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Apollo Energy, LLC v. Certain Underwriters at Lloyd's, London

United States District Court, M.D. Louisiana

May 1, 2019

APOLLO ENERGY, LLC
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON

          RULING AND ORDER

          JOHN W. deGRAVELLES UNITED STATES DISTRICT COURT JUDGE.

         This matter comes before the Court on the Motion to Dismiss for Failure to State a Claim (Doc. 18) filed by Underwriters at Lloyd's of London, specifically QBE Marine & Energy syndicate to Policy No. 16CGLN10685 ("QBE" or "Defendant"). Plaintiff Apollo Energy, LLC ("Apollo" or "Plaintiff) opposes the motion. (Doc. 20.) Defendant has filed a reply. (Doc. 21.) Oral argument is not necessary. The Court has carefully considered the law, the facts in the record, and the arguments and submissions of the parties and is prepared to rule. For the following reasons, Defendant's motion is granted.

         I. Relevant Factual and Procednral Background

         A. Relevant Factual Background

         The relevant factual allegations are primarily taken from Plaintiffs First Amended Complaint for Declaration of Coverage, Bad Faith and Damages (''Amended Complaint' or "Am. Compl") (Doc. 17). All allegations are assumed to be true for purposes of this motion and construed in a light most favorable to Plaintiff. Thompson v. City of Waco, Tex., 764 F.3d 500, 502-03 (5th Cir. 2014). The allegations are also taken from the insurance policy attached to the Amended Complaint and Defendant's motion to dismiss, as they are referenced in the Amended Complaint and central to Plaintiffs claims. See In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (citing Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004)).

         This is an insurance case arising from an oil spill. Defendant issued a Commercial General Liability Insurance Policy to Plaintiff bearing Policy Number: 16CGLN10685 ("the Policy"). (Am. Compl. ¶ 4.) The effective policy period was May 2, 2016 through May 2, 2017. (Id.)

         The Policy contained a Total Pollution Exclusion ("TPE"). The TPE provided in relevant part:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
TOTAL POLLUTION EXCLUSION ENDORSEMENT

         This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART
Exclusion f. under Paragraph 2., Exclusions of Section I - Coverage A - Bodily Injury And Property Damage Liability is replaced by the following:

         This insurance does not apply to:

f. Pollution
(1) 'Bodily injury' or 'property damage' which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time
(2) Any loss, cost or expense arising out of any:
(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of 'pollutants'; or
(b) Claim or 'suit' by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, 'pollutants'

(Policy, Am. Complaint, Ex. A, Doc. 17-1 at 16.)

         "Pollutant" is defined in the Policy as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed." (Id. at 14.)

         The Policy also contained an endorsement entitled the "Coverage Buyback Seepage and Pollution Buyback." (Id. at 17.). This provision stated:

Notwithstanding the Total Pollution Exclusion attached to this policy, the exclusion shall not apply provided that the insured establishes that all of the following conditions have been met:
A. The 'occurrence' was accidental and was neither expected nor intended by the insured. An accident shall not be considered unintended or unexpected unless caused by some intervening event neither expected nor intended by the insured.
B. The 'occurrence' can be identified as commencing at a specific time and date during the term of this policy.
C. The 'occurrence' became known to the insured within 72 hours after its commencement and is reported to the Company within 30 days thereafter.
D. The 'occurrence' did not result from the insured's intentional and willful violation of any government statute, rule or regulation.

(Id.)

         This provision was amended by Endorsement 34 to provide:

         ENDORSEMENT NO. 34

         This endorsement forms a part of the policy to which it is attached. Please read it carefully.

         SEEPAGE AND POLLUTION BUYBACK AMENDMENT

         In consideration of the premium charged, it is agreed that Condition C of form SC-2035 is hereby amended to read as follows:

         C. The "occurrence" became known to the insured within 30 days after its commencement and is reported to the Company within 90 days thereafter.

         All other terms and conditions remain unchanged. (Policy, Def.'s Mot. to Dismiss, Ex. 1, Doc. 18-2 at 59) (the "Coverage Buyback Seepage and Pollution Buyback" and Endorsement No. 34 are, collectively, the "Buyback").

         On June 1, 2016, an oil spill occurred because of a backup of a water container and pump at one of Apollo's wells in Iberville Parish. (Am. Compl. ¶ 8.) The spill required clean up and remediation. (Id.) Apollo had this work performed "by appropriate outside vendors" for the cost of $143, 643.64. (Id.) Apollo reported this to QBE through its agent on November 1, 2016-about one hundred and fifty-three days (153) after the oil spill. (Id.) The agent told Apollo there was no coverage under the policy. (Id.)

         Apollo disagreed. (Am. Compl. ¶ 9.) On May 5, 2017-or about three hundred, thirty-eight days (338) days after the spill-Apollo informed Defendant of the claim by letter through the Claims Department of Burnett & Company, Inc. (Id.) Apollo contended that there was coverage and provided "appropriate documentation of proof of loss." (Id.) Specifically, Apollo stated that the Seepage and Pollution Buyback Endorsement applied, for a number of reasons. (Id.) Critical to this ruling, Apollo specifically alleges:

Apollo conceded that it had not met the 90-day reporting period, but noted that the report of November 1, 2016, occurred within 150 days of the occurrence and within the policy period, and further pointed out the lack of prejudice to QBE by the delay because the cleanup and remediation was timely performed. The invoices indicate cleanup began on June 1, 2016, as soon as the leak was noted. The only claim made by Apollo was for reimbursement of the cleanup and remediation costs of $143, 643.64, for which it provided all invoices and documentation as satisfactory proof of loss to QBE. Clearly, there was no prejudice to QBE. It would have been no different to QBE had the spill and clean up been reported on the 89th day, rather than the 150th day, because all of the cleanup and remediation work had already been done. QBE could have taken no steps to alter those actions. Therefore, QBE was not prejudiced by the delay in reporting.

(Am. Compl. ¶ 10.) Apollo again alleges that "QBE was not prejudiced by the late reporting because the cleanup and remediation was timely and properly performed, and the reporting occurred within the policy period." (Id. ¶ 11.)

         QBE denied the claim. (Id. ¶ 12.) QBE stated that Apollo could not meet the requirements of the Buyback because it failed to satisfy the 90-day reporting requirement. (Id.) Defendant also cited the fact that Apollo "failed to follow Form BEP-808 (1115) that notice of an incident be reported immediately to Burnett & Company, Inc." (Id.) According to Plaintiff, QBE had the burden of investigating and showing prejudice after getting notice. (Id.)

         In the Amended Complaint, Plaintiff asserts that the Buyback provision applies: (1)because the main case Defendant relies upon-In Re: Matter of Complaint of Settoon Towing, L.L.C, 720 F.3d 268 (5th Cir. 2013)-is distinguishable with respect to the policy language; and (2) an oil spill is not a "pollutant" under 42 U.S.C. §9601(14), so the TPE at issue here is not applicable. (Am. Compl. ¶¶ 13-16.) With respect to this second argument, Plaintiff further alleges that:

         The applicability of a TPE is determined by the following considerations:

(1) Whether the insured is a "polluter" within the meaning of the ...

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