Insurers not liable in Minnesota farm pollution case

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GreenGavelBy Eric Freedman

Neighbors of a now-defunct dairy operation in northwestern Minnesota have failed for a second time to hold the farm’s insurers responsible for pollution-related problems from manure lagoons on the property.

A unanimous state Court of Appeals panel ruled that insurance policies for the former farm near Thief River Falls contained a valid and enforceable absolute exclusion for pollution-related claims.

A lawyer for the neighbors, Charles Speer of Kansas City, Missouri, said his clients will evaluate the decision “to see if there is any merit to go to the state Supreme Court.”

Speer also said, “In one sense, our clients are very pleased the dairy is gone but disappointed there will be no compensation.”

The suit described Excel Dairy a CAFO, or confined animal feeding operation, and said it had as many as 1,500 dairy cows at a time.  The neighbors’ problems began after investors operating as the South Dakota-based Dairy Dozen-Thief River Falls LLP bought Excel Dairy in 2005 and expanded the operation in 2007 by building another barn and two additional manure basins, the court said.

“Unfortunately, the expansion did not go well, and Excel’s neighbors complained of illnesses related to Excel’s hydrogen-sulfide emissions,” according to the decision written by Judge Peter Reyes Jr.

The Minnesota Pollution Control Agency, .U.S. Environmental Protection Agency and Minnesota Health Department took civil and administrative action against the company, including revocation of its state permit, and the Marshall County attorney filed criminal misdemeanor charges.

A 2008 “exposure investigation” by the state Health Department and federal Agency for Toxic Substances and Disease Registry concluded that residents near the farm were “repeatedly exposed to elevated levels of H2S gas for lengthy periods of time greater than one hour. These types of exposures to H2S are associated with short-term health effects.”

The agencies’ report also said, “The health effects of repeated exposure at these levels and duration on the health of the general population are unknown. While the health effects of single exposures are rapidly reversible, there may be longer-term health effects from repeated exposures.”

At one point, the Health Department “strongly recommended” that neighbors “evacuate their homes due to the extreme odors and emissions being discharged from the dairy causing concern for residents’ health,” the suit said.

That same year, the neighbors sued Dairy Dozen, claiming that “invasive, offensive, and noxious odors” from the farm interfered with enjoyment of their properties.

After Dairy Dozen filed for bankruptcy protection in 2010, the neighbors sued two of its insurers, Nationwide Agribusiness Insurance Co. and Farmland Mutual Insurance Co.

The suit charged that the farm “mishandled the vast volume of manure and other waste generated by the cows, resulting in the breeding of hordes of flies and other insects that frequently travelled to the neighbors’’ properties. The horrendous waste management practices caused and created the offensive and invasive odors, particulate matter, flies other insects, and other emissions that disrupted and substantially interfered with their use and quiet enjoyment of their lives, homes and properties.”

Nationwide and Farmland denied responsibility, and a Marshall County District Court judge sided with the insurers dismissed the case without trial.

The Court of Appeals upheld that ruling, citing the “absolute-pollution exclusion” language in the insurance policies.

The appeals court quoted a policy’s definition of pollutants as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The policy excluded coverage for “bodily injury or property damage which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, release or escape of pollutants at any time.”

The court rejected the neighbors’ argument that the wording of the policies was ambiguous, that the exclusion didn’t apply to odors or to problems with flies and other insects, and that the pollution exclusion violates public policy.

According to the decision, most other states limit the exclusions “to situations involving traditional environmental pollution,” while Minnesota is among the minority that apply the exclusions “literally and finding the terms clear, unambiguous, and not limited to traditional environmental pollution.”

Hilary Palazzolo, a St. Paul lawyer for the insurance companies, said the ruling reinforces current Minnesota law and extends it to situations involving insect problems caused by pollution.

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