5th Cir. Finds Total Pollution Exclusion Endorsement Trumps Broad Property Damage Endorsement

The Fifth Circuit Court of Appeals, applying Texas law, held that a Total Pollution Exclusion (TPE) endorsement bars insurance coverage that would otherwise be available under a property damage endorsement.

Liberty Mutual Insurance Company (Liberty) issued a commercial insurance policy to Linn Energy, LLC and Linn Operating, Incorporated (Linn).  The policy contained an Underground Resources and Equipment Coverage (UREC) endorsement, which extended coverage to include “property damage” to specific types of underground resources.  The policy also contained a TPE endorsement, which excluded coverage for “property damage” that “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.”

Linn was sued by property owners in Louisiana for damage allegedly caused by a Linn pipeline that leaked saltwater, brine, and other contaminants onto their property.  Linn sought a defense and indemnity from Liberty.  Liberty denied coverage and filed a declaratory judgment action.  The district court granted a summary judgment motion filed by Liberty based on the TPE endorsement.

On appeal, Linn argued that the TPE endorsement does not supersede the coverage-adding UREC endorsement.  The Court of Appeals disagreed:  “[T]wo provisions of an insurance policy are irreconcilable only when they contradict to the point that one would completely “negate or render superfluous the additional coverage” provided by the other.”  The Court determined that applying the TPE endorsement to the UREC endorsement did not render the UREC wholly meaningless, because the UREC still provided coverage for non-pollution property damage.  “Linn’s proposed interpretation, which would allow the UREC to trump the TPE, would rob the latter of its meaning in contravention of the policy’s plain language.”  Liberty Mutual Ins. Co. v. Linn Energy, LLC, No. 13-20578 (5th Cir. June 30, 2014).

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