A Great American Insurance Group unit is not required to defend or indemnify a concrete company under a pollution exclusion in its insurance policy, in a case involving contamination of a New Jersey stream, says a federal appeals court, in affirming a lower court ruling. 

Eastern Concrete Materials Inc., a unit of Euless, Texas-based U.S. Concrete Inc., purchased a commercial umbrella insurance policy from Cincinnati-based Great American Insurance Co., a unit of Cincinnati-based Great American Insurance Group, which included an “absolute pollution exclusion,” according to Friday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Eastern Concrete Materials Inc. v. Ace American Insurance Co. v. Great American Insurance Co.

At its rock quarry in Glen Gardner, New Jersey, Eastern Concrete drills and blasts large pieces of stone that are crushed to different sizes, with the smallest particles called “rock fines,” according to the ruling.

These are often gathered into settling ponds, which are removed, dried and stockpiled onsite to be used at the quarry or sold, according to the ruling.

In July 2017, anticipating substantial rain, Eastern Concrete began to lower the water levels in its settling ponds by pumping water into nearby Spruce Run Creek, according to the ruling. But the manager accidentally failed to shut off the pumping before the rock fines began to be pumped into the creek, which caused physical damage to the stream and stream bed by changing the stream’s flow and contours, according to the ruling.

The New Jersey Department of Environment Protection issued violation notices to Eastern Concrete, requiring it to remove the rock fines and take preventive measures to stem their migration downstream, and found it liable for violating various state statutes.

Eastern Concrete undertook the prescribed remediation, then notified Great American of the incident and sought reimbursement for the costs of removing the rock fines and of defending the claim.

Eastern Concrete also notified its primary insurer, Ace American, of the same claims. Ace concluded there was coverage under its policy, but the incident cost Eastern Concrete more than $2 million, exhausting its $1 million policy with Ace, according to a footnote to the ruling.

Great American filed suit in U.S. District Court in Fort Worth, Texas, seeking a declaration the incident fell within its pollution exclusion. The district court ruled in Great American’s favor, and was upheld by a unanimous three-judge appeals court panel in Friday’s ruling.

Great American’s pollution exclusion bars coverage for liability related to the discharge of “pollutants,” which are defined by the policy as any contaminant including “waste material,” and “includes materials which are intended to be, or recycled reconditioned or reclaimed,” said the ruling.

Eastern Concrete contends the rock fines are not contaminants, “But when we look at the effects on the overall ecosystem, rock fines are contaminants, “said the ruling.

Eastern Concrete’s own counsel described the incident as pumping “a deleterious substance resulting in a negative impact to a trout production stream and a documented habitat for threatened or endangered species,” said the ruling in affirming the lower court’s judgment.

Attorneys in the case had no comment or could not be reached.