D&O Policy’s Pollution Exclusion Bars Coverage For Claim Arising from Alleged Conspiracy to Submit Fraudulent Regulatory Filings
The United States Court of Appeals for the Sixth Circuit, applying Kentucky law, upheld a district court’s grant of summary judgment in favor of a coal company’s D&O insurer because a pollution exclusion applied to a claim arising from a criminal case against former employees indicted for conspiring to submit fraudulent coal dust samples to federal regulators. Barber v. Arch Ins. Co., 2021 WL 2828021 (6th Cir. July 7, 2021). The court determined that coal dust was a pollutant within the meaning of the policy’s pollution exclusion, and that the criminal indictment arose from a requirement to monitor a pollutant.
Mining coal creates coal dust that can lead to “black lung” when inhaled. The Department of Labor Mine Safety and Health Administration (MSHA) limits the concentration of coal dust that can be in the air in a mine and requires coal companies to monitor and report their dust levels. The Department of Justice indicted several former employees of a coal company for conspiring to falsify the required coal dust samples submitted to MSHA. Those employees sought coverage for the criminal proceeding under the coal company’s D&O insurance policy, which contained an exclusion providing that the insurer would not be liable for any claim “arising from, based upon, or attributable to” any discharge (or threat of discharge) of any “pollutant” or any “direction, request or voluntary decision” to test for or monitor any “pollutant.” The policy defined pollutant in relevant part to include any “contaminant or irritant.” Coverage litigation followed, and the United States District Court for the Western District of Kentucky granted summary judgment for the insurer, holding that the pollution exclusion precluded coverage.
The Sixth Circuit affirmed. It first concluded that coal dust was a pollutant within the meaning of the exclusion. The court distinguished cases from other jurisdictions holding that pollutants were necessarily limited to instances where there has been a discharge, seepage, or release of the substance in question. The court noted that, in those cases, the policy did not define the term “pollutant” as the policy at issue did. The question then was not whether coal dust was a pollutant in the abstract but whether this particular policy’s definition had been met. The court then concluded that the criminal case against the former employees arose from the coal company’s monitoring of a pollutant. In doing so, it noted that, under Kentucky law, “arising from” requires a causal connection. However, as the Sixth Circuit observed, some causal relationship is sufficient and direct proximate causation is not required. Finally, the Sixth Circuit noted that Kentucky law was clear that there cannot be a bad faith claim in the absence of coverage. Given that the pollution exclusion applied, summary judgment for the insurer was also warranted on the bad faith claim.