A South Carolina appellate judge affirmed the circuit court’s ruling that tort liability insurance policies for political entities that contain pollution exclusions do not run afoul of the South Carolina Tort Claims Act. South Carolina Insurance Reserve Fund v. East Richland County Public Service District, SC Court of Appeals, Appellate Case No. 2014-000728 (March 23, 2016).
In 2012, Coley Brown brought suit against East Richland County Public Services District due to offensive odors released by the sewage force main and air relief valve the district installed on his street, which made the property uninhabitable. Pursuant to its insurance policy, the district tendered the complaint to South Carolina Insurance Reserve Fund. The fund denied coverage on the grounds that (1) this case fell within the policy’s pollution exclusion and (2) the offensive odors did not qualify as “property damage caused by an occurrence” within the meaning of the policy.
The fund subsequently sought declaratory judgement stating that it owed no duty to defend or indemnify the district. The district counterclaimed. The central issue in the case was a disagreement over a clause in the policy excluding coverage for pollution. In relevant part, the pollution exclusion states no coverage exists for
“...personal injury or property damage arising out of the discharge, dispersal, release, or escape of...fumes... or gases...into or upon the land, the atmosphere, or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release, or escape is sudden or accidental.”
On appeal, the court first examined if South Carolina Tort Claims Liability Act allowed for pollution exclusions, which could act as a bar to liability coverage. Although the act empowers both the district to procure, and the fund to provide, insurance coverage against certain liability risks, the statute is silent on the topic of pollution exclusions. The statute does, however, reference a codified tort liability policy, which contains a pollution exclusion nearly identical to the one in the policy at issue in this case. Because this regulation was passed before the act, the court reasoned the legislature intended to allow these kinds of pollution exclusions.
After finding the pollution exclusion harmonious with the act, the court turned to the policy’s scope of coverage. Offensive odors released by the sewage installations were “fumes” or “gases” that, while not inherently harmful, were nevertheless pollutants within the meaning of the policy. Furthermore, while the magnitude and impact of these odors was unexpected, the district was fully aware that the release of odors was a necessary part of the sewage line’s ordinary operations. As such, the odors were not sudden or accidental, and did not fall within the exception to the pollution exclusion. According to the plain meaning of the policy, the fund owed no duty to defend or indemnify the district and the judgement of the lower court was affirmed.