Scottsdale Ins. Co. v. Universal Crop Prot. Alliance Llc.
| Citation | 620 F.3d 926 |
| Decision Date | 08 September 2010 |
| Docket Number | No. 09-1774.,09-1774. |
| Parties | SCOTTSDALE INSURANCE COMPANY, Appellee, v. UNIVERSAL CROP PROTECTION ALLIANCE, LLC, Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
OPINION TEXT STARTS HERE
Alan Marshall Anderson, argued, Diane B. Bratvold, Matthew R. Palen, on the brief, Minneapolis, MN, for Appellant.
Robert Edward Salmon, argued, Katherine A. McBride, on the brief, Minneapolis, MN, for Appellee.
Before RILEY, Chief Judge, 1 JOHN R. GIBSON and MURPHY, Circuit Judges.
Scottsdale Insurance Company (Scottsdale) issued a general commercial liability insurance policy for the benefit of Universal Crop Protection Alliance, LLC (UCPA). The policy contained a pollution exclusion. In 2007, scores of Arkansas farmers sued UCPA, alleging one of UCPA's herbicides destroyed their cotton crops. Scottsdale then brought the instant declaratory judgment action against UCPA, seeking a ruling that the pollution exclusion relieved Scottsdale of any obligation to defend or indemnify UCPA. Scottsdale moved for summary judgment, which the district court 2 granted. UCPA appeals, arguing the district court lacked jurisdiction and construed the pollution exclusion too broadly. We affirm.
I. BACKGROUND
UCPA, a wholly owned subsidiary of Universal Cooperatives, Inc. (Universal), is a farm-supply cooperative that manufactures and sells chemicals. UCPA is a Minnesota limited liability company with its principal place of business in Minnesota. Scottsdale, a wholly owned subsidiary of Nationwide Mutual Insurance Company, is an excess and surplus lines insurance company. Scottsdale is an Ohio corporation with its principal place of business in Arizona.
In 2006, Universal purchased a commercial general liability insurance policy (Policy) from Scottsdale for $190,000. The Policy, effective from May 1, 2006 to May 1, 2007, listed UCPA as a named insured. In relevant part, the Policy provided the following coverage:
The Policy defined “property damage” as including “[p]hysical injury to tangible property.”
The Policy contained a pollution exclusion, disclaiming coverage for “ ‘property damage’ 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.’ ” The Policy defined “pollutants” as including “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”
The Policy provided UCPA with $1 million in coverage for each “occurrence” of property damage, defining “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Coverage was subject to a $500,000 deductible for each occurrence. The costs of defending UCPA from a lawsuit were subject to the $500,000 deductible, but not the $1 million coverage limit.
On May 31, 2007, more than 80 cotton farmers sued UCPA and four other herbicide manufacturers in the United States District Court for the Eastern District of Arkansas (Arkansas Lawsuit). The cotton farmers alleged that, in June and July 2006, neighboring rice farmers applied tens of thousands of pounds of the manufacturers' herbicides to control weeds in their rice fields. The farmers claimed the herbicides contained dichlorophenoxyacetic acid (2,4-D), a phytotoxin, or plant poison, that is extremely toxic to cotton plants. The cotton farmers alleged the 2,4-D drifted off-target and damaged fields in five Arkansas counties.
On June 4, 2007, the cotton farmers served UCPA with their complaint, which asserted state law claims of strict products liability; deceptive trade practices; negligent design, testing, and warning; breach of implied warranty of fitness for a particular purpose; and implied warranty of merchantability. Invoking diversity jurisdiction under 28 U.S.C. § 1332, the cotton farmers sought compensatory and punitive damages, attorney fees, and costs from the herbicide manufacturers.
On June 12, 2007, UCPA tendered the Arkansas Lawsuit to Scottsdale for defense and indemnification. On July 27, 2007, Scottsdale agreed to defend UCPA subject to a complete reservation of its rights under the Policy. Scottsdale reminded UCPA of the Policy's $500,000 deductible and declined to provide UCPA a “first-dollar” defense.
On July 26, 2007, the day before Scottsdale provisionally agreed to defend UCPA, Scottsdale filed this declaratory judgment action against UCPA in the United States District Court for the District of Minnesota (district court), pursuant to 28 U.S.C. §§ 2201-2202 and Fed.R.Civ.P. 57. Scottsdale invoked the district court's diversity jurisdiction under 28 U.S.C. § 1332, alleging the parties were citizens of different states and the amount in controversy exceeded $75,000, exclusive of interest and costs. Among other things, Scottsdale asked the district court for declarations that “Scottsdale has no duty to defend or indemnify” UCPA and, in any event, “a $500,000 property damage deductible applies.”
In its answer, UCPA denied the amount in controversy exceeded $75,000, exclusive of interest and costs, pointing out the attorney fees and costs expended in the Arkansas Lawsuit “did not exceed $75,000 as of the date this action was commenced, and [the cotton farmers] have not alleged that they are seeking damages from UCPA in excess of the $500,000 deductible.” In its counterclaim, UCPA sought a declaration that UCPA had the right to select its own defense counsel, in part because “[t]here are numerous conflicts of interest [between] Scottsdale and UCPA, including ... the $500,000 deductible.” UCPA also alleged breach of contract, asserting Scottsdale violated the Policy by failing to pay the attorney fees and costs UCPA had expended on the Arkansas Lawsuit.
Scottsdale moved for summary judgment, and UCPA moved to dismiss. Scottsdale asked the district court for a declaration that the pollution exclusion relieved Scottsdale of any obligation under the Policy to defend and indemnify UCPA in the Arkansas Lawsuit. UCPA asserted the district court lacked subject matter jurisdiction because the requisite amount in controversy was lacking and the parties' dispute was not ripe for adjudication.
In its resistance to Scottsdale's motion for summary judgment, UCPA argued the district court should equitably estop Scottsdale from enforcing the pollution exclusion because (1) Scottsdale conspired with UCPA's broker to raise the Policy's premium, and (2) the pollution exclusion rendered the Policy's coverage illusory. In the alternative, UCPA asked the district court to refrain from issuing total summary judgment in Scottsdale's favor because, on December 29, 2008, the cotton farmers filed an amended complaint to offer a second theory as to how the herbicide manufacturers' 2,4-D damaged their cotton plants. In addition to their original “off-target drift” theory, UCPA now alleged some 2,4-D had landed on target but had later “relofted” and drifted onto the cotton fields. UCPA speculated any damages from “relofting” might have resulted, not from any toxic effect of 2,4-D, but from non-toxic relofted particle essences inhibiting photosynthesis by blocking sunlight (as with dust). Under the relofting theory then, UCPA posits, 2,4-D might not qualify as a “pollutant” under the Policy. The amended complaint also added an additional herbicide manufacturer as a defendant.
On March 3, 2009, the district court issued an order expressing three primary holdings. First, the district court held the amount in controversy exceeded $75,000, exclusive of interest and costs. The district court found UCPA's argument to the contrary in its motion to dismiss was “not well taken” because, “[a]s UCPA is well aware, there is much more than $75,000 at stake in the underlying litigation.”
Second, the district court held “[t]here is no doubt that Scottsdale's duty to defend can be resolved without any further record development, and therefore the case is ripe.” In a footnote, however, the district court stated:
Third, the district court held Scottsdale did not have a duty to defend UCPA. The district court determined (1) any alleged conspiracy between Scottsdale and the broker to raise UCPA's premium would not invalidate the pollution exclusion; (2) the pollution exclusion did not render the Policy's coverage illusory; and (3) the relofting theory fell within the pollution exclusion.
Notwithstanding the district court's footnote appearing to indicate at least a portion of Scottsdale's complaint was not ripe, the district court observed “[t]he [pollution] exclusion applies to bar coverage in the underlying case,” granted Scottsdale's motion for summary judgment in its entirety, and denied UCPA's motion to dismiss in its entirety. Without referencing Scottsdale's complaint or UCPA's counterclaims, the clerk of court entered the following formal judgment: “Defendant's Motion to Dismiss...
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