Texas federal court finds Pollution Exclusion does not bar bodily injury claims arising from exposure to hazardous chemicals in mud.

A Texas federal court, applying Texas law, found that an insurer could not rely upon a pollution exclusion to deny a defense for a bodily injury claim caused by hazardous materials that were embedded in mud. The pollution exclusion did not apply because the pollutants were not dispersed and, therefore, did not fall within the requirements of the exclusion.

In the underlying complaint, Benjamin Malone (“Malone”) arrived at a worksite to clean a mud tank that the insured, JC Instride, Inc. (“JCI”), a general contractor, represented “contained water-based mud.” JCI did not inform him that the tank “contained large quantities of caustic materials.” Based on this representation, Malone entered the mud tank without proper safety equipment and was severely injured. Malone sued based upon his injuries and alleged that JCI acted negligently.

JCI sought coverage for the Malone claims from its insurer. The policy excluded coverage for “bodily injury or property damages 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” (the “Pollution Exclusion”).

The insurer filed suit seeking a declaratory judgment that it had no duty to defend or indemnify JCI for the bodily injury claims based upon the Pollution Exclusion. Both parties moved for summary judgment. The court looked to a Texas appellate court decision which cited the Merriam Webster Dictionary to determine the definition of “dispersal” and concluded that “[t]o disperse a pollutant means to break it up and scatter it about.” In analyzing the underlying complaint, the court focused on the fact that Malone never alleged that the caustic materials were dispersed in the mud in the tank, only that the “mud tanks contained large quantities of caustic materials” and that he was “exposed to the caustic materials.” The court also noted that Malone never alleged how the caustic materials wound up in the mud or the mud tank. Thus, his claim could not be read to allege that his injury necessarily resulted from the “dispersal” of caustic materials. The court found that the insurer failed to meet its burden to prove that the Pollution Exclusion barred coverage, and, therefore, because Malone’s allegations possibly fell within the scope of coverage of the policy, the insurer had an obligation to defend JCI in the underlying action. Burlington Ins.Co. v. JC Instride, Inc., No. H-13-2844 (S.D. Tex. July 7, 2014).