(Article from Insurance Law Alert, December 2021)
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The Supreme Court of Oklahoma ruled that a total pollution exclusion was ambiguous as to whether it barred coverage for earthquake-related claims but that an earth movement exclusion squarely applied to preclude coverage. National Am. Ins. Co. v. New Dominion, LLC, 2021 WL 5459471 (Okla. Nov. 23, 2021).
A series of lawsuits against New Dominion alleged personal injury and property damage as a result of seismic activity allegedly caused by New Dominion’s oil and gas operations. Its insurer denied coverage on the basis of exclusions for pollution and earth movement. The Oklahoma Supreme Court ruled that while the pollution exclusions in several consecutive policies did not clearly and unambiguously preclude coverage, the earth movement exclusions did.
The pollution exclusion in each policy defined pollutants as “any solid, liquid, gaseous or thermal irritant or contaminant.” The court held that the terms “irritant or contaminant” were ambiguous as to whether the exclusion applied only when the injury or damage for which coverage was sought arose out of the irritating or contaminating nature of the pollutant, or whether it applied even when the injury was not the result of the harmful nature of the substance. The court reasoned that while wastewater is clearly a contaminant or irritant, the underlying claims alleged harm based on the injection of wastewater into the land in a manner that caused seismic activity—not on the contaminating qualities of the wastewater. The court explained: “[T]he substance being injected into the ground could have been something more innocuous, such as fresh, potable water, and the result would have been the same.” Having determined that the pollution exclusion was ambiguous, the court held that it was reasonable for New Dominion to understand the pollution exclusion to apply only when injury or damage resulted from the irritating or contaminating nature of a pollutant.
However, the court ruled that an earth movement exclusion in each policy (the language of which differed slightly across the policies) unambiguously barred coverage. In the first two policy periods, the exclusion barred coverage for damage “whether direct or indirect, arising out of, caused by, resulting from, contributed to, or aggravated by the subsidence, settling, expansion, sinking, slipping, falling away, tilting, caving in, shifting, eroding, mud flow, rising or any other movement of land or earth.” In the second two policy periods, the exclusion language also included “earthquake” in the list of events for which there would be no coverage. New Dominion argued that omission of the term “earthquake” in the first two policies created ambiguity as to the applicability of the exclusions in those periods.
Rejecting this assertion, the court ruled that the exclusion in each policy “must stand independently” and that extrinsic evidence from other policy periods should not be considered in evaluating ambiguity. The court concluded that the exclusion in the first two policy periods unambiguously barred coverage for the events alleged in the underlying complaints because the list of excluded events included “nearly every event that is commonly associated with an earthquake.”
Finally, the court rejected New Dominion’s estoppel claims. The company argued that the insurer was estopped from denying coverage for the third policy based on statements made to New Dominion by its insurance agent and a senior claims manager at National American Insurance regarding earthquake coverage. The court explained New Dominion would be unable to establish reliance for statements made after renewal of the third policy and that statements made prior to the renewal did not provide any “definitive answers” on the question of earthquake coverage. Regarding the fourth policy, the court held that New Dominion was charged with constructive knowledge of the exclusionary language, which clearly and unambiguously contradicted any statements that the insurance agent and claims manager might have made.