While cleaning a water tank, a contractor accidentally left the water outlet open. Sandblast media entered the city water supply and contaminated products in a cheese manufacturing facility.
A contractor client with commercial general liability policy CG 00 01 04 13 maintains water towers. A contractor sandblasts the interior of the tank to remove the old coating, then cleans the interior surface and recoats the interior. The sandblast media is made from coal slag and contains silica.
The contractor failed to close off the water outlet at the bottom of the tank while sandblasting, allowing sandblast media to get into the city water supply. The first customer on the line is a cheese manufacturing facility. The sandblast media contaminated raw milk and cheese.
The carrier denied the claim because the policy contains the total pollution exclusion CG 21 65 12 04 and silica or silica-related dust exclusion CG 21 96 03 05. The agent thinks that for the pollution exclusion or silica exclusion to apply the bodily injury or property damage must be caused by the toxic nature of the substances. In this situation, anything foreign to the food-grade milk or cheese would be a contaminant. It wasn't damaged due to the toxic nature of the coal slag or silica, but rather because foreign debris was in cheese and milk.
Q: Should the pollution or silica exclusion apply in this situation?
Response 1: I think the adjuster is correct in denying the claim on both points. Neither of the exclusions mentions toxicity as a requirement for the exclusion to apply. In fact, the silica exclusion mentions alleged contact and the pollution exclusion mentions alleged threat of possible contact.
The silica exclusion says coverage does not apply to property damage “arising, in whole or in part, out of the actual, alleged, threatened or suspected contact with, exposure to, existence of, or presence of, 'silica' or 'silica-related dust'."
The pollution exclusion says insurance does not apply in cases of “actual, alleged or threatened dispersal, seepage, migration, release or escape of 'pollutants' at any time."
To your point about the silica being a contaminant rather than pollution, you need to look at the definition of “pollutants" in the CGL policy:
"Pollutants" mean 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.
I truly feel for your client because this is a huge loss. But to me, it doesn't appear that there is any coverage because of those two exclusions.
Response 2: Did the agent try to sell the contractor pollution liability? If the contractor turned coverage down, was the file documented?
Does the owner of the water tower have pollution liability? What does the contract specify about required insurance coverages?
I hope all parties have legal counsel. This will be a protracted and expensive conundrum.
Response 3: I think you're stuck. The pollution exclusion applies to releases and this certainly sounds like a release. The question is: Does the sandblast material fit the definition of a "pollutant"?
The policy says a "pollutant" is any contaminant and this seems to be one. It's possible that cases in your state have altered that position, but that's a lawyer question. Your client needs to consult their lawyer to see if previous cases offer a path to sidestepping the exclusion, but the silica exclusion seems to apply too.
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