Exclusions In Insurance Policy’s

Arlington insurance attorneys will tell their clients they need to be aware of exclusions in insurance policies and how they are interpreted. Just reading the declarations page is not enough. The entire policy needs to be including the exclusions. A 1998, Texarkana Court of Appeals case serves as an example. The style of the case is, Allen V. St. Paul Fire & Marine Insurance Company. Here is some of the relevant information from that case.
This suit alleged damages arising out of Tawakoni Water System’s failure to provide “potable” water, “good quality” water, water “reasonably fit for family residential use,” or water “approved and/or certified by the appropriate State of Texas and federal authorities.” The Allens also alleged that the water received was of “unpalatable quality,” “unfit for human consumption and/or use,” and that the water was contaminated.
St. Paul denied coverage and refused to provide a defense for Tawakoni. St. Paul based its denial of coverage on pollution exclusions allegedly included in the five policies upon which the Allens sued. Following a bench trial, a judgment of $17,326,174 was rendered in favor of the Allens. Tawakoni then assigned to the Allens its claim against St. Paul for wrongful refusal to defend in return for a covenant not to execute.
The Allens filed this suit against St. Paul for declaratory relief and wrongful refusal to defend, alleging breach of contract claims and violations of the Texas Insurance Code and the DTPA. The trial court granted summary judgment on all claims.
The policies involved are commercial general liability policies. Pollution exclusions of two of the five policies provide, in part, that:
This insurance does not apply to:
f. (1) “Bodily injury” and “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:
….
Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. includes materials to be recycled, reconditioned or reclaimed.

The Allens contend that, while their claims based on contamination were properly excluded under the pollution exclusions, other claims were not. In addition to claims that the water was contaminated, the Allens contend that their petition included separate allegations that the water delivered by Tawakoni was “not potable,” not of “good quality,” “not reasonably fit for residential use,” not “approved and/or certified by the appropriate State of Texas and federal authorities,” and of “unpalatable quality.” Findings of Fact and Conclusions of Law filed by the trial court in the underlying suit include findings that Tawakoni failed to supply clean, potable water suitable for human consumption.
The Allens argue that St. Paul and the trial court ignored the potability and noncertification allegations and focused entirely on the contamination allegation in determining that the pollution exclusions applied. Additionally, the Allens contend that because water could have all of these conditions without containing pollutants, these claims potentially fall within the policies’ coverage and, therefore, St. Paul had a duty to defend.
Texas courts follow the “eight corners” rule when determining an insurer’s duty to defend an insured. Under this rule, a court looks only to the pleadings and the insurance policy to determine whether the duty to defend exists. Any doubt as to whether the complaint states a covered cause of action must be resolved in the insured’s favor.
The issue, then, is whether the Allens’ claims of nonpotability and poor water quality are merely restatements of their claim of contamination falling within the policies’ exclusions of claims arising from “pollutants.”
The Allens complain throughout their pleadings that the water supplied them by Tawakoni contained “chemicals and contaminants” and “debris,” was “unfit for human consumption,” and that the contaminants were “cancer-causing,” “hazardous to health,” and “toxic.” However, the Allens’ pleadings do not allege facts that these claims of nonpotability, poor quality, and unfitness for residential use are separate claims caused by something other than contamination. Water in its pure form, by its nature, is potable and odorless. It is only when contaminants are in the water that it becomes nonpotable, of poor quality, and unfit for residential use.
Artful pleading of facts cannot bring excluded claims back within coverage. Courts must focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged. The Allens’ pleadings do not allege facts separate from contamination. Because “contaminants” are included in the policies’ absolute pollution exclusions, all of the Allens’ claims were excluded under the policies. St. Paul therefore had no duty to defend Tawakoni.