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Tenth Circuit clarifies scope of absolute pollution exclusion

5/5/25

By: Geoffrey R. Hafer

The Tenth Circuit’s recent decision in Chisholm’s-Village Plaza LLC v. The Cincinnati Ins. Co. No. 23-2133, 2025 WL 1178099 (10th Cir. April 23, 2025), provides important guidance regarding the application and enforceability of absolute pollution exclusions in general liability policies—particularly under New Mexico law.  

Chisholm’s Village Plaza LLC (“Chisholm’s”) was named as a defendant in a Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) action brought by the City of Las Cruces and Doña Ana County. The suit alleged that a former dry-cleaning business on Chisholm’s property released hazardous substances, contaminating soil and water. Chisholm’s sought defense coverage from its property insurers.  

Both insurers denied coverage, relying on the absolute pollution exclusions in their respective policies. These exclusions barred coverage for property damage “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants” from any premises owned by the insured. 

The district court found the absolute pollution exclusions ambiguous under New Mexico law, predicting the New Mexico Supreme Court would follow a minority, interpretative approach to pollution exclusions, i.e., requiring the policy to specify the exact type of “pollutant” or “contaminant” by name. The court held, in the alternative, even if New Mexico did not adopt the minority approach, the mere existence of differing interpretations in other states created enough ambiguity to require a defense. 

The Tenth Circuit reversed, holding that the District Court erred “[i]n all key respects.” The court emphasized that New Mexico law requires courts to apply clear policy language, even if other states apply similar exclusions differently. With those guidelines in mind, the court held that the terms “pollutant” and “contaminant” were “unambiguous on their face,” and the terms therefore unambiguously applied and precluded coverage. In addressing the district court’s alternative holding, the court cited the New Mexico Supreme Court’s decision in United Nuclear Corp. v. Allstate Ins. Co., held that although “a split in legal authority may be indicative of an ambiguity in the policy, it does not establish one.” 

For any questions or further clarification, please contact Geoffrey R. Hafer at geoffrey.hafer@fmglaw.com or your local FMG attorney. 

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