American Casualty Co. of Reading, Pa. v. Miller
Filed January 29, 2008, Second District, Division Three

Insurer’s Denial to Defend Claim Affirmed

Michael Miller owns and operates the Stripper Herk, a furniture stripping business. During operations, the business produces wastewater and releases it into the public sewer. The wastewater apparently contained solvents, including a toxic substance known as methylene chloride.

Despite that, Stripper Herk has obtained a permit authorizing it to discharge wastewater from its premises into municipal sewer lines. However, the permit prohibited the discharge of any toxic pollutants into the sewer.

An incident occurred wherein a worker who was repairing a sewer line lost consciousness and was seriously injured. The injured worker blamed Stripper Herk for the accident.

As a result, an investigation was conducted and federal criminal charges were filed against Miller, who eventually pleaded guilty to negligent discharge of pollutants into a publicly-owned treatment works.

Following that, the injured worker’s insurer sued Miller to recover the benefits paid to the worker.

On the other hand, Miller asked its insurer, American Casualty Company of Reading, Pennsylvania, to defend him in the lawsuit.

The insurance company denied the claim based on the following grounds:

• that the policy barred coverage for any bodily injury or property damage “arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’” from any site occupied by the insured.


• That the policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

Consequently, American Casualty filed a declaratory relief action or a petition asking the court to decide on whether it had no duty to defend or indemnify Miller in either of the two lawsuits

The trial court granted summary judgment in favor of American Casualty.

In review, the Second District court of appeal affirmed the judgment of the trial court, holding that the pollution exclusion clause “unambiguously precluded coverage”.

Further, the court rejected Miller’s argument which addressed the validity of a pollution exclusion clause in the context of injuries caused by the insured’s use of household pesticides (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635).

Moreover, the appeals court rejected the insurer’s contention that the clause should apply to all acts of negligence involving substances that could be characterized as irritants or contaminants.

Rather, the appeals court held, the pollution exclusion clause had to be “construed as excluding coverage only for those injuries which arose from events commonly thought as environmental pollution”.

Further, the court held that because the American Casualty policy clearly and obviously and excluded coverage for the dispersal of methylene chloride into the public sewer, there was no coverage in comprehensive general liability policy.

The Second Appellate District Court therefore affirmed the judgment which held that a comprehensive general liability policy’s ‘unambiguous exclusion’ for the release of pollutants barred coverage when the insured’s release of toxic chemicals into the sewer system resulted in injury. Thus, the insurer had no duty to defend Miller (insured) in the case.