Oklahoma Court Addresses Time Element Pollution Exclusion

In its recent decision in Colony Insurance Company v. Bear Products, Inc., 2013 U.S. Dist. LEXIS 43716 (E.D. Okl. Mar. 26, 2013), the United States District Court for the Eastern District of Oklahoma had occasion to consider the application of a pollution exclusion containing a limited exception for specifically defined pollution events.

Colony insured Bear Products under a primary general liability policy for the period March 16, 2007 to March 16, 2008.  While the policy originally contained a total pollution exclusion, Bear paid an additional premium to have the pollution exclusion deleted and replaced with an endorsement titled Pollution Exclusion – Limited Exception for a Pollution Event.  This revised exclusion contained the standard pollution exclusion language barring coverage for bodily injury or property damage resulting from a discharge, dispersal, seepage, migration release or escape of “pollutants,” but contained an exception for a “pollution event” resulting “from waste transported, handled, stored, treated, disposed of, or processed at saltwater disposal wells or sediment ponds, operated by you in conformance with applicable laws, rules and regulations … .”  The endorsement defined “pollution event” as:

… the actual and accidental discharge, release or escape of pollutants directly from the place, container, system or media designed to hold or handle such "pollutants" which:

a.   Begins during the policy period,

b.   Begins at an identified time and place,

c. Ends, in its entirety, at an identified time within forty-eight (48) hours of the commencement of the discharge, dispersal, release or escape of the "pollutants",

d.   Is not a repeat or resumption of a previous discharge, dispersal, release or escape of the same pollutant from essentially the same source within twelve (12) months of a previous discharge, dispersal, release or escape,

e.   Does not originate from an "underground storage tank",

f.    Is not heat, smoke or fumes from a "hostile fire", and

g.   You have discovered the occurrence of such "pollution event" within seven (7) days of its commencement[.]

To be a "pollution event, the discharge, dispersal, release or escape of "pollutants" need not be continuous. However, if the discharge, dispersal, release or escape is not continuous, then all discharges, dispersals, releases or escapes of the same "pollutants" from essentially the same source, considered together, must satisfy Provisions a. through f. of this definition to be considered a "pollution event"[.]

Bear was named as a defendant in a class action regarding disposal of hazardous waste materials resulting from oil and gas well drilling operations.  The underlying complaint specifically alleged that beginning in 2003, and for a period of seven years, Bear and other defendants transported and disposed of hazardous waste materials at a disposal pit in the vicinity of plaintiffs’ homes.

The court agreed that the underlying complaint contained allegations of discharges of pollutants and thus initially fell within the pollution exclusion.  Bear argued, however, that it paid an additional premium for “pollution event” coverage, and that as such, Colony was obligated to defend it in the underlying action.  The court disagreed, noting that the “pollution event” exception to the exclusion is limited to discrete pollution events that happen during the policy period, that are not continuous in nature, and that are discovered within seven days.  Given that the use of the disposal site was alleged to have begun in 2003 – prior to the policy’s commencement – the first of the “pollution event” prongs was not satisfied.  The court further concluded that even if each separate transfer of materials to the disposal facility could be considered a separate event, these separate events would still be considered “repeat” events within a twelve (12) month period, which would not satisfy prong (d) of the definition of “pollution event.”  The court also held that Bear’s discharge of hazardous materials could not be considered “accidental” as required by the definition of “pollution event,” but instead was intentional conduct, even if the subsequent bodily injury and property damage was not intended.  

Videotaping Examinations for Discovery

In what circumstances will a court permit examinations for discovery to be videotaped?

J.M. v. Clouthier, 2013 ONSC 155 (S.C.J.)

This action arose out of allegations of historical sexual assault.  The defendant was in his 70s and had diabetes and high blood pressure, although he submitted evidence that he had no current health issues.  The plaintiff wished to videotape the defendant's examination for use at trial in case the defendant was not available to testify by the time of trial.  The defendant argued that the dynamic of the examination for discovery would change, forcing him to incur more cost in preparation time, and the editing and splicing of video to be shown at trial could be prejudicial to him.
The motion was brought under r. 34.19, which permits pre-trial examinations by videotape "by order of the court", rather than r. 36, which permits evidence to be taken de bene esse.  A witness examined under r. 36 may be examined, cross-examined and re-examined in the same manner as a witness at trial. 
Given the technology available, one could imagine that more examinations for discovery might be amenable to videotape, particularly as demonstrative evidence is readily accepted and the trier of fact is likely to be comfortable with and perhaps even absorb visual information more readily than reading in transcripts.
Given the technology available, one could imagine that more examinations for discovery might be amenable to videotape, particularly as demonstrative evidence is readily accepted and the trier of fact is likely to be comfortable with and perhaps even absorb visual information more readily than reading in transcripts.


Justice Hennessy allowed the motion.  Technical issues could be dealt with by the trial judge. The Court was not convinced there would be substantially more time or cost involved in videotaping the examination, and the video could be useful in terms of showing documents, photographs or charts.  There was a higher than normal probability that the defendant would not be available at trial given his age and health status.  The video was permitted under r. 34 rather than r. 36. 

Third Circuit Addresses Insured Status for Lessor of Commercial Auto

In its recent decision in Koons v. XL Insurance Company, 2013 U.S. App. LEXIS 5870 (3d. Cir. Mar. 25, 2013), the United States Court of Appeals for the Third Circuit, applying Pennsylvania law, had occasion to consider concepts of ownership and lessor liability in the context of a commercial auto liability policy.

The Koons decision involved two separate business entities with a common ownership.  Stephen Koons owned Miller Concrete and ran it as a sole proprietorship.  Miller Concrete’s sole business was selling and installing underground septic tanks.  Koons also was the sole shareholder of a separately run business, Ches-Mont Disposal, a waste collection enterprise.  In 2001, Miller Concrete purchased a trash disposal truck and immediately leased it to Ches-Mont.  While Ches-Mont did not actually make payments to Miller Concrete under the lease, there was no dispute that the truck was only used by Ches-Mont and was only useful to Ches-Mont’s business.  While the lease between Ches-Mont and Miller Concrete expired in 2004, Ches-Mont maintained sole and uninterrupted possession of the vehicle thereafter and, in fact, the Pennsylvania Department of Transportation continued to identify the vehicle as being owned by Miller Concrete but leased by Ches-Mont.  All vehicle maintenance and repair was performed by Ches-Mont rather than by Miller Concrete.  Ches-Mont was later involved in a corporate restructuring whereby it became a subsidiary of a holding company owned by Koons and two other investors.

The underlying lawsuit pertained the 2008 death of a Ches-Mont employee while operating the truck.  The employee’s estate sued Koons individually as the owner of the truck.  Ches-Mont was not named as a defendant, and the estate did not specifically identify Koons as a defendant based on his relationship with Ches-Mont.  Instead, Koons’ alleged liability was premised solely based on his purported ownership of the vehicle.  XL, as the auto insurer for Ches-Mont, denied coverage to Koons on the theory that he did not qualify as an insured under its policy.  That policy defined insured to be the Named Insured as well as “3. your [the Named Insured‟s] partners, joint venture members, executive officers, employees, directors, stockholders or volunteers while acting within the scope of their duties as such.”  The United States District Court for the Eastern District of Pennsylvania held in favor of XL on summary judgment, concluding that no reasonable jury could conclude that Koons had purchased the truck in his role as the owner of Ches-Mont and therefore he was not being sued for conduct committed while acting within the scope of his duties on behalf of Ches-Mont.

On appeal, the Third Circuit concluded that the lower court erred in holding that there was no evidence in the record from which a jury could conclude that that Koons purchased and leased the truck in his capacity as the founder and sole owner of Ches-Mont.  Looking to the facts alleged, the court reasoned that there was sufficient evidence from which a jury could infer that Koons’ purchase of the truck was in his capacity as the original founder and owner of Ches-Mont.  As the court explained:

The Truck is specially designed for waste disposal purposes; it is a trash truck. The Truck was purchased by Koons d/b/a Miller Concrete, even though Miller Concrete sold and installed septic tanks. At the time of purchase, Koons was also the sole owner of Ches-Mont Disposal, a waste disposal company. The fact that Koons purchased a specially designed trash disposal truck, and at the time owned both a septic tank company and a trash disposal company, would allow a reasonable jury to infer that he purchased the trash disposal truck "in his capacity as the founder and sole owner" of the trash disposal company, rather than for the benefit of the tank installment company.

The court found additional support for this potential inference based on the lease arrangement and the fact that the vehicle was at all times owned, operated and maintained by Ches-Mont rather than Miller Concrete.  These facts, explained the court, would allow a reasonable jury to infer that Koons was being sued in his capacity as an owned of Ches-Mont such that summary judgment in XL’s favor was inappropriate.  As the court stated, “[t]o conclude otherwise, we would have to hold that every reasonable jury would find that Koons had purchased the $136,000 trash disposal truck and provided it to the trash disposal company that he owned, without compensation, for reasons other than his ownership of the company. We are unwilling to do so.”

Amendments to the Minimum Maintenance Standards - Part 6

This week we continue our review of the amendments to the Minimum Maintenance Standards, which came into effect on January 25, 2013.

Part 6:  Sidewalks

The MMS were amended in February 2010 to require annual inspections of sidewalks for surface discontinuities and required treatment of surface discontinuities that exceeded two centimetres.  The standard has been amended to expressly provide that a surface discontinuity is deemed to be in a state of repair if it is less than or equal to two centimetres.  The standard also provides that sidewalks are deemed to be in a state of repair between annual inspections, provided that the municipality does not acquire actual knowledge of a surface discontinuity in excess of two centimetres.  It will be interesting to see the extent to which the constructive knowledge provision is applied in sidewalk cases.

Eleventh Circuit Allows Consideration of Extrinsic Evidence

In its recent decision in American Safety Indemnity Co. v. T.H. Taylor, 2013 U.S. App. LEXIS 5072 (11^thCir. March 14, 2013), the United States Court of Appeals for the Eleventh Circuit, applying Alabama law, had occasion to consider when and under what circumstances an insurer can rely on extrinsic evidence in determining whether a duty to defend is triggered.

American Safety insured T.H. Taylor under a commercial general liability policy.  T.H. Taylor had been hired as a general contractor to construct a residential home.  Prior to completion of the project, with approximately 20% of the project yet to be completed, the owners suspended construction.  As of that time, T.H. Taylor had been paid nearly the full value of the original budget.  T.H. Taylor and the owners were sued in several underlying lien actions filed by subcontractors and suppliers in Alabama state court.  In these suits, the owners asserted a cross-claim against T.H. Taylor, alleging a cause of action for fraud.  Specifically, the owners alleged that T.H. Taylor intentionally misrepresented the status of the construction project as well as how much the subcontractors and suppliers had been paid.  The cross-claim specifically alleged that T.H. Taylor made these representations, knowing them to be false, for the purpose of receiving an advance on a construction loan.

The state court dismissed the owners’ cross-claims on the basis of a provision in the construction contract requiring all disputes to be arbitrated.  The owners later commenced an arbitration proceeding against T.H. Taylor, but in doing so, the arbitration petition did not allege any specific causes of action, nor did it contain the specific assertions regarding T.H. Taylor’s intent to deceive.  Instead, the petition alleged only that T.H. Taylor presented requests for payment in an amount not equal to the work that actually had been performed.  American Safety took the position that the specific assertions in the cross-claims filed in state court precluded any finding of an “occurrence,” and that as such, it had no duty to defend.  T.H. Taylor, on the other hand, argued that American Safety could not look beyond the arbitration petition in determining whether it had a duty to defend.

The United States District Court for the Middle District of Alabama held in favor of American Safety, and on appeal, the Eleventh Circuit agreed.  The court noted that Alabama law requires that in determining a duty to defend, an insurer cannot rely solely on the theories of liability pled by a plaintiff, but instead must consider the specific factual assertions in a complaint.  If these factual assertions “could reasonably support a legal theory of recovery that is an insured risk under the policy, the insurer has a duty to defend the claim.”  The court further noted, however, that T.H. Taylor’s arbitration proceeding contained no specific legal theories or specific detail concerning the operative facts.  Under such circumstances, observed the court, Alabama law permits an insurer to look beyond the pleadings to examine other available evidence in determining a duty to defend.  As such, the court concluded that it was permissible for American Safety to have relied on the facts alleged in the underlying cross-claim in determining a duty to defend:

The principal determinant in a duty-to-defend inquiry is the state of the pleadings in the underlying litigation, and here, those pleadings did not cease to exist simply because of a change of forum from the state court to private arbitration. The arbitration proceeding was ordered by the court and was ancillary to the state court litigation. It constituted a continuation of the same dispute between the same parties arising out of the same facts. Additionally, even if the arbitration complaint is viewed as somehow displacing the owner's cross claim as well as the claims made by the plaintiffs in the state court litigation, such that the arbitration complaint became the principal pleading driving the duty-to-defend issue, those underlying pleadings in the state court would still be admissible evidence with respect to the proper interpretation to be made of the non-specific complaint in arbitration.

As such, and having agreed that the allegations in the cross-claims supporting a conclusion of intentional rather than accidental conduct, the Eleventh Circuit agreed that American Safety had no duty to defend. 

5th Circuit Holds Additional Insured Coverage Not Limited by Contract

In its March 1, 2013 decision in In re Deepwater Horizon, 2013 U.S. App. LEXIS 4512 (5th Cir. Mar. 1, 2013), the Fifth Circuit had occasion to consider the extent to which an insurer’scoverage obligations to an additional insured are tied to the contractual indemnity owed by its named insured to that additional insured.  Transocean owned the Deepwater Horizon, a semi-submersible, mobile offshore drilling unit located in the Gulf of Mexico.  The Deepwater Horizon sank into the Gulf after an onboard explosion.  At the time of the explosion, the Deepwater Horizon was engaged in drilling activities pursuant to a Drilling Contract between Transocean and BP.  BP subsequently faced certain pollution-related liabilities arising out of the sinking of the drilling unit, and BP tendered those liabilities to Transocean’s insurers.  The insurers denied coverage arguing that BP did not qualify as an additional insured under the policies’ language, spawning litigation between BP and the insurers in the U.S. District Court for the Eastern District of Louisiana.

Transocean’s insurers successfully argued in the lower court that its additional insured obligations to BP were limited by the terms of a Drilling Contract between Transocean and BP.  The Contract required that BP “shall be named as additional insureds in each of [Transocean's] policies, except Workers' Compensation for liabilities assumed by [Transocean] under the terms of this Contract.”  With respect to pollution-related liabilities, the Contract contained a separate indemnity provision which required BP to assume full responsibility for any pollution or contamination originating below the surface of the water, whereas Transocean agreed to indemnify BP for pollution or contamination originating on or above the surface of water.  The lower court concluded that because the Drilling Contract did not require Transocean to assume BP’s pollution liabilities pertaining to spills originating beneath the surface of the water, Transocean owed no indemnity to BP for the claim and, correspondingly, BP was not an additional insured with respect to those specific pollution liabilities.

The Fifth Circuit reversed, noting that under Texas law, which governed the interpretation of the policies, “where an additional insured provision is separate from and additional to an indemnity provision, the scope of the insurance requirement is not limited by the indemnity claims.”  The Fifth Circuit found that the insurance provision in the Drilling Contract was separate and discrete from the indemnity provisions in the Contract.  As such, BP’s rights as an additional insured were not limited by the contractual liabilities actually assumed by Transocean.  In other words, even though Transocean may not have an indemnity obligation to BP for underwater pollution events, this contractual indemnity obligation cannot be read into the insurance policies in order to limit the scope of coverage afforded to BP by the insurers.  Rather, only the insurance policies can impose limitations on coverage.  Thus, because the policies issued to Transocean did not restrict the scope of additional insured coverage to the indemnity assumed by Transocean, the court concluded that BP was entitled to coverage for subsurface pollution liabilities, notwithstanding the indemnity provisions in the Drilling Contract.

Amendments to the Minimum Maintenance Standards - Part 5

This week we continue our review of the amendments to the Minimum Maintenance Standards, which came into effect on January 25, 2013.

Part 5:  New Ice Formation and Icy Roadways Standard

The MMS previously required municipalities to treat icy roadways within a prescribed time after becoming aware that the road was icy.  This remains the standard for roads that have become icy but is now part of a larger, more comprehensive standard for ice prevention and treatment. 

The standard for prevention of ice formation requires municipalities to monitor the weather and patrol as described above.  If, as a result of these activities, a municipality determines that there is a substantial probability of ice forming on a roadway, it must treat the road to prevent ice formation within a specified time, starting from the time it determines is appropriate to deploy resources for that purpose.  Treating a road means applying material, including but not limited to salt, sand or a combination. 

The ice prevention standard provides that roads are deemed to be in a state of repair until the time that the municipality becomes aware that the roadway is icy or the applicable time for ice prevention expires, whichever is earlier.  This should be read in conjunction with the constructive knowledge provision.  The icy roadways standard has also been amended to provide that roads are deemed to be in a state of repair until the applicable time for treatment expires.

As with the snow accumulation standard, the ice prevention standard is a response to the narrow interpretation of the icy roadways standard in Giuliani.  The discretion afforded to municipalities to determine when to deploy resources to prevent ice formation may be subject to challenge in future claims.  Nonetheless, compliance with the standard will assist in defending claims where it is alleged that a municipality failed to anticipate icy road conditions.