice Bradley wrote a separate concurrence, criticizing the majority’s analysis of the underlying “occurrence.” She stated that she found the analysis to be “unclear,” “unnecessary to the decision,” and “inconsistent with Falk, decided the same day, with the same issue.”
In a strongly worded dissent, Chief Justice Abrahamson also criticized the majority’s “occurrence” analysis and went on to state that the decision “unnecessarily departs from precedent, undercuts the limiting principles our prior cases have applied to pollution exclusion clauses, and further confuses this murky area of law.” Focusing on the nature of the Kuettels’ business, the Chief Justice stated that they would not consider “septage a pollutant under the pollution exclusion clause of general liability policies they purchased to cover liability for damage caused by their septic business operations.”
The insureds in Falk owned and operated a dairy farm, including over 600 cattle and 1670 acres of land. The Falks obtained a “farm” insurance policy from Wilson Mutual to provide property and personal liability coverage. It included a pollution exclusion that excludes from coverage losses resulting from the “discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ into or upon land, water or air” and “any loss, cost, or expense arising out of any … claim or suit by or on behalf of any governmental authority related to testing for, … cleaning up, removing … or in any way responding to or assessing the effects of ‘pollutants.’” “Pollutant” is defined in the policy as “any solid, liquid, gaseous … irritant or contaminant, including … waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of.”
The policy also contained a “Farm Chemicals Endorsement,” which provides coverage for damages for physical injury to property if “[t]he injury is caused by the discharge, dispersal, release, or escape of chemicals, liquids, or gases into the air from the ‘insured premises.’” The Farm Chemicals Endorsement also included a pollution exclusion.
In early 2011, the Falks used manure to fertilize their fields. In May 2011, the Wisconsin DNR notified them that “the manure from [their] farm had polluted a local aquifer and contaminated their neighbors’ water well.” The neighbors demanded compensation, and the Falks filed a claim with their insurer, Wilson Mutual, who denied coverage because cow manure is a pollutant excluded from coverage under the applicable policy.
The Circuit Court agreed with Wilson Mutual. According to the Circuit Court, “[a] reasonable person in the position of the Falks would understand cow manure to be waste.” The Court of Appeals, relying on the Supreme Court’s decision in Hirschhorn, reached the opposite conclusion, determining that cow manure is not a “pollutant” under the policy exclusion. According to the appellate court, a reasonable farmer would not consider cow manure to be a “pollutant,” an “irritant,” a “contaminant,” or “waste.” For a farmer, “manure is an everyday, expected substance … that is not rendered a pollutant under the policy merely because it may become harmful in abnormally high concentrations or under unusual circumstances.”
The Wisconsin Supreme Court, in reversing the Court of Appeals, held that “cow manure falls unambiguously within the policy’s definition of ‘pollutants’ when it enters a well” and, therefore, coverage for the harm caused by the manure is precluded by the policy’s pollution exclusion.
As in Preisler, the Court held the occurrence to be the seepage into the wells. Following the analysis in Hirschhorn, the Court next considered whether an insured would consider cow manure to be a pollutant in the context of the occurrence. The Court concluded that, while a reasonable insured may not consider manure safely applied on a field to be a pollutant, a reasonable insured would consider manure in a well to be a pollutant.2
Justice Abrahamson’s dissent analyzed the position of the reasonable insured and concluded that a reasonable person in the position of the Falks, farmers insured under a farmowner’s policy, would not consider manure a pollutant under the policy’s pollution exclusion clause. She also noted that, even if coverage was barred by the pollution exclusion, coverage would be available under the incidental coverages section and the Farm Chemicals Endorsement.
Justice Bradley also concurred in Falk, taking issue with the occurrence analysis. She stated that the majority “strays from its original occurrence analysis,” and she agreed with the dissent regarding the Farm Chemicals Endorsement.
1The homeowners insurance policies did not contain pollution exclusions, but the Circuit Court held that other exclusions operated to preclude coverage. The parties did not appeal that holding.
2The Falk court found coverage, however, under the policy’s incidental coverages provision. The limit for each occurrence under incidental coverages was only $500.