Opinion ID: 2634716
Heading Depth: 3
Heading Rank: 2

Heading: An Expectation of Seepage Compared to an Expectation of Containment

Text: Although the court of appeals correctly concluded that qualified pollution exclusion clauses only restore coverage for unexpected and unintended discharges, the court of appeals incorrectly concluded that Cotter expected a discharge of contaminants from its tailings ponds because Cotter expected seepage from the tailings ponds. Despite evidence in the record suggesting that Cotter expected to contain the pollutants by allowing contaminants to filter out in the soil beneath the tailings ponds, the court of appeals viewed Cotter's expectation of seepage as determinative of coverage. We find this interpretation incompatible with our decision in Compass Insurance Co. v. City of Littleton, 984 P.2d 606 (Colo.1999). After a review of Compass, we conclude that the application of qualified pollution exclusion clauses does not depend on whether seepage was unexpected and unintended. Instead, as we explained in Compass, the inquiry to determine whether qualified pollution exclusion clauses bar coverage focuses on whether the insured expected to fully contain contaminants by filtration when it placed waste materials in the disposal area. In this case, we can simplify this inquiry and merely ask whether Cotter intended or expected contaminants to migrate off its property or into the groundwater.
Under our holding and reasoning in Compass, an expectation of seepage is not determinative of whether qualified pollution exclusion clauses preclude coverage. In Compass, we implicitly acknowledged that seepage from unlined landfills is not necessarily a relevant polluting event. First, we explained that in the past, unlined disposal areas often operated with the expectation that the underlying soils would filter contaminants. [6] Second, our holdingthat unlined disposal areas constituted containment areasalone requires us to view seepage from the ponds not as a polluting event but part of a larger containment process. Therefore, we conclude that the court of appeals erred by viewing Cotter's expectation of seepage as determinative of coverage. Through our reasoning in Compass, we viewed seepage from unlined ponds as part of a larger containment process and thus not as a relevant polluting event. In Compass, we concluded that the placement of wastes in unlined landfills is not a relevant polluting event because unlined landfills were understood to contain contaminants by filtering them through the underlying soil. Compass, 984 P.2d at 616-18. In reaching this conclusion, we agreed with the analysis set forth in Queen City Farms, Inc. v. Central National Insurance Co. 126 Wash.2d 50, 882 P.2d 703 (1994). There, the Supreme Court of Washington considered unlined landfills to be containment areas for purposes of the qualified pollution exclusion clause. See id. at 718-19. The court reasoned that unlined landfills were expected to contain pollutants by allowing the soil beneath landfills to filter contaminants before such contaminants reached groundwater. The court explained: When landfills began to be licensed in the late 1960s and early 1970s, landfill operators and even many environmental officials expected the design of a landfill would function to contain pollutants. In particular, the soil beneath landfills was expected to act as a filter to prevent pollutants from migrating into the underlying and surrounding ground and surface waters. Id. at 719 (quoting Sylvester Bros. Dev. Co. v. Great Cent. Ins. Co., 480 N.W.2d 368, 373-74 (Minn.Ct.App.1992)). Because unlined landfills were expected to contain contaminants through filtration, we concluded in Compass, like the Queen City Farms court, that unlined landfills could constitute containment areas for the purpose of qualified pollution exclusion clauses. Our decision in Compass therefore was based on an understanding that unlined disposal areas were expected to contain contaminants by allowing them to filter through the underlying soil before they reached the groundwater. Because we accounted for such seepage when determining that unlined disposal areas constituted containment areas in Compass, we interpret this reasoning as implicitly acknowledging that seepage from wastes placed in unlined disposal areas may not constitute a relevant polluting event. Even though we acknowledged through our reasoning in Compass that seepage from wastes placed in unlined disposal areas may not constitute a relevant polluting event, our holding alone in that case compels the same conclusion. Because we held that unlined disposal areas constitute containment areas, and that the placement of wastes in such disposal areas are not relevant polluting events, we cannot now sever the natural and inevitable seepage of contaminants into the soil beneath disposal areas by classifying seepage as an independent polluting event. Such a classification would suggest that unlined landfills somehow prevented contaminants from seeping into the soil beneath landfillseffectively suggesting that unlined landfills functioned like lined landfills. By characterizing unlined landfills as containment areas, we did not operate under a fiction that topsoil in landfills created an impermeable layer to contain pollutants. Rather, in Compass, we viewed the placement of wastes into unlined disposal areas and the natural seepage of wastes not as severable, but rather as part of a larger containment process. Thus, we view the holding and rationale of Compass as acknowledging that seepage from unlined disposal areas does not necessarily constitute a relevant polluting event. For this reason, an expectation of seepage does not establish whether or not qualified pollution exclusion clauses preclude coverage. Therefore, we conclude that the court of appeals erred by holding that the qualified pollution exclusion clauses precluded coverage solely because Cotter expected seepage from the ponds.
Having established that the court of appeals prematurely ended its inquiry into whether the qualified pollution exclusion clauses preclude coverage, we now explain that, under Compass, to decide whether qualified pollution exclusion clauses preclude coverage, we ask whether an insured placed wastes in unlined disposal areas with the expectation contaminants would be fully contained through filtration. We ultimately conclude that to determine whether the clauses preclude coverage in this case, we only must ask whether Cotter expected or intended that pollutants migrate into the groundwater or onto neighboring property. In Compass, we explained that an insured's expectation of containment is critical to discerning whether a relevant polluting event occurred. There, we defined a relevant polluting event as the release of pollutants from a containment area. Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 617 (Colo.1999). We then instructed courts to focus on the insured's intent to discharge pollutants from the containment area to decide whether a relevant polluting event occurred. Id. (citing Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1092 (Colo.1991)). We now conclude from these statements that the necessary inquiry to determine whether a relevant polluting event occurred is whether an insured placed wastes in a disposal area with the expectation that the area would fully contain any contaminants through filtration. If an insured placed wastes in unlined ponds with such an expectation, but contaminants are not contained, a relevant polluting event occurs when contaminants seep beyond the intended containment area. Here, Cotter advances this very argument, claiming that it expected contaminants to be contained through filtration, but that contaminants seeped outside of the containment area. Although it may be difficult to precisely define the boundaries of the containment area associated with Cotter's unlined ponds, we need not struggle to do so because a relevant polluting event occurred either if contaminants reached neighboring property through soils or if contaminants migrated into the groundwater. In this case, we conclude a relevant polluting event occurred if the contaminants migrated off Cotter's property, because Cotter's comprehensive general liability policies only provide coverage for damage to another's property. See 12 Couch on Insurance § 172:26 (Lee R. Russ & Thomas F. Segalla eds., 3d ed.1997). Additionally, the parties do not dispute that a relevant polluting event occurred when contaminants migrated off Cotter's property. Cotter has maintained that it intended to contain contaminants and did not expect or intend their escape off its property. Similarly, the insurers accept Cotter's argument that it placed wastes in containment areas on its property, but contend that Cotter did not intend to fully contain wastes and thus expected the escape of contaminants off its property. [7] Consequently, we conclude that a relevant polluting event occurred in this case if the contaminants migrated off Cotter's property. In addition to concluding that a relevant polluting event occurred if contaminants migrated off Cotter's property, we can also conclude that a relevant polluting event occurred if contaminants reached groundwater. Unlike soils underneath tailings ponds that were understood to trap contaminants, groundwater can never constitute a containment area. Once contaminants reach groundwater, the contaminants will continually migrate. Therefore, because contaminants cannot be contained in groundwater, a relevant polluting event will always occur when contaminants reach groundwater. For these reasons, we conclude that a relevant polluting event occurred if contaminants migrated either off Cotter's property through the soil or into the groundwater. Thus, to determine whether coverage exists, we look to whether the relevant polluting event was unexpected and unintended. If Cotter placed wastes in the tailings ponds with the expectation contaminants would remain within its property and out of the groundwater, but they in fact migrated off Cotter's property or into the groundwater, then the relevant polluting event was unexpected and unintended. If Cotter placed the wastes in tailings ponds with the expectation that wastes would migrate off its property or into the groundwater, then we can conclude that the relevant polluting events were expected and intended. Therefore, to decide whether the qualified pollution exclusion clauses preclude coverage, the trial court can simply inquire whether Cotter expected or intended contaminants to migrate off its property or into the groundwater.