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No coverage for defense of criminal cases and convictions



Waste Management, Incorporated ("WMI") and Waste Management Hawaii, Incorporated ("WMHI") (collectively "Waste") entered into an insurance agreement with AIG Specialty Insurance Company ("ASIC"). After two environmental pollution incidents, the DOJ initiated a grand jury investigation into waste documents. The investigation led to an indictment that was resolved through a basic agreement in 2015.

I Waste Management, Incorporated; Waste Management Hawaii, Incorporated v. AIG Specialty Insurance Company, formerly known as Chartis Specialty Insurance Company, No. 19-20674, U.S. Court of Appeals for the Fifth Circuit (September 4, 2020), the Fifth Circuit faced an appeal of a decision approving ASIC's denial of Waste's claims.

FACTS

Waste filed a lawsuit in Texas State Court against ASIC. The district court then ruled, after a hearing, that ASIC had no obligation to defend waste against the criminal charges and granted a summary judgment in favor of ASIC. the city of Honolulu, Hawaii. In late 201

0 and early 2011, severe storms flooded part of WGSL. On both occasions, polluted water was discharged into the Pacific Ocean through an open well. The contamination included medical wastes such as syringes, blood bottles and catheters, which washed up on nearby beaches.

The Environmental Protection Agency ("EPA") investigated and on 25 January 2011 issued an administrative consent decision ("AOC"). Among other things, the AOC demanded that waste participate in intervention work to clean up emissions. The AOC also expressly reserved the right of the federal government to pursue waste for other criminal and civil sanctions. Waste followed the AOC, and on August 24, 2011, EPA informed Waste that the response work had been completed to its satisfaction.

On 30 April 2014, WMHI and two of its employees were accused of being aware of the release of pollutants. in a water in the United States, in violation of the provisions on "Criminal Penalties" in the Clean Water Act. In accordance with a basic agreement, which explicitly provided that it was separate from any civil claims against waste, the defendants eventually pleaded guilty to negligent discharge of pollutants, even in violation of the provisions on "Criminal sanctions" in the Clean Water Act. On October 26, 2015, the Federal District Court of Hawaii sentenced a $ 400,000 fine, $ 200,000 in compensation to neighboring companies, and a $ 250 fine against WMHI.

Avfall sought cover from ASIC for, among other things costs to defend the criminal case described above. According to Waste, these costs were covered by its insurance policy "Pollution Legal Liability", from January 2011 to January 2014. The insurance policy, which provided Waste with coverage of $ 50 million per event with a deductible of $ 5 million, contained the following relevant provisions.

In "COVERAGE D", ASIC agreed that the policy did not apply to claims or loss due to criminal fines, criminal penalties or criminal judgments. The insurance defined "Claims" as "a written claim received by the insured for a claim or liability and seeking action from the insured for loss under cover D.

Avfall and ASIC submitted cross-proposals for a summary assessment of whether ASIC had an obligation to defend waste against the criminal charges. The district court issued a summary judgment in favor of ASIC and found no obligation to defend itself against the criminal charges.

Waste questions the district court's summary assessment that ASIC had no obligation to defend waste against the criminal charges. 19659004] When determining whether an insurance company has an obligation to defend under Texas law, the courts follow the eight-corner rule by looking at the four corners of the complaint for alleged facts that may fall within the coverage of the four corners of the insurance. policy. In case of doubt as to whether the allegations of a complaint against the insured are a cause within the framework of a liability policy sufficient to compel the insurer to defend the measure, such doubt will be resolved in favor of the insured. [19659002] Waste argues that the AOC constitutes a claim for reorganization costs that triggered the ASIC's obligation to defend itself against the criminal charges. On the face of it, however, the AOC was independent of criminal proceedings. The AOC issued months before the DOJ began its grand jury investigation and explicitly reserved the federal government's right to pursue waste for criminal sanctions. In addition, the EPA informed Waste that the AOC work required by the AOC had been completed almost three years before the grand jury accused WMHI and two of its employees.

Despite this independence, Waste argued that federal executive guidance documents show that all procedures arising from these pollutants are part of a single, coordinated enforcement process. According to Waste, therefore, the existence of claims for reorganization costs triggered in AOC ASIC's obligation to defend, which continued through the termination of all proceedings based on the same factual allegations.

When there is a claim for clean-up costs, ASIC has an obligation to defend itself against "such a claim." This language provided a common sense limitation for ASIC's obligation to defend: When there is a written claim for remediation costs covered by the policy, ASIC must defend itself against the written claim. Should the court agree with the waste that the AOC triggered an obligation for the ASIC to defend itself in any criminal or civil proceedings arising from the same pollution, the court would in fact read this negotiated limitation out of the contract.

A court of appeal may neither rewrite the parties' contracts nor add its language. The aim of interpreting the contractual obligation to defend – as in the interpretation of a contract language – is to establish the parties' real intentions, as expressed in the text itself. While ambiguity as to whether the complaint states that a cause within the insurance coverage should be resolved in favor of the insured and the court will not look beyond the pleadings or imagine actual scenarios that could trigger coverage; according to the simple language of the agreement, ASIC has only an obligation to defend itself against written claims seeking a remedy from waste for a covered loss.

The indictment does not seek a remedy, so it did not trigger the obligation to defend.

19659019] Crime is different from torture. Crime is by definition intentional and criminal activity – if proven – and is not, and can never be, temporary. In this case, since the criminal prosecution does not seek a remedy – no compensation and no loss – there can never be an obligation to defend or compensate. Insurance for criminal acts should be an anathema to the public order of any state, as crime can be committed with impunity and all financial penalties would be paid by an insurance company.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance management, bad insurance and insurance fraud almost equally for insurance policyholders. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

For the past 52 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become professional in insurance claims.

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