Absolute Pollution Exclusions Unambiguously Preclude Coverage Under New Mexico Law: No Duty to Defend CERCLA Claims

Introduction

This commentary examines the Tenth Circuit’s April 23, 2025 decision in Chisholm’s–Village Plaza LLC v. Cincinnati Insurance Company, a diversity case arising under New Mexico law. Chisholm’s Village Plaza, LLC (“Chisholm’s”) sued its two general liability insurers—Fidelity and Cincinnati Insurance Company—seeking a defense and indemnity against a CERCLA suit alleging groundwater and property contamination by a former dry‐cleaning operation. Both insurers relied on absolute pollution exclusions in their policies to deny coverage. The district court held those exclusions ambiguous under an outlier interpretive approach, imposed a duty to defend, and denied the insurers’ summary-judgment motions. On appeal, the Tenth Circuit reversed, holding that under New Mexico law the exclusions are unambiguous as written and that a split of authority in other jurisdictions cannot create ambiguity here.

Key issues:

Does New Mexico law require an insurer to list specific pollutants by name for a pollution exclusion to be unambiguous?
Can cross-jurisdictional disagreement about how to interpret pollution exclusions, by itself, render policy language ambiguous?
What role, if any, does an insurer’s alternative liability or “common-law tort” exception play when no tort claims appear in the underlying complaint?

Parties:

Plaintiff–Appellee: Chisholm’s Village Plaza, LLC, the insured property owner.
Defendants–Appellants: Fidelity and Guaranty Insurance Underwriters (“Fidelity”) and Cincinnati Insurance Company (“Cincinnati”), the insurers.
Amicus Curiae: Complex Insurance Claims Litigation Association.

Summary of the Judgment

The Tenth Circuit’s key holdings:

Under New Mexico law, the absolute pollution exclusions in Fidelity’s and Cincinnati’s policies are plain and unambiguous in barring coverage for “property damage” arising from the alleged “release of contaminants.”
The underlying CERCLA complaint expressly alleged that hazardous substances contaminated soil and water—conduct squarely within the exclusions’ terms—so neither insurer owed a duty to defend or investigate further.
The district court erred in adopting an “outlier” (Indiana-style) interpretive approach requiring specific naming of pollutants and in concluding that cross-jurisdictional splits alone create ambiguity under New Mexico law.
Cincinnati’s alternative liability provision (the purported “common‐law tort” exception) did not apply because the CERCLA suit did not assert negligence, nuisance, trespass, or any common law claim.
Accordingly, the Tenth Circuit reversed the district court’s grant of summary judgment to Chisholm’s and its denial of summary judgment to the insurers.

Analysis

Precedents Cited

Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938): Federal courts in diversity cases must apply state substantive law.
Knowles v. United Servs. Auto. Ass’n, 832 P.2d 394 (N.M. 1992): Distinguishes the duty to defend from the duty to indemnify; duty to defend arises from the policy’s insuring and exclusionary provisions.
Bernalillo County Deputy Sheriffs Ass’n v. County of Bernalillo, 845 P.2d 789 (N.M. 1992): If a complaint’s allegations clearly fall outside the policy’s coverage, no duty to defend exists.
Ponder v. State Farm Mutual Automobile Ins. Co., 12 P.3d 960 (N.M. 2000): Insurance‐policy interpretation follows ordinary contract principles—clear terms control; ambiguous terms construed against the drafter.
Rummel v. Lexington Ins. Co., 945 P.2d 970 (N.M. 1997): Courts may consider extrinsic evidence only if policy language remains ambiguous after examining the contract as a whole.
United Nuclear Corp. v. Allstate Ins. Co., 285 P.3d 644 (N.M. 2012): Cross‐jurisdictional splits and divergent dictionary definitions may indicate ambiguity but cannot by themselves establish it.
Millers Casualty Ins. Co. of Texas v. Flores, 876 P.2d 227 (N.M. 1994): Insurers need not list every excluded activity or substance by name to make an exclusion unambiguous.
Clean Harbors Environment Services, Inc. v. Boston Basement Technologies, Inc., 916 N.E.2d 406 (Mass. App. Ct. 2009): Interpreted an alternative liability exception as applying to underlying negligence claims—but only where such a claim is actually pleaded.
Manzano Oil Corp. v. Commercial Union Ins. Co. (N.M. Fifth Jud. Dist. Ct. Sept. 16, 1994) (unpublished): Held an absolute pollution exclusion unambiguously excluded coverage for cattle injuries caused by petroleum leakage.

Legal Reasoning

The Tenth Circuit applied New Mexico’s substantive insurance‐policy rules and de novo review to resolve three central questions:

Are “pollutant” and “contaminant” ambiguous in the absolute pollution exclusions?
No. Under New Mexico contract law, undefined terms assume their ordinary, popular meaning. Dictionaries contemporaneous to each policy’s issuance define “contaminant” as “something that contaminates,” and “contaminate” as “to render unfit for use by introduction of undesirable elements.” The exclusions’ language—“property damage…arising out of discharge…of pollutants…and contaminant[s]”—is clear. Following Flores, insurers need not itemize every excluded substance; a broad term encompassing them suffices.
Do the CERCLA complaint’s allegations fall within those clear exclusions?
Yes. The underlying complaint alleged that a former dry cleaner released hazardous substances (including perchloroethylene) that contaminated soil and groundwater, triggered multimillion‐dollar response actions, and led to claims for cost recovery under 42 U.S.C. § 9607. Those facts align word‐for‐word with the exclusions’ scope, so no coverage or duty to defend attaches. The insurers need not investigate further where policy exclusions clearly bar coverage.
Does Cincinnati’s alternative liability (common‐law tort) exception apply?
No. Although Cincinnati’s exclusion carves back coverage for claims the insured would face absent a governmental order or statutory trigger, it does so only where a common law tort action (negligence, nuisance, trespass) is actually before the insured. The CERCLA complaint contained no such private‐party tort claims—only statutory cost‐recovery and contribution claims under CERCLA. Thus no exception applied and the exclusion stood in full force.

The court rejected the district court’s two principal errors:

Outlier interpretive approach: The district court predicted that New Mexico would adopt an Indiana‐style rule requiring insurers to name specific pollutants to avoid ambiguity. New Mexico precedent, however, uniformly applies the ordinary‐meaning approach and expressly declines to demand exhaustive lists in exclusions (Flores). Insurers may use broad defined terms without creating ambiguity.
Cross‐jurisdictional split creates ambiguity: The district court believed that divergent U.S. court approaches to pollution exclusions, by itself, rendered the language ambiguous. New Mexico’s highest court in United Nuclear held that a split in authority may point toward ambiguity but cannot alone establish it. The Tenth Circuit followed that rule, refusing to let non‐New Mexico splits override New Mexico’s clear doctrine.

Impact

This decision has important ramifications for insurers, insureds, and litigants in New Mexico and the Tenth Circuit:

Insurer clarity and underwriting: Insurers can continue to employ broad, absolute pollution exclusions that define “pollutant” or “contaminant” in sweeping terms, confident that New Mexico courts will enforce them as written if they mirror the normal dictionary usage.
Limits on duty to defend: Insurers have no duty to defend when the underlying complaint’s well-pleaded allegations match an unambiguous exclusion. They need not conduct additional investigations or worry about theoretical tort claims absent in the complaint.
Uniform contract interpretation: The decision reinforces that New Mexico contract‐interpretation principles control—even if other states have adopted different rules. Policy drafters and litigants must look to New Mexico caselaw, not out-of-state anomalies.
CERCLA coverage disputes: Property owners facing CERCLA suits should not expect general liability insurers to defend or indemnify where absolute pollution exclusions apply to the alleged release or contamination, absent unusual policy language or coverage exceptions.
Guidance for lower courts: Federal and state trial courts in New Mexico and the Tenth Circuit should cease adopting or inviting extrinsic analyses premised on non-New Mexico splits. They must follow United Nuclear, Ponder and related precedents.

Complex Concepts Simplified

Duty to Defend vs. Duty to Indemnify: The duty to defend arises when a complaint’s allegations potentially fall within policy coverage. It is broader than the duty to indemnify, which depends on actual liability.
Example: An insurer may have to defend a negligence suit that could trigger coverage but later be found not liable at trial (no indemnity required).
Absolute Pollution Exclusion: A policy clause stating that any “property damage” “arising out of discharge…of pollutants” is not covered, regardless of context. “Absolute” means no coverage under any theory if the exclusion applies.
CERCLA claims: Under 42 U.S.C. § 9607, private parties and municipalities can recover cleanup costs from current or past owners of contaminated sites. Courts have repeatedly held that general liability policies’ pollution exclusions bar defense and indemnity for CERCLA suits.
Extrinsic Evidence: New Mexico allows courts to consider evidence outside the four corners of the policy to resolve genuine ambiguities—but only after determining that policy language is ambiguous on its face. It is not a first stop.
Erie Doctrine: In diversity jurisdiction, federal courts apply state substantive law—including contract‐interpretation rules—but use federal procedures.

Conclusion

The Tenth Circuit’s decision in Chisholm’s–Village Plaza v. Cincinnati Insurance Company clarifies and cements New Mexico’s straightforward approach to insurance policy exclusions. Under New Mexico law, absolute pollution exclusions that define “pollutant” and “contaminant” using common‐meaning terms unambiguously preclude coverage for contamination claims, including CERCLA cost-recovery suits. Insurers owe no duty to defend or investigate further when the complaint’s allegations mirror the exclusion’s scope. Moreover, New Mexico courts will not be swayed by outlier interpretive regimes or by splits in authority elsewhere. This precedent should guide insurers in policy drafting and claims handling, insureds in evaluating coverage expectations, and courts in resolving future disputes over environmental liability coverage.