Pollution Exclusion Applies to Coal Dust


Refusal to Defend Criminal Conspiracy to Fake Amount of Coal Dust in Mine

The Department of Justice has indicted several former employees of Armstrong Coal Company for conspiring to submit fraudulent coal-dust samples to federal regulators. The plaintiffs seek defense from Armstrong’s insurer, Arch Insurance Company. The district court granted summary judgment in favor of Arch. Some of those  charged sought defense from Arch in Charley Barber; Glendel “Buddy” Hardison; Brian Keith Casebier; Steve Demoss; John Ellis Scott; Dwight Fulkerson v. Arch Insurance Company, No. 20-6307, United States Court Of Appeals For The Sixth Circuit (July 7, 2021)


Mining coal creates coal dust, and inhaling coal dust causes “black lung.” To prevent miners from contracting black lung, the Department of Labor’s Mine Safety and Health Administration (“MSHA”) limits the concentration of coal dust that can be in the air in a mine and requires coal companies to monitor and report their dust levels. If a mine is too dusty or the coal company fails to follow the MSHA’s regulations, the agency can halt production and assess fines.

Armstrong Coal Company was subject to these monitor-and-report requirements but had a checkered history of compliance. According to the Department of Justice, Armstrong’s coal-dust violations were intentional. In 2018, a federal grand jury indicted eight Armstrong employees on one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371. Plaintiffs are among those charged.

The employees were charged with conspiracy to falsify coal-dust samples. Throughout the criminal proceedings, the employees have sought defense against their charges from Armstrong’s insurer, Arch Insurance Company, under the coal company’s directors, officers, and organization liability insurance policy (the “D&O Coverage”). Generally, the policy provided that Arch would pay any Armstrong employee’s defense costs related to a criminal proceeding that resulted from the employee’s wrongful act.

Regardless, Arch denied the employees’ claims, concluding that a pollution exclusion barred coverage. The exclusion provided that Arch would not be liable for any claim “arising from, based upon, or attributable to” any discharge (or threat of discharge) of any “pollutant” or any “direction, request or voluntary decision” to test for or monitor any “pollutant.” Arch determined that coal dust was a “pollutant” and that the criminal proceedings arose from a direction to monitor and test for coal dust. A

The employees sued Arch. The district court held that the pollution exclusion precluded coverage of the criminal action.


Because no facts are disputed, the case turned on the interpretation and construction of an insurance contract, which is a matter of law for the court.

Although Kentucky prefers liberal construction of ambiguous insurance policies that does not mean that every doubt must be resolved against the insurer and does not interfere with the rule that the policy must receive a reasonable interpretation consistent with the parties’ object and intent or narrowly expressed in the plain meaning and/or language of the contract.

Despite the seemingly broad initial grant of coverage, the policy provided that Arch “shall not pay Loss for any claim against an Insured” “arising from, based upon, or attributable to any: ‘a. discharge, dispersal, release, escape, seepage, migration or disposal of Pollutants, nuclear material or nuclear waste or any threat of such discharge, dispersal, release, escape, seepage migration or disposal; or b. direction, request or voluntary decision to test for, abate, monitor, clean up, remove, contain, treat, detoxify or neutralize Pollutants, nuclear material or nuclear waste[.]’”

Arch and the district court concluded that this pollution exclusion applied to the employees’ claims, and that they were not entitled to coverage.

The employees argued that substances are not pollutants if they are “used for their intended purposes, used in an appropriate confined space, or when they are disposed of properly.” Because the coal dust here never left the mine, the employees argued that it cannot be considered a pollutant. In their view, “coal dust will not qualify as a pollutant when it remains confined to the space in which it belongs.”

The question before the court was not really whether coal dust is generally a pollutant, but rather whether coal dust is a “contaminant or irritant,” terms that do not fit the employees’ proposed wrong-place test but are part of the exclusiion. The employees conceded that “coal dust may be considered a contaminant or irritant, especially when released into an environment where it does not belong,” but argued that “it should not automatically be considered one under Kentucky law.”

The presence of an additional exclusionary category indicates that “pollutant” means something different here; it is not only a substance that actively pollutes, but also a substance that is regulated because of its potential to pollute. Given the strict monitor-and-report requirements imposed by the MSHA, coal dust falls within the scope of this term.

Concluding that coal dust is a contaminant or irritant under the terms of these policies and the circumstances of these claims. The scope of this pollution exclusion is broader than usual because it includes claims arising from Armstrong’s regulation of contaminants and irritants.

Because coal dust contaminates and irritates, and because it is regulated by Armstrong, it fits comfortably within the exclusion’s intended scope.

In this case the substance involved is a byproduct that has no intended purpose and that is regulated precisely because of its inherent ability to pollute, contaminate, and irritate. The court insisted, appropriately, by applying the literal terms of a pollution exclusion.

Since there is a causal connection between the criminal proceedings and a direction to test for and monitor coal dust, there are likely other causes that also contributed to the criminal charges, such as the conspiracy itself and the unsatisfactory conditions in the mines. If the employees had submitted honest samples of a dusty mine or if the mine had been clean enough to pass muster without resorting to fraud, prosecutors likely would not have pressed charges. But for a claim to arise from a direction to test for or monitor coal dust, it need only have some causal connection to those regulatory requirements. Absent the regulations, the employees would not have had to monitor or submit samples at all, and therefore would not have conspired to commit fraud against the United States. Accordingly, the criminal proceedings arose from a direction to test for or monitor a pollutant, and the pollution exclusion bars coverage for the criminal proceedings.

Since the employees are not entitled to coverage under the policies disposes of the employees’ ancillary arguments the pollution exclusion relieves Arch of any duty related to the employees’ claims. The Kentucky Supreme Court has squarely rejected the employees’ other argument that they can proceed on a bad-faith denial claim even if they are not entitled to coverage. Without an obligation to provide coverage, the bad faith claim must fail as a matter of law.


It is essential to every duty of defend case to read the entire policy and its provisions as they apply to the facts that bring about the claim. In this case the Sixth Circuit read the entire policy, refused to accept the creative interpretations posed by the plaintiffs who tried to limit the review to parts of the policy not the policy exclusions as a whole and the facts as determined. Since there was no coverage for defense there could be no bad faith.

© 2021 – Barry Zalma Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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