Wisconsin Supreme Court Holds Pollution Exclusion Applicable to Cow Manure Claims

by Traub Lieberman Straus & Shrewsberry LLP
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In its recent decision in Wilson Mut. Ins. Co. v. Falk, 2014 WI 136, the Wisconsin Supreme Court had occasion had occasion to consider whether cow manure generated at a dairy farm, and which migrates from the insured’s property causing harm to third-parties, constitutes a pollutant for the purpose of a pollution exclusion. The Court’s decision revisited one of the more unique pollution exclusion cases in recent years, which was decided by the Wisconsin Court of Appeals in Wilson Mut. Ins. Co. v. Falk, 844 N.W.2d 380 (Wisc. App. 2013).

Wilson Mutual issued a farmowners policy to Jane and Robert Falks, insuring their dairy farm operations. The policy’s liability part contained an exclusion applicable to “losses resulting from the “discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ into or upon land, water, or air” as well as for “any loss, cost, or expense arising out of any … claim or suit by or on behalf of any governmental authority relating to testing for, … cleaning up, removing, … or in any way responding to or assessing the effects of ‘pollutants.’” The term “pollutant” was defined in the policy as “any solid, liquid, gaseous … irritant or contaminant, including … waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of.”

In early 2011, the Falks began using manure generated by their cattle for crop fertilizer. Their fertilizer plan was prepared by an agronomist and approved by their local county’s land and water conservation division. Several months later, however, the Wisconsin Department of Natural Resources notified the Falks that manure runoff from their farm contaminated a local aquifer and polluted their neighbors’ wells. These neighbors asserted claims against the Falks, who in turn sought coverage under their policy. Wilson Mutual disclaimed coverage for the claims on the basis of its policy’s pollution exclusion. In the ensuing coverage litigation, the trial court granted summary judgment in Wilson Mutual’s favor, concluding that cow manure constitutes waste for the purpose of the exclusion, and that the exclusion, therefore, barred coverage for the underlying claims.

On appeal, the Wisconsin Court of Appeals agreed that generally manure qualifies as a “pollutant” for the purpose of the policy. Looking to the reasonable expectations of the insured as required under Wisconsin law, however, the court concluded that cow manure to a farmer is not a pollutant, but that instead constitutes “liquid gold.” The court reasoned as such because “[m]anure in the hands of a dairy farmer is not a ‘waste’ product; it is a natural fertilizer.” Thus, the court concluded that the exclusion was inapplicable to the underlying claims, and that Wilson Mutual had a coverage obligation.

On further appeal, the Wisconsin Supreme Court revisited the application of the policy’s pollution exclusion, as well as other issues not pertinent to the present discussion. In considering the exclusion, the Court noted that both sides agreed that if cow manure constituted a pollutant, then the exclusion would apply, as there was no question that the manure had the requisite movement (i.e., a discharge, dispersal, release, etc.) from the insured’s property into the neighboring wells. Thus, the only question for the Court was whether cow manure unambiguously constituted a “pollutant” for the purpose of the policy.

In considering this question, the Court noted its prior precedent on the issue involving non-traditional forms of pollutants, notably its decisions in Hirschhorn v. Auto-Owners Ins. Co., 809 N.W.2d 529 (Wisc. 2012) (involving bat guano) and Peace v. Northwestern Nat’l Ins. Co., 596 N.W.2d 429 (Wisc. 1999) (involving lead paint chips), which establish that the question of what constitutes a pollutant must be answered from the standpoint of a reasonable insured. These cases set forth a two-part test for determining whether an insured will consider a substance to be a pollutant, which is that: “(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.”

With this test in mind, the Court reasoned that while the Falks did not consider manure to be a pollutant when applied to their fields, they were not seeking coverage for that particular application, but instead for the unplanned migration of the manure from their fields into the wells of nearby residents. Manure in a drinking water well, observed the Court, is not desirable, nor is it universally present. As the Court explained, “[w]hile when safely and beneficially applied, manure may be a universally present, desirable, and generally harmless substance on a farm field, this ignores the occurrence for which the Falks seek coverage.” As such, the Court found the first part of “reasonable insured” test to be satisfied.

The Court then found the second step of the analysis to be satisfied, again drawing a distinction between manure put to its intended use and manure that migrates to wells rendering the drinking water contaminated:

A reasonable insured may not consider manure safely applied on a field to be a pollutant; however, a reasonable insured would consider 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. The injured parties and the DNR allege that the wells were contaminated and polluted by manure, bacteria, and nitrates, requiring the drilling of new wells, as the wells were unusable and the water undrinkable.

Thus, concluded the Court, no reasonable insured would conclude manure that seeps into a drinking well to be anything other than a pollutant. As such, the Court agreed that the lower court erred in concluding the pollution exclusion inapplicable to the underlying claims.

- See more at: http://www.traublieberman.com/insurance-law/2015/0109/5741/#sthash.HZQe5bb0.dpuf

In its recent decision in Wilson Mut. Ins. Co. v. Falk, 2014 WI 136, the Wisconsin Supreme Court had occasion  to consider whether cow manure generated at a dairy farm, and which migrates from the insured’s property causing harm to third-parties, constitutes a pollutant for the purpose of a pollution exclusion. The Court’s decision revisited one of the more unique pollution exclusion cases in recent years, which was decided by the Wisconsin Court of Appeals in Wilson Mut. Ins. Co. v. Falk, 844 N.W.2d 380 (Wisc. App. 2013).

Wilson Mutual issued a farmowners policy to Jane and Robert Falks, insuring their dairy farm operations. The policy’s liability part contained an exclusion applicable to “losses resulting from the “discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ into or upon land, water, or air” as well as for “any loss, cost, or expense arising out of any … claim or suit by or on behalf of any governmental authority relating to testing for, … cleaning up, removing, … or in any way responding to or assessing the effects of ‘pollutants.’” The term “pollutant” was defined in the policy as “any solid, liquid, gaseous … irritant or contaminant, including … waste. Waste includes materials to be recycled, reclaimed, or reconditioned, as well as disposed of.”

In early 2011, the Falks began using manure generated by their cattle for crop fertilizer. Their fertilizer plan was prepared by an agronomist and approved by their local county’s land and water conservation division. Several months later, however, the Wisconsin Department of Natural Resources notified the Falks that manure runoff from their farm contaminated a local aquifer and polluted their neighbors’ wells. These neighbors asserted claims against the Falks, who in turn sought coverage under their policy. Wilson Mutual disclaimed coverage for the claims on the basis of its policy’s pollution exclusion. In the ensuing coverage litigation, the trial court granted summary judgment in Wilson Mutual’s favor, concluding that cow manure constitutes waste for the purpose of the exclusion, and that the exclusion, therefore, barred coverage for the underlying claims.

On appeal, the Wisconsin Court of Appeals agreed that generally manure qualifies as a “pollutant” for the purpose of the policy. Looking to the reasonable expectations of the insured as required under Wisconsin law, however, the court concluded that cow manure to a farmer is not a pollutant, but that instead constitutes “liquid gold.” The court reasoned as such because “[m]anure in the hands of a dairy farmer is not a ‘waste’ product; it is a natural fertilizer.” Thus, the court concluded that the exclusion was inapplicable to the underlying claims, and that Wilson Mutual had a coverage obligation.

On further appeal, the Wisconsin Supreme Court revisited the application of the policy’s pollution exclusion, as well as other issues not pertinent to the present discussion. In considering the exclusion, the Court noted that both sides agreed that if cow manure constituted a pollutant, then the exclusion would apply, as there was no question that the manure had the requisite movement (i.e., a discharge, dispersal, release, etc.) from the insured’s property into the neighboring wells. Thus, the only question for the Court was whether cow manure unambiguously constituted a “pollutant” for the purpose of the policy.

In considering this question, the Court noted its prior precedent on the issue involving non-traditional forms of pollutants, notably its decisions in Hirschhorn v. Auto-Owners Ins. Co., 809 N.W.2d 529 (Wisc. 2012) (involving bat guano) and Peace v. Northwestern Nat’l Ins. Co., 596 N.W.2d 429 (Wisc. 1999) (involving lead paint chips), which establish that the question of what constitutes a pollutant must be answered from the standpoint of a reasonable insured. These cases set forth a two-part test for determining whether an insured will consider a substance to be a pollutant, which is that: “(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.”

With this test in mind, the Court reasoned that while the Falks did not consider manure to be a pollutant when applied to their fields, they were not seeking coverage for that particular application, but instead for the unplanned migration of the manure from their fields into the wells of nearby residents. Manure in a drinking water well, observed the Court, is not desirable, nor is it universally present. As the Court explained, “[w]hile when safely and beneficially applied, manure may be a universally present, desirable, and generally harmless substance on a farm field, this ignores the occurrence for which the Falks seek coverage.” As such, the Court found the first part of “reasonable insured” test to be satisfied.

The Court then found the second step of the analysis to be satisfied, again drawing a distinction between manure put to its intended use and manure that migrates to wells rendering the drinking water contaminated:

A reasonable insured may not consider manure safely applied on a field to be a pollutant; however, a reasonable insured would consider 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. The injured parties and the DNR allege that the wells were contaminated and polluted by manure, bacteria, and nitrates, requiring the drilling of new wells, as the wells were unusable and the water undrinkable.

Thus, concluded the Court, no reasonable insured would conclude manure that seeps into a drinking well to be anything other than a pollutant. As such, the Court agreed that the lower court erred in concluding the pollution exclusion inapplicable to the underlying claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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