Dismissal of indemnity claim ruled premature on appeal

A federal appeals court said Monday that a lower court’s ruling that Liberty Mutual units did not have to indemnify a policyholder in a pollution case was premature.

In 2016, eight property owners sued Copart of Connecticut Inc., a subsidiary of Dallas-based Copart Inc., an online car auction company, according to the ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Liberty Mutual Fire Insurance Co.; Liberty Insurance Corp. v. Copart of Connecticut Inc.

The plaintiffs said that a creek that ran through one of Copart’s properties in Lexington County, South Carolina, where a machine salvage junkyard and vehicle wash facilities were located, was carrying pollutants onto their land. They alleged violations of the Clean Water Act, among other laws, and made negligence claims against the company.

Liberty Mutual, which had issued commercial general liability and umbrella policies to the company, filed suit in U.S. District Court in Dallas, seeking a declaration it had no duty to defend or indemnify Copart in the underlying lawsuit. The district court granted Liberty’s motion for summary judgment dismissing the case.

A three-judge appeals court panel agreed with the insurer that it had no obligation to defend the company based on pollution exclusions in its coverage. But it held that dismissing the indemnification issue was premature.

The district court “found no duty to indemnify solely because it had found that Liberty had no duty to defend,” the ruling said. 

“The duty to defend is negated here” because the plaintiffs in the underlying case “only allege damage caused, either in whole or in part, by pollutants. 

“But evidence arising from or related to the underlying suit may reveal that non-pollutants caused the plaintiffs damage….. If this were so, Liberty may be obligated to indemnify Copart,” the ruling said.

A footnote to the decision says that while the underlying suit has now been settled, “the issue of indemnification remains live” because Copart is seeking, and Liberty opposes, indemnification for the settlement amount.

Attorneys in the case did not respond to requests for comment.