Duty to Indemnify May Exist Even if Duty to Defend Does Not

    The Fifth Circuit affirmed the district court's granting the insurer's motion for summary judgment on the duty to defend, but reversed the district court's ruling that there was no duty to indemnify. Liberty Mut. Fire Ins. Co. v. Copart of Connecticut, Inc., 2023 U.S. App. LEXIS 18674 (4th Cir. July 31, 2023). 

    Copart was an online car-auction company that sold used, wholesale and repairable vehicles. Copart owned several parcels of land in South Carolina on which it operated machine salvage junkyard and vehicle was facilities. 

    Eight property-owner plaintiffs sued Copurt alleging that they owned properties located near Copart's land and that Copart's operations damaged their properties. They alleged that wrecked and salvaged vehicles and machines stored on unpaved lots leaked gasoline, oil, hydraulic fluids, antifreeze, and other hazardous fluids and materials into the soil. When there was significant rain, water, soil, sediment and hazardous materials and chemicals washed from the Copast property into a creek that ran through the owners' property. The creek was tested and had alarming levels of heavy-metals and other dangerous elements present.

    Copart tendered to Liberty under its CGL policy. Liberty denied coverage based upon the pollution exclusion. Property damage caused by discharge, dispersal, seepage, migration, release or escape of pollutants was excluded. "Pollutants" was defined as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."

    Liberty filed a declaratory action against Copart. The district court granted Liberty's motion for summary judgment and denied Copart's cross-motion. The court found that the pollution exclusion was unambiguous and that it was clear that the underlying plaintiffs alleged damages caused by pollutants, so Liberty had no duty to defend under the CGL policy. The court further noted, "because Liberty Mutual has no duty to defend the underlying suit, it follows that it has no duty to indemnify,"

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    On appeal, Copart argued many of the underlying allegations alleged facts that did not fall within the pollution exclusion. Copart pointed out that the underlying complaint named "30+ independent substances," including some non-pollutants such as water, soil, and sediment. Therefore, Copart argued, the underlying suit included some allegations not excluded from coverage by the pollution exclusion, thereby triggering Liberty's duty to defend.

    The court rejected this argument. It exceeded the bounds of plausibility to interpret the complaint as alleging "independent" harm by the non-pollutant substances. The water was indeed alleged to include some non-pollutants like soil, alleged to include some non-pollutants like soil, sediment, dirt, rock and sand, but the water was also consistently and repeatedly alleged to include "hazardous materials and chemicals" and chemical waste." Therefore, the district court did not err in declining to read into the complaint allegations of "independent' harm by non-pollutants alone. 

    The district court's assumption, however, that the duty to indemnify could not exist where there was no duty to defend was faulty. Granting summary judgment on the duty to indemnify was premature. The facts adduced a trial could differ from the allegations, and a duty to indemnify could be shown notwithstanding the absence of a duty to defend. This was not a case where no conceivable set of facts could give rise to coverage.