In April 2014, WMH and two WMH employees were indicted pursuant to a 13-count indictment. Among other charges, the indictment alleged in Count 9 the offense of “knowing discharge of pollutants into a water of the United States, in violation of an [National Pollutant Discharge Elimination System] Permit, and aiding and abetting the same” under 18 U.S.C. § 2 and 33 U.S.C. §§ 1311(a), 1319(c)(2)(A).

In Count 9, the indictment alleged that as a January 2011 rainstorm approached, one of the WMH employees decided to leave a manhole open within the landfill to function as an overflow drain. When the storm arrived, according to the indictment, the area of the landfill near the manhole flooded, and millions of gallons of contaminated water moved through the manhole, into a pipe, and, after a series of steps, into the Pacific.

AIG Specialty Insurance Company, which had issued a claims-made “Pollution Legal Liability Select Policy” to Waste Management, Inc. (“WMI”) and (“WMH”) (together, “Waste Management”), denied coverage for “any criminal proceedings, criminal fines, or criminal penalties . . . , including legal fees incurred in connection with the U.S. Attorney General's grand jury investigation,” and it refused to reimburse WMH for its criminal defense costs.

Waste Management sued AIG, and the parties moved for summary judgment.

Among other things, Waste Management asserted that the April 2014 indictment standing alone constituted a claim under the AIG insurance policy because the indictment could result in an order requiring WMH to clean up its environmental violation or a restitution order.

For its part, AIG asserted that the indictment did not seek any clean-up costs and, in fact, did not expressly demand any remedy. Rather, AIG noted, it sought criminal convictions. According to AIG, Texas' eight-corners rule for interpreting coverage under an insurance policy prohibited judicial creation of a demand for clean-up costs that did not exist within the indictment.

The District Court's Decision

The district court, applying Texas law, granted AIG's motion.

In its decision, the district court explained that the indictment did not seek a remedy for a “loss” and did not include a demand for any remedy. The indictment, the district court said, only charged WMH and two individuals with crimes.

The district court said that, even assuming that a remediation order or restitution order would not be excluded under the policy's criminal fines, penalties, or assessments exclusion, there was “no statement or express indication within the indictment” that it sought or would seek a remediation or restitution order.

The district court added that the indictment alleged that WMH and two individuals committed crimes. The district court said that if it were to look beyond the indictment to the extrinsic material in Waste Management's exhibits in order to find that the indictment “potentially” stated a covered claim for clean-up costs, then it would be applying the “potentiality” standard to deviate from the eight-corners rule, which it was not permitted to do.

Accordingly, the district court concluded, there was no claim that triggered AIG's duty to defend.

The case is Waste Management, Inc. v. AIG Specialty Ins. Co., No. 4:16-CV-03676 (S.D. Tex. March 28, 2019). Attorneys involved include: For Waste Management, Inc., Waste Management Hawaii, Inc., Plaintiffs: Donald Hamilton Kidd, LEAD ATTORNEY, Perdue & Kidd, Houston, TX; Joseph P Thacker, LEAD ATTORNEY, Thacker Robinson Zinz, Naples, FL. For AIG Specialty Insurance Company f/k/a Chartis Specialty Insurance Company, AIG Claims, Inc. f/k/a Chartis Claims, Inc., Defendants: John F O'Connor, LEAD ATTORNEY, Steptoe and Johnson, Washington, DC; Roger E Warin, LEAD ATTORNEY, Steptoe and Johnson LLP, Washington, DC; Thomas Scott Flynn, Thompson Coe Cousins and Irons LLP, Dallas, TX; Ellen Lewis Van Meir, Thompson Coe et al, Dallas, TX.