Ross Development Corporation v. Fireman's Fund Insurance Co, No. 12-2059 (4th Cir. 2013)
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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2059 ROSS DEVELOPMENT CORPORATION, Plaintiff, and FIREMAN S FUND INSURANCE INSURANCE COMPANY, COMPANY; UNITED STATES FIRE Defendants - Appellees, v. PCS NITROGEN INCORPORATED, Defendant and 3rd-Party Plaintiff - Appellant. No. 12-2454 ROSS DEVELOPMENT CORPORATION, Plaintiff - Appellant, v. FIREMAN S FUND INSURANCE INSURANCE COMPANY, COMPANY; Defendants - Appellees, and UNITED STATES FIRE PCS NITROGEN INCORPORATED, Defendant and 3rd-Party Plaintiff. Appeals from the United States District Court for the District of South Carolina, at Charleston. Margaret B. Seymour, Senior District Judge. (2:08-cv-03672-MBS) Argued: May 15, 2013 Decided: June 6, 2013 Before WILKINSON, MOTZ, and SHEDD, Circuit Judges. Affirmed by unpublished per curiam opinion. ARGUED: Daniel S. McQueeney, Jr., PRATT-THOMAS WALKER, PA, Charleston, South Carolina; Michael Howard Ginsberg, JONES DAY, Pittsburgh, Pennsylvania, for Appellants. Michael Anthony Kotula, RIVKIN RADLER, LLP, Uniondale, New York; Jay Russell Sever, PHELPS DUNBAR, New Orleans, Louisiana, for Appellees. ON BRIEF: G. Trenholm Walker, PRATT-THOMAS WALKER, PA, Charleston, South Carolina, for Ross Development Corporation. Amy K. Pohl, JONES DAY, Pittsburg, Pennsylvania; Kirby D. Shealy, III, ELLIS, LAWHORNE & SIMS, P.A., Columbia, South Carolina; Sandra Kaczmarczyk, ALTON ASSOCIATES PLLC, Washington, D.C., for PCS Nitrogen, Incorporated. H. Michael Bowers, SMITH MOORE LEATHERWOOD LLP, Charleston, South Carolina, for Fireman s Fund Insurance Company; Steven W. Ouzts, TURNER PADGET GRAHAM & LANEY, P.A., Columbia, South Carolina, Jonathan B. Womack, PHELPS DUNBAR LLP, New Orleans, Louisiana, for United States Fire Insurance Company. Unpublished opinions are not binding precedent in this circuit. 2 PER CURIAM: Ross Development Corporation brought this action seeking a declaratory judgment that its insurers had duties to defend and indemnify Ross, its lawsuits arising shareholders, out of the and former cleanup of directors environmental contamination from a site formerly owned by Ross. court granted the insurers motions for The district summary judgment, holding that they had no duty to defend or indemnify. its judgment creditor from Nitrogen, Inc., appeal. one of the in underlying Ross and cases, PCS We affirm. I. This dispute concerns insurers asserted duties arising out of the cleanup of environmental contamination from a site that Ross had formerly owned. See PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161 (4th Cir. 2013). The following facts are undisputed. Beginning in 1906, Planters Fertilizer and Phosphate Company (now Ross) operated a phosphate fertilizer manufacturing facility Carolina. at a forty-three-acre site in Charleston, Planters manufactured fertilizers by burning pyrite ore as fuel and reacting sulfuric acid with phosphate rock. process South generated a pyrite slag concentrations of arsenic and lead. 3 byproduct containing The high Over the years, Planters used this slag byproduct on the site as fill material and to stabilize roads. Planters acid In 1963, a fire destroyed a large portion of plant. After constructing a modernized acid plant and resuming fertilizer production, Planters sold the site and its equipment in 1966. Years after selling the site, Ross bought the insurance policies insurance ( FFIC ) at issue in coverage for the this from period appeal. Ross Fireman s from 1973 Fund purchased primary Insurance through 1992, Company and excess coverage from United States Fire Insurance Company ( USFIC ) for the period from 1979 through 1984. As relevant to this appeal, each policy provides basic coverage for liability for unexpected and unintentional damages to third-party property, including those damages arising out of past activities on Ross s thenowned, now-alienated properties, like the Charleston site. The policies, however, can be divided into two groups based on the extent to which they exclude from coverage liability arising out of damages caused by pollution. The first group of policies -- FFIC s primary coverage policies issued for the period from 1973 through 1987 and all of USFIC s excess coverage pollution exclusion. policies -- include a qualified This provision excludes from coverage, in pertinent part, liability arising out of the discharge . . . of . . . waste materials or . . . pollutants into the land. 4 The exclusion is qualified because it does not apply if the discharge . . . is sudden and accidental. The second group of policies -- those issued by FFIC for the period from 1987 pollution exclusion. liability for through This property 1990 -- provision damage include excludes arising out of an absolute from coverage the actual, alleged or threatened discharge, dispersal, release or escape of pollutants, including waste, with a defined connection to the insured. sudden This and exclusion accidental does not contain discharges, but an does exception except for all liability for third-property damage arising out of an otherwiseexcluded pollutant discharge if that discharge is caused by heat, smoke or fumes from a hostile fire. 1 In the 2000s, Ashley II of Charleston, the current owner of a large portion of the site, began to remediate environmental contamination at the site. The district court summarized the site s present conditions as follows: There are four conditions at the Site that the remediation seeks to correct: arsenic contamination, lead contamination, low pH, and carcinogenic polyaromatic hydrocarbon ( cPAH ) contamination. Arsenic and lead contamination are found across the entire Site. There are two hot spots for cPAHs on the Site. . . . The source of the cPAH contamination was a fire that destroyed a major portion of the acid plant in 1963. The cost of remediation is directly 1 Although FFIC continued insuring Ross beyond 1990, those policies are not at issue in this appeal. 5 related to the volume of contaminated soil on the Site. The predominant factors contributing to the costs of the clean-up are the amount of hazardous materials and the spread of these hazardous materials Ross, formerly known as throughout the Site. . . . Planters, is the only known Site owner that burned pyrite ore and generated pyrite slag. Pyrite slag is the source of the vast majority of the arsenic and much of the lead contamination at the Site. Ross Dev. Corp. v. Fireman s Fund Ins. Co., No. 2:08-3672-MBS, - F. Supp. 2d --, 2012 WL 5897245, at *2 (D.S.C. Nov. 15, 2012) (internal citations omitted). No party disputes that Planters use of pyrite slag provides the source of most of the arsenic and lead contamination at the site. The parties do debate, however, how quickly arsenic and lead from the slag leached into surrounding soils and when this contamination migrated to and damaged surrounding third-party properties. In September 2005, Ashley filed an action against PCS (a successor-in-interest to a former owner of the site) seeking a declaratory judgment that PCS was jointly and severally liable for response costs incurred in remediating contamination at the site under the Comprehensive Environmental Response, Compensation, and Liability Act ( CERCLA ), 42 U.S.C. ยงยง 9601 9675 (2006). In January 2007, PCS filed third-party contribution claims against other parties with past and present connections complaint to the alleged site, that including Ross was Ross. liable PCS s under third-party CERCLA for environmental impacts . . . associated with [Ross ] phosphate 6 fertilizer manufacturing includ[ing] elevated facilities levels of at the metals Charleston . . . site in soil, groundwater, and sediment. II. In July 2007, Ross requested a defense of the CERCLA action from FFIC and USFIC. In November 2007, FFIC agreed to defend Ross in the CERCLA action, but reserved the right to withdraw that defense. USFIC did not reply to Ross s request for defense. In June 2008, FFIC notified Ross that it would be withdrawing its defense under its view that the site was not an insured premises under the policies because Ross did not own it during any of the policy periods at issue. However, FFIC did not formally withdraw its defense at that time. On October 13, 2008, Ross informed FFIC by e-mail of new information that one of the sources of contaminants [was] the fire burned down . . . parts of the [acid] plant. in 1963 that Ross concluded that [t]his fire would certainly come within the exception to the [pollution] exclusion. FFIC formally withdrew its defense of Ross in the CERCLA action the next day. On May 27, 2011, after a bench trial, the district court found Ross environmental liable to response PCS for costs at 7 forty-five the site, percent see Ashley of II the of Charleston, LLC v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431 (D.S.C. 2011), and we affirmed, see PCS Nitrogen Inc., 714 F.3d 161. In the meantime, PCS had brought two additional actions to recover money it believed Ross would owe from the underlying CERCLA case. action in former Ross First, in September 2008, PCS filed a shareholder state court seeking shareholders who contribution received from distribution thirty-two of assets during Ross s winding up of its affairs between 1997 and 2006. Second, in December 2009, PCS filed a fraudulent conveyance action in federal court against six individuals that acted as Ross s directors between 1992 and 2006. Ross sought FFIC s and USFIC s defense of its former shareholders and directors, but the insurers denied this request. Before the district court in this case was Ross s twiceamended action seeking a declaration that the FFIC and USFIC insurance policies provided coverage for liabilities from the underlying CERCLA action, as well as the related shareholder and fraudulent conveyance suits. Ross also sought a declaration that FFIC and USFIC had breached their duties to defend Ross, its shareholders, suits. and its directors in the three underlying In August 2011, after becoming Ross s judgment creditor in the underlying CERCLA action, PCS filed cross-claims against FFIC and USFIC, also seeking to establish coverage under the 8 policies for liabilities arising out of the three underlying actions. The district insurers, court holding that granted the summary absolute and judgment qualified to the pollution exclusion provisions excluded any coverage for liability arising out of the underlying CERCLA action and, shareholder and fraudulent conveyance suits. held that the complaints in the by relation, the The court further underlying trigger the insurers duties to defend Ross. actions did not Ross, and PCS as its judgment creditor, ( Appellants ) timely appeal. III. We review a grant of summary judgment de novo. Henry v. Purnell, 652 F.3d 524, 531 (4th Cir. 2011) (en banc). Summary judgment and is reasonable appropriate inferences only drawn if taking the therefrom in evidence the light all most favorable to the nonmoving party, no material facts are disputed and the moving party is entitled to judgment as a matter of law. Id. (internal quotation marks omitted). Under policy South language Carolina in law, accordance [c]ourts with its interpret plain, insurance ordinary, and popular meaning, except with technical language or where the context requires another meaning. M & M Corp. of S.C. v. Auto- Owners Ins. Co., 701 S.E.2d 33, 35 (S.C. 2010). 9 Policies are construed in favor of coverage, and exclusions in an insurance policy are construed against the insurer. Id. However, an insured party bears the burden of proving an exception to an exclusion. Helena Chem. Co. v. Allianz Underwriters Ins. Co., 594 S.E.2d 455, 460 n.5 (S.C. 2004). An insurer owes its insured two inter-related duties -- the duty to defend. indemnify (i.e., provide coverage) and the duty to While an insurer s duty to indemnify its insured is determined by applying the facts of an underlying judgment to the policy language, an insurer s duty to defend generally is determined by the underlying complaint. City of Hartsville v. S.C. Mun. Ins. & Risk Fin. Fund, 677 S.E.2d 574, 578 (S.C. 2009). Thus, [i]f the underlying complaint creates a possibility of coverage under an insurance policy, the insurer is obligated to defend. Id. After carefully considering the record, the briefs, and the applicable law, and having the benefit of oral argument from the parties, we affirm the judgment in favor of the insurers for the reasons well-stated by the district court. Given the clear and detailed analysis of the district court, we need only address certain principles that Appellants appear to misunderstand. First, it is clear that the underlying CERCLA action (and, by relation, the shareholder and fraudulent conveyance actions) initially triggered the policies at issue by imposing liability 10 on Ross for environmental damages to third-party property, namely groundwater and tidal marshlands around its former site. See Helena Chem. Co., 594 S.E.2d at 457 (holding environmental cleanup costs constitute property damages ). equally clear that the qualified or However, it is absolute pollution exclusions in each policy exclude this liability from coverage. This is so because Ross s liability for third-party property damages in the CERCLA action arises out of its discharge -use as fill material -- of waste or a waste material -- the pyrite slag byproduct -- on the site. Thus, the only question as to the insurers duties to indemnify is whether any exception to the pollution exclusions apply. Appellants coverage first argue notwithstanding the that 1972-87 qualified policies pollution provide exclusion because the pollution damages to third-party property were both sudden -- meaning unexpected -- and accidental. See Greenville Cnty. v. Ins. Reserve Fund, 443 S.E.2d 552, 553 (S.C. 1994) (interpreting sudden within the sudden and accidental exception to mean fundamentally unexpected ). flawed reading of This the argument sudden and rests on a accidental exception. The exception s plain language requires that the discharge, not accidental. the See, pollution e.g., JA 159 11 damages, ( [T]his be sudden exclusion does and not apply if such discharge . . . is sudden and accidental. (emphasis added)). The render contrary the interpretation qualified superfluous. See offered pollution Liberty Mut. by exclusion Ins. Co. Inc., 957 F.2d 1153, 1157 (4th Cir. 1992). Appellants clause v. would completely Triangle Indus., This is so because the policies at issue provide coverage only for an accident . . . which results in . . . property damage neither expected nor intended from the viewpoint of the insured. Appellants interpretation of the qualified pollution exclusion as excluding from th[is] basic coverage all releases of pollution except those which restates cause th[is] [unexpected basic and] coverage unintended and writes exclusion completely out of the contract. damages the Id. simply pollution Accordingly, because no party disputes the fact that Ross intentionally used pyrite slag as fill material (i.e., discharged waste) on the site, the sudden and accidental exception to the qualified pollution exclusion does not apply. Accord id. at 1158. Appellants argument that damages caused by the 1963 acid plant fire are excepted from the policies pollution exclusions similarly fails. resulted in Appellants are correct that if the 1963 fire third-party periods at issue covered both here, under property Ross s those damages resulting policies 12 with during the policy liability would be qualified pollution exclusions (because the fire was unexpected and accidental) and under those policies with absolute (because the fire was hostile ). pollution exclusions However, Appellants failed to proffer any evidence that the exceptions actually apply here. See Helena Chem. Co., 594 S.E.2d at 460 n.5. In particular, they failed to point to any evidence that the 1963 acid plant fire actually caused any third-party property damage, much less damage during the policy periods at issue in this case. Accordingly, the district court did not err in holding that no policy before it affords coverage for Ross s underlying CERCLA liability, or the potential liabilities of Ross s former shareholders and directors in the two related actions. For similar reasons, the district court did not err in holding that the insurers did not have a duty to defend Ross, its shareholders, or its directors in the underlying actions. The complaints in the underlying CERCLA action clearly alleged third-party property damages arising out of the discharge of pollutants each policy s respective qualified or absolute pollution exclusion. Further, the or complaints sudden and waste raised materials, no accidental, triggering possibility or, that indeed, the discharge anything other intentional or part of Ross s ordinary course of business. was than As South Carolina courts have made clear, an insurer has no duty to defend an insured where the damage was caused for a reason 13 unambiguously excluded under the policy. USAA Prop. & Cas. Ins. Co. v. Clegg, 661 S.E.2d 791, 797 (S.C. 2008). 2 Thus, the district court did not err in holding that neither insurer had a duty to defend Ross in the underlying CERCLA action, or Ross s former shareholders and directors in the two related cases. IV. For these reasons, and for the reasons stated more fully by the district court, the judgment of the district court is AFFIRMED. 2 Nor did Ross s notice to FFIC that that 1963 acid plant fire was a source of contamination at the site trigger its duty to defend. The notice provided no factual indication that the fire caused any third-party property damages during the relevant policy periods. 14
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