Liberty Mut. Fire Ins. Co. v. Copart of Conn., Inc.
| Decision Date | 20 August 2021 |
| Docket Number | Civil Action 3:19-cv-2748-E |
| Parties | LIBERTY MUTUAL FIRE INSURANCE COMPANY AND LIBERTY INSURANCE CORPORATION, Plaintiffs, v. COPART OF CONNECTICUT, INC., Defendant. |
| Court | U.S. District Court — Northern District of Texas |
Before the Court in this insurance coverage case are Plaintiffs' Motion for Summary Judgment (Doc. 24) and Defendant's Motion for Partial Summary Judgment (Doc. 30). After careful review of the parties' motions, responses, and summary judgment evidence and the record, the Court grants Plaintiffs' motion and denies Defendant's motion for reasons that follow.
In their Original Complaint for Declaratory Judgment, Plaintiffs Liberty Mutual Fire Insurance Company (LMFIC) and Liberty Insurance Corporation (LIC) (collectively “Liberty Mutual”) seek a declaration of their rights and duties to defend or indemnify Defendant Copart of Connecticut, Inc. under insurance policies in connection with a lawsuit pending in South Carolina (the Underlying Suit). Copart operates a “machine salvage junkyard and vehicle wash facilities” in Lexington County, South Carolina. For the time period of October 2012 to October 2017, LMFIC issued Copart yearly commercial general liability policies (CGL policies). In addition, LIC issued yearly umbrella liability policies to Copart for the time period of October 2014 to October 2017.
In 2016, Robert Livingston and five other plaintiffs (the Livingston plaintiffs) filed the Underlying Suit against Copart in state court in South Carolina. The case was removed to the United States District Court for the District of South Carolina. The Livingston plaintiffs allege Copart owns over 300 acres of land in Lexington County and operates a machine salvage junkyard. The Livingston plaintiffs own properties near the Copart properties. A creek, Tom's Creek originates on Copart's property and runs through and/or feeds wetlands on the properties of the Livingston plaintiffs. Copart stores vehicles, many of which are in a wrecked or salvaged condition, in unpaved lots on its property. The Underlying Suit alleges that “[s]ubstantially all of these vehicles” leak “gasoline, oil, hydraulic fluids, antifreeze, and other hazardous fluids and materials” into the soil. In 2013 Copart cleared trees and other vegetation from about 30 acres of land and filled it with salvaged/wrecked machinery. Copart never sought or received any National Pollutant Discharge Elimination System permits for these land disturbance activities until March of 2016, when it sought a permit for “Stormwater Management Improvements” on a little over four acres.
The Underlying Suit alleges that Copart altered the normal course of stormwater runoff over its property and now the runoff is discharged onto the Livingston plaintiffs' properties. During any significant rainfall event, water, soil, sediment hazardous materials, and chemicals are washed from Copart's property into Tom's Creek and ultimately through the Livingston plaintiffs' properties. The pleading in the Underlying Suit alleges the sediment and hazardous materials that flow from Copart's property on the Livingston plaintiffs' property has dramatically changed the nature of their property. After each significant rain event, there is immediate damage to the aesthetics of their property in the form of cloudy water for several days. In addition, the chemical and sediment-laden water that flows from Copart's property negatively impacts the flora and fauna in and around streams and ponds on their property. Scientific testing conducted on samples from “points on the periphery” of Copart's property and within the creek watershed reveal alarming levels of heavy metals and other dangerous elements. The samples show large concentrations of aluminum, lead, titanium, arsenic and copper, among other things. The Livingston plaintiffs' claims include negligence and violations of various statutes. Specifically, they assert claims against Copart for: (1) violation of the Resource Conservation and Recovery Act, 42 U.S.C. § 6972(a)(1)(A); (2) violation of the Resource Conservation and Recovery Act, 42 U.S.C. § 6972 (a)(1)(B); (3) violation of the Clean Water Act, 33 U.S.C § 1365(a)(1), by unpermitted discharge from industrial activities; (4) violation of the Clean Water Act, 33 U.S.C. § 1365(a)(1), by unpermitted land disturbance; (5) negligence and negligence per se/violation of the South Carolina Pollution Control Act; (6) negligence per se/violation of the South Carolina Stormwater Management and Sediment Reduction Act and a Lexington County stormwater management ordinance; (7) negligence per se/violation of the South Carolina Junkyard Control Act; (8) nuisance; (9) permanent injunction; and (10) trespass.
LMFIC is currently defending Copart in the Underlying Suit under a reservation of rights. In this action, Liberty Mutual seeks declarations that (1) Liberty Mutual has no duty to defend or indemnify Copart or any other person in connection with the claims asserted in the Underlying Suit and therefore has no duty to pay any portion of the defense costs incurred or paid by any person in connection with the Underlying Suit; (2) Liberty Mutual has not breached any obligation under the policies described herein by any denial of the duty to defend or pay defense costs in the Underlying Suit on behalf of Copart or any other person; and (3) LMFIC has a right to withdraw any defense it has offered or provided to Copart or any other person in connection with the Underlying Suit. Liberty Mutual also seeks costs and attorney's fees incurred in bringing this action.
The CGL policies at issue contain two basic coverages-Coverage A for bodily injury and property damage and Coverage B for personal and advertising injury. Both coverages contain pollution exclusions, which provide the insurance does not apply to bodily injury or property damages which would not have occurred in whole or part but for “the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants' at any time.” The CGL policies define “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” “Waste includes materials to be recycled, reconditioned, or reclaimed.”
Liberty Mutual and Copart have each moved for summary judgment. To summarize the parties' arguments, Liberty Mutual contends it is entitled to declaratory judgment as a matter of law that it has no duty to defend or indemnify Copart in the Underlying Suit. Liberty Mutual argues the pollution exclusions in the policies unambiguously preclude coverage because the sediment that flowed off Copart's property was a “pollutant.” Copart contends Liberty Mutual has a duty to defend if the Underlying Suit potentially alleges a single claim, and Copart contends it does. According to Copart, the Underlying Complaint includes allegations that water and natural substances ran from its property and damaged the Livingston plaintiffs' property. Alternatively, Copart argues the umbrella policies impose a duty to defend because they contain an exception to the pollution exclusion for property damage arising out of the escape of fuels, lubricants, or other operating fluids from mobile equipment. Thus, Copart's motion seeks partial summary judgment on the issue of Liberty Mutual's duty to defend. In addition, Copart argues that it is premature to determine that Liberty Mutual has no duty to indemnify, because that determination should be based on the evidence developed in the Underlying Suit.
To be entitled to summary judgment, a party must show there is no genuine dispute as to any material fact and it is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). On crossmotions for summary judgment, the court reviews each party's motion independently, viewing the evidence and inferences in the light most favorable to the non-moving party. Baker Hughes, Inc. v. U.S., 943 F.3d 255, 259 (5th Cir. 2019).
We apply Texas law in this diversity action. See Indian Harbor Ins. Co. v. Valley Forge Ins. Grp., 535 F.3d 359 363 (5th Cir. 2008). In exchange for premiums paid, CGL insurers typically promise to defend and indemnify their insured for covered risks. Zurich Am. Ins. Co. v. Nokia Inc., 268 S.W.3d 487, 490 (Tex. 2008). The duty to defend is distinct from, and broader than, the duty to indemnify. Id. An insurer may have a duty to defend, but eventually, no obligation to indemnify. Id. at 490-91. Texas strictly follows the “eight corners rule, ” meaning the duty to defend may only be determined by the facts alleged in a third-party plaintiff's petition and the coverage provided in the policy. Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 596 (5th Cir. 2011); Zurich Am., 268 S.W.3d at 491. A court must focus on the factual allegations that show the origin of the damages rather than on the legal theories asserted in reviewing the underlying pleading. Nat. Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). The court should liberally...
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