Policyholders in Colorado beware, Colorado’s Appeals Court recently determined that sewage is a pollutant, and that the Absolute Pollution Exclusion, found in many property and liability policies, unambiguously excludes property damages and injuries arising from sewage.

In Figuli v. State Farm Fire & Cas., No. 11CA0613, 2012 WL 1036064 (Colo. App. March 29, 2012), the Figuli plaintiffs became ill while living in a rental property owned by Plaintiff Chu. The property was covered by a rental dwelling policy, as well as a personal liability umbrella policy with State Farm. Testing revealed the presence of raw sewage at the property. Figulis filed suit against landlord Chu. Chu then requested that State Farm defend and indemnify her for the property damage and injuries arising from the sewage. State Farm denied coverage based primarily on the policy Absolute Pollution Exclusion (“APE”).

The APE in this policy stated:

1. Coverage L—Business Liability and Coverage M—Premises Medical Payments do not apply to:
i. bodily injury or property damages arising out of the actual, alleged or threatened discharge, dispersal, spill, release or escape of pollutants:
(1) at or from premises owned, rented or occupied by the named insured;
As used in this exclusion:
“pollutants” 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.

State Farm determined the Figulis’ claimed injuries from “raw sewage and/or other hazardous materials” were damages arising from the “discharge, dispersal, spill, release or escape of pollutants” and not covered by the policy.

The lower court, relying on dictionary definitions and federal and state laws regarding water quality, determined that raw sewage is unambiguously a pollutant. Plaintiffs appealed only the issue of contract interpretation as to whether:

[W]ater and sewage, which overflowed from a residential toilet or sewer, and the bacteria and parasites that it carried, [are] “pollutants” for the purposes of Ms. Chu’s insurance coverage, and the standard pollution exclusion, contained in her policies.

Plaintiffs argued that the common understanding of “pollutant” is an environmental or industrial pollutant, not sewage from a residential toilet. The Colorado Court of Appeals rejected decisions from the 6th Circuit and Illinois, and confirmed pollutants are not limited to environmental or industrial contexts, and sewage from a residential toilet is a pollutant as defined in the policy’s APE.

The decision is noteworthy because many policyholders may not think of sewage from a residential toilet or plumbing system as a pollutant. In some instances, the “generally accepted meaning of words” may be different from dictionary definitions. The exclusion in Figuli was contained in the policy liability section, not the property section. Homeowners and business property owners should review their own policies because the pollution exclusion or definitions in their own policies may be different from that at issue in Figuli.