974 F.3d 528
5th Cir.2020Background
- Waste Management operated the Waimanalo Gulch Sanitary Landfill; heavy storms in 2010–2011 caused contaminated water (including medical waste) to discharge to the Pacific.
- EPA issued an Administrative Order on Consent (AOC) requiring Waste to perform response/clean‑up work; EPA later confirmed completion of the response.
- The DOJ opened a grand jury investigation and later indicted Waste Management Hawaii and two employees; the defendants pled guilty to negligent discharge under the Clean Water Act and were fined and ordered restitution.
- Waste sought coverage from AIG Specialty Insurance Company (ASIC) under a Pollution Legal Liability policy for defense and related costs; ASIC denied coverage for costs tied to the criminal proceedings, citing policy terms and a criminal‑penalty exclusion.
- Waste sued ASIC and its adjuster (AIG Claims) in Texas state court; ASIC removed to federal court alleging AIG Claims was fraudulently (improperly) joined to defeat diversity. The district court found AIG Claims improperly joined, denied remand, and granted summary judgment for ASIC (no duty to defend).
- The Fifth Circuit affirmed: AIG Claims was improperly joined and ASIC had no duty to defend against the criminal allegations (and summary judgment on the remaining claims was affirmed).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Remand: Was AIG Claims properly joined such that federal diversity jurisdiction is defeated? | Waste alleged statutory Insurance Code claims against AIG Claims (adjuster) under Tex. Ins. Code §541.060. | ASIC argued AIG Claims was improperly joined because Waste’s complaint lacked sufficient nonconclusory factual allegations against the adjuster. | AIG Claims was improperly joined; Waste failed to plead plausible, specific facts against the adjuster—remand denied. |
| Duty to defend: Did Coverage D obligate ASIC to defend Waste based on the AOC? | Waste said the AOC (and related federal guidance) demanded clean‑up costs and thus triggered Coverage D and a duty to defend, which carried through related proceedings. | ASIC argued the AOC was separate from the criminal proceedings and, on its face, the policy’s duty to defend only applies to a written demand for clean‑up costs (a "Claim"). | No duty to defend based on the AOC; the policy requires a written demand seeking clean‑up costs and the AOC did not trigger a duty to defend the criminal proceedings. |
| Duty to defend: Did the criminal indictment itself constitute a "Claim" (a written demand seeking clean‑up costs) that triggered Coverage D? | Waste contended ambiguity under the eight‑corners rule and that criminal proceedings could produce clean‑up obligations, so ambiguity should be resolved for the insured. | ASIC argued the indictment sought criminal penalties (not civil clean‑up remedies) and did not seek a remedy that fits the policy’s definition of a "Claim." | The indictment did not constitute a covered "Claim" because it did not seek a remedy for clean‑up costs; no duty to defend. |
| Related tort/insurance‑code claims (bad faith, etc.): Do these survive if there is no duty to defend? | Waste’s extra‑contractual and statutory claims depend on an underlying duty to defend/indemnify. | ASIC argued those claims fail if no contractual duty exists. | Summary judgment for ASIC on the remaining claims affirmed because Waste’s challenge hinged on an erroneous duty‑to‑defend finding (which failed). |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: conclusory allegations insufficient to state plausible claim)
- Smallwood v. Illinois Central Railroad Co., 385 F.3d 568 (5th Cir. 2004) (fraudulent‑joinder analysis; apply Rule 12(b)(6) standard)
- Vantage Drilling Co. v. Hsin‑Chi Su, 741 F.3d 535 (5th Cir. 2014) (review standard for remand/joinder issues)
- Gray v. Beverly Enterprises–Mississippi, Inc., 390 F.3d 400 (5th Cir. 2004) (single valid cause of action against non‑diverse defendant requires remand)
- Evanston Insurance Co. v. Legacy of Life, Inc., 370 S.W.3d 377 (Tex. 2012) (Texas eight‑corners rule for duty to defend)
- In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015) (extrinsic documents may be incorporated by reference when policy language does so)
- National Union Fire Insurance Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997) (resolve doubts on duty to defend in insured’s favor but do not imagine coverage scenarios)
- American Manufacturers Mutual Insurance Co. v. Schaefer, 124 S.W.3d 154 (Tex. 2003) (courts may not rewrite or add terms to insurance contracts)
- Richards v. State Farm Lloyds, 597 S.W.3d 492 (Tex. 2020) (interpretation of contractual duty to defend looks to the parties’ written terms)