Allied World Surplus Lines Ins. Co. v. Delta Oil Servs.

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ALLIED WORLD SURPLUS LINES INSURANCE COMPANY, Plaintiff, v. DELTA OIL SERVICES, INC., et al., Defendants.

No. 7:22-cv-00791-ACA

United States District Court, N.D. Alabama, Western Division

December 22, 2023

MEMORANDUM OPINION AND ORDER

ANNEMARIE CARNEY AXON, UNITED STATES DISTRICT JUDGE

According to lawsuits filed in federal and state court, Defendant Delta Oil Services, Inc. allowed thousands of pounds of petroleum products and solvents to leak from several of its trucks into a residential neighborhood and a creek that flows into Lake Tuscaloosa. Allied World Surplus Lines Insurance Company provided commercial general liability insurance to Delta Oil. As with most insurance policies, Delta Oil's policy contained exclusions which eliminated coverage that would otherwise be available. In addition to the exclusions, it had several endorsements, including a transportation pollution liability coverage endorsement (the “transportation endorsement”), which added an exception to one exclusion, and a contractor's pollution liability coverage endorsement (the “contractor's endorsement”), which provided additional coverage.

Allied which is currently defending Delta Oil and several related defendants in the underlying lawsuits subject to a reservation of rights, filed this lawsuit seeking a declaratory judgment that it owes no duty to defend or indemnify those defendants. This court previously dismissed Allied's claim about the duty to indemnify as unripe. (Doc. 25). As a result, the only claim currently pending in this court is Allied's request for a declaratory judgment about its duty to defend.

Allied now seeks summary judgment on its duty to defend claim as well as reconsideration of the court's dismissal of the duty to indemnify claim. (Doc. 62). With respect to its summary judgment motion, Allied does not dispute that coverage exists under the commercial general liability policy for most of the defendants, although it does argue that Defendant Lucas Hayes cannot be considered an insured on the policy. Instead, it contends that (1) an exclusion in the policy eliminates coverage and Delta Oil cannot satisfy the exception created by the transportation endorsement; and (2) Delta Oil is not entitled to coverage under the contractor's endorsement, and even if it were, exclusions in that endorsement eliminate coverage. (Doc. 64 at 15-34).

Because Allied's argument about Lucas Hayes is insufficient to support summary judgment and a reasonable jury could find that the exception in the transportation endorsement provides coverage, the court need not address whether coverage under the contractor's endorsement exists or is excluded. The court therefore DENIES the motion for summary judgment. The court also DENIES the motion for reconsideration, both because the court remains convinced that the duty to indemnify claim is unripe and because Allied's argument about reconsideration rests on its success on its motion for summary judgment.

I. BACKGROUND

Alabama law provides that the duty to defend “is determined primarily by the allegations contained in the complaint.” Hartford Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So.2d 1006, 1009 (Ala. 2005) (quotation marks omitted). Where the allegations in the underlying complaint would, if true, establish a duty to defend, the court may not consider evidence outside the pleading. Tanner v. State Farm Fire & Cas. Co., 874 So.2d 1058, 1064 (Ala. 2003) (“[T]his Court has never held that, even though the allegations of a complaint do allege a covered accident or occurrence, the courts may consider evidence outside the allegations to disestablish the duty to defend.”). But where the allegations in the underlying complaint are ambiguous because they neither exclude nor affirmatively allege a covered claim, courts can consider extrinsic evidence. Id. Accordingly, the court will first describe the underlying complaints before setting out the evidence the parties presented in this case.

1. The Pro-Built Lawsuit

In 2021, Pro-Built Development, LLC, filed suit in federal district court against Delta Oil and Burgess Equipment Repair, LLC. (Doc. 63-1). The operative complaint alleges that Burgess is an equipment-servicing company; part of its servicing includes storing “petroleum products in the form of used oil.” (Doc. 63-3 ¶ 11). Burgess operates on a property located in Northport, Alabama, next to Pro-Built's property. (Id. ¶¶ 7, 9, 11). In 2014, the Alabama Department of Environmental Management (“ADEM”) investigated and cited Burgess for discharging oil into a wetland area. (Id. ¶¶ 12-20).

At some point, Delta Oil, “an oil, gas, solvent, and/or chemical disposal company,” began leasing or renting part of the Burgess property. (Id. ¶¶ 9-10; see also id. ¶ 51). Delta Oil not only parked its tankers on the Burgess property, it also collected and disposed of Burgess's petroleum products. (Doc. 63-3 ¶¶ 68-69).

In 2021, after members of a nearby community complained of strong odors behind their homes, ADEM, the Tuscaloosa County Emergency Management Agency, and the Northport Fire Department investigated Burgess's facility and found, just behind it, an area saturated with petroleum. (Id. ¶¶ 28-29). Two Delta Oil tankers, which had been parking overnight on the Burgess property and which were full of used oil from Burgess's business, were the likely source of the spill. (Id. ¶¶ 27, 30, 70, 77). The chemical waste from the Delta Oil trucks flowed from the Burgess property into Carroll Creek and then Lake Tuscaloosa. (Id. ¶ 35).

Pro-Built asserts against both Burgess and Delta Oil state law claims for trespass, nuisance, negligence, and wantonness, and a federal claim for violating the Clean Water Act. (Doc. 63-3 at ¶¶ 80-187).

2. The Ferguson Lawsuit

Shortly after Pro-Built filed its complaint, fourteen individuals living in the Huntington Gardens neighborhood in Tuscaloosa County, Alabama (the “Ferguson plaintiffs”) filed suit against Burgess and two related defendants (collectively, the “Burgess defendants”); Delta Oil; Delta Oil's owners, brothers Logan and Lucas Hayes; and a truck driver and operator for Delta Oil. (Doc. 63-2 ¶¶ 1-6, 13). The Ferguson plaintiffs allege that the Burgess defendants own a truck facility used for repair, maintenance, and storage of commercial trucks, hauling equipment, waste material transfer tanks, and chemical waste material containers. (Id. ¶ 9). Delta Oil, which transports and disposes of industrial and chemical waste materials, uses the Burgess truck facility “on a periodic and repetitive basis . . . with permission from and by agreement with the Burgess defendants.” (Id. ¶¶ 12, 14-15).

According to the Ferguson plaintiffs, “the Delta Oil Services defendants have repetitively dumped, discharged, and leaked chemical waste materials and petroleum waste materials onto the ground at the Burgess Truck Facility and into the adjacent wetlands water body.” (Id. ¶ 20). Those “waste materials have migrated into, onto and across the plaintiffs' residential properties in the form of either soil and water contamination and/or airborne emissions that are toxic and noxious.” (Doc. 63-2 ¶ 20). The Ferguson plaintiffs bring state law claims of nuisance, trespass, negligence, wantonness, and conspiracy against all named defendants. (Id. ¶¶ 3369).

3. Evidence in This Case

Delta Oil picks up used oil “from anyone that changes their own motor oil” and sells it, typically to a refinery or an asphalt plant. (Doc. 63-4 at 4). Usually, Delta Oil sells the oil immediately after picking it up but sometimes it has to hold onto the oil “for several days.” (Id. at 5). In that case, Delta Oil takes the oil to its transfer facility in Adger, Alabama, where it offloads the oil into bulk storage tanks. (Id.).

In 2017, Delta Oil began parking its trucks overnight at Burgess, occasionally with oil still in the trucks.^[1](Id. at 7, 12). It never left trucks there longer than overnight unless Burgess was repairing the truck. (Id. at 9, 13).

Aside from evidence about Delta Oil's parking practices, Allied also presents testimony from Lucas Hayes that he worked for Delta Oil from 2009 until around 2016. (Doc. 63-5 at 3). Despite not working for Delta Oil after 2016, he was listed as the president of Delta Oil until 2022. (Id.).

Delta Oil had a commercial general liability policy through Allied. (Doc. 636). Two endorsements to the policy are relevant in this case: the transportation endorsement (id. at 26-31) and the contractor's endorsement (id. at 20-25). The court will describe the relevant provisions of the policy and endorsements in more detail below.

II. DISCUSSION

Allied moves for summary judgment on its claim that it owes Delta Oil (and related defendants) no duty to defend because: (1) exclusions to the commercial general liability eliminate coverage under the commercial general liability policy; (2) the transportation endorsement's exception to one of the exclusions does not apply to revive coverage; (3) the contractor's endorsement does not create coverage; (4) even if the contractor's endorsement created coverage, exclusions in the endorsement eliminate coverage; and (5) Lucas Hayes does not qualify as an insured under the policy. (Doc. 64 at 5, 15-34). Allied also moves for reconsideration of the court's dismissal of its duty to indemnify claim. (Id. at 34-37). The court will address the motion for summary judgment first, followed by the motion for reconsideration.

1. Motion for Summary Judgment

Summary judgment is appropriate “if the movant shows that 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). The “initial burden” of demonstrating the absence of a genuine issue of...