Appeals court reverses property owner’s win in contamination coverage fight

The 10th U.S. Circuit Court of Appeals Wednesday reversed a property owner’s win in a dispute with two insurers over defense and indemnification for two environmental contamination lawsuits, ruling the allegations fell within an “absolute pollution exclusion.”

The three-judge panel said in Chisholm’s Village Plaza LLC v. The Cincinnati Insurance Co. et al. that a federal judge in Las Cruces, New Mexico, erred when finding that the state’s high court would take an “interpretative approach” to pollution exclusions and that it would not agree with the approach the majority of other states take when reading the exclusions.

The city of Las Cruces and Dona County sued the property owner, seeking cost recovery and contribution under the Comprehensive Environmental Response, Compensation, and Liability Act, alleging that the release of hazardous chemicals from a dry-cleaning business on the site caused soil and water contamination. Chisholm’s sought coverage from its insurers Cincinnati and Travelers Cos. Inc. unit Fidelity and Guaranty Insurance Underwriters, which refused based on the absolute pollution exclusions in the policies, court records show.

Chisholm resolved the underlying contamination lawsuits and then sued the insurers in September 2020 for breach of contract for failing to pay its defense costs. The property owner also accused the insurers of violating the New Mexico Insurance Practices Act for failing to conduct any investigation that would have revealed at least some uncertainty about coverage and triggered the duty to defend.

The parties filed competing summary judgment motions on the applicability of the absolute pollution exclusions. U.S. Judge James O. Browning found in favor of Chisholm’s, ruling the exclusions were ambiguous. The insurers appealed.

Representatives for the parties did not respond to requests for comment.