In “Pollution Buy Back Endorsement” Case, Circuit Looks Beyond Complaint’s Allegations

The U.S. Court of Appeals for the Eleventh Circuit, applying Florida law in a case involving a “pollution buy back endorsement,” has found an exception to the general rule that the duty to defend was determined solely from the allegations of the complaint.

The Case

Two seamen sued Composite Structures, Inc. d/b/a Marlow Marine Sales, alleging that Marlow had built, designed, completed, outfitted, manufactured, and sold the Seabird II, a pleasure vessel. The seamen asserted that they worked on the Seabird II and were exposed to excessive amounts of carbon monoxide. Their complaint included negligence and strict product liability claims against Marlow.

Marlow notified its insurance carrier, which denied both defense and indemnity coverage based on a “pollution buy back endorsement.” The carrier contended that Marlow did not meet all five conditions in the endorsement and denied coverage.

Marlow sought a declaratory judgment that the insurer had a duty to defend and indemnify Marlow in the underlying action. The district court granted the insurer’s motion for summary judgment, and Marlow appealed.

The Eleventh Circuit’s Decision

The circuit court affirmed.

In its decision, it observed that Florida law generally provided that an insurance company’s duty to defend an insured was determined solely from the allegations in the complaint against the insured, not by the actual facts of the cause of action against the insured, the insured’s version of the facts, or the insured’s defenses.

The circuit court then found that this case presented an exception to the general rule that the duty to defend was determined solely from the allegations of the complaint.

It explained that the endorsement provided an exception to the policy’s pollution exclusion where five conditions were met, including the condition that the occurrence had become known to the insured within 72 hours after its commencement and the condition that the occurrence had been reported in writing to the insurance company within 30 days after having become known to the insured.

The Eleventh Circuit pointed out that the seamen’s complaint was silent as to when the occurrence had been reported in writing to the insurance company. It then rejected Marlow’s argument that because the seamen’s complaint was silent on that point, it did not completely foreclose the possibility of coverage and the insurer had a duty to defend.

According to the circuit court, under Florida law, the insurer “was permitted to consider the uncontroverted date of written notice when determining its duty to defend” because the date of written notice to the insurance company was “not a fact that would normally be alleged in the complaint.”

Having ruled that it was proper to consider the date of written notice, the circuit court then concluded that the insurer had no duty to defend Marlow because, when considering the date of written notice, it was not possible for Marlow’s claim to fall within coverage.

The case is Composite Structures, Inc. v. Continental Ins. Co., No. 12-15866 (11th Cir. March 20, 2014).