Summary of a Recent
Judicial Development in
Environmental Law

Failure to Raise Affirmative Defenses in First
Responsive Pleading Constitutes Waiver

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In West Texas Agriplex v. Mid-Continent Casualty Co., No. Civ.A. 5:03-CV-199-C, 2004 WL 1515122 (N.D. Tex. July 7, 2004), the United States District Court for the Northern District of Texas granted the defendant's motion for summary judgment, holding that the plaintiff's insurance policy, entered into with the defendant, specifically excluded the plaintiff's claim for indemnity.

Background

The defendant, Mid-Continent Casualty Company, issued an insurance policy to the plaintiff, West Texas Agriplex, effective from March 23, 2002, to March 23, 2003. Id. at *1. The plaintiff, which sold fertilizer to farming operations, specially mixed fertilizers with pesticides and herbicides according to customer specifications. Id. On one occasion, the plaintiff specially mixed a fertilizer combination for Benny Redman containing the herbicides Prowl and Trilin. Id. Redman spread the fertilizer mix on 120 acres of farmland effectively sterilizing the acres just before the approaching peanut season. Id. Shortly thereafter, the plaintiff discovered that it had mixed the fertilizer in error and contacted Redman immediately to disclose the mistake. Id. Rather than bringing suit, Redman and the plaintiff entered into a settlement agreement for the sum of $72,000. Id. at *4. The plaintiff then notified the defendant of the mishap. Id. at *2. On May 15, 2002, the defendant sent correspondence to the plaintiff acknowledging receipt of the notice and insurance claim for the loss of the customer's peanut crop, notifying the plaintiff of its intent to investigate, and making a $4,500 settlement offer. Id. The plaintiff rejected the offer. Id. Thereafter, the defendant told the plaintiff that Redman's peanut claim was not covered by the insurance policy. Id. In response, the plaintiff brought suit against the defendant in state court for contractual and non-contractual damages. Id. at *4. The defendant then motioned for summary judgment. Id.

Arguments

The defendant motioned for summary judging arguing that the plaintiff's claim for indemnity was not covered by the plaintiff's insurance policy because it was specifically excluded. Id. at *2.

The plaintiff argued that summary judgment was improper because the defendant failed to specifically assert any affirmative defenses in its first responsive pleading, and thus waived the defenses. Id. at *6.

Analysis and Holdings

The court first addressed the plaintiff's claim that the defendant failed to satisfy any affirmative defenses, or in other words, that the defendant failed to "adequately plead the exclusions" contained in the plaintiff's insurance policy. Id. Texas law placed the burden on the defendant to establish "that a policy exclusion constitute[d] an avoidance of or affirmative defense to coverage." Id. Specifically, the plaintiff argued that the defendant failed to plead the "pollution exclusion as an affirmative defense." Id. The court found that the plaintiff's claim was baseless because the defendant specifically pled the pollution exclusion in its answer. Id. However, the defendant did not specifically address the damage-to-property exclusion or the impaired-property exclusion in its answer, so the court had to determine whether the defendant had provided the plaintiff with "enough specificity or factual particularity to give . . . fair notice of the defense[s]." Id. at *7. After reviewing the defendant's answer, the court held that the defendant had not set forth the particularity necessary to adequately notify the plaintiff and the court of its intention to raise the additional affirmative defenses. Id. at *8. The court stated that an affirmative defense may be raised in a motion for summary judgment if it was raised in the first responsive pleading; failure to do so constitutes waiver. Id.

Next, the court addressed whether the defendant had a duty to indemnify the plaintiff. Id. at *11. The pollution exclusion removed insurance coverage from

property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants: At or from any premises or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations if the pollutants are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor . . . .
Id.

After applying the pollution exclusion to the facts, the court held that it effectively barred coverage for the plaintiff's claims. Id. Ultimately, however, the court held that the herbicide endorsement preempted the pollution exclusion, providing the plaintiff with $5,000 of coverage less the plaintiff's deductible. Id. at *12.

The case was decided on July 7, 2004.