8th Circuit: A Spill or Release of Natural Gas Condensate Can Be Subject to an Insurance Policy’s Pollution Exclusion


On January 31, the U.S. Court of Appeals for the Eighth Circuit held that, under the terms of a commercial general liability insurance policy, natural gas condensate, a valuable commercial product, once released, is a pollutant that triggers the policy’s “pollutant exclusion.” The case is Hiland Partners GP Holdings, LLC, et al., v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA. The Eighth Circuit confirmed that the District Court did not err by concluding that National Union Fire Insurance Company of Pittsburgh, PA (National Union) did not have a duty to defend or indemnify Hiland Partners GP Holdings, LLC, Hiland Partners, LP, and Hiland Operating,  LLC (collectively, Hiland) because the allegations in B&B Heavy Haul, LLC’s (B&B) employee Lenny Chapman’s complaint fell within the policy’s pollution exclusion and the exception to the exclusion did not apply because Hiland failed to offer evidence that it reported the pollution to National Union within 21 days of discovering it.

Hiland own and operate a natural gas processing facility in Watfor City, North Dakota, and Hiland entered into a master service contract with Missouri Basin Well Service (Missouri Basin). The contract required Missouri Basin to obtain insurance policies that named Hiland as an additional insured. In October 2011, Hiland requested Missouri Basin to remove water from its hydrocarbon condensate tanks, and Missouri Basin then employed a subcontractor to haul the water. Unfortunately, B&B’s employee Lenny Chapman, was seriously injured when the condensate, a very volatile material, exploded. After settling with Mr. Chapman, Hiland filed a declaratory judgment action against National Union, which refused to defend Hiland as an additional insured.

National Union argued that the policy’s pollution exclusion obtained, and denied coverage. The policy included an endorsement which excluded coverage for “bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants. The endorsement defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and. waste.” The Eighth Circuit agreed with National Union, holding that condensate, being flammable, volatile and explosive, is a contaminant when released into the environment, and this is holding made by most of the courts that have ruled on this issue, citing Aetna Cas. & Sur. Co. v. Dow Chem. Co. (E.D. Mich. 1996); Owners Ins. Co. v. Farmer (N.D. Ga. 2001) (concluding that diesel fuel is a “pollutant”); Breese v. Hadson Petroleum (USA), Inc. (M.D. La. 1996) (concluding that diesel fuel is a “liquid contaminant”); Guilford Indus., Inc. v. Liberty Mut. Ins. Co. (D. Me. 1988) (concluding that fuel oil is a “pollutant”).