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Total Pollution Exclusion Upheld Despite Endorsement Adding Coverage for Underground Resources

Case: Liberty Mutual Ins. Co. v. Linn Energy, LLC
          United States Court of Appeals for the Fifth Circuit (Texas law)
           2014 U.S. App. LEXIS 12353; 2014 WL 2925161

Residents of Claiborne Parish, Louisiana, filed the underlying suit in Louisiana state court in 2010 alleging that a pipeline owned by Linn Energy LLC (“Linn”) spilled salt water, brine, and other contaminants onto their land. After being called on to defend and indemnify Linn in the underlying lawsuit, Liberty Mutual filed a declaratory judgment action in federal court arguing the Total Pollution Exclusion contained in the CGL Policy issued to Linn excluded coverage for the damages asserted by the Plaintiffs. The United States District Court for the Southern District of Texas agreed with Liberty Mutual, summarily holding Liberty Mutual had no duty to defend or indemnify its insured in the underlying suit.

In an attempt to bring the underlying claims within the policy’s coverage, Linn argued the policy’s Underground Resources and Equipment Coverage Endorsement, which added coverage for property damage to specific types of underground resources, superseded the policy’s Total Pollution Exclusion, which excluded coverage for property damage that “would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.”

On appeal, the federal Fifth Circuit upheld the lower court’s ruling in favor of Liberty Mutual, reasoning that under Texas law, two provisions of an insurance policy are irreconcilable only when they contradict to the point that one would completely negate or render superfluous the additional coverage provided by the other. In this case, reading the pollution exclusion to exclude the pollution-caused property damage alleged in the underlying lawsuit does not render the endorsement, which still provided coverage for non-pollution caused property damage, wholly meaningless. The court concluded by noting that Linn’s interpretation would allow the endorsement to trump the pollution exclusion and rob the latter of its meaning, in contravention of the policy’s plain language.

The Texas Supreme Court, as well as the Federal Fifth Circuit, has consistently held identical Total Pollution Exclusions clear, unambiguous, and absolute. This opinion reinforces the strength of the pollution exclusion in Texas and harmonizes it with the Underground Resources and Equipment Coverage Endorsement so that the two may co-exist harmoniously.

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