A note on insurance for CAFO owners

Ag Insurance does not often cover CAFO waste or pollution liability

I have an optimistic streak that used to border on naiveté. As a young lawyer I felt that the purpose of insurance was to insure. That was the naiveté of my youth showing itself in full color. Let us please recognize that the purpose of insurance is not always to insure. A “well written” insurance policy is created to avoid insuring that which the insurance policy writer prefers not to insure. I ran into this in a court case early in my career when I asked for coverage on an insurance coverage question I thought surely the court would support. It did not. Fortunately I had a helmet on when I hit that wall.

This is an opinion piece about CAFO environmental insurance. While there are more than six significant regulatory issues affecting any new concentrated animal feeding operation (CAFO), one material issue overlooked by those who should know better is environmental insurance. The provisions of the state’s Right-To-Farm Act do not, as some may think, immunize a CAFO operation from environmental liability. The Act’s provisions do not always affect or defeat the ability of an effected party to recover for injuries sustained as a result of the pollution, change in quantity or quality of water used, or an overflow of land owned by or possessed by any such operation.

A common misconception is the extent of coverage that traditional insurance policies provide. Ag liability policies are often limited, and even more sophisticated insurance policies have ‘exclusions’ that prevent coverage of certain claims. General ‘farm liability’ policies often do not cover environmental protection for a producer. A recent case in the Wisconsin Supreme Court illustrates this phenomena. There, the Wisconsin Supreme Court ruled that manure seepage that contaminated drinking water was a non-covered claim under a common pollution exclusion clause used in insurance policies. The result? No coverage for the contaminated well. In other words, even if bacteria came from manure, if it was dispersed to where it did not belong (in well water) the language of the policy excluding pollution events prevented coverage.

And about a year ago, in the ag country of eastern Washington, a court said that manure is a pollutant when introduced to water and that it was not covered because the policy in question did not cover losses related to pollution.

Nevertheless well written environmental insurance is an appropriate environmental policy tool. This is a correct premise considering a pollution event may be so expensive that the actor cannot meet the costs to clean it up, or where a state or government fund would not ‘remedy’ the results of a spill. CAFO bankruptcy filings are not entirely rare in the US because of these sorts of occurrences.

An insurance requirement needs to be considered by the SD DENR as a part of its CAFO application permitting requirements in furtherance of its duty to protect the land and environment of the state while promoting CAFO development. The stated responsibilities of the state’s feedlot permitting rules are to: protect surface and ground waters of the state; implement and enforce federal Clean Water Act regulations and state General Water Pollution Control Permit for Concentrated Animal Feeding Operation rules; and implement and enforce state on-site wastewater system rules. These very purposes can be supported by requiring environmental insurance.

A good policy can help protect the operation, the public and the environment. Considerations for coverage under an environmental policy should include: on-site and off-site cleanup of pollution events; on-site and off-site third party bodily injury and property damage; coverage for aboveground and underground storage tanks, holding ponds or lagoons; coverage for the transportation of wastes; and coverage for disposal of wastes. The adoption of pollution prevention plans, best management practices, as well as securing a coverage letter from an insurance broker and a written opinion letter from one’s attorney (this column is not intended of course as legal advice) is time, effort and money well spent by any CAFO operator.

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law.

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