Pollution insurance in paradise

Guam Indus. Servs., Inc. v. Zurich Am. Ins. Co., No. 13-17005 (9th Cir. June 1, 2015). 

Apra Harbor, Guam

Apra Harbor, Guam

A typhoon sank a dry dock in Guam, taking with it about 113,000 gallons of oil stored in barrels and other containers. Thankfully, the containers didnt leak, but the Coast Guard ordered the dry dock’s owner to raise the oil barrels from the bottom of Apra Harbor or face fines. The dry dock owner followed the Coast Guard’s orders, expending over half a million dollars in the process. The owner then asked an insurer, Zurich, to cover those costs under a provision covering damages caused by the “discharge, dispersal, release, or escape” of pollutants into water.

The Ninth Circuit holds that Zurich doesn’t have to cover the costs, because while the barrels themselves may have “escaped,” the barrels aren’t pollutants. The oil, which is a pollutant, did not escape from the barrels, nor was it discharged, dispersed, or released. 

Judge Kozinski dissents, saying this narrow reading ignores the principle that ambiguous insurance policies are interpreted in favor of the insured. Yes, he concedes, the oil didn’t escape. But the oil was in the barrels—barrels, as Judge Kozinski points out, that “you still wont want ... in your bath tub.” His hypothetical: If you’re out hiking, carrying your cell phone inside your backpack, and your backpack falls into an inaccessible crevice, well then, you’ve lost your backpack, but you’ve lost your cell phone too. According to Judge Kozinski, that’s more or less what happened here: The barrels escaped, but the oil did too. I suppose the counterargument might be this: Sure, the hypothetical cell phone is lost, but has it “escaped”?

The opinion notes that this case was argued in Guam. Good for the Ninth Circuit for traveling there. It’s no small thing to hear appeals in a place that’s much closer to Papua New Guinea than it is to Hawaii.