On January 12, 2017, the United States Court of Appeals for the Eighth Circuit handed down its Opinion in Williams v. Emp.Cas.Co., et al., No. 15-3573 (8th Cir. January 12, 2017).
Collaborating with counsel for Capital Indemnity and Auto Owners Insurance in defense of a garnishment arising from an uncontested judgment for $82,037,000. The judgment followed the carriers’ declination of coverage for a class action lawsuit alleging alpha particle radiation contamination of the water supply for a mobile home park developed by the carriers’ mutual insured.
After obtaining the judgment, the representative for a class of homeowners filed a garnishment suit under §379.200 R.S.Mo. to reach and apply the limits of liability from several policies issued by EMC, Capitol, and Owners. The garnishment action was filed originally in state court but removed by the insurers to the United States District Court for the Eastern District of Missouri. As detailed in the Eighth Circuit’s Opinion, the Eastern District properly denied the class representative’s motion to remand the case. The Eighth Circuit also affirmed the trial court’s decision to grant the insurers’ join motion for judgment on the pleadings.
Opinion is significant on several fronts. Most importantly, each of the insurers was potentially exposed to liability on the entirety of the class’s $82,037,000 Judgment under HIAR Holding. 1
Additionally, the Opinion provides guidance to insurers defending Missouri garnishment actions arising out of class action judgments. With regard to pollution exclusions, the Opinion provides guidance to insurers seeking to apply standard pollution exclusions under circumstances where the alleged “contaminant” is not easily classified as “solid, liquid, gaseous or thermal.”
The Opinion also addresses federal jurisdiction over §379.200 R.S.Mo. garnishment actions arising out of class action judgments in Missouri. The Eighth Circuit explained that the Class Action Fairness Act (“CAFA”) allows for the removal of any class action-related litigation falling within the parameters of CAFA, even where such action does not cite 28 U.S.C §1332 (d) or a state-law analog, if the garnishment action is brought on behalf of the class. In other words, the Opinion suggests, “once a class action always a class action,” for purposes of applying CAFA to Missouri garnishment actions brought by a class representative to reach and apply insurance proceeds.
With regard to substantive insurance issues, Williams is perhaps most significant for its treatment of alpha particle radiation. Typical pollution exclusions found in most CGL policies define pollutants as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkaloids, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.” In an effort to avoid the effect of the insurers’ pollution exclusions, the class representative argued that alpha particles are subatomic and cannot be classified as either “solid, liquid, gaseous or thermal”. The Eighth Circuit rejected the plaintiff’s argument explaining that alpha particles are inherently tied to radium-226, an element which is a solid at room temperature. Further, the court explained that where the subject policies excluded coverage for bodily injury or property damage “arising out of” the dispersal of pollutants and where the alpha particle activity at issue resulted directly from the presence of radium in the plaintiffs’ drinking water, the insurers’ pollution exclusions applied.
It is also worth noting that the Eighth Circuit took a broad view of federal procedure governing motions for judgment on the pleadings. In this case, the insurers immediately struck back at the plaintiffs’ petition for garnishment by filing a motion for judgment on the pleadings at the earliest possible stage of the litigation. As part of their joint motion, the insurers referenced EPA fact sheets and other general principles of physics to support their arguments. The Eighth Circuit found that under Federal Rule of Evidence 201(b) a court may take judicial notice of any fact that is not subject to reasonable dispute. The physical properties of radium are indisputable. The district court’s willingness to take judicial notice of these principles, notwithstanding contrary expert testimony and corresponding “findings and conclusions” in the state court judgment, was the lynch pin to the ruling in favor of the insurers.
Thus, Williams is also important insofar as the insurers were able to overcome “findings and conclusions” in an uncontested judgment. The trial court in the underlying action found that the pollution at issue was alpha particle radiation and concluded that subatomic particles “is [SIC] not classifiable (as a matter of fact or law) as a solid, liquid, or gas… [and] are not by nature thermal.” At first blush, those findings and conclusions appeared to bar application of the pollution exclusion, but they did not control the outcome. In this regard, the ruling may have broader implications for insurers seeking to escape the effects of uncontested judgments taken after §537.065 agreements, when defending garnishment actions seeking to reach and apply insurance proceeds based on such “findings and conclusions.”
Finally, the Opinion is notable for its treatment of coliform bacteria, a second contaminant alleged as the basis for the class action judgment. Again, the court addressed the plaintiffs’ argument that coliform bacteria does not fall within the definition of a “pollutant” under the standard pollution exclusion found in most commercial liability policies. To the contrary, the Eighth Circuit found that coliform bacteria, as an organism, is a “combination of solid, liquid, gaseous, and thermal elements.” (Emphasis in original). Thus, coliform bacteria falls within the definition of “pollutant” incorporated into most standard pollution exclusions.
1 The extra contractual liability exposure under HIAR Holding was mitigated by the Supreme Court of Missouri’s recent opinion in Allen v. Bryers, 2017 WL 7378560 (Mo. December 20, 2016). Nevertheless, if the insurers had been unable to defend their coverage positions in the garnishment action, each would have been potentially exposed to extra contractual liability for “bad faith” based on the excess nature of the underlying judgment.