Scottsdale Ins. Co. v. Morrow Land Valley Co.

• Decision Date: 31 May 2012
• Docket Number: No. 11–905.,11–905.
• Parties: SCOTTSDALE INSURANCE COMPANY, Appellant v. MORROW LAND VALLEY COMPANY, LLC, and Ben Cain, Appellees.
• Court: Arkansas Supreme Court

2012 Ark. 247

411 S.W.3d 184

SCOTTSDALE INSURANCE COMPANY, Appellant

v.MORROW LAND VALLEY COMPANY, LLC, and Ben Cain, Appellees.

No. 11–905.

Supreme Court of Arkansas.

May 31, 2012.

Mark D. Wankum, Anderson, Murphy & Hopkins, L.L.P., Little Rock, for Appellant.

L. David Stubbs, Fayeteville, for Appellees.

KAREN R. BAKER, Justice.

Appellant, Scottsdale Insurance Company (Scottsdale), appeals a grant of partial summary judgment in favor of Morrow Valley Land Company, LLC (Morrow Valley), and Ben Cain (Morrow Valley and Cain referred to collectively herein as appellee). In granting summary judgment, the Washington County Circuit Court concluded that Scottsdale had a duty to defend appellee as its insured in an action for nuisance and trespass. On appeal, Scottsdale claims that the circuit court erred in granting summary judgment on the duty-to-defend claim because the pollution-exclusion provision in the insurance policy is unambiguous and excludes defense of pollutionclaims. On cross-appeal, appellee asserts that the circuit court erred in denying in part its motion for attorney's fees. Our jurisdiction is pursuant to Arkansas Supreme Court Rule 1–2(b)(1), (2), and (5) (2011). We affirm on direct appeal and dismiss the cross-appeal.

On September 11, 2009, sixty-six plaintiffs filed the underlying lawsuit in Warren County, Tennessee, against Ben Cain, Morrow Valley Land Company, LLC, Hale Mountain Land Company, LLC, Tyson Foods, Inc., Tyson Farms, Inc., and Sunbest Farms, Inc.¹ The complaint alleged that the defendants owned and operated a concentrated animal-feeding operation (CAFO) in Morrison, Tennessee, which included ten poultry houses with between 400,000 and 600,000 chickens at any given time. The plaintiffs alleged that the defendants' conduct constituted a public and private nuisance, as well as a continuing trespass, under Tennessee law.

Appellee provided notice of the lawsuit to Scottsdale on September 21, 2009, and demanded that Scottsdale defend and indemnify it based on its insurance coverage with Scottsdale. In 2008, Scottsdale issued a commercial general-liability (CGL) insurance policy to Morrow Valley on its business described as “Broiler Chicken Houses.” The policy's effective dates were from December 9, 2008, to December 9, 2009 (Policy No. CLS1562044). The initial policy included only the business located in Morrison, Tennessee. On June 1, 2009, Scottsdale added Morrow Valley's business located in Waldron, Arkansas, to the policy.

Scottsdale notified appellee by letter dated October 1, 2009, that it would not provide defense or indemnification coverage basing its denial in part on the pollution-exclusion provision contained in the insurance policy.

On December 22, 2009, appellee filed a petition for declaratory judgment in the Washington County Circuit Court, which it amended on January 5, 2010, adding Scottsdale's insurance agent, Regions Insurance, Inc. (Regions), and seeking damages for breach-of-contract claims against Scottsdale and Regions. Scottsdale filed an amended and substituted answer to appellee's second amended petition on July 9, 2010.

On June 8, 2010, appellee moved for summary judgment. Scottsdale filed a response to appellee's motion for summary judgment on August 13, 2010. The circuit court conducted a hearing on the motion on October 1, 2010. On April 6, 2011, the court granted partial summary judgment to appellee on the duty-to-defend claim. In granting partial summary judgment in favor of appellee, the circuit court, citing to Crisler v. Unum Insurance Company of America, 366 Ark. 130, 233 S.W.3d 658 (2006), found “that Arkansas has the ‘most significant relationship’ to the issues at hand; therefore, Arkansas law governs the insurance contract entered into by the parties.” Relying on Anderson Gas & Propane, Inc. v. Westport Insurance Corporation, 84 Ark.App. 310, 318, 140 S.W.3d 504, 509 (2004), the court also found that the meaning of the phrase “pollution exclusion” was “ ‘fairly susceptible to more than one reasonable interpretation and, thus, is ambiguous' under Arkansas law.” The court stated that the duty to defend, therefore, arose because a possibility of coverage existed due to the ambiguity in the policy concerning whether the “pollution exclusion” covered the activities claimed in the underlying lawsuit. Thus, the court concluded that there was no genuine issue of material fact as to whether Scottsdale had a duty to defend the underlying suit on behalf of appellee because the pollution exclusion was ambiguous under Arkansas law. The court denied appellee's motion for summary judgment on the claims that Scottsdale had a duty to indemnify appellee and acted in bad faith in denying appellee's request to defend and indemnify, finding that there were genuine issues of material fact on both claims.

On April 12, 2011, appellee filed a motion for supplementary relief, requesting attorney's fees and expenses related to its defense of the lawsuit. Appellee requested attorney's fees for three firms or attorneys: (1) $87,397.90 in fees and expenses incurred by the Leader, Bulso & Nolen Firm, of Nashville, Tennessee; (2) $4,077.89 in fees and expenses incurred by Steven Palley with Howrey, LLP, of Washington, D.C.; and (3) $72,033.24 in fees and expenses incurred by David Stubbs, General Counsel of Morrow Valley, of Lincoln, Arkansas. On April 15, 2011, Scottsdale filed a motion for Rule 54(b) certification and to stay the action pending appeal.

The circuit court held two hearings, and on June 16, 2011, the court issued two orders—one order addressing the two pending motions (Fee Order) and one amended and substituted order granting and denying summary judgment in part (Amended Order). The Fee Order agreed to grant appellee's legal fees and expenses as to the first two firms, but the court declined to award attorney's fees based on Stubbs's representation. In its June 16, 2011 Fee Order, the court stated that it would not award fees charged by Stubbs because Stubbs was in-house counsel for Morrow Valley, as well as other entities owned by Richard Latta; he was paid a salary for his role as in-house counsel; the evidence did not show that the fees Stubbs charged were related to the duty to defend and were unrelated to his capacity and role as in-house counsel; and the evidence did not show that the fees were reasonable and customary.

In the Fee Order, the court also granted Scottsdale's motion for Rule 54(b) certification and to stay the case pending appeal, upon Scottsdale's posting of a supersedeas bond in the amount of $91,475.79. The court stated that it would enter an amended and substituted order granting partial summary judgment and including the Rule 54(b) certificate.

In the Amended Order, the court added a Rule 54(b) certificate, finding “that an immediate, interlocutory appeal on the order finding a duty to defend in the above order is necessary in order to avoid hardship and injustice that will result if an appeal is not allowed.”

Scottsdale filed a notice of appeal on June 21, 2011, from the Amended Order. Appellee filed a notice of cross-appeal on June 24, 2011, from the Amended Order and the Fee Order regarding its request for attorney's fees and expenses paid to Stubbs.

For reversal, Scottsdale argues that (1) Tennessee law, not Arkansas law, governs the interpretation and application of the Scottsdale CGL policy; and (2) under either Tennessee or Arkansas law, the pollution exclusion unambiguously applies and operates to preclude coverage and defense obligations for the persistent and widespread industrial pollution released from an industrial-poultry farm.

I. Choice of Law

In its order granting partial summary judgment, the circuit court found that Arkansas has the most significant relationship to the issues in the case and, therefore, Arkansas law governed the insurance contract between the parties. The court found that the parties contracted for the insurance in Arkansas, they negotiated the policy in Arkansas, that the place of performance was Arkansas, and that the domicile of both parties was Arkansas. The court acknowledged that the poultry farm involved in the Tennessee litigation was located in Tennessee, but nonetheless concluded that Arkansas law applied to the insurance policy.

We must first determine whether the insurance contract should be analyzed under our choice-of-law rules. Crisler, 366 Ark. at 132, 233 S.W.3d at 660. If we conclude that the contract does not contain an effective choice of law by the parties, we apply the significant-relationship analysis. Id. Because there are no disputed facts, our standard of review is de novo.

We first look at the contract at issue, Policy No. CLS1562044. Appellee asserts on appeal that the insurance policy contains an effective choice-of-law designation, directing us to the endorsement that states that Scottsdale “will submit to the jurisdiction of any court of competent jurisdiction within the United States of America” at the request of Morrow Valley. The endorsement further provides that “[a]ll matters which arise will be determined in accordance with the law and practice of the Court. In a suit instituted against any one of them under this contract, [Scottsdale] agrees to abide by the final decision of the Court or of any Appellate Court in the event of an appeal.” Scottsdale correctly counters that appellee first raises this issue on appeal; therefore, this court is precluded from considering it. See Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005). Appellee never raised and developed the argument that the service-of-suit clause was also a choice-of-law designation before the circuit court, and the circuit court did not have an opportunity to rule on the issue. We will not address an argument raised for the first time on appeal. Id.; see also Brown v. Kelton, 2011 Ark. 93, 380 S.W.3d 361.

The insurance policy does not contain an effective...