The Court of Appeals for the Second Circuit, applying New York law, upheld the district court’s ruling that a pollution exclusion barred coverage for damages stemming from sewer repair work.  In holding that the insurer had no duty to defend or indemnify its insured, the Second Circuit found sewage to be a “pollutant.”

Roy’s Plumbing, Inc. (“Roy’s Plumbing”) appealed a district court ruling that The Cincinnati Insurance Company (“Cincinnati”) had no duty to defend or indemnify Roy’s Plumbing in an underlying state court suit related to chemical contamination at the Love Canal site in New York.   The underlying complaint alleged damages related to personal injuries and contamination of property caused by toxic chemicals.  Allegedly, Roy’s Plumbing negligently performed inspections and construction work at homes near the Love Canal site in connection with a multi-year sewer refurbishment program which resulted in contaminated sediment containing hazardous chemicals being within, around, and under the property and homes of the underlying plaintiffs.

The Cincinnati policy excludes “bodily injury or property damage which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release, escape or emission of pollutants at any time.”  “Pollutant” is defined to mean both “substances which are generally recognized in industry or government to be harmful or toxic to persons, property or the environment” and “any solid or liquid … irritant or contaminant, including … waste.”

The Second Circuit found that, in New York, an insurer has a heavy burden when it seeks to be relieved of its duty to defend based on a policy exclusion, and that Cincinnati had met that burden by demonstrating that the allegations of the underlying complaint fell squarely within the pollution exclusion.  Roy’s Plumbing argued that sewage does not constitute a “pollutant,” but the Second Circuit was unconvinced: “we have no doubt that sewage is ‘generally recognized in industry or government to be harmful or toxic to persons.’”  Roy’s Plumbing also argued that, because the underlying complaint references pressure, the complaint may be seeking damages for harm caused by the force of the liquid rather than the chemical toxicity.  Again, the Second Circuit was not persuaded, finding that the complaint clarified that pressure was merely the mechanism allowing chemicals to escape from the sewer and there were no related independent causes of damage.  Lastly, Roy’s Plumbing argued that the pollution exclusion was overbroad because it could exclude coverage for damages due to plumbing work that were otherwise intended to be covered under the policy.  According to the Second Circuit, Roy’s Plumbing’s fear was unfounded due to the New York construction of pollution exclusions, which limits the reach to “those cases where the damages alleged are truly environmental in nature, or where the underlying complaint alleges damages resulting from what can accurately be described as the pollution of the environment.”  Cincinnati Insurance Co. v. Roy’s Plumbing, Inc., No. 16-2511-cv (2nd Cir.  May 31, 2017).