In Gold Coast Commodities, Inc. v. Crum & Forster Specialty Insurance Co., issued May 22, 2023, the U.S. Court of Appeals for the Fifth Circuit held that a pollution liability policy did not provide coverage for a negligence claim premised on allegations of intentional conduct.
In Gold Coast, the insured, Gold Coast Commodities sought defense and indemnity coverage for an underlying lawsuit filed against it by the city of Brandon, Mississippi. In that lawsuit, the city asserted a negligence claim against Gold Coast. But the factual allegations were premised on intentional conduct, not mere negligence. Specifically, the city alleged that Gold Coast “consistently and surreptitiously” discharged polluted wastewater into the city’s sewer system for years, causing damage to the system. The city alleged that Gold Coast did so “recklessly, wantonly, and intentionally.”
Gold Coast’s pollution liability policy was issued by Crum & Forster Specialty Insurance Company. The policy only covered an “occurrence,” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
In the trial court, Crum & Forster filed a motion to dismiss arguing that there was no coverage because the complaint in the underlying lawsuit alleged intentional conduct, not an “accident.” The U.S. District Court for the Southern District of Mississippi granted that motion.
On appeal, the Fifth Circuit affirmed. The court explained that, under Mississippi law, an insurer’s duty to defend a lawsuit is determined by comparing the allegations in the complaint to the policy language. The court noted that, “[i]f ‘any ground’ raised against the insured ‘arguably’ falls under the terms of the policy, then the insurer must provide a defense.” However, the court also explained: “When comparing the words of the complaint to those of the policy, we look not to the particular legal theories pursued by [the plaintiff], but to the allegedly tortious conduct underlying the suit.” (quotations omitted).
Additionally, the court explained:
Per Mississippi case law, we look to the alleged “actions of the insured, not the resulting damages, to decide whether there was an accident.” An accident is an “unanticipated” action that “takes place without the insured’s foresight.” Put simply, it’s “an inadvertent act.” On the other hand, a deliberate act (i.e., a non-accident) follows when the insured “intended the underlying action.” So, for intentionality, the focus isn’t on the “consequences” or “damages [that] flow from [the insured’s] act,” but instead the alleged tortious act. (citations omitted, emphasis in original).
The court held that, although the complaint asserted a negligence claim against Gold Coast, the claim was premised on allegations that Gold Coast intentionally dumped polluted wastewater into the city’s sewer system. And “[e]ven if it didn’t intend the consequences, Gold Coast’s alleged underlying conduct was done deliberately.”
Therefore, the court found that the underlying lawsuit did not allege an “accident,” and was not covered as a result.
Judge Oldham, one of the three appellate judges presiding over Gold Coast, issued a concurring opinion. Judge Oldham asserted that the underlying complaint was ambiguous as to whether it was premised on allegations of intentional conduct and, therefore, he would not have affirmed on the same basis as the other judges. Instead, he asserted that there was no coverage because the policy did not cover pollution events that began before the policy’s effective date, and the complaint alleged that Gold Coast began discharging polluted wastewater before the policy incepted.