The Wisconsin Supreme Court has set significant precedent on when and how a substance will be considered a pollutant under an insurance policy's pollution exclusion.  In a majority opinion authored by Justice Gableman, the court held in Wilson Mutual Insurance Company v. Falk, et al, that the seepage of cow manure on a dairy farm when found to contaminate neighboring wells is a ‘pollutant', thus falling within an insurance policy's pollution exclusion.[1][2]

Significantly, the opinion focused less on the nature of the substance and more on the substance in the context of the occurrence.

Read the full opinion here.

Facts

The insureds, Robert and Jane Falk, were owners and operators of a dairy farm in West Bend, Wisconsin. In early 2011, the Falks spread liquid manure onto their farm fields pursuant to a nutrient management plan prepared by a certified crop agronomist. In May 2011, the Falks were informed by the DNR that the organization had received well contamination complaints from the Falks neighbors. A DNR investigation concluded the manure from the Falks' farm had leeched into and contaminated their neighbors' wells, making the wells unusable and the drinking water undrinkable. One neighbor also claimed that he became sick from drinking the contaminated water, requiring him to be hospitalized.

The DNR and neighbors brought suit against the Falks. The DNR sought damages for the cost of temporary clean up, and the neighbors out of pocket costs to replace their wells.

The Falks had two applicable farmowner policies with Wilson Mutual Insurance Company.[3] Like many policies, theirs contained a pollution exclusion which defined ‘pollutant' as:

Any solid, liquid, gaseous, thermal or radioactive irritant or contaminant,
including acids, alkalis, chemicals, fumes, smoke, soot, vapor and waste.
‘Waste' includes materials to be recycled, reclaimed, or reconditioned, as well as
disposed of.

Wilson Mutual filed a declaratory judgment motion in circuit court to determine whether their policy covered the manure contamination. The circuit court determined that the manure contamination was a pollutant. However, the appellate court reversed, concluding that from the point of view of a reasonable farmer cow manure was “liquid gold” and not a pollutant when applied to a farm field.

Analysis

The court took from prior precedent to arrive at a newly elaborated standard.[4] According to the majority:

“A reasonable insured would consider a substance to be a pollutant if (1) the
substance is largely undesirable and not universally present in the context of
the occurrence that the insured seeks coverage for; and (2) a reasonable insured
would consider the substance causing the harm involved in the occurrence to be a pollutant. “

2014 WI 136 at ¶38 (emphasis added).

(1)  Largely Undesirable and Not Universally Present in the Context of the Occurrence

The Falks and their neighbors argued that to a reasonable farmer, manure is a universally present, desirable and generally harmless substance on a farm field. This likens to the ‘liquid gold' argument that held sway on the appellate level. However, the majority noted this argument “ignores the occurrence for which the Falks seek coverage.” Id. at ¶43. The Falks were not seeking coverage for manure on a field, but for harm done from the seepage of that manure to their neighbors' wells. In that case, the court held manure is similar to bat guano or lead paint chips from prior case law. A reasonable insured would recognize manure to be largely undesirable, generally harmful, and not universally present in a well.

(2)  A Reasonable Insured Would Consider the Substance a Pollutant

Similarly, the court stressed that a reasonable insured would recognize manure in a well to be a pollutant. “Just because manure may be beneficial when spread on a field, does not mean it is not a pollutant. Manure is a contaminant as it makes water impure or unclean when it comes into contact with or mixes with water.” Id.at ¶49.

The court rejected an argument from the Falks and their neighbors that it was nitrates in the manure, and not the manure itself, that caused the harm.  “This argument interprets the pollution exclusion so narrowly that our adoption of it would render the exclusion meaningless.” Id. at ¶50. Further, the Court noted that the nitrates could not have seeped into the wells had the manure not been applied.[5]

Takeaways

Manure is a substance dairy, and many farmers, deal with every day. The Falks and their neighbors advocated that a reasonable insured, in this case a farmer, would not consider manure a ‘pollutant' but rather a common and essential part of their livelihood. The majority's opinion makes clear that the context in which the substance is considered will be paramount.

For farmers in Wisconsin, and potentially across the Midwest, this case has serious implications because it means their farm owner policies may not provide coverage for liability arising from substances they may expect to be covered because they use them on a daily basis.

In the broader context, the opinion may prove useful to insurers in arguing when and what coverage is excluded under their policies.

[1] The opinion also analyzed the application of the policies' Farm Chemicals Limited Liability Endorsement' and indemnity coverage. For the purposes of this article, the discussion will focus on the pollution exclusion.

[2] The court issued another decision on the same day finding that septage spread on a farm field which seeped into a water supply was also a pollutant. See Kreisler v. General Casualty Ins. Co., et al., 2014 WI 135.

[3]The policies were identical in all material aspects and were collectively evaluated as the “Wilson Mutual policy.” (Id. at 6)

[4] See Hirschhorn, 2012 WI 20, ¶37, 338 Wis. 2d 761 (found bat guano to be a pollutant because it is a unique and largely undesirable substance understood to be harmful in the context of a home; see Peace ex rel. Lerner v. Nw. Nat'l Ins. Co., 228 Wis. 2d 106, 137, 596 N.W. 2d 429 (1999)(found lead paint that had flaked from a wall into a rental home to be a pollutant because flaking lead paint, in any quantity, in the context of a home is almost universally accepted to be dangerous.)

[5] Interestingly though, the court's companion opinion in Presser made mention of nitrates at length. See 2014 WI 135 at ¶8 and ¶46. The topic has also been the subject of debate for Iowa farmers. See Dan Charles, Here's How to End Iowa's Great Nitrate Fight, NPR, February 2, 2015.

This news update is designed to provide general, educational information on pertinent legal topics, and the statements therein do not constitute legal advice. This news update is not intended to create an attorney-client relationship between you and Corneille Law Group, LLC. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.