The U.S. District Court for the Eastern District of California applied California law to hold that pollution exclusions in insurance policies can bar coverage for claims related to contamination from equine operations under the Clean Water Act and Resource Conservation and Recovery Act. The court allowed the insurer’s claims for reimbursement of defense costs to proceed, joined the environmental group claimant as a third-party defendant in the insurer’s declaratory judgment action, and denied the policyholder’s motion to stay the coverage case after the underlying environmental suit was settled. The dispute arose from allegations that the equine operation discharged pollutants, including horse manure and other waste, into protected waters without permits.
The court rejected the equine company’s argument that the “natural fertilizer” exception to pollution exclusions applied, emphasizing that this exception requires compliance with all laws, which was contradicted by the underlying complaint’s allegations of federal environmental violations. Consequently, the court found no potential for a covered claim and denied the motion to dismiss the insurer’s declaratory judgment action. Procedurally, the court confirmed that joining the environmental group as a third-party defendant was proper under California law to bind all parties to the coverage determination, and it denied the stay motion as moot given the settlement and dismissal of the underlying litigation.
