Court Holds Grease Discharges to Sewer Not "Pollutants" Under Insurance Policy

Phase 1 reports of commercial properties with restaurants often explain that cooking grease may be discharged into sewer systems. Phase 1 reports usually do not recommend further investigation since local sewer authorities generally do not require permits for these discharges. However, these discharges can sometimes disrupt the function of sewer systems as the following little case illustrates.

In Roinestad v. Tim Kirkpatrick d/b/a Hog's Breath Saloon & Restaurant, 2010 Colo. App. LEXIS 1508 (Oct. 14, 2010), kitchen workers at the Hog's Breath routinely poured cooking oil and grease into the sewer drain outside the bar. Over time, the grease accumulated in the sewer.

As part of a citywide sewer rehabilitation in 2003, city workers were cleaning out the sewer line near Hog's Breath using a jet hose to clear a clog of grease. When the clog broke free, two employees were overcome by hydrogen sulfide gas. The city employees then sued the restaurant alleging negligence. The restaurant , in turn, sought a defense and indemnity from its insurer. The insurer filed a declaratory judgment action in federal district court, arguing that the kitchen grease was waste and therefore fell within the pollution exclusion. The federal district court agreed, holding that kitchen waste was a pollutant as defined in the policy.

The two city employees then won judgments of $2.1 and $1.7 million respectively against Hog’s Breath and sought to garnish the restaurant's insurance policy. The insurer argued that the pollution exclusion should apply for the reasons set forth in the federal district court decision. This time, a state trial court agreed and granting summary judgment to the insurer.

Despite having been thrown two curveballs by the judicial system, the city employees persisted and apparently proved to be good two-strike hitters as the Colorado appellate court reversed the trial court, ruling that cooking oil and grease did not fall within the general definition of a contaminant.

The policy contained a standard pollution exclusion and the court said that the insurer had failed to show that that the hydrogen sulfide was discharged from the Hog's Breath. Instead, the court found that the plaintiffs had demonstrated that the source of the hydrogen gas was biological activity associated with breakdown of organic matter under septic conditions. Since the plaintiffs had showed that hydrogen sulfide was commonly known and prevalent in domestic wastewater collection and treatment systems, the court ruled that the insurer has failed  to sustain its burden of demonstrating that the pollution exclusion applies due to the discharge of hydrogen sulfide gas.

The court also rejected the notion that the discharge of oil and grease to the sewer system was a discharge of a pollutant. The court acknowledged that the term “contamination” had been interpreted to include “the introduction of a foreign substance that injures the usefulness of the object”,  and that some courts have held that cooking oil and grease fell within the definition of "pollutants" because  it constitute "waste. However, the court found it equally reasonable to define "contaminant" to mean a substance that combines with another to create an impure mixture. Since the term was susceptible to several meanings, the court concluded the pollution exclusion did not clearly and specifically alert the insured that coverage would be excluded when damaged results from a sewer that is clogged by cooking oil and grease which is negligently dumped.

It should be noted that fats, oils and greases (FOGs) may be considered as “pollutants” under the Clean Water Act. There are two types of FOGs that commonly appear in wastewater systems:  Petroleum-based oil and grease, and animal and vegetable-based oil and grease. The latter is difficult to regulate due to the large number of restaurants and fast-food outlets in every community. FOG from food establishments typically falls into two categories: Yellow Grease from used cooking oil and waste grease which is collected at the point of use, and grease trap waste. EPA estimates that total volume of grease trap waste and uncollected grease that enters sewerage systems range from 800 to 17,000 pounds per year per restaurant.
EPA’s general pre-treatment regulations prohibit the discharges that will interfere with the treatment process. Grease is particularly problematic because of its poor solubility in water and its tendency to separate from the liquid solution as the water cools in the sewer system. As the fatty material congeals, it can form mats that reduce or obstruct flows, coat flow meters and probes, surface of settling tanks, digesters, and even the organisms that break down the sewerage. This can reduce treatment efficiency and increase O&M costs. Because of the obstructions, FOGs can also lead to increased frequency of Combined Sewer Overflows (CSOs) and Sanitary Sewer Overflows (SSOs).  

Under EPA’s general pretreatment standards at Part 403, a sewer authority is required to adopt local limits to prevent industrial discharges that interference with the treatment process. A growing number of sewer authorities are using their authority under Part 403 or local authority to establish FOG regulatory controls. These range from implementation of best management practices known as Capacity, Management, Operations and Maintenance (CMOM) programs to numeric limits. For example, many local sewer authorities require establishments that discharge large quantities of FOGs to install a grease trap or interceptor. Interceptors are usually required for high volume restaurants (establishments operating 16 hrs/day and/or serving 500+ meals per day) and large commercial establishments such as hotels, hospitals, factories, or school kitchens. Grease traps are required for small volume (fast food or take-out restaurants with minimum dishwashing, and/or minimal seating capacity) and medium volume (establishments operating 8-16 hrs/day and/or serving 100-400 meals/day) establishments. Medium volume establishments may be required to install an interceptor depending upon the size of the establishment.

The numeric limits created by sewer authorities range from 50 mg/l to 450 mg/l with most seeming to cluster around 100 mg/l. These local FOG controls may also include periodic inspections and cleanouts. Violations may range from civil penalties, sewer surcharges and even criminal citations in some instances. For example, after New York City identified 73%  non-compliance with its grease trap ordinance for restaurants, it instituted a $1,000 per day penalty for FOG violations.