HLT Props., LLC v. Evanston Ins. Co.
| Decision Date | 06 May 2019 |
| Docket Number | 1:18-CV-45-RP |
| Citation | 388 F.Supp.3d 718 |
| Parties | HLT PROPERTIES, LLC, Plaintiff, v. EVANSTON INSURANCE COMPANY; Markel Service, Incorporated; AssuredPartners NL, LLC, formerly Known as Assured Neace Lukens Insurance Agency, Inc.; The Travelers Indemnity Company of America; and Risk Placement Services, Inc., Defendants. |
| Court | U.S. District Court — Western District of Texas |
William P. Johnson, Duggins Wren Mann & Romero, LLP, Austin, TX, for Plaintiff.
Andrew L. Johnson, Janis H. Detloff, Christina Anne Culver, Thompson, Coe, Cousins & Irons L.L.P., Houston, TX, for Defendants.
Before the Court is Defendant Evanston Insurance Company's ("Evantson") Motion for Summary Judgment. (Dkt. 66). Also before the Court is Evanston's Objections and Motion to Strike Evidence in Support of Plaintiff's Response to Motion for Summary Judgment.1 (Dkt. 92). Having considered the parties' briefs, the evidence, and the relevant law, the Court issues the following order.
This is an action about benefits under an insurance policy following pollution damage to commercial property. The following facts are not disputed. Plaintiff HLT Properties, LLC ("HLT") leased commercial property (the "Property") to non-party Global Environmental Services, LLC ("GES") on January 20, 2015. (Lease Agreement, Dkt. 66-4). HLT's owner, Lewis Talbert ("Talbert"), visited the property on May 21, 2015, and discovered that GES was storing and recycling televisions, computers, and lead-bearing glass tubes known as "cathode ray tubes" ("CRTs"). (Talbert Dep., Dkt. 66-11, at 6:16–7:9). Talbert found that GES was "separating the glass of computer screens, CRT Screens, and separating the lead out, lead and other chemicals out of the CRT screens from the plain, non-hazardous glass." (Id. ). On May 22, 2015, Talbert sent a notice of default to GES and threatened to evict them for handling hazardous materials at the property in violation of the lease. (Id. at 7:20–8:3). GES's operator, Kenneth Gravitt ("Gravitt"), assured Talbert that GES was not processing hazardous material on site. (Id. at 8:12–15). By May 25, Talbert was satisfied that GES cured their default after GES cleaned up the site and sent Talbert a certificate of insurance. (Id. at 8:4–19).
GES obtained its insurance policy (the "Policy") from Evanston, which issued the Policy to GES for a period from July 21, 2015 through July 21, 2016. (Ins. Policy, Dkt. 66-3). The Policy includes a commercial general liability ("CGL") coverage form and an environmental impairment liability ("EIL") coverage form. (Id. at 6). The Policy also includes a choice-of-law provision specifying that New York law governs all matters arising out of or related to the Policy. (Id. at 9). Finally, the Policy contains an endorsement entitled "Additional Insured – Owners, Lessees or Contractors (Blanket) Endorsement." (Id. at 65). This endorsement expands policy coverage under the CGL coverage form to include "any person or organization to whom the insured agrees to provide Additional Insured status in a written contract signed by both parties and executed prior to the commencement of operations." (Id. ).
On October 27, 2015, GES's neighbor urged HLT to visit the Property out of concern that GES's operations were causing environmental damage to the surrounding property. (Talbert Dep., Dkt. 66-11, at 9:12–18). During that visit, Talbert discovered that GES had damaged the Property. (Id. at 9:12–18). Talbert found that "the place was totally a mess" with sand piled outside the building, broken glass everywhere, and boxes stacked inside the building. (Id. at 11:4–12:5). The interior walls of the building were "messed up," the exterior walls had several dents and holes, the garage door was broken, and the AC system was clogged from GES's operations (Id. ). This was the first time that Talbert believed GES's operations rose to the level of pollution that would justify an environmental claim under the Policy. (Talbert Dep., Dkt. 76-1, at 14:7–23).
That same day, Matt Hall, GES's contact, told HLT that GES intended to clean the Property and that it would not abandon the Property.2 (Talbert Dep., Dkt. 66-11, at 10:18–11:7). HLT also made a claim under the Policy on October 27, 2015, asserting a claim arising from the abandonment of recycled computers which allegedly caused lead contamination. (Olear Dep., Dkt. 76-3, at 14:11–24; Denial of Claim, Dkt. 66-6, at 2). HLT also alleged physical property damage sustained to the Property as a result of GES's operations and use of the Property. (Denial of Claim, Dkt. 66-6, at 2).
Evanston denied HLT's claim. On February 2, 2016, Evanston concluded that "there is no coverage available for [HLT] under" the GES Policy. (See Denial of Claim, Dkt. 66-6, at 1). Evanston denied coverage because "[c]overage is only available for insureds" and HLT "is not a named insured under the policy." (Id. at 2). Specifically, Evanston explained that coverage is only available for insureds and that HLT was neither a named insured nor an additional insured. (Id. at 2). Evanston noted that the "Additional Insured Endorsement" required a written contract executed before operations commenced for HLT to be covered under the CGL form, but Evanston did not possess any contract between GES and HLT granting HLT additional insured status. (Id. at 3). As a result, HLT did not satisfy the requirements of the Additional Insured Endorsement. (Id. ).
Evanston also denied coverage under the terms of the Policy. First, Evanston noted that there was no coverage for the claim under the CGL form. (Id. ). Evanston explained that the policy "only affords defense and indemnity for claims against an insured seeking damages because of ... ‘property damage’ during the policy period and caused by an ‘occurrence’, defined in pertinent part as an accident." (Id. ). But based on the information Evanston received, there was no "occurrence." (Id. ). Evanston also cited several exclusions in denying coverage: the total pollution exclusion, the property damage exclusion, and the lead exclusion. (Id. ). Because all of HLT's claims against GES arise out of property damage due to lead contamination or property rented by GES or owned by HLT, Evanston found that there was no coverage under the CGL form. (Id. ).
Next, Evanston denied coverage under the EIL coverage form. (Id. at 3–4). Evanston noted that the Policy included coverage for "Sudden and Abrupt Discharge, Release or Escape of Pollutants" for HLT's property. (Id. ). Evanston found that the alleged lead contamination and physical property damage arising from GES's work as an electronics recycler was not considered a "sudden and abrupt ‘pollution condition’ " under the Policy. (Id. at 4). And Evanston further reasoned that there was no verification that a "pollution condition" existed at the Property. (Id. ). Finally, Evanston found that the Property Damage Exclusion precluded coverage for damages arising from property owned, leased or operated by GES. (Id. ).
On November 20, 2015, the Texas Commission on Environmental Quality ("TCEQ") inspected the Property. (TCEQ Inv. Rep., Dkt. 66-12). The TCEQ found that the outdoor sand piles contained hazardous levels of lead as a result of GES's improper storage and disassembly of recycled CRTs. (Id. at 2–3, 6). The TCEQ also found that GES's operations were in violation of state environmental protection laws and demanded immediate remediation. (Id. at 2, 4, 6–7).
HLT complied and sought to recover its remediation costs from GES. (See Dkt. 66-13, at 2–3). The bankruptcy court granted HLT relief from the automatic stay GES's bankruptcy action in order to "contact and assert a claim and receive payment from [GES's] insurance company relating to any covered loss as defined in any applicable insurance policy to the extent of any applicable insurance coverage." (Bankr. Order, Dkt. 66-5, at 2). Accordingly, HLT filed this action in state court against several insurer and insurance agent defendants, including Evanston, in addition to GES and Gravitt on February 17, 2017. (Orig. Pet., Dkt. 1-1, at 55). HLT obtained a default judgment against GES for property damage and cleanup costs. (Def. J., Dkt. 66-7). The state court ordered GES to pay $538,429.36 in damages plus attorney's fees, costs, and pre-and post-judgment interest. (Id. ). Defendant Risk Placement Services, Inc. ("RPS") later removed the suit to this Court. (Not. Rem., Dkt. 1).
Evanston is the only remaining defendant in this action. The other defendants have all filed notices of settlement or stipulations of dismissal. (See RPS Stip., Dkt. 37; MSI Stip., Dkt. 87; AssuredPartners Joint Mot. Dismiss, Dkt. 88; Travelers Not., Dkt. 94). In its amended complaint, (Dkt. 54), HLT states claims against Evanston for breach of the insurance policy, breach of common law duty of good faith and fair dealing, and violations of the Texas Insurance Code. (See Am Compl., Dkt. 54, at 7–8, 10). HLT alleges that a valid contract existed between GES and Evanston and that Evanston materially breached the insurance contract by denying coverage and refusing to investigate and timely pay HLT's claims. (Id. at 7). HLT also alleges that Evanston is liable under the Texas Insurance Code for failing to effectuate a prompt settlement of HLT's claim after liability was reasonably clear. (Id. at 8). Finally, HLT alleges that Evanston breached the duty of good faith and fair dealing by denying payment of HLT's claim without a reasonable basis. (Id. at 10). Evanston seeks summary judgment on HLT's claims. (Dkt. 66).
Summary judgment is appropriate when there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; Celotex Corp. v. Catrett , 477 U.S. 317, 323–25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A dispute regarding a material fact is "genuine" if the evidence is such that a...
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