Pollution Exclusion Covers Bacteria Contaminated Food

March, 2004

The term “contaminants” in a pollution exclusion incorporates bacteria found in contaminated food and excludes resulting damages from coverage under a commercial property policy. Landshire Fast Foods of Milwaukee v. Employers Mutual Casualty, 676 N.W.2d 528 (Wis. App. 2004)

Facts

Landshire prepared sandwiches and other foods for sale to businesses and institutions. A customer, the Great Lakes Naval Training Station, reported that it found Listeria Monocytogenes, a bacteria, on some of Landshire’s product. Great Lakes returned all of the food to Landshire and refused all further deliveries. Landshire conducted its own investigation while also being investigated by government agencies in order to determine the source of the Listeria. Landshire found that the sole source of the Listeria was a food slicer. It remedied the problem and took various actions to correct any future problems.

At the time of the Listeria contamination, Landshire was an insured under a commercial property insurance policy issued by Employers Mutual Casualty Company (“Employers”). Landshire submitted a claim for loss of income, loss of its products, sanitizing expenses and costs related to investigating the source of the bacteria. Employers denied the claim because it was not the result of a “covered cause of loss.”

Landshire brought a declaratory action against Employers seeking coverage under its commercial property policy. The policy required both a covered cause of loss and direct physical loss or damage to the insured’s property in order for coverage to exist. The covered causes of loss contained an exclusion providing in part as follows:

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

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Discharge, disbursal, seepage, migration, release or escape of “pollutants.”...

The policy defined pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant. ...” The disagreement between the parties centered on the interpretation of the term “contaminant.” Landshire conceded that Listeria was a contaminant but argued that Listeria was not the kind of contaminant excluded under the policy. Landshire argued that the policy only excluded inorganic matter and the Listeria was an organic matter. Employers argued that the essence of the pollution exclusion was to deny coverage for the contamination of a company’s product by any substance foreign to those products.

Analysis

The Landshire court relied upon another Wisconsin decision which found that contamination connotes a “condition of impurity resulting from mixture or contact with a foreign substance. …” Richland Valley Products, Inc. v. St. Paul Fire Casualty Co., 548 N.W.2d 127 (Wis. App. 1996). Following Richland, the court held that the presence of bacteria in the insured’s product plainly rendered the food unfit for consumption and met the “ordinary, unambiguous definition ‘of contamination.’” The insured’s argument that the definition of “pollution” included only “inorganic matter” was unreasonable and did not render the pollution exclusion ambiguous. The court found that the term “contaminants” in the pollution exclusion incorporated bacteria including Listeria Monocytogenes. Consequently, the Employers policy excluded coverage for any loss or damage caused directly or indirectly by the Listeria contamination.

Landshire does not review or cite Donaldson v. ULI, 564 N.W.2d 728 (Wis. 1997) wherein the Wisconsin Supreme Court held that an identical pollution exclusion was ambiguous in a CGL policy. Donaldson considered whether carbon dioxide was a “pollutant” in a “sick building” situation. The court of appeals had held that the build up of carbon dioxide was a “gaseous irritant” and therefore a pollutant under the policy. The Wisconsin Supreme Court reversed finding that the term “contaminant” was ambiguous. Landshire likewise does not assess the terms “discharge, disbursal, seepage, migration, release or escape of” a contaminant. Had the court reviewed the full provision, it may have found the pollution exclusion to be inapplicable to the bacteria contamination resulting from a slicing machine.

Other Jurisdictions

The question of whether bacteria is a “pollutant” has been answered differently by different courts. For example, E. Coli Bacteria has been found to be a pollutant by courts in California, (East Quincy Servs. Dist. v. Continental Ins. Co., 864 F. Supp. 976 (E.D. Cal. 1994)), and Indiana (Employers Mutual Casualty Co. v. DFX Enterprises, Inc., No. 20D03-9505 (Ind. Sup. April 24, 1997)) -- but not New York, (Eastern Mutual Ins. Co. v. Kleinke, 739 N.Y.S.2d 657 (N.Y. App. Div. 2002)). Legionella bacteria has been found to be a pollutant by a Minnesota court. Michigan Mutual Ins. Co. v. MITCO, Inc., No. 98-11745 (Minn. Dist. Ct. Aug. 27, 1999).

In a detailed opinion, the Arizona Court of Appeals reviewed whether bacteria-contaminated water ingested by a golfer fell within the pollution exclusion in a CGL policy. Keggi v. Northbrook Property & Casualty Ins. Co., 13 P.3d 785 (Az. App. 2000). Keggi, a professional golfer, drank contaminated water in her house as well as on a golf course which was supplied by a mixed-use development known as a Desert Mountain. Keggi sued Desert Mountain and others alleging negligence in the operation and maintenance of the water system. Desert Mountain was an insured under a general liability policy which contained an exclusion for bodily injury arising out of the “actual, alleged or threatened discharge, disbursal, seepage, migration, release or escape of pollutants.” The policy contained a standard definition for pollutants which included any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

The court found that the water-borne bacteria did not fit within the definition and although they might be considered “irritants” or “contaminants,” they were living organic matter which defy description under the policy as a “solid,” “liquid,” “gaseous,” or “thermal” pollutant. Further, under the rules of ejusdem generis, any unlisted terms that are construed to fall within the definition must be similar in nature to the listed terms.

Consequently, the plain language of the pollution exclusion did not include coliform bacteria within the definition of “pollutants” and thus the exclusion did not apply to preclude coverage for Keggi’s alleged injuries. As in Landshire, the insurer in Keggi argued that bacteria was a “contaminant” and by definition a pollutant. The court rejected this argument and held that, at best, such an interpretation would render the pollution exclusion ambiguous. Keggi further agreed with the jurisdictions across the country which have concluded that the pollution exclusion clause was intended to exclude coverage for causes of action arising from traditional environmental pollution.

Learning Point:

Landshire’s finding that bacteria is a “pollutant” and therefore excluded and the Arizona decision in Keggi concluding that bacteria is not a “pollutant” represent the two divergent views which currently exist across the country. As claims for bacterial contamination rise, we anticipate that new appellate decisions will provide further guidance on this issue. When faced with a bacteria exposure allegation, the prudent course is to review the controlling jurisdiction in order to determine if a decision has been rendered regarding bacteria and the pollution exclusion. ¨