In 2022, the U.S. District Court for the District of New Mexico ruled that the absolute pollution exclusions contained in certain general liability policies were ambiguous and therefore ineffective to bar a duty to defend in Chisholm’s Village Plaza, LLC v. Travelers Commercial Insurance Co., 621 F. Supp. 3d 1195 (D.N.M. 2022). That ruling has since been reversed.
On April 23, 2025, the U.S. Court of Appeals for the Tenth Circuit issued an unpublished Order and Judgment in Chisholm’s-Village Plaza LLC v. The Cincinnati Insurance Company, Nos. 23-2133 and 23-2134. The Tenth Circuit held that the New Mexico Supreme Court would find that the absolute pollution exclusions at issue unambiguously precluded coverage for the CERCLA complaint’s alleged release of contaminants.
The underlying case involved CERCLA claims brought by the City of Las Cruces and Doña Ana County relating to alleged releases of hazardous substances from dry-cleaning operations at the Griggs & Walnut Superfund Site. The complaint alleged that PCE and other hazardous substances had contaminated soil and groundwater.
The District Court had predicted that New Mexico would follow an approach similar to Indiana’s State Auto v. Flexdar decision, requiring greater specificity regarding the substances encompassed by a pollution exclusion. The Tenth Circuit rejected that prediction and concluded that the exclusions at issue were not ambiguous as applied to the CERCLA allegations.
The Tenth Circuit also rejected the District Court’s alternative reasoning that disagreement among jurisdictions, by itself, created sufficient ambiguity to trigger a duty to defend. Relying on New Mexico law, including United Nuclear Corp. v. Allstate Insurance Co., the Tenth Circuit explained that a split in legal authority may be indicative of ambiguity, but does not establish ambiguity on its own.
The decision changes the takeaway from the District Court’s 2022 ruling. While the District Court predicted that New Mexico would treat the absolute pollution exclusion as ambiguous, the Tenth Circuit reached the opposite conclusion and held that the exclusions at issue were unambiguous as applied to the CERCLA allegations and barred coverage for the claims asserted in that action. The New Mexico Supreme Court has not yet directly addressed the absolute pollution exclusion.
For organizations facing environmental liabilities, the decision reinforces the importance of identifying and evaluating historical insurance coverage across all potentially relevant policy years. Many environmental claims involve operations dating back decades, and policies issued before the widespread use of absolute pollution exclusions may remain important sources of potential defense and indemnity funding.
Contact PolicyFind today to learn more about how we can help locate, reconstruct, and analyze historical insurance coverage that may respond to environmental liabilities.