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An event can include unintentional physical injury caused by intentional developmental activity



IN Employers Mutual Casualty Company v. Tiger Creek Development, Inc., David Erickson and Cherry Pease, no. 4: 21-CV-65 (CDL), United States District Court, MD Georgia, Columbus Division (May 25, 2022) asked the USDC to determine whether Tiger Creek Development, Inc. and David Erickson’s Liability Insurance cover a claim arising from their construction project as allegedly caused sediment deposits to contaminate Cherry Peas’ dust.

In the underlying lawsuit in the state, Pease claimed that Tiger Creek and Erickson’s work on adjacent property caused runoff that polluted and increased sediment deposits in her pond and damaged her property. Employers Mutual Insurance Company sought a summary judgment over its declaratory judgment claiming that it has no obligation to defend or indemnify Tiger Creek or Erickson for the claims Pease asserted in the action of the underlying state court

FACTUAL BACKGROUND

Tiger Creek began developing properties adjacent to Pease’s property in 2018. Tiger Creek’s work required it to remove trees and vegetation from its property. After Tiger Creek began to develop, Pease noticed an increase in dirt, mud and excess water flowing into the creek and pond on her property. Pease also noticed discoloration in her pond, sand deposits at the mouth of her pond and along the banks of her creek and erosion. Pease believed that the problems with her stream and pond were due to runoff caused by Tiger Creek’s development activities on the neighboring property.

Pease claimed that Tiger Creek’s clearing of trees and vegetation allowed sediment to wash down the hill on her property. In December 2018, Pease Tiger Creek and Tiger Creek owners, Erickson, announced her concerns. Pease met with a Tiger Creek representative in 2019 and 2020 to discuss her concerns. Erickson attended the 2020 meeting and offered to remove the sand from Pease’s pond but Pease did not accept his offer. Tiger Creek and Erickson notified their insurer of Pease’s claim on June 25, 2020, and Employers Mutual sent a letter to Tiger Creek reserving rights. Pease filed the underlying lawsuit in the Superior Court of Muscogee County, Georgia on November 5, 2020.

Employers Mutual’s insurance provides coverage in the event of property damage caused by a covered event.

According to the policy, an incident is defined as “an accident, including continuous or repeated exposure to essentially the same general harmful conditions.” The insurance also states that the insurance does not apply to “pollutants”, which is defined as property damage that occurs through “actual, alleged or threatened” emissions of pollutants. “Pollutants” are defined as “all solid, liquid, gaseous or thermal irritants or pollutants, including smoke, steam, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, refurbished or recycled.”

DISCUSSION

Employers Mutual claims that there is no coverage here under its policy for three independent reasons: 1) there was no covered event, 2) even if there was a covered event, the pollution exemption excludes coverage, and 3) Erickson and Tiger Creek announced late by Pease’s claim.

Was it an event?

Employers Mutual claimed that this did not happen because Tiger Creek’s alleged contamination of Pease’s dust was not an accident. The policy does not define “accident”, but Georgia law provides that an “accident” in an insurance context is “an unexpected event rather than one that occurs by intent or design.” Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., Inc.707 SE2d 369, 371 (Ga. 2011) (cited) City of Atlanta v. St. Paul Fire & Marine Ins. Co.498 SE2d 782, 784 (Ga.Ct.App. 1998)).

The USDC concluded that an event, as defined by the insurance, may involve accidental physical damage caused by intentional developmental activity. Although not quoted by either party, the Supreme Court of Georgia has ruled in American Empire Surplus Lines Insurance Co. v. Hathaway Development Co., 707 SE2d 369 (Ga. 2011) proved to be instructive for the USDC. IN Hathaway, the court found that a subcontractor’s negligent installation of pipes, which caused damage to a neighboring property, was an “accident” and thus an “event” under current insurance. The Supreme Court of Georgia rejected the argument that the subcontractor’s actions could not be events because they were performed intentionally, arguing that an intentional act, performed through negligence, is an accident if the effect is not the intended or expected result; that is, the result would have been different if the intentional act had been performed correctly.

Thus, the USDC concluded that the sediment runoff constitutes an “occurrence” under the policy, but that did not resolve the issues presented to the court.

Does the exclusion of pollutants apply?

Employers Mutual argued that even if the runoff is an event, the policy’s exclusion of exclusion excludes coverage. No one questioned that sediment runoff would be “pollution” as defined in the policy.

The USDC also noted that the exclusion does not make the insurance coverage under the insurance illusory. All policy exceptions limit coverage. That is their purpose. However, limiting the circumstances for which coverage is provided does not make the coverage illusory. Employers Mutual’s policy certainly covers other events that may arise from its insured’s land development activities than depositing sediment runoff in an adjacent dam.

Furthermore, the insured here could not reasonably have expected that their insurance would have covered sediment runoff when the insurance contains a clear exception to the contrary. As a result, the USDC concluded that Employers Mutual is entitled to a declaratory judgment that Pease’s claims in the underlying lawsuit against Tiger Creek and Erickson are excluded from coverage under the insurance.

CONCLUSION

Employers Mutual’s claim for summary judgment was granted and a declaratory judgment was issued in favor of Employers Mutual that it has no obligation to provide coverage for the claims made in the underlying state court’s action involving the defendants.

Contrary to what people who are insured hope, no insurance covers all possible risks of loss. The insurance will include certain exceptions, such as the pollution exemption in the Employers’ Mutual Policy, as the purpose of the exemption in an insurance policy is to limit the available coverage. In this case, since both parties agreed on the obvious, that Ms. Pease’s dust was contaminated by the insured’s documents. Since the exclusion was clear and unambiguous, there could be no coverage for the damages claimed and the defendants had to defend themselves without the help of their insurer.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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