In its recent decision in Star Ins. Co. v. Bear Prods., Inc., 2013 U.S. Dist. LEXIS 148559 (E.D. Okl. Oct. 16, 2013), the United States District Court for the Eastern District of Oklahoma had occasion to consider the coverage afforded under a pollution buy-back endorsement.
Star Insurance Company insured Bear Products under a primary general liability policy as well as an umbrella liability policy. Bear was named as a defendant in a class action lawsuit alleging personal injury and property damage resulting from exposure to “produced fluid waste,” described as waste fluids and solids generated as a result of oil and gas drilling operations. Specifically, produced fluid waste is described to include “saltwater, sand, acid, oil-based drilling fluids, water-based drilling fluids, completion flowback fluid, frack flowback fluid, workover flowback fluid, rainwater gathered on drilling and productions sites, drilling cuttings, pit water, including frack, mud, circulation and reserve pits, and numerous other fluids and solid wastes generated during the exploration and completion of oil and gas wells.” Bear Products was identified as having transported produced fluid waste to a disposal pit located in the vicinity of the plaintiff class.
Both the primary policy and umbrella policies issued by Star Insurance contained a total pollution exclusion. The primary policy also contained an endorsement giving back limited pollution liability at designated well sites for bodily injury, property damage or environmental damage caused by a “pollution incident.” The endorsement set forth the following limitations on coverage:
This insurance applies to "bodily injury", "property damage", and "environmental damage" only if:
(1) The "bodily injury", "property damage", or "environmental damage" are caused by a "pollution incident"
(a) on or from a "designated well site" in the "coverage territory", and
(b) that begins and ends within 72 hours of the incident; and
(c) that is accidental; and
(d) that is reported within 90 days of the incident
(2) The "bodily injury", "property damage", or "environmental damage" first occurs during the policy period[.]
The court agreed that produced fluid waste was a pollutant for the purpose of the policies’ respective pollution exclusions. Bear Products nevertheless contended that at the very least, coverage was available under the primary policy’s pollution buy-back endorsement. The court disagreed. Looking to the allegations of the complaint, the court observed that the conditions necessary to trigger the pollution coverage under the buy-back were not satisfied. Notably, the waste was alleged to have been generated and disposed of prior to the policy period, the pollution condition lasted more than 72 hours, and the pollution condition was not accidentally generated. Bear Products argued that if strictly enforced, the buy-back would be rendered illusory, since the majority of pollution incidents for which it could be liable would not satisfy these conditions precedent to coverage. The court rejected this argument, explaining:
… Bear is a corporate business. It bargained for an exception to the pollution exclusion. Bear is entitled only to the coverage for which it negotiated and paid. Bear argues that read literally, the policies provide virtually no coverage for risks inherent to its business. In fact, the policies do provide coverage for some risks inherent to Bear's business. For example, the policies cover liability as a result of an accidental spill of waste (a "pollution incident") or an accidental collision of one of Bear's trucks with another vehicle, object or person. Though it is unfortunate that the policies do not cover liability for pollution as alleged in the Underlying Complaint, the court may not rewrite the policies.