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From Health Law Daily, June 14, 2013

Duty to Defend Exists for Potential Liability in One of Three Environmental Damage Suits

By Michael J. Bartholomew, J.D., LL.M.

In two separate actions brought against it by the same insured, an insurer was obliged in one case, but not in the other, to provide a defense, the Eighth Circuit ruled (Doe Run Resources Corp. v. Lexington Insurance Co., No. 12-2215 and No. 12-3498, June 13, 2013, Loken, J.).

Background. Doe Run Resources Corporation, a large lead producer, operated two mills near Viburnum, Missouri and one near Leadwood, Missouri. At the Viburnum site, it extracted and crushed ore containing lead and other metals from the mines, processed the crushed ore at a mill near the mine, and either sold the resulting lead concentrate on the world market or transported it by truck to its smelter for processing into ingots, bars, and other forms. At the Leadwood site, Doe Run initially deposited the remaining material—chat and tailings—into a 500-acre waste pile called the Leadwood Pile. Doe Run periodically took chat and tailings from the Leadwood Pile for commercial use or sale as agricultural lime or construction materials and other uses.

In 2006, Nadist, LLC, a neighbor in Viburnum, sued Doe Run, alleging environmental property damage resulting from the mine and mill operations (Nadist lawsuit). In October 2008, the State of Missouri intervened as plaintiff, asserting the same claims for relief under state and federal environmental laws. In September 2009, Doe Run gave its insurer, Lexington Insurance Company, notice of the Nadist lawsuit and demanded “full defense coverage” under its CGL policies.

In September 2009, suit was brought on behalf of a class of minors seeking damages for Doe Run’s tortious release of lead and other toxic chemicals from the Leadwood Pile (Briley lawsuit). In April 2010, 20 individual plaintiffs filed suit against Doe Run also seeking damages for Doe Run’s tortious operation of the Leadwood Pile (McSpadden lawsuit). Doe Run tendered a defense from Lexington for both of these actions.

Lexington denied liability for the Nadist lawsuit because, it argued, it had no duty to defend because the policies’ absolute pollution exclusions clearly barred coverage of the claims asserted in the Nadist lawsuit, and the lower court agreed.

Again, Lexington disclaimed coverage for the Briley and McSpadden lawsuits, and the lower court agreed. Doe Run appealed.

Pollution exclusions. The policies issued between 1998 and 2004 excluded from coverage “bodily injury or property damage … caused by, contributed to or arising out of the actual or threatened discharge, dispersal, release, or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, pollutants or contaminants into or upon the land, the atmosphere or any course or body of water, whether above or below ground … whether or not such is sudden or gradual, and whether or not such is accidental, intended, foreseeable, expected, fortuitous or inevitable, and wherever such occurs.”

The policies issued from November 2004 through 2006 excluded “Bodily injury” or “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 at any time. Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminate including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed.

Decision. In affirming judgment for Lexington that it had no duty to defend in the Nadist lawsuit, the court took particular note of the allegations in the Nadist lawsuit, which reflected, it saw, a typical complaint for relief from environmental property damage. Also, it explained, each of the six tort causes of action, including the common law trespass and nuisance claims, were entirely premised on allegations that Doe Run was liable to Nadist for causing the “release” or “discharge” of “hazardous wastes,” “toxic substances,” and “contaminants,” which duplicated in effect the language of the policies’ absolute pollution exclusions.

Likewise, the court, in a separate proceeding, reached a similar conclusion when ruling on the duty to defend in the Briley lawsuit, noting that every tort cause of action asserted in the Briley lawsuit was entirely premised on allegations that Doe Run was liable for causing the “release” of “hazardous wastes” and “metals and other toxic substances” from the Leadwood Pile, which again mirrored the language of the CGL policies’ absolute pollution exclusions.

However, in reviewing the McSpadden complaint, the court observed that the complaint alleged that the distribution of these materials harmed the McSpadden plaintiffs, without specifying how that harm occurred. Further, the court noted that the McSpadden complaint alleged Doe Run caused bodily injury or property damage when it left the Leadwood Pile open and available for use by the general public without posting warning signs concerning the dangers of lead exposure, allegations that the court reasoned resembled an attractive nuisance claim against the landowner, Doe Run.

Because Missouri case law had established that the duty to defend arose whenever there was a potential or possible liability to pay based on the facts at the outset of a case and was not dependent on the probable liability to pay based on the facts ascertained through trial, the court concluded that the McSpadden lawsuit included allegations and claims that were not clearly barred from coverage by the pollution exclusions in the Lexington policies.

Therefore, the court found that Lexington had a duty to defend the McSpadden lawsuit. In addition to affirming its judgment in the action concerning the Nadist lawsuit (a separate proceeding), the court also affirmed the judgment dismissing Doe Run’s claims relating to the Briley lawsuit, and reversed the judgment dismissing Doe Run’s claims relating to the McSpadden lawsuit.

The case numbers are 12-2215 and 12-3498.

Attorneys: No. 12-2215: Ronald Lee Hack (Evans & Dixon) and Marc D. Halpern (Abelson & Herron) for Doe Run Resources Corp.; Sarah H. Dearing (Hinkhouse & Williams) and Robyn Fox (Pitzer & Snodgrass) for Lexington Insurance Co. No. 12-3498: Jamie L. Boyer (Stinson & Morrison) and Marc D. Halpern (Abelson & Herron) for Doe Run Resources Corp.; Sarah H. Dearing (Hinkhouse & Williams) and Robyn Fox (Pitzer & Snodgrass) for Lexington Insurance Co.

Companies: Lexington Insurance Co.; Doe Run Resources Corp.

MainStory: TopStory CGLInsuranceNews PollutionNews ExclusionsCoverageNews ArkansasNews IowaNews MinnesotaNews MissouriNews NebraskaNews NorthDakotaNews SouthDakotaNews

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