When a case involves the applicability of the pollution exclusion it usually follows a familiar pattern. First, the court addresses whether its precedent calls for it to interpret the exclusion narrowly – limiting it to hazardous waste or industrial pollution, often referred to as “traditional environmental pollution.” Alternatively, is the exclusion to be applied broadly, based on a linguistic reading, making it applicable to claims involving any hazardous substance.

If a court determines to apply the pollution exclusion as written, it will frequently conclude that it bars coverage, given the broad definition of the term “pollutant,” often any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” But if a court concludes, fundamentally, that the pollution exclusion should be interpreted narrowly, and limited solely to traditional environmental pollution, it may be inclined to conclude that the exclusion does not bar coverage. After all, if it were so clear that the substance at issue is traditional environmental pollution, then it is unlikely to have been litigated.

But sometimes a court’s determination to apply the pollution exclusion broadly, followed by the expected determination that the substance at issue is a “pollutant,” may not be the end of the story for a policyholder’s pursuit of coverage. This scenario was demonstrated by the Court of Appeals of Nebraska in State Farm Fire & Cas. Co. v. Dantzler, No. A-12-1042 (Neb. Ct. App. Dec. 17, 2013). Dantzler arose like this.

Jerry Dantzler owned a rental property in Omaha. Tenants filed a lawsuit against Dantzler alleging that a minor was “exposed to high levels of lead poisoning” in the rental property due to high levels of lead paint contamination on the walls and elsewhere, causing him serious and permanent injury. Dantzler sought coverage from State Farm under a Rental Dwelling Policy.

State Farm filed a declaratory judgment action seeking a declaration that the policy did not provide coverage for the claims made against Dantzler because of its “pollution exclusion,” which excluded from coverage “bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, spill, release or escape of pollutants ... at or from premises owned, rented or occupied by the named insured.” “Pollutants” was defined broadly as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The trial court found that the pollution exclusion precluded coverage for the claims against Dantzler.

The case made its way to the Nebraska appeals court, which undertook the usual analysis. The court concluded that the pollution exclusion was unambiguous and barred coverage for injuries caused by all pollutants, not just traditional environmental pollution. Next the court determined that the definition of “pollutant” unambiguously encompassed lead found in paint.

However, despite these two determinations, the Dantzler court concluded that the pollution exclusion did not necessarily apply. The court focused on the aspect of the pollution exclusion concerning the “discharge, dispersal, spill, release or escape” of pollutants. The court noted that, while no Nebraska court had ever addressed whether exposure to lead-based paint constitutes a “discharge, dispersal, spill, release or escape” of pollutants, other jurisdictions have and there is a split of authority.

The court concluded that it could not determine how the minor was exposed to the lead or whether his alleged lead poisoning resulted from ingesting or inhaling lead dust or lead chips, chewing on intact surfaces, a combination of these, or some other source of exposure. As the record did not demonstrate that the minor’s injuries resulted from a “discharge, dispersal, spill, release or escape” of lead, there was more than one reasonable interpretation of these terms. Thus, since ambiguity existed, there was a genuine issue of material fact as to whether there was a “discharge, dispersal, spill, release or escape” of the lead, as required for the pollution exclusion to exclude coverage of the claims against Dantzler. Therefore, the court held that summary judgment in favor of State Farm was not appropriate.

In reaching this decision, the Dantzler court was persuaded by the Supreme Court of Pennsylvania’s 2001 decision in Lititz Mutual v. Steely, which held: “One would not ordinarily describe the continual, imperceptible, and inevitable deterioration of paint that has been applied to the interior surface of a residence as a discharge (‘a flowing or issuing out’), a release (‘the act or an instance of liberating or freeing’), or an escape (‘an act or instance of escaping’) .... Arguably such deterioration could be understood to constitute a ‘dispersal,’ the definition of which (‘the process ... of ... spreading ... from one place to another,’ ...) may imply a gradualism not characteristic of the other terms. Any such inconsistency in meaning simply indicates, however, that the exclusionary language does not clearly include or exclude the physical process here at issue, but is, as to that process, ambiguous. Such ambiguity requires that the language be interpreted in favor of the insured.”

As Dantzler demonstrates, sometimes a court’s determination to apply the pollution exclusion broadly, followed by the expected determination that the substance at issue is a “pollutant,” may not be the end of the story for a policyholder’s pursuit of coverage.