“Although only binding law in Wisconsin, a particular case between an insurance company and a dairy farmer, raises an important issue that all farmers and ranchers need to be aware of.”
When we hear about legal cases concerning manure, the usual expectation is that it will have something to do with odor and air pollution. However, in this case, which went all the way from the local court to the Supreme Court of Wisconsin, it was ground water pollution, not air pollution that triggered the conflict. The question that the whole case resolved around was, “Is manure a fertilizer or a contaminant?” At each level, there were different answers. If you think, this is too fine a distinction to argue over, you’re probably thinking in a way that could have you on the wrong side of a court decision in the future.
In this particular case, the Court found a Wisconsin dairy farmer, who allegedly caused groundwater contamination by spreading manure on his fields, was not covered by a farm liability insurance policy. The allegation was that the farmer had contaminated the underground aquifer and several neighboring wells.
The Defendant Had Done his Homework
In looking back at what preceded the court case, it is interesting to learn that the Falks had actually tried to be prepared for any eventuality. Along with their agronomist, the Falks had developed a nutrient management plan to govern their use of manure as fertilizer. The plan was approved by the county conservation office. All was well. Or was it? When they faced lawsuits, the Falks turned to their insurance company, Wilson Mutual Insurance Co., with whom they had a farm liability policy providing coverage for property damage or bodily injury. And this is when the unexpected happened.
The “Pollution Exclusion” Clause
With the close scrutiny of impending legal action, it was discovered that the policy contained a “pollution exclusion” clause. This clause stated that coverage was excluded for damages if they resulted from the “actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants into or upon land, water or air.” The exclusion defined “pollutant” as a “solid, liquid, or gaseous irritant or contaminant, including waste.” At that point, the insurance company filed a declaratory judgment action, requesting the court to determine whether the pollution exclusion clause in the Falks’ policy applied to the claims related to groundwater contamination from manure.
Trial Court, Court of Appeals, Supreme Court. Three Courts. Three Decisions.
The Trial Court found for the insurance company. In this case, the ruling was that manure was unambiguously a pollutant as defined by the policy.
The Wisconsin Court of Appeals reversed the first court’s decision. The reasoning that a “reasonable farmer would not consider ‘manure’ to be a ‘pollutant.’” Indeed, the Court of Appeals noted, in Wisconsin, most farmers would consider cow manure to be “liquid gold.”
The insurance company then appealed to the Wisconsin Supreme Court.
The Wisconsin Supreme Court reversed and sided with the insurance company. Rather than looking generally at manure used to fertilize fields, the court focused on “whether manure is a pollutant at the point it entered the injured parties’ wells.” In the Court’s view, it was not the spreading of manure that caused the problem, but rather the seepage of manure into the aquifer. “A reasonable insured would not view manure as universally present and generally harmless when present in a well….A reasonable insured may not consider manure safely applied on a field to be a pollutant; however, a reasonable insured would consider manure in a well to be a pollutant. Just because manure may be beneficial when spread on a field, does not mean it is not a pollutant.” Based on this rationale, the court found manure is a pollutant as defined by the exclusion, and that the Falks could not rely on their farm policy to provide coverage for the lawsuits.
Similar Case. Similar Result.
There have been other cases from Iowa and New York that are in accord with the Falk ruling. In
New York in 1997, a dairy farm was sued for allegedly contaminating wells by the use of manure as fertilizer. There, the New York Appellate Division sided with the insurer, finding that while liquid manure may not always be a pollutant, it was where it leached into the groundwater supply. See Space v. Farm Family Mut. Ins. Co. 652 N.W.S. 2d 357 (N.Y. App. Div. 1997).
There have been other cases in the U.S. with a similar variety of results. The issue isn’t the findings, but the rising number of conflicts that are finding their way into the court system.
What’s the Best Policy? Avoid Confusion AND Exclusion
The Wisconsin case matters to dairy and other livestock farmers elsewhere:
- This issue is crucial for farmers who may be faced with a defending a lawsuit with no assistance from their insurance company. If an applicable exclusion exists, that means that the insurance company is neither under no obligation to pay a judgment entered against the farmer nor is the company required to provide legal defense for a farmer. The costs of a lawsuit alone, much less the potential amount of a verdict, poses significant risks for farm All farmers who could even potentially face suit over odor or manure should review their policy to determine whether a pollution exclusion exists and then seek advice from their insurance agent and attorney to determine what might be done to extend coverage to manure and/or odors, such as an additional rider or pollution policy.
- The fact that similar cases involving the application of pollution exclusions to manure and odor from farms have arisen in various states across the country indicates it is a common occurring problem.
- More generally, this case is an excellent example of the importance of reviewing and understanding an insurance policy and its exclusions. It is critical that farmers know what coverage their policy offers and what limitations may exist.
A Quick Look at Similar Issues Around the World
This is one aspect of dairy farming that has been in the courts and/or with the rule makers in other countries much longer than it has been in North America. Although the issues may not be specific to exclusions, the lesson to be learned is that management of manure is not going to go away. With growing populations and concerns of those whose properties are affected by agricultural practices, it is totally unrealistic to think that this is just a fad that will lose momentum.
In the Netherlands, numerous acts have been passed since the mid-eighties to try to address the excess minerals problems. The first law (1983) was the Interim Law for Restricting Pig and Poultry Farms. It prohibited the start-up or expansion of such farms in sandy soil regions but proved ineffective in preventing increases in animal numbers. The Manure Law and the Soil Protection Act replaced it and introduced manure bookkeeping. It took a 3-phase approach. Phase II of this approach however was proving to be unrealistic in trying to meet the EC’s Nitrate Directive. In late 1995, a new manure and ammonia policy was developed, and is mainly what is being followed now. The primary act in force now is generally termed the Act on Manures and Fertilizers. It receives periodic revisions and fine-tuning.
In England, there has been a Pilot Nitrate Scheme since 1990. It was replaced in 1995 with the Nitrate Sensitive Areas (NSA) scheme. A total area of 35,000 ha within 32 NSA’s were affected, and these areas all fell within the category of Nitrate Vulnerable Zones as classified under the EC (European Commission) Nitrate Directive. Regulations relating to the structural strength of concrete and steel manure storage tanks are in place. Generally, concrete and steel tanks are not the preferred storage system due to their cost. Earthen storage facilities are required to meet minimum hydraulic conductivity prior to use. All storage facilities must have an expected life of 20 years. The minimum required storage capacity is four months.
Also in place is the “Code of Good Agricultural Practice for the Protection of Water”.
Some key requirements for the code are as follows:
- Manure nitrogen application rates should not exceed 250 kg N/ha/year
- Manure should not be spread within 10 meters of a watercourse or 50 meters of a well
- The maximum recommended liquid manure application rate is 4500 gal/ac. A minimum three-week period between such applications is recommended.
At this writing, I have not researched how many court cases or verdicts have been rendered in upholding these regulations. However, once again, it isn’t “if” there will be more court cases, it is “when”!
The Bullvine Bottom Line
It is critical that farmers know what current coverage their policy offers and what limitations may exist. Have an attorney review your policy and advise on what activities are covered and what specific exclusions exist. It’s important to review your policy and carefully evaluate the potential applicability to your operation! Don’t get caught between your livestock and a court case!