Fifth Circuit Holds No Liability Coverage for Negligence Claim Based on Intentional Conduct Allegations | Carlton Fields

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In Gold Coast Commodities, Inc. v. Crum & Forster Specialty Insurance Co., rendered on May 22, 2023, the United States Court of Appeals for the Fifth Circuit ruled that a pollution liability policy did not cover a negligence claim based on allegations of conduct intentional.

In Gold Coast, the insured, Gold Coast Commodities, sought defense and indemnification coverage for an underlying lawsuit brought against it by the city of Brandon, Mississippi. In this lawsuit, the city asserted a negligence claim against Gold Coast. But the factual allegations were based on intentional conduct, not mere negligence. Specifically, the city alleged that Gold Coast was “systematically and surreptitiously” dumping polluted sewage into the city’s sewage system for years, causing damage to the system. The city alleged Gold Coast did so “recklessly, wanton and intentionally”.

The Gold Coast Pollution Liability Policy is issued by Crum & Forster Specialty Insurance Company. The policy covered only one “event”, defined by the policy as “an accident, including continuous or repeated exposure to substantially the same harmful general conditions”.

In the trial court, Crum & Forster filed a motion to dismiss arguing 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 upheld. The court explained that under Mississippi law, an insurer’s obligation to defend a lawsuit is determined by comparing the allegations in the complaint to the wording of the policy. The court noted that “[i]If “any cause” raised against the insured is “undoubtedly” within the terms of the policy, the insurer must provide a defence. However, the court also explained, “When we compare the terms of the complaint to those of the policy, we are not looking at the particular legal theories pursued by [the plaintiff], but to the allegedly tortious conduct underlying the suit. (quotes omitted).

Further, the court explained:

Consistent with Mississippi case law, we look to the alleged “actions of the insured, not the resulting damages, in deciding whether there was an accident.” An accident is an “unforeseen” act that “occurs without the knowledge of the insured”. Simply put, it’s “an inadvertent act.” On the other hand, a deliberate act (i.e. a non-accident) ensues when the insured “intended to do the underlying action”. Thus, for intentionality, the emphasis is not on “consequences” or “damages”. [that] result from [the insured’s] act”, but rather the alleged criminal act. (quotes omitted, italics in the original).

The court held that, although the suit asserted a claim of negligence against Gold Coast, the suit was based on allegations that Gold Coast had intentionally dumped polluted sewage into the city’s sewage system. And “[e]Although he did not intend it, Gold Coast’s alleged underlying conduct was deliberate.

Therefore, the court concluded that the underlying lawsuit did not allege an “accident” and was therefore not covered.

Judge Oldham, one of three appellate judges presiding over Gold Coast, issued a concurring opinion. Judge Oldham claimed that the underlying complaint was ambiguous as to whether it was based on allegations of intentional conduct and therefore he would not have asserted on the same basis as the other judges. Instead, he claimed 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 had begun discharging polluted sewage before the policy took effect.

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