Several of our recent updates have involved the Washington State Supreme Court’s ruling in Zhaoyun Xia v. ProBuilders Specialty Ins. Co. RRG, 188 Wn.2d 171, 393 P.3d 748 (2017). In Xia, the Supreme Court held that a pollution exclusion did not bar coverage for injuries due to carbon monoxide emissions because the efficient proximate cause of the loss was an underlying act of negligence. The Xiadecision was the first Washington appellate decision applying the efficient proximate cause rule to a third party liability claim. Our updates relating to the Xia decision have expressed concern as to how lower Courts might apply that decision in future matters.
A new decision issued out of the Eastern District of Washington, The Dolsen Companies, et al. v. Bedivere Ins. Co., et al., 1:16-cv-03141 (E.D. Wash. Sept. 11, 2017), sheds light on how Courts may handle the Xia ruling and efficient proximate cause issues going forward.
In Dolsen, several insureds (“The Dolsen Companies”) operated a farming operation that produced large amounts of manure as byproduct. The Dolsen Companies stored the manure in holding ponds and spread it on crops as fertilizer. The holding ponds leaked and caused seepage into the groundwater. In addition, The Dolsen Companies applied far too much manure on their land, which also resulted in seepage.
The Dolsen Companies were sued for the resulting groundwater contamination, and tendered a claim to their insurance carriers (collectively, the “Insurance Carriers”). The Insurance Carriers denied coverage based on their policies’ absolute pollution exclusion, and The Dolsen Companies sued the Insurance Carriers for breach of contract.
On summary judgment, the District Court held that the absolute pollution exclusion barred coverage, and that the Insurance Carriers’ denials were proper. The Court found that the absolute pollution exclusion applied because the seepage of manure into groundwater was a contaminate that met the policies’ definition of “pollution.” Moreover, the manure was “acting as a pollutant” because its contaminating attributes directly polluted the groundwater.
More interesting was the Dolsen Court’s treatment of the efficient proximate cause rule. The Court addressed the rule by applying the following analytical framework:
The distinguishing feature … is the relation between the initial act and the pollutant causing harm—viz., whether the initial peril was the polluting act (i.e., whether the incident involved pollutants in the first place) or whether the initial peril was some other act that incidentally led to a polluting harm. Although subtle, this framework is workable and leads to a clear result in this case: the initial act was intimately tied to the pollutant and thus the initial peril was the polluting act.
Applying this framework, the Dolsen Court found that the absolute pollution exclusion applied because “the initial act giving rise to the peril was an excluded harm and there is no other covered occurrence that otherwise led to the harm.” Specifically, with respect to the excess manure that was applied as fertilizer, only one relevant event led to the contamination; namely, the dispersal of manure directly onto the land. This dispersal was the polluting event and was the sole cause of the harm. Therefore, the pollution exclusion applied.
With respect to the seepage from the holding pond, the Court reasoned that the inadequate storage of the manure directly caused the seepage. The inadequate storage of manure was a polluting event and was the efficient proximate cause of the harm. There was also no other negligent act which preceded this polluting event. In contrast, in Xia the negligent installation of the water heater had preceded the polluting event of carbon monoxide emissions.
The Dolsen case presents an interesting example of how the Courts may handle the Xia decision and apply the efficient proximate cause rule going forward. It will interesting to see if other Courts adopt the analysis set forth in Dolsen when addressing the efficient proximate cause rule in the context of liability insurance coverage analysis.
For additional information regarding this or other insurance coverage issues, please feel free to contact the attorneys at Lether & Associates, PLLC.