Crum & Forster Policy Covered Accidents, Not Intentional Pollution, Appeals Court Says

May 25, 2023 by

Greasy, toxin-laden wastewater discharges by a Mississippi animal feed maker were not accidents and thus are not covered by a Crum & Foster pollution policy, a federal appeals court decided this week in a case that stemmed from an investigation that led to guilty pleas by two company officials.

The U.S. 5th Circuit Court of Appeals on May 22 upheld a lower court’s 2022 ruling in Gold Coast Commodities Inc. vs. Crum & Forster Specialty Insurance Co. Gold Coast, which made feed and fertilizer from recovered restaurant cooking oil and animal fat, asked the federal district court to declare that Crum & Forster had a duty to defend the firm in a lawsuit brought by the city of Brandon.

The district court and the appeals court declined, noting emphatically that Mississippi law, like statutes in most states, requires defense of a third-party complaint only when the complaint “contains allegations covered by the language of the policy.” The pollution liability policy covered only accidents, not the intentional, surreptitious, and repeated dumping of the oily mess alleged by the state and local authorities.

“Facially-speaking, Gold Coast’s alleged wrongdoings clearly sound intentional, not accidental,” the 5th Circuit panel wrote in the opinion.

Gold Coast’s attorneys had tried to argue that the key word in the city’s complaint was “negligence,” which arguably means the discharges were accidental in nature.

“We aren’t convinced,” the judges wrote. “Drive-by or ‘conclusory’ uses of the word ‘negligence’ don’t transform the character of the factual allegations of intentional misconduct.”

The highly publicized dumping case began in 2017, and reads a little like a crime novel. The city of Brandon, an affluent suburb of Jackson, told the Mississippi Department of Environmental Quality that it suspected that Gold Coast was secretly discharging the oily, low-pH, untreated wastewater into public sewers. The DEQ and the city began investigating. Brandon crews collected samples of sewage downstream from the feed plant and found that the water was much hotter and more acidic – with high levels of arsenic, lead, cadmium, chromium and mercury, the court opinion explained.

The city filed suit, charging that the discharge from Gold Coast was so corrosive that the city had to spend significant funds repairing its sewer system.

In August 2022, the owner of Gold Coast pleaded guilty to illegally dumping industrial waste into the Jackson sewer system. A month later, the president and the plant manager were indicted on the same charges, according to news reports and the U.S. attorney’s office. An employee at an industrial services firm also pleaded guilty to assisting Gold Coast in disposing of the toxic waste.

Circuit Judged Andrew Oldham dissented from the majority in the Crum & Forster opinion. He argued that the city of Brandon’s complaint was ambiguous and did not allege an intentional act. But, he said, Crum does not have duty to defend because the tortious conduct began before the insurance policy’s effective date.

The coverage dispute was not the first for Crum & Forster over oil products in recent months. In April of this year, two Crum subsidiaries asked a federal court in Massachusetts to declare that they have no duty to defend or cover a heating oil company over its delivery of oil that contained biodiesel. The incompatible oil allegedly damaged customers’ heating systems and set off class-action lawsuits.

The Crum companies argued that class actions fall outside the primary and umbrella policies and that the oil company knew the risks of mixing the fuels. The insurers said the policies excluded expected or intentional actions that caused damage and excluded damage from erroneous delivery of liquids.