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A federal appeals court has affirmed a lower court’s summary judgment in favor of American International Group Inc. units in policyholder litigation over federal regulatory action against Waste Management Inc.
Houston-based Waste Management operated the Waimanalo Gulch Sanitary Landfill under a contract with the city of Honolulu, according to Friday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Waste Management Inc.; Waste Management Hawaii, Inc. v. AIG Specialty Co., formerly known as Charts Specialty Insurance Co.
In late 2010 and early 2011, heavy storms flooded a section of the landfill, and contaminated water, which included medical waste such as syringes, blood vials and catheters, was discharged into the Pacific Ocean through an open manhole and washed up on nearby beaches, according to the ruling.
After the Environmental Protection Agency investigated, it issued an Administrative Order on Consent in January 2011 that required Waste Management to clean up the discharge. The agency informed the company the work was completed to its satisfaction in August 2011.
In April 2011, the Department of Justice began a grand jury investigation into Waste Management’s action, and in April 2014 the company’s Hawaii unit and two of its employees were indicted for violating the Clean Water Act’s “criminal penalties” provision.
Under a plea agreement that was separate from any potential civil claims against the company, the defendants pleaded guilty to negligent discharge of pollutants in violation of the Clean Water Act, and the federal district court imposed a $400,000 fine, $200,000 in restitution to neighboring businesses and a $250 assessment against the Hawaii unit.
Waste Management entered a consent decree to resolve the civil proceedings against it in April 2019, according to the ruling.
AIG unit AIG Specialty had provided coverage of $50 million per incident with a $5 million deductible. After the insurer refused to defend or indemnify the company, Waste Management filed suit in Texas state court against AIG Specialty and AIG Claims Inc., which served as AIG Specialty’s adjuster. AIG successfully petitioned to have the case moved to U.S. District Court in Houston, which granted AIG summary judgment dismissing the case.
On appeal, a three-judge appeals court panel upheld the district court’s refusal to remand the case to state court and the lower court’s ruling dismissing the litigation.
On the remand issue, the ruling said, “Waste argues that it sufficiently alleged that AIG Claims violated” the Texas insurance code. However, “even assuming that an adjuster can be held liable” under the code, “Waste did not allege facts that, taken as true, demonstrate a violation of these provisions.”
“Notably, Waste did not allege that AIG Claims failed to investigate, delayed any investigation, misevaluated, misprocessed, made any misrepresentation of the policy, or failed to ‘effectuate’ a fair settlement,” the ruling said in citing a previous case.
The ruling also held the “district court did not err in finding there was no claim that triggered (AIG’s) duty to defend against the criminal allegations,” in affirming the lower court’s rulings in the case.
An AIG attorney had no comment, and Waste Management attorneys did not respond to a request for comment.