Opinion ID: 582742
Heading Depth: 2
Heading Rank: 2

Heading: The Damage/Discharge Distinction

Text: 25 El Paso also argues the policy defines its coverage on the basis of occurrences, which are neither expected nor intended, and includes continuous or repeated events like the discharges at issue here. That contention, however, does not speak to the language of the pollution exclusion, which says insurance shall not be provided for any property damage arising out of the discharge, dispersal, release or escape of ... waste materials ... contaminants or pollutants into or upon the land, except if such discharge ... is sudden and accidental. (emphasis added). It is clear to us the occurrence and pollution exclusion provisions speak to different eventualities. While an accidental occurrence may be gradual, the discharge of pollution has more precise requirements for coverage. 26 We explained the relationship of these provisions in Broderick Inv. Co. v. Hartford Accident & Indem. Co., 954 F.2d 601 (10th Cir.1992): 27 Assuming the insured's loss resulted from an occurrence, the insurer may avoid paying out on the policy if the event falls within the policy's pollution exclusion. This provision excludes coverage for damages arising out of the discharge, dispersal, release or escape of ... pollutants into or upon [the] land. Coverage is restored, however, if such discharge, dispersal, release or escape is sudden and accidental. 28 Broderick, 954 F.2d at 605. If the loss arises out of the discharge of pollution, the pollution exclusion, not the more generous coverage of the occurrence provision, governs. 8 As the district court noted, [t]he occurrence definition and the pollution exclusion serve distinct purposes. No ambiguity is created merely because an exclusion eliminates coverage from an insuring agreement. Hartford v. USF & G, 765 F.Supp. at 681. See also Anaconda Minerals, 773 F.Supp. at 1503 n. 7 ( 'Occurrences' are covered unless the occurrences arise out of polluting events; those are not covered unless the polluting events are sudden and accidental....) (citing American Motorists Ins. Co. v. General Host Corp., 667 F.Supp. 1423, 1429 (D.Kan.1987), aff'd, 946 F.2d 1482 (10th Cir.1991), vacated in part and remanded, 946 F.2d 1489 (10th Cir.1991)). 29 Utah law holds  'arising out of' is a phrase of much broader significance than 'caused by.'  National Farmers Union Property & Casualty Co. v. Western Casualty & Sur. Co., 577 P.2d 961, 963 (Utah 1978). In an insurance policy the phrase means originating from, growing out of, or flowing from, and require[s] only that there be some causal relationship between the injury and the risk for which coverage is provided. Id. The causal connection in this case between El Paso's continuous discharges of waste and PCB contamination is undisputed. Though unwitting, PCB contamination was inherent in every discharge. 30 We have found almost universal agreement among federal courts applying the pollution exclusion that it is the discharge which must be sudden and accidental to qualify for coverage, not the pollution damage. In Broderick, we reversed the district court for Colorado which held discharge, dispersal, release or escape applied only to the seepage of wood treatment chemicals from the holding pond into the groundwater, not to the initial deposit of waste chemicals into the ponds. Broderick, 954 F.2d at 607. We reasoned because the pollution exclusion clause utilizes the word 'or' to connect these four words, the exclusion is triggered if even one of the four words unambiguously describes BIC's placement of waste into the ponds. Id. We concluded discharge into or upon the land described Broderick's placement of waste into the disposal ponds. In our opinion, El Paso's arguments concerning the unintended damage from its discharges parallel those we dismissed in Broderick. Whether El Paso intended to cause damage after the initial discharge is irrelevant. Id. at 608. 31 We note Broderick construed sudden and accidental in favor of the insured to mean unexpected and unintended, following the decision of the Colorado Supreme Court in Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1092 (Colo.1991). Broderick, 954 F.2d at 608. Even with Colorado's generous definition of sudden and accidental, however, the Broderick court denied coverage because the initial wood treatment discharges into containment ponds were not unexpected and unintended. Id. New Castle County, a case on which El Paso relies for its definition of sudden and accidental, withheld coverage for the same reason: whatever the meaning of 'sudden,' the plain language of the 'sudden and accidental' exception to the pollution exclusion focuses on the nature of the discharge, not on the resulting environmental damage. 933 F.2d at 1202. 32 As in the construction of sudden and accidental, we believe the Utah Supreme Court would support our conclusion the pollution exclusion restores coverage only for polluting discharges which are sudden and accidental. The federal district court for Utah has construed Utah law twice to exclude damage from the focus of the pollution exclusion. In Anaconda Minerals the court stated under the pollution exclusion clause, the court need only inquire whether the insured intended the discharge of the pollutants.... The court need not consider whether the insured intended or expected the pollution damage caused by the discharge. Anaconda Minerals, 773 F.Supp. at 1506. 33 Treating the issue on first impression, the Utah Court of Appeals held in Gridley the explicit language of Gridley's policy only requires that the discharge itself be 'sudden' in order to be covered under the policy. 828 P.2d at 527. In El Paso's case, the disposal of liquid wastes into the pits was neither abrupt nor unexpected but a continuous and routine operating practice over many years. The PCB contamination which was concomitant with this discharge was unintended and unexpected but not sudden. Even were we to apply the pollution exclusion to the damage, in contradiction to our interpretation of Utah and general contract law, the PCB damage was not abrupt or quick, only unintentional.