Harleysville Preferred Ins. Co. v. Int'l Paper Co.

Decision Date07 October 2022
Docket NumberCiv. Act. 1:20-cv-340-TFM-B
PartiesHARLEYSVILLE PREFERRED INSURANCE CO., Plaintiff, v. INTERNATIONAL PAPER CO., et al., Defendants.
CourtU.S. District Court — Southern District of Alabama
MEMORANDUM OPINION AND ORDER

TERRY F. MOORER UNITED STATES DISTRICT JUDGE.

Now pending before the Court is Plaintiff's Motion for Judgment on the Pleadings on its Claims for a Declaratory Judgment Against All Defendants and on Defendant International Paper Co.'s Counterclaims (Doc. 40 filed 5/10/21) along with its brief in support (Doc. 44 filed 5/11/21). Also pending is Defendant International Paper Company's...Cross Motion for Judgment on the Pleadings (Doc. 55, filed 6/2/21). Each side filed their respective responses (Docs. 55, 56) and replies (Docs. 56 57). The motions are fully submitted and ripe for review. After a careful review of the motions, responses, replies pleadings, and relevant law, the Court GRANTS Plaintiff's motion (Doc. 41) and DENIES Defendant's motion (Doc. 55) for the reasons articulated below.[1]

I. PARTIES, JURISDICTION, AND VENUE

Plaintiff Harleysville Preferred Insurance Company (Plaintiff or “Harleysville”) asserts its Complaint for Declaratory Judgment wherein it seeks a determination on coverage related to the policies cited in the complaint. See Doc. 1. Harleysville brings this suit pursuant to this Court's diversity jurisdiction under 28 U.S.C. § 1332. A federal court has diversity jurisdiction over a civil action between citizens of different states where the amount in controversy exceeds $75,000, exclusive of interest and costs both of which are satisfied here. 28 U.S.C. § 1332(a)(1).

Defendants are International Paper Company (IP), JRD Contracting & Land Clearing (“Land Clearing”), John R. Dailey Sr. (“Dailey”),[2] and JRD Contracting, Inc. (“JRD Contracting”). The Court previously found that diversity of citizenship and the amount in controversy were both satisfied. See Doc. 30.

Harleysville asserts venue is proper under 28 U.S.C. § 1391(b)(1) because all Defendants reside within the Southern District of Alabama (the Court's location). Specifically, IP owns and operates paper mills and other facilities in Wilcox County, Baldwin County, and Dallas County all of which are within the Southern District of Alabama. Land Clearing and JRD Contracting have their principal place of business in Camden, a city in Wilcox County - located within the Southern District of Alabama. Finally, Dailey is also domiciled in Wilcox County, Alabama. IP challenged venue and Defendants Dailey and JRD Contracting filed a motion to dismiss for misjoinder; but, the Court entered its Memorandum Opinion and Order denying their motions to dismiss and transfer venue and found that venue in the Southern District of Alabama was appropriate and no misjoinder had occurred. See Doc. 30.

Based on the above, the Court finds jurisdiction and venue are both appropriate in this matter.

II. Factual and Procedural Background

On June 30, 2020, Harleysville filed its complaint for declaratory judgment against IP, Land Clearing, Dailey, and JRD Contracting. See Doc. 1. The declaratory judgment action relates to two underlying lawsuits -- John R. Dailey Sr. and JRD Contracting, Inc. v. International Paper Company, Civ. Act. No. CV-2018-900045.00 in the Circuit Court of Wilcox County, Alabama (“Alabama Action”) and International Paper Company v. JRD Contracting & Land Clearing, Inc., Civ. Act. No. 2:20-cv-2113 (W.D. Tenn.) (“Tennessee Action”). Harleysville seeks a declaration that it owes no coverage to IP based on the commercial insurance policies issued to Land Clearing, that it owes no duty to defend or indemnify IP for the claims in the Alabama Action, and that it owes no coverage to Land Clearing for the claims in the Tennessee Action. See Doc. 1.

As background, IP and Land Clearing entered into a Waste Services Agreement (“WSA”) under which Land Clearing contracted to handle, transport, and dispose of Organo-Ash for IP. John R. Dailey, Jr. was Land Clearing's President and the sole shareholder of and operated JRD. In the Alabama Action, Dailey and JRD Contracting claim that IP damaged their property through the deposit of Organo-Ash (a harmful substance). Dailey testified that Land Clearing deposited the Organo-Ash on Dailey and JRD Contracting's property which ultimately damaged the property. The complaint alleges six counts - Negligence, Fraudulent Misrepresentation, Fraudulent Suppression/Concealment, Private Nuisance, Trespass, and Wantonness. Id. at 4, 6-9.

In the Tennessee Action, IP claims that Land Clearing owes IP indemnity against the Alabama Action pursuant to the WSA. Id. at 4.

By letter dated March 23, 2020, IP's counsel notified Harleysville of the Alabama Action and demanded its defense and indemnification as an additional insured under the policies Harleysville issued to Land Clearing. Id. By letter dated March 25, 2020, an attorney notified the insurance producer of the Tennessee Action and asked whether a defense and coverage would be provided. The insurance producer forwarded the letter and complaint to Harleysville. By letters to IP's counsel and to Land clearing dated May 15, 2020, Harleysville denied coverage for both the Alabama Action and the Tennessee Action based on the Pollution Exclusion in the policies, IP and Land Clearing's breaches of the Policies' notice conditions, and other grounds. Id. By letter dated June 4, 2020, IP's counsel disputed the denial of coverage. Harleysville filed the instant declaratory judgment action on June 30, 2020. Further, in the Tennessee Action, Land Clearing did not file an answer and IP moved for default which was entered on May 27, 2020. Id. at 4-5. The Court in the Western District of Tennessee granted the request for default judgment on July 17, 2020. See Tennessee Action, Docs. 11, 12. The order states as follows:

1. That Plaintiff is entitled to a default judgment on its declaratory judgment claim and breach of contract claim (liability only).
2. That (a) Defendant is required to defend and indemnify Plaintiff in the action brought against Plaintiff and its employees Janet Pridgeon, Joni Harris and Shawn Blenis in the Circuit Court of Wilcox County, Alabama by John R. Dailey, Sr. and JRD Contracting, Inc. (the Wilcox County Action), per the terms of the Waste Services Agreement; and (b) Defendant was required to place its insurance carriers on notice of the claims against IP in the Wilcox County Action.
3. That Defendant has breached the Waste Services Agreement by failing to defend and indemnify Plaintiff in the Wilcox County Action and by failing to place its insurance carriers on notice of the claims against Plaintiff in the Wilcox County Action. The Court reserves the issue of damages for Defendant's breach of the Waste Services Agreement pending resolution of the Wilcox County Action.
4. That this judgment will become a final judgment without further notice pursuant to Fed.R.Civ.P. 55(b)(1) should Defendant fail to show good cause to set aside this judgment within a reasonable time pursuant to Fed.R.Civ.P. 55(c) or Fed.R.Civ.P. 60(b).

Tennessee Action, Doc. 12 at 2. As a result of this default judgment, IP has become a judgment creditor of Land Clearing with the right to proceed directly against Harleysville under Ala. Code § 27-23-2 as a compulsory counterclaim.

At issues are the commercial general liability policies issued to Land Clearing bearing policy no. MPA00000022969R effective through annual renewals from August 31, 2015 to August 31, 2018 (collectively “the Policies”). See Doc. 1 at 5, Exs. 1-3. The Policies have limits of $1,000,000.00 per occurrence, $2,000,000.00 general aggregate (other than products-completed operations), and $2,000,000.00 aggregate (products/completed operations). Id. at 5. The Policies include endorsements for “Additional Insured - Owners, Lessees or Contractors - Automatic Status When Required In Construction Agreement With You,” and “Additional Insured -Owners, Lessees or Contractors - Completed Operations - Automatic Status When Required In Construction Agreement With You.” Id. at 6.

On March 30, 2021, the Court denied the Defendants respective motions challenging venue and misjoinder and directed the parties to file their answers. See Doc. 30. IP filed its answer along with its own counterclaims. See Doc. 33. IP seeks a declaratory judgment that Harleysville owes coverage for the Alabama Action (Count I), that Harleysville breached the Policies by denying coverage (Count II), that Harleysville denied coverage in bad faith (Count III), declaratory judgment that Harleysville owes Land Clearing coverage for the Tennessee action and therefore must contractually fulfil its indemnity obligation to IP as a judgment creditor by then providing IP a defense and indemnity for the Alabama action (Count IV), Harleysville breached the Policies by denying IP, and Land Clearing's judgment creditor when it denied defense and indemnity for the Alabama action (Count V), and that denial was in bad faith (Count VI).

Much like the Tennessee Action, Land Clearing has not appeared in this case and upon Application by Harleysville, the Clerk entered default against Land Clearing. See Docs. 25, 27. On May 7, 2021, at the request of the Plaintiff, the Clerk entered default against Dailey and JRD Contracting. See Doc. 38.

On May 10, 2021, Harleysville filed its motion for judgment on the pleadings along with a brief in support. See Docs. 40, 44. Harleysville asserts that it has no duty to defend IP because the pollution exclusion bars coverage for the Alabama Action, IP and Land Clearing's breaches of the notice conditions bar coverage, and IP was not entitled to policy delivery nor was it prejudiced by...

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