INSURANCE-RELATED COURT CASES
Digested from case reports published online
A sticky situation
Omega Protein, Inc., entered into a master service contract with Accu-fab and Construction, Inc., to perform welding and other fabrication work at its facility in Moss Point, Mississippi. Under the contract, Accu-fab was required to have commercial general liability insurance that named Omega as an additional insured. Accu-fab purchased a $1 million primary policy issued by Colony Insurance Company and a $5 million excess policy issued by Evanston Insurance Company.
According to the agreement between Omega and Accu-fab, Accu-fab was to perform welding and other fabrication work on a large metal storage tank used for the temporary storage of stickwater. Stickwater is a liquid composed of water, fish oil, and fish solids. On July 28, 2014, an explosion occurred at the Omega plant while certain Accu-fab workers were welding and grinding on a large metal tank that was used for the temporary storage of stickwater. As a result of the explosion, one of Accu-fab’s workers, Jerry Lee Taylor II, was killed, another was seriously injured, and others suffered less serious injuries.
Multiple lawsuits were filed against Omega in the United States District Court for the Southern District of Mississippi in Gulfport. Colony Insurance Company filed a declaratory judgment action in Jackson County Circuit Court seeking a declaration that it did not cover bodily injuries arising out of the Moss Point facility explosion.
Evanston Insurance Company also intervened, seeking a declaration of no coverage for the same injuries. Evanston issued a $5 million excess liability policy that provided coverage after Colony’s $1 million policy was exhausted. Because Colony settled one of the underlying personal injury cases for its policy limits, Omega sought excess coverage from Evanston for the injuries that occurred at its plant. A special master was appointed and the trial court granted Evanston’s motion for summary judgment, finding that the pollution exclusion in the insurance contract barred coverage. Omega appealed the grant of summary judgment.
Taylor’s estate sued Omega alleging that the explosion was caused by the ignition of explosive gases inside the stickwater storage tank. Omega tendered defense and indemnity of Taylor’s estate’s lawsuit to Colony, as primary insurer, and Evanston, as following-form excess insurer. Colony filed a declaratory judgment action, seeking a declaration of no coverage for bodily injury based on the pollution exclusion in its policy. Evanston intervened and denied coverage based on, among other things, the substantially similar pollution exclusion in its own policy. Omega and Taylor’s estate settled, and Colony contributed $1 million, an amount equal to the policy limits.
In the declaratory judgment action, Omega filed motions for partial summary judgment, alleging that the pollution exclusion did not apply and that the primary noncontributory clause was ambiguous and thus inapplicable to Omega in connection with the explosion. Evanston also filed a motion for summary judgment, arguing that Omega was not an additional insured under the Colony policy and likewise was not an additional insured under the excess policy issued by Evanston. Evanston further argued that Omega was not entitled to indemnity because there were no factual allegations of negligence against Accu-fab in the underlying cases and also because its own pollution exclusion barred Omega’s claims.
A special master was appointed to address the motions for summary judgment and recommended that the trial court find that coverage was barred under the pollution exclusion and that Omega qualified as additional insured under the policy in addition to Evanston’s coverage’s being triggered by the $1 million payment by Colony. The trial court granted Evanston’s summary judgment motion, and Omega appealed.
On appeal, Omega contended that the trial court erred by adopting the findings of the special master, who found that the pollution exclusion in the Evanston policy issued to Accu-fab applied to bar coverage of the personal injury claims that arose from the July 2014 explosion. The Evanston pollution exclusion states:
This policy shall not apply:
1. To “Ultimate Net Loss”
a. arising out of or contributed to in any way by the actual, alleged or threatened discharge, dispersal, release, migration, escape, or seepage of pollutants. … As used in this exclusion, pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes material, to be recycled, reconditioned, reclaimed or disposed of.
Omega asserted that the gasses emitted from the stickwater tank were not irritants or contaminants because they are found naturally, albeit in small quantities, in the ambient air. Thus, Omega contended, they cannot be pollutants. They further argued that the gasses in the stickwater tank were not irritants or contaminants as defined under the pollution exclusion because they were properly contained within the tank and were not contacting, contaminating, or irritating anything. Evanston argued that gasses emitted from the tank fit squarely within the pollution exclusion language.
The pollution exclusion at issue is susceptible to more than one reasonable interpretation and therefore was ambiguous. Accordingly, it must be construed in favor of coverage. The trial judge therefore erred by adopting the special master’s finding that the pollution exclusion applied.
On cross-appeal, Evanston argued that coverage of Omega should not have been triggered under the insurance contract at all. Evanston relied solely on the Mississippi Supreme Court’s opinion in Colony Insurance Co. v. First Specialty Insurance Corp. Evanston’s reliance, however, was misplaced.
Because no adjudication of fault or negligence was attributed to Accu-fab, Evanston failed to prove that Omega was not covered under the Evanston excess liability policy. Therefore the trial court erred by finding that Omega qualified as an additional insured under the Evanston policy.
The state supreme court reversed the trial court’s grant of summary judgment and remanded the case for further proceedings.
Omega Protein, Inc., v. Evanston Insurance Company—Supreme Court of Mississippi—January 20, 2022—No. 2020-CA-01097-SCT.