Eighth Circuit Pollution-Exclusion Opinion A Cautionary Tale For Natural Gas Industry

Author:Mr Michael H. Sampson
Profession:Reed Smith

The interpretation and application of a pollution exclusion in a commercial general liability ("CGL") policy is often a fact-specific and jurisdiction-specific exercise. That said, the U.S. Court of Appeals for the Eighth Circuit's recent decision, applying North Dakota law and interpreting such an exclusion in a CGL policy, should command the attention of the entire natural gas industry.

At issue in Hiland Partners GP Holdings, LLC, et al. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 15-3936 (8th Cir. Jan. 31, 2017), was an explosion at a natural gas processing facility that "receives gas and hydrocarbon products and processes them into byproducts for sale." Appellants, who owned and operated the facility, were an additional insured under a third party's CGL policy.

That policy, however, included a pollution exclusion that, in relevant part, precluded coverage for "'[b]odily Injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants." "Pollutants," in turn, was defined to mean "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste" (emphasis added). Neither "irritant" nor "contaminant" was defined in the policy.

As the Eighth Circuit explained, "[c]ondensate is one of the marketable byproducts derived from the facility's processing of gas and hydrocarbon products. It is a flammable, volatile, and explosive product." Indeed, it was a hydrocarbon condensate tank overflowing that led to the explosion, seriously injuring a subcontractor's employee. When that individual sued appellants, appellants sought coverage under the aforementioned CGL policy. The insurer, however, denied coverage based on the pollution exclusion.

Unfortunately, the Eighth...

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