The Fund filed a complaint against the district seeking a declaratory judgment that the Fund had no duty to defend or indemnify the district in the Brown matter. The Fund denied coverage based on the policy's pollution exclusion.

The trial court held a non-jury trial at which the district's executive director and former maintenance superintendent, Larry Brazell, testified that the force main had been approved by the Department of Health and Environmental Control (“DHEC”); that it had been installed as part of a larger project that also included two nearby pump stations; that the pump stations had been designed to turn on and pump sewage through the force main when the sewage inside their collection wells reached a certain level; that it was impossible to know when the pumps would turn on during a given day but that they could turn on once per hour or 10 times per hour depending on the area's water usage or weather; and that when the pumps activated, the air in the force main lines was forced out through an “air vacuum valve.” Mr. Brazell stated that if this air was not released, the sewer lines would explode.

Mr. Brazell further explained the sewage odor itself was usually the result of naturally-occurring hydrogen sulfide – which smelled like rotten eggs – and methane, and that the district was not required by the DHEC to control or contain either of these gases.

The trial court found that the pollution exclusion's reference to gases and fumes encompassed the offensive odors delineated in Mr. Brown's complaint. The trial court determined that the Fund owed no duty to defend or indemnify the district in Mr. Brown's case.

The district appealed to the South Carolina appeals court.

The Fund's Policy

Pursuant to the policy, the Fund was legally obligated to pay damages resulting from:

Property Damage to which this applies caused by an occurrence.

The policy defined:

occurrence

as:

an accident, including continuous or repeated exposure to conditions, which result[s] in personal injury or property damage neither expected nor intended from the standpoint of the insured. 

The policy defined:

property damage

as:

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or

(2)loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

Pursuant to Exclusion (f) (the pollution exclusion), no coverage existed for:

… personal injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritant, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental[.]

The appellate court affirmed.

In its decision, the appellate court held that the pollution exclusion applied because the odors at issue in this case could properly be classified as “fumes” or “gases,” both of which were listed in the exclusion. The appellate court rejected the district's contention that odors must be harmful in some way to be considered pollutants, declining “to impose such a limitation on the plain language of the policy.”

In the appellate court's opinion, the fact that the odors were comprised of irritating and offensive gases sufficed to demonstrate the odors were encompassed within the “ordinary meaning” of the pollution exclusion's terminology.

The appellate court concluded that the exception to the exclusion did not operate to require coverage on the ground that the circumstances surrounding the release of the odors were unique and unexpected. Rather, the appellate court held, the releases of the odors in this case were “not accidental and unexpected” and, accordingly, the exception did not apply. The appellate court pointed out that Mr. Brazell had testified that the air release valve was essential to the operation of the sewer line because it prevented the lines from exploding, concluding that the district's knowledge that the pumps would turn on occasionally was sufficient to demonstrate that the releasing of the odors “was not only expected, it was a necessary function of the line's normal operations.”

The case is South Carolina Ins. Reserve Fund v. East Richland County Public Service Dist., No. 2014–000728 (S.C. Ct. App. March 23, 2016). Attorneys involved include: Scott A. Elliott, of Elliott & Elliott, PA, of Columbia, for Appellant; Andrew F. Lindemann, of Davidson & Lindemann, PA, of Columbia, for Respondent; South Carolina Insurance Reserve Fund; and Kenneth Emanuel Berger, of the Law Office of Kenneth E. Berger, LLC, of Columbia, for Respondent Coley Brown.

FC&S Legal Comment

Other jurisdictions have held that foul odors were encompassed by pollution exclusions. See, e.g., City of Spokane v. United Nat. Ins. Co., 190 F.Supp.2d 1209 (E.D. Wash. 2002) (holding pollution exclusions “clearly and unambiguously” excluded coverage for losses related to odors emanating from a compost facility); Kruger Commodities, Inc. v. U.S. Fidelity and Guar., 923 F.Supp. 1474 (M.D. Ala. 1996) (finding a pollution exclusion applied to odors produced by an animal rendering plant even though the relevant chemicals were not hazardous and did not violate environmental laws); Wakefield Pork, Inc. v. Ram Mut. Ins. Co., 731 N.W.2d 154 (Minn. Ct.App. 2007) (finding the substance of a complaint alleging harm from gases and odors emanating from manure at a nearby pig farm was “plainly covered” by a policy's pollution exclusion that mentioned gases and fumes); City of Bremerton v. Harbor Ins. Co., 963 P.2d 194 (Wash. Ct.App. 1998) (finding no coverage for damages resulting from a treatment plant's emission of foul odors and toxic gases when a pollution exclusion “unambiguously exclude[d] claims arising from 'fumes' and 'gases'”).