On 4/9/2020, Everest National Insurance company filed a lawsuit in US District Court for the Southern District of Texas, against one of its policy holders, Megasand, Inc. Everest wants a declaratory judgment stating that it is not responsible for the defense of its client, nor for any settlements or judgments that may arise from underlying cases that it specified (see below).
Courthouse News Service Alert
Yesterday, a local lawyer, Steven Selbe, noticed an alert from the Courthouse News Service (CNS) and, in turn, alerted me.
CNS said, “Megasand Enterprises is a defendant in several Harris County Court lawsuits in which residents claim their homes flooded in August 2017 because Megasand and other gravel mining companies negligently dumped sediment into Spring Creek and the San Jacinto River, reducing the waterways’ capacity to absorb flooding caused by Hurricane Harvey. Plaintiff seeks a declaration it does not have to defend nor indemnify Megasand against the litigation.”
After Hurricane Harvey, hundreds of residents in the upper San Jacinto River watershed banded together in several lawsuits against sand mines. The suits allege that mines located near the river and its tributaries discharged silt and sediment without authorization. That, they claim, reduced the ability of the river and Lake Houston to handle floodwaters, which in turn contributed to the flooding of their homes and businesses. The first lawsuit alleges nuisance, negligent conduct, gross negligence, and violation of the Texas Water Code Section 26.121. It names Megasand as a defendant. Several subsequent lawsuits were consolidated with this one.
Another suit filed this February represents 437 plaintiffs and 55 defendants, also including Megasand. This suit alleges negligence and negligence per se. Negligence per se is the unexcused violation of a statute. The suit alleges, in part, that defendants owed a duty to Plaintiffs to implement procedures to reduce the discharge of sediment, but did not.
Impact if Everest is Successful
This is not good for the folks who actually want to recover money, but may put some sand mines out of business. The insurance company says that Megasand’s policy does not cover pollution. Therefore, Everest wants to stop paying for Megasand’s defense. If the judge agrees, Everest would not have to pay for any settlements, judgements, or legal fees.
Says Selbe, “The good thing if you are an insured being defended is that your defense fees and costs are usually paid by the insurance company and often the insurance company eventually pays to settle. In this case, the insurance company wants out of the box altogether. That’s bad for Megasand. It will have to pay to fight this lawsuit and if it loses, will have to pay to defend the flood cases and any judgments or settlements.”
Even though Harris County courts are trying the underlying lawsuits, Everest filed its suit against Megasand in federal court. The insurance company is incorporated in Delaware and the sand company in Texas.
Reading Everest’s policy agreement with Megasand may cause other insurers and insureds to review their own policies. If sand miners cannot get insurance because of their current business practices, it may force them to modify their practices to reduce risk.
Basis for Everest Claims
The Everest suit claims, in part:
- “Our right and duty to defend end when we have used up the applicable limit of insurance…”
- The insurance does not apply to…property damage that is “expected“ from the standpoint of the insured.
- The insurance also does not apply to “pollution” and the “processing or treatment of waste.”
Stepen O. Venable of Walker Wilcox Matousek LLP represents Everest National Insurance Company.
It’s not clear what triggered the Everest suit at this time. Plaintiffs filed the first of the underlying suits in 2018.
Dozens of posts on this blog have documented discharges from sand mines. I have so many aerial photographs that I have personally concluded that pollution is part of most mines’ normal business practices. If caught, mines simply pay a slap-on-the-wrist fine.
Since mines were forced to register in 2011, the average fine has been only $800.
In essence, that makes Texas a “pay-to-pollute” state for sand miners.
If Everest is successful, the “expected” part of their claim may form a precedent that transforms the mining industry in this state. Especially if the Attorney General successfully prosecutes the Triple PG mine in Porter. The Attorney General alleges serial pollution and seeks fines that could exceed a million dollars. (Note: The underlying suits in this Megasand case also name Triple PG as a co-defendant.)
Financial risk may produce changes in business practices that Austin has not been willing to legislate.
Posted by Bob Rehak on 4/11/2020 with thanks to Steven Selbe
956 Days after Hurricane Harvey
The thoughts expressed in this post represent opinions on matters of public concern and safety. They are protected by the First Amendment of the US Constitution and the Anti-SLAPP Statute of the Great State of Texas.