Insurance Law

No Nonsense Application of Plain Meaning of Exclusion – Reasonable Expectations Can’t Be Used to Change an Unambiguous Policy Exclusion

Everyone wants to live peacefully and happily in their homes. When a neighboring business causes fumes to travel to your property and make you live with noxious odors the chance to live peacefully and happily is lost. Litigation becomes certain and insurance coverage disputes arise.

In Brouse v. Nationwide Agribusiness Ins. Co., Not Reported in N.W.2d, 2015 Minn. App. Unpub. LEXIS 727 (Minn.App., 7/27/15), [subscribers can access an enhanced version of this opinion: | Lexis Advance], an insurer refused to defend or indemnify its insured because of the existence of an absolute pollution exclusion. The trial court agreed and the case was appealed to the Minnesota Court of Appeal


In 2005, a group of investors operating as The Dairy Dozen–Thief River Falls, LLP purchased Excel Dairy, a dairy operation. The Minnesota Pollution Control Agency (MPCA) then received an expansion request from Excel and authorized the construction of an additional barn and two additional manure basins in March 2007. Unfortunately, as the district court found, “[t]he expansion did not go well,” and Excel’s neighbors complained of illnesses related to Excel’s hydrogen-sulfide emissions. Eventually, Excel faced civil and administrative action by the MPCA and criminal charges by Marshall County, as well as other actions by the Minnesota Department of Health and the United States Environmental Protection Agency. In 2010, the Minnesota Court of Appeal affirmed the MPCA’s revocation of Excel’s permit.

Appellants, who are Excel’s neighbors, started this lawsuit in June 2008 against Dairy Dozen, alleging that “invasive, offensive, and noxious odors” were interfering with the enjoyment of their properties. Dairy Dozen filed for bankruptcy in April 2010. As part of the bankruptcy proceeding, the bankruptcy court identified respondents Nationwide Agribusiness Insurance Company and Farmland Mutual Insurance Company as Dairy Dozen’s insurers. Dairy Dozen then agreed to assign its rights in its insurance policies to appellants, permitting appellants to sue respondents on its behalf. In return, appellants agreed not to “levy execution or garnishment or collection” against Dairy Dozen.

Appellants sought a declaratory judgment that respondents had a duty under Dairy Dozen’s insurance policies to pay appellants’ damages. The insurers moved for summary judgment, arguing that the absolute-pollution exclusions in Dairy Dozen’s insurance policies precluded insurance coverage for appellants’ claims.


Dairy Dozen’s 2005–2006 insurance policy excludes coverage for “[b]odily injury or property damage which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, release or escape of pollutants at any time.” Under this policy, “[p]ollutants means 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.”

Similarly, Dairy Dozen’s 2006–2007 insurance policy excludes pollution.


A motion for summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law. The court must view the evidence in the light most favorable to the party against whom summary judgment was granted.

Interpretation of an insurance policy, and whether a policy provides coverage in a particular situation, are questions of law. A court must construe an insurance policy as a whole and must give unambiguous language its plain and ordinary meaning. But when language in an insurance contract is ambiguous, such that it is reasonably subject to more than one interpretation, the court will construe it in favor of the insured.  Although the insured bears the burden of proof to establish coverage, the insurer bears the burden to show that an exclusion applies. If the insurer meets its burden, the burden of proof shifts back to the insured because the exception to the exclusion ‘restores’ coverage for which the insured bears the burden of proof.

The appellate court concluded that the exclusion provisions are absolute-pollution exclusions. Absolute-pollution exclusions “eliminated” an exception for “sudden and accidental” pollution discharge found in earlier qualified pollution exclusions. Although the majority of jurisdictions limit these exclusions “to situations involving traditional environmental pollution,” Minnesota follows the minority of jurisdictions in applying the exclusions literally and finding the terms clear, unambiguous, and not limited to traditional environmental pollution. Minnesota applies a non-technical, plain-meaning approach to interpreting pollution exclusions.

Applying Minnesota’s “non-technical, plain-meaning approach,” the absolute pollution exclusions here are not ambiguous. Appellants fail to identify any caselaw (and we can find none) in which a Minnesota court has found an absolute-pollution exclusion ambiguous. Instead, appellants attempt to rely upon extrinsic evidence regarding the provisions’ meanings.

Appellants next argue that the district court erred by failing to apply the reasonable-expectations doctrine. The reasonable-expectations doctrine  protects the objectively reasonable expectations of the insured even if close study of the insurance policy would negate those expectations. Because the pollution exclusion was plainly designated as an exclusion and located in the exclusions section of the policy the reasonable-expectations doctrine did not apply.

The pollution exclusions at issue here are located in the exclusions section of the policies and are “plainly designated” as exclusions. Any insured, therefore, would reasonably expect the clause to limit coverage.  The reasonable expectation test is not a license to ignore the pollution exclusion in this case nor to rewrite the exclusion solely to conform to a result that the insured might prefer.

Appellants argue in the alternative that, even if the absolute-pollution exclusions are unambiguous, there are genuine issues of material fact as to whether the odors at issue here fall within that exclusion. Dairy Dozen’s insurance policies excluded coverage for pollutant “fumes. Based on this plain-meaning definition of “fume,” we determined that the allegation regarding “noxious and offensive odors” was “plainly covered by the insurance policy’s pollution exclusion.”

Because appellants’ allegations fall within the plain meaning of the unambiguous absolute-pollution exclusions and no genuine issues of material fact remain, the district court did not err by granting summary judgment to respondents.


Although the Minnesota court admits it is in the minority it should, in my opinion, be in the majority. Insurance contracts, like the policies in this case, should be read to mean what they say in their plain meaning as understood by the lay person. The exclusions are unambiguous and the allegations of the underlying suit fell within the plain meaning of the absolute pollution exclusion. To provide coverage the court would have to exceed its authority and rewrite the policy. In Minnesota the court refused to make coverage where none existed.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

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