Source: https://www.businessinsurance.com/, August 3, 2020
By: Judy Greenwald

A Travelers Cos. Inc. unit is not obligated to defend a trucking company for the damage caused by a hydrochloric acid cloud because of a pollution exclusion in its coverage, a federal appeals court said Friday, in affirming a lower court ruling.

The plaintiff in the case, Laurel, Mississippi-based Burroughs Diesel Inc., had argued unsuccessfully that an exception to the Travelers Indemnity Co. of America’s pollution exclusion for smoke applied, according to Friday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Burroughs Diesel, Inc. v. The Travelers Indemnity Co. of America.

On Oct. 14, 2016, more than 5,000 gallons of hydrochloric acid leaked from a storage tank in Laurel, Mississippi, on property adjacent to Burroughs.

The acid was a liquid, but it quickly created a cloud that traveled across the street and engulfed Burroughs’ property, allegedly causing extensive damage to its buildings, vehicles, inventory, tools, machines and equipment, the ruling said.

Burroughs insurer Travelers denied coverage, relying on a pollution exclusion in its policy.  Burroughs filed suit in U.S. District Court in Hattiesburg, Mississippi, charging breach of contract, breach of good faith and fair dealing and tortious breach of contract.

The district court ruled in the insurer’s favor, and was affirmed by a unanimous three-judge appeals court panel. Travelers’ policy excluded coverage pollution losses. There was an exception to that exclusion, though for losses caused by “smoke,” the ruling said.

Burroughs “argues that the cloud that resulted from the release of the hydrochloric acid constituted ‘smoke,’ which is a ‘specified cause of loss,’” the ruling said.

The panel disagreed. Burroughs “latches on” to a secondary definition in the definition for smoke that defines it as “a suspension of particles in a gas,” it said.

“We do not interpret state law to mean it was enough to locate some definition that fails to focus on smoke resulting from combustion,” the ruling said.

“Instead, by using dictionaries, we are seeking the ordinary, popular or logical meaning of ‘smoke.’ It is the first definition in that same dictionary: ‘the gaseous products of burning materials,’” the panel said in affirming the lower court’s ruling that the policy’s smoke exception does not apply.

Burroughs attorney had no comment while Travelers’ attorneys did not respond to a request for comment.

Last month, a federal appeals court affirmed a lower court and held an insurer is not obligated to defend a construction company in a case involving hazardous fumes and dust because “there is no ambiguity” its policy’s pollution exclusion applies.