Georgia Court Rules that Groundwater is a Pollutant in CGL Policies

The U.S. District Court for the Southern District of Georgia recently confirmed that stormwater is considered a pollutant for purposes of the standard pollution exclusion contained in a Commercial General Liability (CGL) policy. The case, Auto-Owners Insurance Company v. Tabby Place Homeowners Association INC. et al. (Civil Action No 4:21-cv-346, also established that there was no meaningful distinction between stormwater on the surface of the property and resulting groundwater that had seeped into the soil underneath the property. Thus, groundwater, whether contaminated or not, is also considered a pollutant.

CGL Policy and Pollution Exception

This case arises from damage that property owners in a residential development sustained. The owners filed suit against the developers and builders of the development and alleged that the flooding damage was caused by the improper design, use and construction of the drainage system, which consisted of storm pipes and retention ponds. The insured homeowners association (HOA) later acquired the retention ponds and was added to the underlying lawsuit.

Auto-Owners issued both a CGL policy and a commercial umbrella policy to the HOA. Both policies contained exclusions for property damage resulting from “the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of” “pollutants.” “Pollutants” were defined 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.”

The Court’s Holding

Auto-Owners sought a declaratory judgment that:

• There was no “occurrence” as defined by the policies.
• The pollution exclusions bared coverage and
• The HOA failed to give Auto-Owners timely notice of the claim or suit.

As the pollutant issue was dispositive, it was the only one addressed by the court.

In deciding whether the pollutant exclusion applied here, the court analyzed whether stormwater could be considered an “irritant” or “contaminant” under the policy. The court considered whether true stormwater that runs on the surface of the property would fall under this definition, but also whether rising groundwater would as well.

As to stormwater on the surface, the court held that this would be considered a pollutant, even when technically considered uncontaminated. The court cited several cases of Georgia law that previously came to the same conclusion to support its position, including Owners Ins. Co. v. Chadd’s Lake HOA, Centro Dev. Corp v. Central Mut. Ins. Co. and Prov. Group of Ga. LLC v. Wesco Ins. Co. From these previous rulings, the court established it was undisputed that stormwater is a pollutant, and whether the water is technically “clean” is irrelevant. Finally, as to groundwater that has risen to the surface, the court held that there was no meaningful distinction between the stormwater and the groundwater, as in both instances, the stormwater – indisputably a pollutant under Georgia law – is the originating cause of the damage.

Implications for Georgia Insurers

This ruling demonstrates that courts applying Georgia law continue to interpret pollution exclusions and the meaning of “pollutants” broadly.

Please contact Christy Maple or any member of the Phelps Insurance team if you have questions or need advice or guidance.

Special thanks to Raleigh associate Olivia Nieri, who contributed to this alert.