Written By: Dina Bernardelli, Esq.
Zupkus & Angell, P.C.
In Mountain States Mutual Casualty Company v. Toinestad, et al., 296 P.3d 1020 (2013) (“Hog’s Breath”), the Colorado Supreme Court has set a new precedent on what is a pollutant under the standard commercial general liability (CGL) policy pollution exclusion in a holding that is both beneficial and harmful to insurers. In a significant shift from prior case law, it is the amount, rather than the nature, of the substance (cooking grease) that triggers the pollution exclusion clause.
The insured, Hog’s Breath Saloon & Restaurant, maintained a practice of negligently dumping water with cooking grease into the city sewer system. It was determined that this practice resulted in a five to eight foot clog of the city sewer at a nearby manhole. Two city workers discovered and were clearing the clog when they were overcome by poisonous hydrogen sulfide gasses built up behind the clog, fell into the manhole, and were injured. The employees filed suit against Hog’s Breath, who tendered the claim to its insurer, Mountain States Mutual Casualty Company (“Mountain States”).
Mountain States (represented by Zupkus & Angell, P.C.) brought a separate declaratory judgment action against Hog’s Breath in federal court, and prevailed on the finding that grease was a pollutant falling within the policy’s pollution exclusion clause.
After entry of judgment against Hog’s Breath for negligence and off premises liability in the underlying action, the city workers moved to garnish Mountain States. The district court dismissed the garnishment claim on Mountain States’ motion for summary judgment, finding that the pollution exclusion barred the action. The Court of Appeals reversed and remanded the case for garnishment, finding that the pollution exclusion was ambiguous. The appellate court reasoned that cooking grease is a common, everyday waste product, and holding that it is subject to the pollutant exclusion clause would result in absurd results and negate essential coverage. (Nevermind the fact that water, also an everyday common substance, can be a pollutant when introduced into a specific environment, such as a gasoline tank.)
The Colorado Supreme Court granted certiorari, and determined that cooking grease is a contaminant excluded under the pollution clause when discharged into a sewer in quantities sufficient to create an eight foot clog. The Supreme Court relied both on the common understanding of a pollutant as “a substance that contaminates by making something unfit for use or impure by the introduction of unwholesome or undesirable elements,” as well as a city ordinance prohibiting introduction of pollutants into the sewer in quantities that may cause health and safety problems.
Although the holding is seemingly narrowly limited to the facts of the Hog’s Breath case, the concept of quantity of a substance as the determinant of whether it is a contaminant further muddies the waters of coverage litigation related to CGL pollution exclusions in Colorado. How attorneys and courts will treat the quantity factor is sure to be a point of contention for further clarification in the courts.
In Hog’s Breath, the Colorado Supreme Court also marks a change in procedural precedent in Colorado. Colorado has heretofore been ambiguous on the preclusive effects of a declaratory judgment action against the insured as to the claims of the underlying third party complainant who is not named in the declaratory judgment action, but has aligned coverage interests. Relegated to a footnote, the court in Hog’s Breath held that because Mountain States had named Hog’s Breath, but not the city employees, in the federal declaratory judgment action, the federal court’s judgment was not binding on the garnishment claims. See FN4. This shift marks a major change for insurers, who must now consider having to join the plaintiff in third-party claims to declaratory judgment actions, or risk re-trying the issues after a judgment against its insured. The result? Two or more motivated proponents for coverage driving the cost of declaratory judgment up for the insurer, and a significant risk that declaratory judgment will be delayed based on the co-mingling of facts and key issues to be decided in the underlying action. This holding requires significant reassessment of litigation strategy for coverage cases in Colorado.
For more on the Hog’s Breath case or coverage issues in Colorado, please contact Dina Bernardelli at email@example.com.