Waste Mgmt., Inc. v. Aig Specialty Ins. Co.
| Decision Date | 28 March 2019 |
| Docket Number | Civil Action No. 4:16-CV-03676 |
| Citation | 377 F.Supp.3d 700 |
| Parties | WASTE MANAGEMENT, INC. and Waste Management Hawaii, Inc., Plaintiffs, v. AIG SPECIALTY INSURANCE COMPANY f/k/a Chartis Specialty Insurance Company, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Donald Hamilton Kidd, Perdue & Kidd, Houston, TX, Joseph P. Thacker, Brouse McDowell LPA, Naples, FL, Stacy R. Cameron Berliner, Brouse McDowell LPA, Cleveland, OH, for Plaintiffs.
Brett Grindrod, John F. O'Connor, Roger E. Warin, Steptoe Johnson LLP, Washington, DC, Thomas Scott Flynn, Law Offices, Richardson, TX, Ellen Lewis Van Meir, Thompson Coe et al., Dallas, TX, for Defendant.
This insurance dispute stems from a pollution event on the Hawaiian island of Oahu and the ensuing criminal proceedings. In particular, the parties dispute whether the insurer had a duty to defend Plaintiffs in those criminal proceedings. The parties have filed cross motions for summary judgment [Doc. Nos. 42 & 48]. For the reasons set forth below, the Court grants the motion filed by the insurer, AIG Specialty Insurance Company ("AIG") [Doc. No. 48], and denies the motion filed by the insureds, Waste Management, Inc. ("WMI") and Waste Management Hawaii, Inc. ("WMH") (collectively "Waste Management") [Doc. No. 42].
Rainstorms hit Oahu in December 2010 and January 2011, leading to flooding in the Waimanalo Gulch Sanitary Landfill ("Landfill").1 Waste from the Landfill, including syringes, blood vials, catheters, and other medical waste, flowed into the Pacific Ocean and washed up on nearby beaches.2 The Landfill is operated by WMH.3
In January 2011, within a few weeks of the last storm, the United States Environmental Protection Agency ("EPA") issued an Administrative Order on Consent for Removal Action ("AOC").4 The AOC, which WMH agreed to, ordered WMH to take certain actions and produce information to the EPA in order to respond to the pollution event.5 The costs to defend and to implement the AOC are not at issue in the pending motions. AIG had no role in the AOC, and Waste Management does not contend that it should have. Nevertheless, as will be seen below, the AOC is part of Waste Management's overall position regarding the duty to defend the criminal case described below. In April 2011, the United States Department of Justice ("DOJ") began a grand jury investigation into the pollution from the Landfill.6 In August 2011, the EPA notified WMH "that the response work set forth in the AOC is completed to the satisfaction of EPA."7
In December 2011, Waste Management gave its first notice of a potential claim to AIG.8 The notice stated that "THIS IS NOTICE ONLY AS WE ARE NOT YET SURE THIS WILL EXCEED OUR $ 5 M[I]LL[I]ON SELF-INSURED RETENT[I]ON."9 In February 2013, WMH and the DOJ entered a tolling agreement for civil claims under the Clean Water Act.10 In July 2013, the DOJ notified Waste Management that "[i]t is our position that this case is appropriately resolved with a criminal resolution, including felony offenses" and offered a plea agreement.11
In April 2014, WMH and two WMH employees were indicted pursuant to a 13-count indictment.12 Among other charges, the indictment alleged in Count 9 the offense of "knowing discharge of pollutants into a water of the United States, in violation of an [National Pollutant Discharge Elimination System] Permit, and aiding and abetting the same" under 18 U.S.C. § 213 and 33 U.S.C. §§ 1311(a), 1319(c)(2)(A).14 Under 33 U.S.C. § 1311(a), "the discharge of any pollutant by any person" is unlawful except when done in compliance with certain enumerated sections. Under 33 U.S.C. § 1319(c)(2)(A) :
In Count 9, the indictment alleged that as a January 2011 rainstorm approached, one of the WMH employees decided to leave a manhole open within the Landfill to function as an overflow drain.15 When the storm arrived, according to the indictment, the area of the Landfill near the manhole flooded, and millions of gallons of contaminated water moved through the manhole, into a pipe, and, after a series of steps, into the Pacific.16 As stated above, syringes, blood vials, catheters, and other waste were then found in areas and beaches near the Landfill.
In July 2013, AIG denied coverage for "any criminal proceedings, criminal fines, or criminal penalties ..., including legal fees incurred in connection with the U.S. Attorney General's grand jury investigation."17 In November 2015, AIG again denied coverage for the criminal proceedings and refused to reimburse WMH for its criminal defense costs.18 The DOJ informed WMH in August 2016 that it intended to file a civil complaint seeking civil penalties and injunctive relief.19 In October 2016, AIG agreed to defend WMH from the civil claims the DOJ eventually files, subject to a reservation of rights and the self-insured retention.20 Consequently, it is only the criminal case that is at issue here.
AIG (then known as Chartis Specialty Insurance Company) issued a claims-made "Pollution Legal Liability Select Policy" to WMI for a policy period running from January 1, 2011, to January 1, 2014 (the "Insurance Policy").21 The parties have stipulated that WMH also qualifies as an "Insured" under the Insurance Policy.22 The relevant coverage provisions had a limit of $ 50 million for each incident and a self-insured retention of $ 5 million.23
Coverage D of the Insurance Policy states:
[AIG agrees to] pay on behalf of the Insured, Loss that the Insured becomes legally obligated to pay as a result of a Claim for Clean-Up Costs resulting from a Pollution Condition , beyond the boundaries of the Insured Property .... (bold in the original.)24
Coverage E(2) states:
[AIG agrees to] pay on behalf of the Insured, Loss that the Insured becomes legally obligated to pay as a result of a Claim for Bodily Injury or Property Damage resulting from a Pollution Condition migrating from or through the Insured Property ....25
The Insurance Policy's duty-to-defend provision states:
"Claim" is defined as:
a written demand received by the Insured alleging liability or responsibility and seeking a remedy on the part of the Insured for Loss under Coverages A through I.27
"Loss" is defined as:
"Clean-Up Costs" are defined as:
reasonable and necessary expenses, including legal expenses incurred with [AIG's] written consent ..., for the investigation, removal, treatment including in-situ treatment, remediation including associated monitoring, or disposal of soil, surf ace water, groundwater, ... or other contamination ... [t]o the extent required by Environmental Laws ....29
"Environmental Laws" are defined as:
any federal, state, provincial or local laws (including, but not limited to, statutes, rules, regulations, ordinances, guidance documents, and governmental, judicial or administrative orders and directives) that are applicable to the Pollution Condition .30
The Insurance Policy contains two relevant exclusions:
This Policy does not apply to Claims or Loss:
Waste Management contends that the criminal proceedings fall within Coverages D and E(2), obligating AIG to defend. AIG has taken the position that those defense costs are not covered because there was no Claim seeking Loss and, alternatively, because one or both of the exclusions described above apply.
Summary judgment is warranted "if the movant shows that there is no genuine...
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