Great American Insurance Company v. ACE American Insurance Company et al

Filing 61

Memorandum Opinion and Order. The court ORDERS that plaintiff's 45 motion for summary judgment be, and is hereby, granted, and that Eastern have and recover nothing from plaintiff and that Eastern's claims against plaintiff be, and are hereby, dismissed. (Ordered by Judge John McBryde on 7/10/2018) (bcr)

IN THE UNITED STATES DISTRICT C URT
NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
GREAT AMERICAN INSURANCE
COMPANY,

JUL 1 0 2018

CLERK, U.S. DISTRICT COURT
BY--..,----Deputy

§
§
§
§
§

Plaintiff,
VS.

§
§

ACE AMERICAN INSURANCE COMPANY,
ET AL.,

§

Defendants.

NO. 4:18-CV-114-A

§

§
§

MEMORANDUM OPINION AND ORDER
Came on for consideration the motion of plaintiff, Great
American Insurance Company, for summary judgment against
defendant Eastern Concrete Materials, Inc.

("Eastern"). The

court, having considered the motion, Eastern's response, the
reply, the summary judgment evidence, the record, and applicable
authorities, finds that the motion should be granted.
I.

Plaintiff's Claims
As recited in the court's memorandum opinion and order of
April 20, 2018, plaintiff filed its complaint for declaratory
relief against Eastern and ACE American Insurance Company ("ACE")
on February 9, 2018. Doc. 1 39. Plaintiff alleges: ACE issued a
commercial general liability insurance policy to Eastern and/or
its parent company, U.S. Concrete, Inc.

'The "Doc.

( •u. S. Concrete") for the

"reference is to the number of the item on the docket in this action.

policy period December 31, 2016, to December 31, 2017. Plaintiff
issued a commercial umbrella insurance policy, No. TUU 2-53-4562-18,

(the "policy") for the same period under which U.S.

Concrete and certain of its subsidiaries, including Eastern, are
named insureds. Eastern contends that both the ACE policy and
plaintiff's policy cover or potentially cover amounts it has paid
or may pay in connection with a certain New Jersey pollution
claim arising out of the discharge of rock fines into the Spruce
Run (as further described herein) .
With regard to Eastern, plaintiff seeks a declaratory
judgment that (1)

it has no duty to defend Eastern against the

New Jersey pollution claim or to pay its defense costs;

(2) it

has no duty to indemnify Eastern against any liability arising
from or relating to the New Jersey pollution claim; and (3) to
the extent that plaintiff has any potential coverage obligations
to Eastern in connection with the New Jersey pollution claim,

its

obligations are excess to coverage provided by the ACE policy.
And, plaintiff seeks a judicial determination of the rights and
obligations of the parties with respect to Eastern's claims for
insurance coverage in connection with the New Jersey pollution
claim.

2

II.
Grounds of the Motion
Plaintiff says that it is entitled to judgment as a matter
of law because the absolute pollution exclusion provision of its
policy bars coverage for the New Jersey pollution claim. For the
same reason, plaintiff does not, and will not, have any defense
or payment obligations to Eastern. Further, Eastern cannot
prevail on its counterclaims.'
III.

Applicable Summary Judgment Principles
Rule 56(a) of the Federal Rules of Civil Procedure provides
that the court shall grant summary judgment on a claim or defense
if there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.

Fed. R. Civ.

P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247
(1986).

The movant bears the initial burden of pointing out to

the court that there is no genuine dispute as to any material
fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323, 325 (1986).

The movant can discharge this burden by pointing out the absence
of evidence supporting one or more essential elements of the
nonmoving party's claim,

"since a complete failure of proof

'Plaintiff notes that granting its motion for summary judgment will make moot its claims against
ACE. Doc. 46 at 2, n.2.

3

concerning an essential element of the nonmoving party's case
necessarily renders all other facts immaterial."

Id. at 323.

Once the movant has carried its burden under Rule 56(a), the
nonmoving party must identify evidence in the record that creates
a genuine dispute as to each of the challenged elements of its
case.

Id. at 324; see also Fed. R. Civ. P. 56(c)

asserting that a fact
the assertion by
the record

("A party

is genuinely disputed must support
citing to particular parts of materials in

• fl )

•

If the evidence identified could not lead

a rational trier of fact to find in favor of the nonmoving party
as to each essential element of the nonmoving party's case, there
is no genuine dispute for trial and summary judgment is
appropriate.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 587, 597 (1986).

In Mississippi Prot. & Advocacy

Sys., Inc. v. Cotten, the Fifth Circuit explained:
Where the record, including affidavits,
interrogatories, admissions, and depositions could not,
as a whole, lead a rational trier of fact to find for
the nonmoving party, there is no issue for trial.
929 F.2d 1054, 1058 (5th Cir. 1991).
The standard for granting a motion for summary judgment is
the same as the standard for rendering judgment as a matter of
law. 3

Celotex Corp., 477 U.S. at 323.

3

If the record taken as a

ln Boeing Co. v. Shipman, 4 l I F.2d 365, 374-75 (5th Cir. 1969) (en bane), the Fifth Circuit
(continued ... )
4

whole could not lead a rational trier of fact to find for the
non-moving party, there is no genuine issue for trial.
Matsushita, 475 U.S. at 597; see also Mississippi Prot. &
Advocacy Sys.,

929 F.2d at 1058.
IV.

Facts Established by Summary Judgment Evidence
Eastern is a wholly-owned subsidiary of U.S. Concrete, a
holding company with its principal place of business in the
Northern District of Texas. Doc. 47 at PA 112, PA 172, PA 254. As
a general rule, U.S. Concrete does not maintain insurance to
cover environmental liabilities. Id. at PA 132.
Plaintiff's policy at issue is a commercial umbrella
insurance policy issued to U.S. Concrete for the policy period
December 31, 2016, to December 31, 2017. Id. at PA 011. Eastern
is one of more than sixty subsidiaries named as an insured under
the policy. Id. at PA 022-023. The payment and defense
obligations under the policy are limited in pertinent part by an
absolute pollution exclusion, which provides:
This insurance does not apply to:
L. Any liability, including but not limited to
settlements, judgments, costs, charges, expenses, costs
of investigations, or the fees of attorneys, experts,

3

( ... continued)
explained the standard to be applied in determining whether the comt should enter judgment on motions
for directed verdict or for judgment notwithstanding the verdict.

5

or consultants, arising out of or in any way related
to:
1. The actual, alleged or threatened
presence, discharge, dispersal, seepage,
migration, release, or escape of
"pollutants," however caused.
2. Any request, demand or order that any
"Insured" or others test for, monitor, cleanup, remove, contain, treat, detoxify,
neutralize or in any way respond to or assess
the effects of "pollutants."
This exclusion will apply to any liability, costs,
charges, or expenses, or any judgments or settlements
arising directly or indirectly out of pollution whether
or not the pollution was sudden, accidental, gradual,
intended, expected, unexpected, preventable or not
preventable.
As used in this exclusion •pollutants• means any solid,
liquid, gaseous, or thermal irritant or contaminant,
including, but not limited to, smoke, vapor, soot,
fumes, acids, alkalis, chemicals and waste material.
Waste material includes materials which are intended to
be or have been recycled, reconditioned or reclaimed.

Id. at PA 035-036, 60.
Eastern operates a rock quarry in Glen Gardner, New Jersey,
where it quarries rock and crushes the rock into small stones and
fines. The rock fines are small particles of rock generated as
part of the stone crushing process. The rock fines are washed off
with water and placed into settling ponds. Once they are settled
out, they are removed, dried out, and prepared for use as
reclamation fill at the quarry or sold as fill material. Id. at
PA 269.

6

Beginning on July 28, 2017, in anticipation of substantial
rain fall, Eastern began lowering the level of its quarry water
settling ponds through permitted pumping into the adjacent Spruce
Run, a tributary to the Spruce Run Reservoir. The quarry manager
failed to shut off the pumping before the rock fines began to be
pumped into Spruce Run on July 29, 2017. As a result, substantial
amounts of rock fines were pumped into Spruce Run. The pumping of
rock fines into Spruce Run caused physical damage to the stream
and stream bed by changing the flow and contours of the stream
and filling in depressions in the stream bed. Up to two feet of
rock fines were pumped into some portions of Spruce Run. As a
result, the New Jersey Department of Environmental Protection
Bureaus of Coastal and Land Use Compliance and Enforcement and
Water Compliance and Enforcement

("New Jersey")

issued notices of

violation dated July 31 and August 2, 2017. Id. at PA 269. The
notices of violation reflected that Eastern had violated the New
Jersey Water Pollution Control Act, N.J.S.A. 58:10A-1 et seq.,
Freshwater Wetland Protection Act, N.J.S.A. 13:9B-1 and rules at
N.J.A.C. 7:7A-1, and the Flood Hazard Area Control Act, N.J.S.A.
58:16A-52 et seq. and rules at N.J.A.C. 7:13-1. Id. at PA 085086. And, according to Eastern's counsel, New Jersey also
maintained that Eastern had violated the Fish and Game Act "by
pumping of a deleterious substance resulting in a negative impact

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to a trout producing stream and a documented habitat for
threatened or endangered species." Id. at PA 093-094. New Jersey
required Eastern to remove the rock fines to ensure protection of
fish habitats that had been covered by the fines and prevent
further migration of the fines.

Id. at PA 269-70. Eastern admits

that remediation was necessary to protect the environment. Id. at
PA 339. New Jersey also said that Eastern was liable to pay the
State for alleged violations of State statutes that caused, among
other things, physical alteration to the channel of Spruce Run,
placement of materials in a floodway, and other alleged
violations arising from damage to State resources. Id. at PA 272,
PA 343.
By letter dated October 24, 2017, Eastern notified plaintiff
of the Spruce Run claim and demanded reimbursement for all costs
to remove the rock fines and costs of defense of the claim. Id.
at PA 083-084. On February 9, 2018, plaintiff filed its complaint
in this action. Doc. 1. One month later, on March 9, 2018,
Eastern filed a complaint in the Superior Court of New Jersey Law
Division in Bergen County against plaintiff, ACE, and others
seeking insurance coverage for the Spruce Run damages among other
things

(the "New Jersey action"). Doc. 47 at PA 264-91. Plaintiff

filed a motion to dismiss or stay the New Jersey action in favor
of the first-filed Texas action. Id. at PA 308-331. In response,

8

Eastern argued that the absolute pollution exclusion would not be
interpreted favorably to it under Texas law. Id. at PA 361-64. It
recited a host of reasons that New Jersey had a superior interest
in maintaining jurisdiction and applying New Jersey law and
public policy. Id. at PA 355-65. Nevertheless,

the New Jersey

court granted plaintiff's motion to stay the New Jersey action,
noting that the rock fines had already been removed from Spruce
Run and that "the health and safety of nearby New Jersey
residents" was not at issue. Doc. 57, Ex. 1.

v.
Analysis
As the court previously noted in its April 20, 2018
memorandum opinion and order, the substantive issue in this case
is the construction and application of the policy issued by
plaintiff. St. Paul Mercury Ins. Co. v. Lexington Ins. Co., 78
F.3d 202

(5th Cir. 1996); W.R. Grace & Co. v. Continental Cas.

Co., 896 F.2d 865

(5th Cir. 1990). Clearly, the insurance dispute

is centered here. See Reddy Ice Corp. v. Travelers Lloyds Ins.
Co., 145 S.W.3d 337 (Tex. App.--Houston [14th Dist.]

2004, pet.

denied) . And, as the court concluded, Texas law will govern
interpretation of the policy.
Eastern argues that it "had no opportunity, as due process
requires, to fully brief the issue• of which state's law should

9

apply.• Doc. 55 at 16. The allegation is disingenuous at best.
Eastern certainly argued in support of its motion to dismiss,
abstain or transfer that New Jersey has an overwhelming interest
in the dispute over the meaning of the policy. That New Jersey
law should apply was implicit in its argument.

5

Nevertheless,

the

court has now considered Eastern's fully-briefed argument and is
not persuaded that New Jersey law should apply to interpretation
of the policy. 6
As Eastern notes, Texas follows the Restatement

(Second)

Conflicts of Law in determining the most significant relationship
to the issue presented for determination. Duncan v. Cessna
Aircraft Co., 665 S.W.2d 414, 420-21 (Tex. 1984). However, the
court need only perform a choice of law analysis if the laws of
the states in question conflict on a disputed substantive issue.
Schneider Nat'l Transport v. Ford Motor Co., 280 F.3d 532, 536
(5th Cir. 2002); Greenberg Traurig of N.Y., P.C. v. Moody, 161
S.W.3d 56, 69-70

(Tex. App.--Houston [14th Dist.]

2004, no pet.)

In this regard, Eastern admits "New Jersey and Texas law are
generally aligned regarding the proper rules of construction for

"Eastern also complains that the parties have not engaged in discovery on the choice of law or
any other issue. Doc. 55 at 16. However, Eastern did not file a motion pursuant to Fed. R. Civ. P. 56(d).
5

The court assumed that Eastern did not make a more explicit argument because it simply could
not do so in good faith as required by Rule 11.
6

The court notes that the New Jersey court was not so persuaded either. Doc. 57, Ex. 1.

10

II

i

I
!i

insurance policy interpretation." Doc. 55 at 13, n.4.
Accordingly, the law of the forum applies and the policy should
be interpreted according to its plain meaning. Schneider, 280
F.3d at 536.
Eastern launches into a discussion of the factors considered
in a choice of law analysis and argues that New Jersey law should
apply. Doc. 55 at 16-19. But, it makes no effort to meet its
burden of showing the existence of a true conflict of laws, the
prerequisite to application of the choice of law analysis.
Greenberg Traurig, 161 S.W.3d at 69-70

(citing Weatherly v.

Deloitte & Touche, 905 S.W.2d 642, 650

(Tex. App.--Houston [14th

Dist.]

1995, writ dism'd w.o.j.), leave granted, mand. denied,

951 S.W.2d 394

(Tex. 1997)).

Even if a choice of law analysis was required to be made,
the court is satisfied that Texas has the most significant
relationship to the substantive issue to be resolved, that is,
whether the absolute pollution exclusion precludes insurance
coverage for the Spruce Run claim. As previously noted, the
insurance policy was negotiated, brokered, and issued in Texas
and this action solely concerns interpretation of that policy.
Doc. 39 at 10-11. Eastern admits that its parent, U.S. Concrete,
which is "at home" in Texas, purchased the policy. Doc. 55 at 17.
The policy covers a group of risks that are scattered throughout

11

the United States. For this reason, Texas courts would not give
weight to the location of the insured risk in interpreting the
pollution exclusion clause. Reddy Ice Corp.,

145 S.W.3d at 345 &

n.11. Certainty, predictability, and uniformity of result will be
obtained by application of Texas law, as will the other
Restatement factors.

In particular, the court notes that the

"justified expectations" of U.S. Concrete, the purchaser of the
policy, would be met by application of Texas law. That Eastern
relies primarily on the third factor--relevant policies of other
interested states and the relative interests of those states in
the determination of the particular issue--is ironic, given its
adamant denial that the release of the rock fines was pollution.
Doc. 55 at 18-19
Co.,

(citing Sensient Colors Inc. v. Allstate Ins.

939 A.2d 767

(N.J. 2008) (noting New Jersey's strong interest

in protecting victims of pollution); Curtis T. Bedwell and Sons,
Inc. v. Geppert Bros.,

Inc.,

655 A.2d 483

(N.J. Super. Ct. App.

Div. 1995) (no interest more compelling than cleanup of hazardous
substances)). And,

in any event,

the cleanup has already taken

place. Doc. 57, Ex. 1.
In Texas,

insurance policies are interpreted by the same

rules of construction applicable to contracts generally. Nat'l
Union Fire Ins. Co. v. CBI Indus.,
(Tex.

Inc.,

907 S.W.2d 517,

520

1995). The primary concern of the court is to ascertain the

12

intent of the parties as expressed in the policy. Id. If the
policy is so worded that it can be given a definite or certain
legal meaning, then it is not ambiguous. Parol evidence is not
admissible for the purpose of creating ambiguity. Whether a
contract is ambiguous is a question of law for the court to
decide by looking at the policy as a whole in light of the
circumstances present when it was entered. Id. When there is no
ambiguity, the court's duty is to give the words used their plain
meaning. Sharp v. State Farm Fire & Cas. Ins. Co., 115 F.3d 1258,
1261 (5th Cir. 1997).
In this case, the pollution exclusion bars coverage for any
liability "arising out of or in any way related to .
discharge, dispersal, seepage, migration, release or escape of
'pollutants,' however caused." Doc. 47 at PA 035, PA 060.
"Pollutants" is defined as "any solid, liquid, gaseous, or
thermal irritant or contaminant, including, but not limited to
smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste
material." Id. And,

"[w]aste material includes materials which

are intended to be or have been recycled, reconditioned or
reclaimed." Id. at PA 036, PA 060.
The rock fines are "small particles of rock generated as
part of the stone crushing process at the quarry." Id. at PA 269,
, 30. They are washed off with water and placed in ponds to

13

settle, then "removed, dried out and prepared for use as
reclamation fill" at the quarry or sold as fill material or for
other undefined purposes. Id. In this case, the rock fines were
pumped out of the settlement ponds causing physical damage to the
Spruce Run. Id. ,, 32-33. Specifically,
the material caused physical damage to the stream and
stream bed by: (a) changing the flow and contours of
the stream, including areas used for trout spawning;
(b) filling in portions of the stream and flood plain
thereby reducing the capacity of the stream and flood
plain and increasing th.e risk of flooding in the area,
which was already a flood-prone area; and (cl
physically covering the micro and macro invertebrates
that serve as a food source for fish and other species.
Doc. 56 at DE 214. Or, as Eastern's counsel summarized the
incident, Eastern pumped "a deleterious substance resulting in a
negative impact to a trout producing stream and a documented
habitat for threatened or endangered species." Doc. 47 at PA 094.
The pollution exclusion is clear, unambiguous, and absolute.
Nat'l Union, 907 S.W.2d at 522. The word "pollution" is not a
term of art.
736, 744

7

Clarendon Am. Ins. Co. v. Bay, Inc., 10 F. Supp. 2d

(S.D. Tex. 1998). Rather, substances can constitute

pollutants regardless of their ordinary usefulness. Id. See also
Nautilus Ins. Co. v. Country Oaks Apts. Ltd., 566 F.3d 452, 455
(5th Cir. 2009) (the Fifth Circuit has rejected the argument that

'Thus, the cornt does not need, and will not consider, expert or other testimony regarding the
meaning of the definitions used in the policy. Nor is the comt considering the legal conclusions posing as
fact statements of Eastern' s declarants.

14

a substance must generally or usually act as an irritant or
contaminant to constitute a pollutant under the pollution
exclusion).

In this case, the rock fines are clearly waste

material generated in the rock crushing process. That the rock
fines are wanted or useful does not change their nature. See Am.
States Ins. Co. v. Nethery,

79 F.3d 473, 477

(5th Cir.

1996) (numerous courts have found substances constituted
pollutants regardless of their ordinariness or usefulness) . They
are materials intended to be reclaimed within the meaning of
"waste material" as defined in the policy. In addition, they are
solids. They became irritants or contaminants when they were
discharged and dispersed where they did not belong.' Id. at 74344;

Penn. Nat'l Mut. Cas. Ins. Co. v. Triangle Paving,

F. Supp. 560

Inc.,

973

(E.D.N.C. 1996); Ortega Rock Quarry v. Golden Eagle

Ins. Coro., 46 Cal. Rptr. 3d 517

(Cal. Ct. App. 2006).

If they

were indeed innocuous, the State of New Jersey would not have
required remediation. See State of N.J. Dep't of Envtl. Prot. v.
Arky's Auto Sales, 539 A.2d 1280, 1283

(N.J. Super. App. Div.

1988) (Water Pollution Control Act is limited to violators who
have discharged a pollutant into waters of the State or land from
which it might flow); N.J.S.A. 58:10A-3.n ("Pollutant" means
. rock,

. other residue discharged

sand, cellar dirt, and

'Eastern itself makes this argument, thus recognizing its validity. Doc. 55 at 29.

15

into the waters of the State. "Pollutant• includes both hazardous
and nonhazardous pollutants). As Eastern has argued,

"the

underlying remediation was necessary to protect the environment.•
Doc. 47 at PA 339.
Without question, the absolute pollution exclusion applies
and is fatal to Eastern's claims for defense and indemnity from
plaintiff. Plaintiff's duty is to investigate claims and defend
suits "seeking damages covered by the terms and conditions of
this policy.• Doc. 47 at PA 033. Plaintiff has no defense
obligation because the pollution exclusion causes the insurance
not to apply to the Spruce Run claim. David Lewis Builders, Inc.
v. Mid-Continent Cas. Co., 720 F. Supp. 2d 781, 791 (N.D. Tex.
2010). The same reasons that negate the duty to defend likewise
negate an possibility that plaintiff will ever have a duty to
indemnify. Farmers Tex. Cty. Mut. Ins. Co. v. Griffin,
81, 84

955 S.W.2d

(Tex. 1997).

Eastern's first and second counterclaims are the mirror
image of plaintiff's claims for declaratory judgment. Doc. 40 at
23-25. The third counterclaim is for breach of contract, which
fails for the reasons discussed herein inasmuch as there is no
coverage under the policy. Id. at 25-26. And, the fourth
counterclaim is for breach of the obligation of good faith and
fair dealing, i.e., bad faith.

Id. at 26-31. Although Eastern

16

cites to New Jersey statutes in support of this counterclaim,
allowing it to replead under Texas law would not salvage the
claim. Where an insurer has properly denied a claim that is in
fact not covered, generally there is no claim for bad faith.
Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995).
And, Eastern has not raised any genuine fact issue as to any act
by plaintiff so extreme that it caused injury independent of the
policy claim. See, e.g., Progressive Cty. Mut. Ins. Co. v. Boyd,
177 S.W.3d 919, 922

(Tex. 2005). Eastern is not entitled to any

relief on its counterclaims and they will be dismissed.
VI.

Other Claims
As mentioned, supra, plaintiff's claims for relief against
ACE are made moot by the court's ruling herein. Thus, the only
remaining claims are the cross-claims of Eastern against ACE.
Although it appears that such claims have been resolved, Doc. 57
at 4, they remain pending. By separate order, the court is
amending the caption of the action to so reflect.
VII.

Order
The court ORDERS that plaintiff's motion for summary
judgment be, and is hereby, granted, and that Eastern have and

17

recover nothing from plaintiff and that Eastern's claims against
plaintiff be, and are hereby, dismissed.
The court further ORDERS and DECLARES that the policy does
not apply to, or provide any insurance coverage for the benefit
of Eastern as to, any liability, including, but not limited to,
settlement, judgments, costs, charges, expenses, costs of
investigations, or fees of attorneys, experts, or consultants,
arising out of, or in any way related to, the pumping of rock
fines into Spruce Run in or near Glen Gardner, New Jersey, in
July and August 2017.
The court further ORDERS that plaintiff's claims against ACE
be, and are hereby, dismissed as moot.
The court determines that there is no just reason for delay
in, and hereby directs, entry of final judgment as to the
disposition of plaintiff's claims in this action and the
dismissal of Eastern's counterclaims against plaintiff.
SIGNED July 10, 2018.

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