Type: Law Bulletins
Date: 09/08/2020

Fifth Circuit Holds Insurer Had No Duty to Defend Criminal Claims Under Environmental Policy

In Waste Management, Inc. v. AIG Specialty Insurance Co, ___ F.3d ___, No. 19-20674, 2020 WL 5268504 (Sept. 4. 2020), the Fifth Circuit affirmed summary judgment for AIG Specialty Insurance Company, holding it had no duty to defend Waste Management, Inc. against criminal claims under a Pollution Legal Liability insurance policy.

Waste Management’s troubles began when heavy storms flooded its landfill in Honolulu, Hawaii in late 2010 and early 2011. The floods led to medical waste being discharged to the Pacific Ocean, which then washed up on nearby beaches. In early 2011, the EPA issued an administrative order on consent that required Waste Management to clean up the discharges. Later that year, Waste Management and two of its employees were indicted for the discharges under the Clean Water Act. Waste Management pleaded guilty and was sentenced to pay a $400,000 fine and $200,000 in restitution.

Waste Management sought defenses costs for the criminal proceedings from AIG. The policy provided coverage only for claims for clean-up costs and it did not apply to criminal penalties. Nonetheless, Waste Management argued that AIG had a duty to defend in the criminal proceedings because those proceedings were part of a single, coordinated enforcement process that began with the administrative order on consent that required cleanup.

The Fifth Circuit rejected this argument and instead held that the administrative order and the criminal proceedings were two separate claims under the policy. Since the criminal proceedings sought no clean-up costs from Waste Management, the criminal proceedings were not a covered claim, and therefore there was no duty to defend.

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