THE U.S. DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO HAS FOUND THE TERM “POLLUTANTS” TO BE AMBIGUOUS IN CERTAIN GENERAL LIABILITY POLICIES ISSUED IN THAT STATE.
BY: DAVID A. O’NEILL, JD
The U.S. District Court for the District of New Mexico has ruled that this ambiguity renders the absolute pollution exclusions featured in these policies ineffective, reinstating coverage. That is the takeaway from the Court’s recent Memorandum Opinion supporting its summary judgment rulings in the case of Chisolm’s Village Plaza, LLC v. Travelers Commercial Insurance Co., et al., 2022 WL 3369202.
The City of Las Cruces and Dona Ana County had filed complaints against a shopping mall and dry cleaner, among others, seeking cost recovery and contribution under CERCLA for responses to releases and expected releases of hazardous substances at the Griggs & Walnut Superfund Site. The New Mexico Environment Department had detected PCE contamination in four city water wells. The resulting lawsuit was a diversity case in which the U.S. District Court was required to apply New Mexico law. Reviewing New Mexico court decisions, the District Court determined that this was a case of first impression. While New Mexico’s Supreme Court had determined that the qualified pollution exclusion was ambiguous in United Nuclear, 285 P.3d 644 (2012), no ruling had been made by that court regarding the absolute pollution exclusion. Further, while the Tenth Circuit Court of Appeals had ruled on the absolute pollution exclusion, these were rulings based on Colorado, Kansas, Oklahoma, and Utah law, not New Mexico law.
Encountering this lack of precedent relating to the absolute pollution exclusion, the District Court conducted an exhaustive review of various state supreme court decisions to determine how the Supreme Court of New Mexico would rule. In doing so, it grouped the decisions into three “camps”: (1) the literal approach, (2) the situational approach, and (3) the Indiana approach. The literal camp was comprised of opinions that apply the exclusion as “clear and unmistakable.” The situational camp was comprised of opinions that apply the exclusion only in situations of “traditional environmental pollution.” The Indiana camp was comprised of the Supreme Court of Indiana’s ruling in the case styled State Auto v. Flexdar 964 N.E.2d at 850-851.
The District Court predicted that the New Mexico Supreme Court would find enough similarity in Flexdar’s and United Nuclear’s approach to ambiguity to construe the absolute and qualified pollution exclusions in the same manner as Indiana has construed them. Like Indiana, the District Court expects that New Mexico will “require that the insurer specify what falls within its pollution exclusion.” It will find Flexdar persuasive because “its approach is the least tolerant of contractual ambiguity and provides the most protections for the insured.”
To learn more about what this could mean for those facing environmental liability in New Mexico, read U.S. District Court Finds Absolute Pollution Exclusion Ambiguous; What This Could Mean for Drycleaners/Industrial Sites in New Mexico.
An ineffective absolute pollution exclusion in New Mexico may be expected to create exposure for insurers under standard general liability policies issued to commercial businesses from 1985 through the present.
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