Murphy-Brown, LLC v. Ace Am. Ins. Co.

Murphy-Brown, LLC v. Ace Am. Ins. Co., 2020 NCBC 96.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
COUNTY OF WAKE SUPERIOR COURT DIVISION
19 CVS 02793
MURPHY-BROWN, LLC and
SMITHFIELD FOODS, INC.,
ORDER AND OPINION ON
Plaintiffs,
PLAINTIFFS’ MOTIONS FOR
PARTIAL SUMMARY JUDGMENT
v.
AGAINST OLD REPUBLIC
INSURANCE COMPANY AND ACE
ACE AMERICAN INSURANCE
AMERICAN INSURANCE COMPANY
COMPANY; et al.,

Defendants.

THIS MATTER is before the Court on Plaintiffs’ Motion for Partial Summary

Judgment on Count I of their Amended Complaint Against Defendant Old Republic

Insurance Company (“Partial Summary Judgment Motion against ORIC,” ECF No.

289) and Plaintiffs’ Motion for Partial Summary Judgment on Count II of their

Amended Complaint Against ACE American Insurance Company (“Partial Summary

Judgment Motion against ACE,” ECF No. 293; collectively, the “Motions”).

THE COURT, having considered the Motions, the briefs and evidence filed in

support of and in opposition to the Motions, the evidentiary materials filed by the

parties, the arguments of counsel at the hearing on the Motions, the applicable law,

and other appropriate matters of record, CONCLUDES, in its discretion, that the

Motions should be GRANTED for the reasons stated below.

Middlebrooks Law, PLLC by James Middlebrooks for Plaintiffs Murphy-
Brown, LLC and Smithfield Foods, Inc.
Reed Smith LLP by Evan T. Knott and John D. Shugrue for Plaintiffs
Murphy-Brown, LLC and Smithfield Foods, Inc.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP by Michael
W. Mitchell for Plaintiffs Murphy-Brown, LLC and Smithfield Foods,
Inc.

Bailey & Dixon, LLP by John T. Crook and David S. Coats for
Defendants Ace American Insurance Company.

Clyde & Co US LLP by Marianne May and Daren McNally for
Defendants Ace American Insurance Company.

Manning, Fulton, & Skinner, P.A. by Michael T. Medford for Defendant
Old Republic Insurance Company.

Clausen Miller, P.C. by Amy R. Paulus and Michael Duffy for Defendant
Old Republic Insurance Company.

McGuire, Judge.

1. In this insurance coverage action, Smithfield Foods, Inc. (“Smithfield”)

and its subsidiary, Murphy-Brown, LLC (“Murphy Brown”; collectively, “Plaintiffs”)

seek coverage from Old Republic Insurance Company (“ORIC”), Ace American

Insurance Company (“ACE”; collectively for the purposes of the Motions only,

“Defendants”), and other insurer-defendants for multiple underlying nuisance

lawsuits initially filed against Plaintiffs in State and federal court in 2013 and 2014

(the “Underlying Lawsuits”). Presently before this Court are the Motions, by which

Plaintiffs seek partial summary judgment in their favor as to the claims that ORIC

and ACE breached their respective duties to defend the Underlying Lawsuits under

the applicable business auto liability policies that were issued during policy periods

spanning from April 30, 2010 through April 30, 2015.
I. FACTS AND PROCEDURAL HISTORY

2. “Although findings of fact are not necessary on a motion for summary

judgment, it is helpful to the parties and the courts for the trial judge to articulate a

summary of the material facts which he considers are not at issue and which justify

entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161–62, 693 S.E.2d 250, 252

(2010).

A. The Underlying Lawsuits

3. Smithfield and Murphy-Brown, the third-largest pork producers in the

world, grow the hogs used for their pork products on large farms in North Carolina

and other states. These large farms are sometimes referred to as Concentrated

Animal Feeding Operations (“CAFOs”). In 2013, Plaintiffs were named in twenty-

five (25) nuisance lawsuits filed in North Carolina Superior Court, Wake County by

individual plaintiffs (the “State Claimants”) who live near CAFOs located in eastern

North Carolina (the “State Court Lawsuits”). (Amended Complaint, ECF No. 9, at

¶¶ 29–31.)

4. The disputes in the State Court Lawsuits were centered around

Plaintiffs’ operation of its CAFOs and the impact of those operations on neighboring

properties. The State Claimants alleged that operations of the CAFOs subjected their

neighboring properties to “recurring foul and offensive odors, particulate matter, and

other substances” and to “flies and other insects” from: Plaintiffs’ storage of manure,

urine, and other substances in deep pits (or “lagoons”), the storage of dead animals in

“dead boxes,” and the practice of spraying voluminous hog manure, urine, and other
substances (referred to as “spray fields”), among other activities. (See, e.g., Exs. G1–

G28, ECF No. 292.11, at pp. 1–23.) For example, the State Court Lawsuits1 alleged:

[R]ecurring foul and offensive odors, hog manure and
urine, particulate matter, other substances, flies and/or
other insects, and in some cases, buzzards and/or
scavenger animals . . . have emanated from such operations
and invaded [the State Claimants’] properties, thereby
substantially impairing [the State Claimants’] land,
property rights, and use and enjoyment of their property,
and causing harm including but not limited to: substantial
anger, embarrassment, discomfort, annoyance,
inconvenience, decreased quality of life, deprivation of [the
State Claimants’] opportunity to continue to develop their
respective properties, injury to [the State Claimants’]
properties, and in the case of some [State Claimants],
health concerns and/or material physical and/or mental
discomfort, and [the State Claimants] have thereby been
damaged.

(Id. at p. 14.) Based on these allegations, the State Claimants brought claims for

private nuisance, negligence, and negligent entrustment, 2 seeking both actual and

punitive damages. (Id. at pp. 14–23.)

5. The State Claimants dismissed the State Court Lawsuits in 2014. (ECF

No. 9, at ¶ 32.) However, prior to dismissing the State Court Lawsuits, most of the

same plaintiffs 3 filed the Underlying Lawsuits against Smithfield and Murphy-

1 Referring to the Alderman complaint (ECF No. 292.11, at pp. 1–23), which contains
allegations typical and substantially identical to the allegations in the other State Court
Lawsuits.

2 Referring to Smithfield’s entrustment of its hogs to certain individuals or entities which

raise hogs on behalf of Smithfield through contract-grow agreements. (ECF No. 292.11, at p.
21.)

3 There were 26 lawsuits filed in federal court against Smithfield and Murphy-Brown. Some

of the State Claimants did not file lawsuits in federal court, but some additional plaintiffs
who had not filed State Court Lawsuits filed Federal Court Lawsuits.
Brown. (Id. at ¶¶ 32–34.) The plaintiffs in the Federal Court Lawsuits (referred to

as the “Federal Claimants”; collectively with the State Claimants as the “Claimants”)

brought claims based on allegations substantially similar to those pled in the State

Court Lawsuits. (Id. at ¶ 35; Aff. of Parul Stevens, ECF No. 291, at ¶¶ 11, 13.) Based

on these allegations, the Federal Claimants each brought single claims of private

nuisance, seeking both actual and punitive damages. (Id. at pp. 256–58, ¶¶ 156–75.)

6. Relevant to this dispute, the complaints in the Underlying Lawsuits also

contain allegations that Plaintiffs’ use of large trucks in operating the CAFOs cause

a nuisance. Specifically, the complaints in the State Court Lawsuits allege:

[Murphy-Brown’s] CAFOs are also a major source of truck
traffic that create or contribute to additional recurrent
excessive noise, odors, and in some cases emanate manure,
urine, and other substances onto the roads.

(ECF No. 292.11, at p. 15, ¶ 72.)

7. The complaints in the Federal Court Lawsuits allege:

[A]s another independent cause of the nuisance, [Murphy-
Brown’s] hogs necessitate very large trucks crawling up
and down the streets outside of the [Claimants’] homes.
These are often narrow and even unpaved country lanes,
which normally would never be subjected to having
repeated episodes of large tractor-trailers and other big
trucks taking feed to the hogs, trucking in live hogs, and
trucking out both live hogs and dead hogs. These trucks
often go by [Claimants’] homes in the dead of night and
they cause noise, dust, liquid spilling from the trucks and
bright lights of their headlights.

(ECF No. 292.15, at p. 217, ¶4.)

Large hog trucks carry hogs into and out of the facilities.
All of these activities cause odor, annoyance, dust, noise
and loss of use and enjoyment of homesteads. The stench
and associated nuisance also embarrasses and humiliates
the [Claimants].

(Id. at pp. 221–22, ¶ 33.)

[Claimants] have suffered . . . liquid dripping from passing
hog trucks and ‘dead trucks,’ the increased pest
populations and other aspects of the nuisance. The
[Claimants] feel angry, fearful, worried, and depressed.
They are worried and fearful about their health and their
children’s health.

(Id. at pp. 222–23, ¶ 36.)

Big trucks go past [Claimants’] house with live and dead
hogs. These trucks can produce a stench and also they
cause noise and dust. The foul odor has affected
[Claimants’] use and enjoyment of their land and their
ability to enjoy time with family and friends.

(Id. at p. 237, ¶ 127.)

[E]ver since the hogs have come, very large trucks crawl up
and down the streets outside of the [Claimants’] homes
. . . . These trucks cause noise, dust, and lights from
headlights and they pass even in the middle of the night.

(Id. at p. 244, ¶ 180.)

8. Further, the Underlying Lawsuits contain allegations that Plaintiffs

knew or had reason to know of the nuisance caused by their CAFOs, as well as

allegations of negligence and reckless disregard. For example, the complaints in the

Federal Court Lawsuits allege:

[Murphy-Brown] had actual knowledge during some or all
pertinent times that the subject hogs were causing a
nuisance.

(Id. at p. 257, ¶ 164.)
In contrast to [Murphy-Brown’s] assertions that its hogs do
not cause nuisance or injury, numerous scientific reports
and studies have found that they do. These reports show
that [Murphy-Brown] has actual knowledge of the
nuisance caused by its swine, or is willfully blind to that
fact.

(Id. at p. 253, ¶ 214.)

Studies, reports, incidents and complaints that have
amassed since [Murphy-Brown] first started the CAFO
system clearly show predictable nuisance caused by swine
sites to nearby neighbors.

(Id. at p. 251, ¶ 205.)

[Murphy-Brown] knew or should have known that
[Murphy-Brown’s CAFOs] would recurrently encroach
upon and invade [Claimants’] properties, and substantially
impair [Claimants’] use and enjoyment of their properties.

(Id. at p. 257, ¶ 165.)

The recurring conduct, acts, omissions, negligence, and
impropriety of [Murphy-Brown] were willful, wanton,
malicious, and in reckless disregard for the rights and
interests of the [Claimants] and justify an award of
punitive damages.

(Id. at p. 258, ¶ 175.)

9. Jury trials in five of the Federal Court Lawsuits have been completed,

resulting in judgments against Plaintiffs of roughly $98 million. (ECF No. 9, at ¶¶

42–48.) The Fourth Circuit has since reviewed one of these judgments, remanding

the case for the sole purpose of re-determining the proper amount of punitive

damages. McKiver v. Murphy-Brown, LLC, 2020 U.S. App. LEXIS 36416, at *84 (4th

Cir. 2020).
B. The Insurance Policies

10. During the policy periods spanning from April 30, 2010 through April

30, 2015, Plaintiffs were insured under commercial general liability insurance

policies (the “Primary CGL Policies”) and business automobile policies (the “Primary

Auto Policies”) issued by ACE or ORIC. Specifically, ACE issued one CGL Policy and

one Primary Auto Policy for the coverage period from April 30, 2010 through April

30, 2011. (Aff. of Marianne May, ECF No. 330, at ¶ 3; ECF No. 291, at ¶ 4; ECF No.

292.1.) ORIC issued four (4) successive Primary CGL Policies and (4) successive

Primary Auto Policies for the coverage periods from April 30, 2011 through April 30,

2015. (Aff. of Michael Duffy, ECF No. 358, at ¶¶ 3–4; ECF No. 291, at ¶¶ 5–8; ECF

Nos. 292.2–9.)

11. In their Motions, Plaintiffs seek summary judgment only on their claims

that Defendants breached their respective duties to defend the Underlying Lawsuits

under the Primary Auto Policies, but not under the Primary CGL Policies. The ACE

and ORIC Primary Auto Policies contain identical or nearly identical terms. 4 The

Primary Auto Policies contain the following grants of coverage:

We will pay all sums an “insured” legally must pay as
damages because of “bodily injury” or “property damage” to
which this insurance applies, caused by an “accident” and
resulting from the ownership, maintenance or use of a
covered “auto”.

(ECF No. 292.8, at p. 57 (hereinafter, the “First Coverage Grant”).)

4 Given the identical relevant language of the Primary Auto Policies, the Court will refer to

the provisions of the 2014–2015 Business Auto policy issued by ORIC, except as otherwise
noted, for quotation of policy provisions. (Ex. E, ECF No. 292.8–9.)
We will also pay all sums an “insured” legally must pay as
a “covered pollution cost or expense” to which this
insurance applies, caused by an “accident” and resulting
from the ownership, maintenance or use of covered “autos”.
However, we will only pay for the “covered pollution cost or
expense” if there is either “bodily injury” or “property
damage” to which this insurance applies that is caused by
the same “accident”.

(Id. at p. 57 (hereinafter, the “Second Coverage Grant”).)

We have the right and duty to defend any “insured” against
a “suit” asking for such damages or a “covered pollution
cost or expense”. However, we have no duty to defend any
“insured” against a “suit” seeking damages for “bodily
injury” or “property damage” or a “covered pollution cost or
expense” to which this insurance does not apply. We may
investigate and settle any claim or “suit” as we consider
appropriate. Our duty to defend or settle ends when the
Liability Coverage Limit of Insurance has been exhausted
by payment of judgments or settlements.

(Id. at p. 57.)

12. In the Primary Auto Policies, “bodily injury” is defined as “physical

injury, mental anguish, mental injury, shock, humiliation, sickness or disease

sustained by a natural person . . . .” (Id. at p. 94.) “Property damage” is defined as

“damage to or loss of use of tangible property.” (Id. at p. 66.) The policies do not

contain a definition of “accident,” but provide that an “accident” “includes continuous

or repeated exposure to the same conditions resulting in ‘bodily injury’ or ‘property

damage.’” (Id. at p. 64.) Covered “auto” is defined as “any auto” including “land motor

vehicle, ‘trailer’ or semitrailer designed for travel on public roads.” (Id.)
13. Under the Primary Auto Policies, a “covered pollution cost or expense,”

as provided for in the Second Coverage Grant, is limited to costs or expenses arising

from:

1. Any 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

2. Any 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”.

(Id. at p. 65.) “Pollutants” are defined as “any solid, liquid, gaseous or thermal

irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals

and waste.” (Id. at p. 66.)

14. The Primary Auto Policies exclude coverage for expected or intended

injury (the “Expected or Intended Injury Exclusion”), and pollution (the “Pollution

Exclusion”). (Id. at pp. 58–60.) “Expected or Intended Injury” is defined as “‘bodily

injury’ or ‘property damage’ expected or intended from the standpoint of the

‘insured.’” (Id. at p. 58.)

15. The Pollution Exclusion excludes coverage for:

“Bodily injury” or “property damage” arising out of the
actual, alleged or threatened discharge, dispersal, seepage,
migration, release or escape of “pollutants”:

a. That are, or that are contained in any property that is:
(1) Being transported or towed by, handled, or
handled for movement into, onto or from, the
covered “auto”;
(2) Otherwise in the course of transit by or on
behalf of the “insured”; or
(3) Being stored, disposed of, treated, or processed
in or upon the covered “auto”

b. Before the “pollutants” or any property in which the
“pollutants” are contained are moved from the place
where they are accepted by the “insured” for movement
into or onto the covered “auto”;

c. After the “pollutants” or any property in which the
“pollutants” are contained are moved from the covered
“auto” to the place where they are finally delivered,
disposed of or abandoned by the “insured.”

(Id. at pp. 59–60.) Further, an endorsement titled “Pollution Liability – Broadened

Coverage For Covered Autos” states: “Paragraph a. of the Pollution Exclusion applies

only to liability assumed under a contract or agreement.” (“Pollution Endorsement,”

Id. at p. 169.) 5

16. The Primary Auto Policies impose a duty on the insured to provide

“prompt notice of the ‘accident’ or ‘loss.’” (Id. at p. 62.) A failure to fully comply with

the notice requirements set out in the Primary Auto Policies relieves the insurers’

duty to provide coverage. (Id.) A “Notice of an Accident” endorsement under ORIC’s

Primary Auto Policies clarifies that “if you report an occurrence to an insurer

providing other than Automobile Liability insurance, which later develops into an

Automobile Liability claim covered under this policy, failure to report such occurrence

to us at the time of the occurrence shall not be deemed a violation of these conditions.”

(“Notice of an Accident Endorsement,” Id. at p. 120.) ACE’s Primary Auto Policy also

5The Court will refer to the Second Coverage Grant, the Pollution Exclusion, and the
Pollution Endorsement collectively as the “Pollution-Related Provisions.”
includes a Notice of Accident Endorsement, which is identical to ORIC’s aside from

the following additional language “[the insured] shall give immediate notification of

the accident to [ACE], as soon as is reasonably possible, that the accident is an

Automobile Liability claim.” (ECF No. 292.1, at p. 59.)

17. The Primary Auto Policies have policy limits of $2 million, with the

exception of one (1) ORIC Primary Auto Policy which has a $3 million policy limit.

(ECF 292.1, at p. 2; ECF Nos. 292.2, 292.4, 292.6, 292.8.) Further, the Primary Auto

Policies are subject to a $1 million “deductible” 6 that is eroded by Plaintiffs’ payment

of defense costs. (ECF No. 292.1, at pp. 52–53; ECF No. 292.8, at p. 44.)

18. At all pertinent times to this dispute, Plaintiffs’ used Marsh USA, Inc.

(“Marsh”) as their insurance broker. (ECF No. 290, at p. 11; ECF No. 294, at p. 10;

ECF No. 291, at ¶¶ 19, 32.)

C. The Program Agreement Between ORIC and Plaintiffs

19. ORIC and Smithfield entered into a Program Agreement which

governed certain aspects of their insurance relationship (“Program Agreement”).

(ECF No. 363.1 [SEALED], public redacted version at ECF No. 369.1 7; ECF No. 358,

at ¶ 2, Ex. 1.) 8 ORIC issued its Primary CGL Policies and Primary Auto Policies

pursuant to the Program Agreement under which Plaintiffs agreed to “retain all or a

6A “deductible” is the “portion of the loss to be borne by the insured before the insurer
becomes liable for payment.” Deductible, BLACK’S LAW DICTIONARY (11 ed. 2019).

7 For future reference, after any initial specific citation to documents sealed by this Court,

the Court will thereafter only cite to the ECF number of the public, redacted version.

8 ACE was not a party to the Program Agreement.
certain portion of the Losses and Allocated Loss Adjustment Expenses” incurred

under those policies. (ECF No. 369.1, at p. 1.) The Program Agreement provides, in

relevant part:

Claims arising under Policies issued by Old Republic will
be administered by a third party claims administrator
approved by, and under a contract acceptable to Old
Republic or, when approved by Old Republic, self
administered by the Insured under an acceptable separate
written contract. Claims arising solely under [the Primary
CGL Policies] issued by Old Republic shall be defended by
legal counsel selected by the Insured. Whether a third
party claims administrator or the Insured itself, the party
administering the claim must: provide a monthly report to
Old Republic showing the status of all claims, including
details of payments and outstanding reserves in a format
acceptable to Old Republic . . . .

(ECF No. 369.1, at § 10.1.)

20. Pursuant to the Program Agreement, ORIC’s Primary CGL Policies are

subject to a retention 9 equivalent to “100% of the Policy limits” (Id. at Schedule A),

and generally act as “fronting policies” because the retention amount for each

occurrence is equal to the policy limits. 10 Smithfield is responsible for paying “all loss

and [Allocated Loss Adjustment Expense [“ALAE”]].” (Id.) “ALAE” is defined as

9 “Retention” refers to a “Self-Insured Retention,” which is “[t]he amount of an otherwise-

covered loss that is not covered by an insurance policy and that usu[ally] must be paid before
the insurer will pay benefits[.]” Self-insured retention, BLACK’S LAW DICTIONARY (11 ed.
2019).

10 A “fronting policy” is, in a practical sense, a form of self-insurance.
The deductible equals
the policy’s liability limits, and the insurance company acts only as a surety that the holder
of the fronting policy will be able to pay any judgment covered by the policy. Essentially, the
insured rents an insurance company’s licensing and filing capabilities, and in return, the
insurer issues a policy which allows the corporation to comply with the insurance laws and
regulations of each state. See Croft v. Old Republic Ins. Co., 618 S.E.2d 909, 915–17 (S.C.
2005).
“expenses which are incurred in conjunction with the investigation, defense,

adjustment or settlement of claims or suits” which includes, but is not limited to, legal

costs and attorneys’ fees. (Id. at § 4(a).)

21. Pursuant to the Program Agreement, ORIC’s Primary Auto Policies are

subject to a $1 million per accident retention, where Plaintiffs are responsible for

paying “all [ALAE] up to, but not exceeding, the Insured’s Retention.” (Id. at

Schedule A (hereinafter, the “Retention Requirements”).)

22. The Program Agreement also provides as follows:

To the extent that any of the terms or conditions of the
aforesaid Policies are inconsistent with any of the terms or
conditions of this Agreement, the latter are to be given
effect and the former will be considered superseded by this
Agreement.

(Id. at § 20.)

23. ACE’s Primary CGL Policy and Primary Auto Policy issued to Plaintiffs

are not subject to the Program Agreement.

D. Communication between the Insurers and the Insured

24. Plaintiffs first notified ORIC and ACE of the State Court Lawsuits

through “First Report of Loss” letters sent by Marsh at the direction of Plaintiffs on

July 19, 2013. (Exs. P1–P14, ECF No. 292.25, at pp. 2–6; Exs. L1–L14, ECF No.

292.23, at pp. 2–6; collectively, “First Reports of Loss.”) The First Reports of Loss,

along with at least four additional notice letters sent to ORIC and ACE in October

2013, were reported under the Primary CGL Policies, but included language stating:

“[t]his matter is reported under any and all applicable policies whether or not cited.”
(ECF No. 292.25, at pp. 2–66; ECF No. 292.23, at pp. 2–67.) On November 7, 2013,

Plaintiffs first reported the loss to ORIC and ACE specifically under “business auto”

coverage in addition to CGL coverage. (ECF No. 292.25, at pp. 67–69; ECF No.

292.23, at pp. 68–70.) Plaintiffs provided two additional notice letters reported under

the Primary Auto Policies to both ORIC and ACE in October and November 2014,

notifying them of the newly filed Federal Court Lawsuits. (ECF No. 292.25, at pp.

70–78; ECF No. 292.23, at pp. 71–79.) All notice letters previously referenced, as well

as reports of loss, included copies of the complaints in the Underlying Lawsuits.

i. Responses from ORIC

25. ORIC first responded to Plaintiffs’ notice regarding the State Court

Lawsuits on September 20, 2013. (Ex. Q, ECF No. 292.19.) ORIC’s first response

reads, in pertinent part: “[w]e have reviewed the allegations in the complaint and a

defense is owed in this matter pursuant to a full reservation of rights[.]” (Id.)

26. In 2015, ORIC twice requested status updates of the Underlying

Lawsuits through Plaintiffs’ insurance broker, Marsh. (Ex. 12, ECF No. 363.12; Ex.

13, ECF No. 363.13.) The only updates provided were that McGuire Woods, LLP was

handling the defense in the Underlying Lawsuits, and that they planned on putting

together a status update for the carriers. (Id.)

27. On April 21, 2016, ORIC issued essentially identical coverage letters

regarding the State Court Lawsuits and Federal Court Lawsuits, titled: “Renewed

Denial of Coverage / Reservation of Rights.” (Ex. R, ECF No. 292.20; Ex. S, ECF No.

292.26; collectively “April 2016 Coverage Letters.”) The April 2016 Coverage Letters
generally state that their purpose is “to supplement [ORIC’s] previous

correspondence with [Plaintiffs], re-assert previous Denial of Coverage / Reservation

of Rights and to remind [Plaintiffs] of [ORIC’s] ongoing coverage position.” (ECF No.

292.20, at p. 1; ECF No. 292.26, at p. 1.) Throughout the letters, ORIC repeatedly

“denies coverage” while also “reserv[ing] the right to disclaim indemnity.” (See ECF

No. 292.20, at pp. 3–4, 11, 13, 15–16, 21, 23; ECF No. 292.26, at pp. 2, 8, 10, 11–12,

13, 16, 18.)

28. The April 2016 Coverage Letters provide an analysis of ORIC’s coverage

position, in which ORIC acknowledges that: “the Underlying Complaints, when read

as a whole, do allege that the operation of the CAFOs (which include the alleged

increase in truck traffic) generally have caused [bodily injury]”; “[t]he [allegations in

the Underlying Lawsuits] appear to fit in [the policy’s] definition of ‘property

damage’”; “a fair reading of the Underlying Complaints do not appear to allege that

the damage was caused by an intentional incident or incidents, but rather appear to

be progressive, ongoing accidental damage”; “the Complaints [to the Underlying

Lawsuits] do make an allegation that they sustained damages resulting from the

operation of an automobile”; and “there is a nexus between the alleged injuries and

alleged use of a vehicle.” (ECF No. 292.20, at p. 10, 19–20; ECF No. 292.26, at p. 7,

15–16.) Despite these acknowledgments, ORIC “denie[d] coverage under the Auto

Policy and further reserve[d] the right to disclaim indemnity[.]” (ECF No. 292.20, at

p. 21; ECF No. 292.26, at p. 16.)
29. With respect to the Pollution Exclusion in ORIC’s Primary Auto Policies,

ORIC acknowledged that it is “questionable and unlikely” that the Pollution

Exclusion excludes coverage for damage caused by “noise,” as is alleged in the

Underlying Lawsuits. Further, ORIC acknowledged that the Pollution Endorsement

to the ORIC’s Primary Auto Policies

essentially eliminates the Pollution exclusion, except in
circumstances: (1) where liability [is] assumed in a contract
. . . ; (2) where the accident occurs before the pollutants are
removed from the place where they are accepted . . . ; or (3)
after the pollutants are removed from the covered auto to
the place where they are finally delivered, disposed of or
abandoned by the insured.

(ECF No. 292.20, at pp. 22–23; ECF No. 292.26, at p. 17.) Nevertheless, ORIC found

that the Pollution Exclusion “eliminates coverage” and, therefore, ORIC again

“denie[d] coverage . . . and further reserve[d] its right to disclaim indemnity[.]” (ECF

No. 292.20, at p. 23; ECF No. 292.26, at p. 17–18.)

30. With respect to ORIC’s Expected or Intended Injury Exclusion, the April

2016 Coverage Letters state: “Old Republic denies coverage and further reserves the

right to disclaim indemnity . . . to the extent that [Plaintiffs] had knowledge that

generally, the alleged directed practices of CAFO could and did cause injury to

someone, and/or to [Claimants] in particular.” (ECF No. 292.20, at p. 23; ECF No.

292.26, at 18.)

ii. Responses from ACE

31. ACE first responded to Plaintiffs’ notice of the State Court Lawsuits by

an email dated July 22, 2013. (Ex. M-1, ECF No. 292.16.) In the email, ACE stated
it was “in the process of establishing a claim file and reviewing the information” and

that “[i]n the meantime, ACE reserves its rights and defenses[.]” (Id.)

32. ACE did not provide its next response until it sent coverage position

letters to Plaintiffs dated May 4, 2018 and May 17, 2018. (Ex. N, ECF No. 292.18;

Ex. O, ECF No. 292.24 (hereinafter, “ACE Coverage Letters”).) In these letters, ACE

“reserve[d] all of its rights to deny coverage” on grounds that the claims: “do not

appear to involve ‘bodily injury’ or ‘property damage’ caused by an ‘accident’ resulting

from the ownership, maintenance or use of a covered ‘auto’ during the policy period”;

“may be excluded by the pollution exclusion”; and may “fall within the scope of the

expected or intended injury exclusion.” (ECF No. 292.24, at p. 8.) Further, the ACE

Coverage Letters “reserve[] all [ACE’s] rights to deny coverage on the grounds that

the notice and/or cooperation conditions have not been met.” (Id.)

E. Initiation of the present lawsuit

33. To date, neither ORIC nor ACE have provided a defense to Plaintiffs in

the State Court Lawsuits or the Federal Court Lawsuits. (ECF No. 291, at ¶¶ 30,

43.) Since in or around 2013, counsel retained by Plaintiffs, McGuire Woods LLP,

has handled Plaintiffs’ defense in the Underlying Lawsuits. (ECF No. 363.23.)

34. On February 28, 2018, Plaintiffs, in a letter to Marsh, provided a

litigation status report regarding the Underlying Lawsuits, which contained the

following statement: “To date, Smithfield/Murphy Brown have paid [REDACTED] to

defend the nuisance lawsuits in North Carolina. Smithfield/Murphy-Brown repeat

their prior request that their insurers defend and indemnity them under applicable
general and auto liability policies.” (ECF No. 363.15 [SEALED], public redacted

version at ECF No. 369.15.)

35. On March 5, 2019, Plaintiffs commenced this action by filing the

Complaint (ECF No. 4). Plaintiffs filed an Amended Complaint on March 19, 2019

(ECF No. 9). Count I of the Amended Complaint alleges a breach of ACE’s duty to

defend Plaintiffs in the Underlying Lawsuits under ACE’s Primary Auto Policy and

Count II alleges the same claim against ORIC under ORIC’s Primary Auto Policies.

(Id. at ¶¶ 74–89.) Plaintiffs filed their Partial Summary Judgment Motion against

ORIC (ECF No. 289) and their Partial Summary Judgment Motion against ACE (ECF

No. 293) on March 20, 2020. Defendants ORIC and ACE responded in opposition to

the Motions on June 12, 2020 and June 1, 2020, respectively. (ORIC’s Opp. To Plf.’s

Mot. Part. Summ. J. on Ct. II of Amend. Compl., ECF No. 357 [SEALED], public

redacted version at ECF No. 368; ACE’s Mem. Of Law in Opp. To Plf.’s Mot. Part.

Summ. J. on Ct. 1 of Amend. Compl., ECF No. 329.) Plaintiffs replied to the Briefs

in Opposition on July 6, 2020 and June 25, 2020, respectively. (Plf.’s Repl. Bf. Supp.

Plfs.’ Mot. Part. Summ. J. Against Def. ORIC on Ct. II of Amend. Compl., ECF No.

379; Plfs.’ Repl. Bf. Supp. Plfs.’ Mot. Part. Summ. J. on Ct. of Amend. Compl., ECF

No. 374.) A hearing on the Motions was held on September 9 and September 21,

2020. The Motions are now ripe for decision.
II. LEGAL STANDARD

A. Summary Judgment

36. Summary judgement is appropriate where “the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, if any,

show that there is no genuine issue as to any material fact and that any party is

entitled to a judgment as a matter of law.” Variety Wholesalers, Inc. v. Salem

Logistics Traffic Servs., 365 N.C. 520, 523, 723 S.E.2d 744, 747 (2012) (quoting

N.C.G.S. § 1A-1, Rule 56(c)). “An issue is ‘genuine’ if it can be proven by substantial

evidence and a fact is ‘material’ if it would constitute or irrevocably establish any

material element of a claim or a defense.” CSX Transp., Inc. v. City of Fayetteville,

247 N.C. App. 517, 521, 785 S.E.2d 760, 763 (2016) (quoting Lowe v. Bradford, 305

N.C. 366, 369, 289 S.E.2d 363, 366 (1982)). The Court views the evidence in the “light

most favorable to the non-moving party.” Allstate Ins. Co. v. Lahoud, 167 N.C. App.

205, 207, 605 S.E.2d 180, 182 (2004) (citation omitted).

37. “The party moving for summary judgment ultimately has the burden of

establishing the lack of any issue of triable fact.” Unitrin Auto & Home Ins. Co. v.

McNeill, 215 N.C. App. 465, 467, 716 S.E.2d 48, 50 (2011) (citations omitted). The

moving party may meet this burden by “proving an essential element of the opposing

party’s claim does not exist, cannot be proven at trial, or would be barred by an

affirmative defense.” Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000)

(citations omitted). Once the moving party “makes the required showing, the burden

shifts to the nonmoving party to produce a forecast of evidence demonstrating specific
facts, as opposed to allegations, showing that he can at least establish a prima facie

case at trial.” Unitrin Auto & Home Ins. Co., 215 N.C. App. at 467, 716 S.E.2d at 50

(citations omitted).

B. Duty to Defend

i. Generally

38. Insurance contracts commonly impose upon on the insurer two related

duties: the duty to defend and the duty to indemnify. A “duty to defend” refers to the

“insurer’s obligation to defend its insured against claims brought by third parties.” 1

LEXIS NEXIS PRACTICE GUIDE: NEW APPLEMAN NORTH CAROLINA INSURANCE

LITIGATION § 15.02 (2020). The “duty to indemnify is the duty to pay for settlement

or to pay a judgment rendered against an insured.” Id. at § 4.04. Our Supreme Court

has addressed the difference between these two duties:

Generally speaking, the insurer’s duty to defend the
insured is broader than its obligation to pay damages
incurred by events covered by a particular policy. An
insurer’s duty to defend is ordinarily measured by the facts
as alleged in the pleadings; its duty to pay is measured by
the facts ultimately determined at trial. When the
pleadings state facts demonstrating that the alleged injury
is covered by the policy, then the insurer has a duty to
defend, whether or not the insured is ultimately liable.

Waste Management of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691, 340

S.E.2d 374, 377 (1986). In other words, “the duty to defend is broader than the duty

to indemnify in the sense that an unsubstantiated allegation requires an insurer to

defend against it so long as the allegation is of a covered injury[.]” Harleysville Mut.

Ins. Co. v. Buzz Off Insect Shield, L.L.C., 364 N.C. 1, 7, 692 S.E.2d 605, 610–11 (2010).
However, the duty to defend is not without limitation: “even a meritorious allegation

cannot obligate an insurer to defend if the alleged injury is not within, or is excluded

from, the coverage provided by the insurance policy.” Id.

39. “[T]here is no statutory requirement that an insurance company provide

its insured with a defense.” Brown v. Lumbermens Mut. Casualty Co., 326 N.C. 387,

392, 390 S.E.2d 150, 153 (1990). “An insurer’s duty to defend suits against its insured

is determined by the language in the insurance contract.” Id. Thus, a duty to defend

exists where “a[n] [insurance] company [ ] provide[s] by contract that it will defend

its insured.” Id. Accordingly, general contract interpretation rules apply to the

Court’s duty to defend analysis. See Accardi v. Hartford Underwriters Ins. Co., 373

N.C. 292, 295, 838 S.E.2d 454, 456 (2020) (“When interpreting an insurance policy,

courts apply general contract interpretation rules.”) “[A] contract of insurance should

be given that construction which a reasonable person in the position of the insured

would have understood it to mean[.]” Grant v. Emmco Ins. Co., 295 N.C. 39, 43, 243

S.E.2d 894, 897 (1978). Provisions in a policy “[w]hich extend coverage . . . must be

construed liberally so as to afford coverage whenever possible by reasonable

construction.” N.C. Farm Bureau Mut. Ins. Co. v. Stox, 330 N.C. 697, 702, 412 S.E.2d

318, 321 (1992). Provisions which exclude or put limitations or conditions on coverage

are “construed strictly . . . to provide coverage.” Trust Co. v. Insurance Co., 276 N.C.

348, 355, 172 S.E.2d 518, 522–23 (1970). “Any doubt as to coverage is to be resolved

in the favor of the insured.” Waste Mgmt., 315 N.C. at 693, 823 S.E.2d at 378; see
Jamestown Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 266 N.C. 430, 434, 146 S.E.2d

410, 414 (1966) (construing an ambiguous policy provision in the favor of the insured).

40. A duty to defend is triggered when an insurer receives actual notice of

an underlying complaint that contains “potentially” or “arguably” covered claims

under the insurance contract. See Crandell v. Am. Home Assur. Co., 183 N.C. App.

437, 438, 644 S.E.2d 604, 605 (2007) (finding an insurer has a duty to defend where

a “review of the pleadings . . . gives rise even to ‘a mere possibility’ that the insured’s

potential liability is covered by the insurance policy”); Waste Mgmt., 315 N.C. at 692,

340 S.E.2d at 378 (finding that an insurer is only excused from its duty to defend

where “the facts are not even arguably covered by the policy”); Kubit v. MAG Mut.

Ins. Co., 210 N.C. App. 273, 293, 708 S.E.2d 138, 154 (2011) (“[T]he duty to defend

arises when an insurer receives actual notice of the underlying action.”). The

presence of both non-covered and potentially or arguably covered claims in an

underlying complaint does not relieve an insurer of its duty to defend. See Pulte Home

Corp. v. Am. S. Ins. Co., 185 N.C. App. 162, 171, 647 S.E.2d 614, 620 (2007) (finding

that where the pleadings allege both non-covered and potentially covered claims, “the

mere possibility the insured is liable, and that the potential liability is covered, may

suffice to impose a duty to defend” (internal quotations omitted) (citation omitted));

Builders Mut. Ins. Co. v. Mitchell, 210 N.C. App. 657, 667, 709 S.E.2d 528, 535 (2011)

(“Where . . . there are multiple claims, if some of the claims may be covered, even if

others are not, the duty to defend is triggered.”).
ii. Comparison Test

41. In determining whether claims are potentially or arguably covered

under an insurance policy, North Carolina courts routinely apply the “comparison

test”: the language of the insurance policy and underlying complaint are read “side-

by-side . . . to determine whether the events as alleged are covered or excluded.”

Waste Mgmt., 315 N.C. at 693, 340 S.E.2d at 378; see Harleysville, 364 N.C. at 6, 692

S.E.2d at 610; N.C. Farm Bureau Mut. Ins. Co. v. Cox, 263 N.C. App. 424, 441, 823

S.E.2d 613, 625 (2019); Duke Univ. v. St. Paul Fire & Marine Ins. Co., 96 N.C. App.

635, 637, 386 S.E.2d 762, 763–64 (1990). All the facts alleged in the underlying

complaint are taken as true, and “[i]f the insurance policy provides coverage for the

facts as alleged, then the insurer has a duty to defend.” 11 Harleysville, 364 N.C. at 7,

692 S.E.2d at 611. Accordingly, a duty to defend may be found even where the facts

upon which the duty is based “may not, in reality, be true.” Id.

42. The Court is generally limited to the pleadings in applying the

comparison test. See Waste Mgmt., 315 N.C. at 691, 340 S.E.2d at 377 (“An insurer’s

duty is ordinarily measured by the facts as alleged in the pleadings[.]”). However,

North Carolina courts as well as relevant federal courts have recognized that facts

outside the pleadings may only be considered to provide for, rather than to deny,

coverage. See Duke Univ., 96 N.C. App. at 638, 386 S.E.2d at 764 (citations omitted)

(stating that “facts learned from the insured and facts discoverable by reasonable

11 Our Supreme Court has clarified that “the question is not whether some interpretation of

the facts” is potentially covered, but rather whether the “facts as alleged” are potentially
covered under the insurance policy. Harleysville, 364 N.C. at 7, 692 S.E.2d at 611 (emphasis
added).
investigation may also be considered,” but only “to show that the facts of the claim

were within coverage of the policy”); Waste Mgmt., 315 N.C. at 691–92, 340 S.E.2d at

377 (explaining that “[w]here the insurer knows or could reasonably ascertain facts

that, if proven, would be covered by its policy,” the duty to defend is triggered); Cox,

263 N.C. App. at 441, 823 S.E.2d at 625 (considering “pleadings, depositions, answers

to interrogatories, and other documents” to ultimately find a duty to defend);

Continental Cas. Co. v. Amerisure Ins. Co., 226 F. Supp. 3d 537, 544 (W.D.N.C. 2017),

aff’d in part and vacated in part on other grounds, 886 F.3d 366 (4th Cir. 2018)

(finding that under North Carolina law, an insurer “may look to facts collateral to the

allegations against the policyholder to confirm a defense obligation, but not to negate

one” (emphasis in original)); New NGC, Inc. v. Ace Amer. Ins. Co., 105 F. Supp. 3d

552, 568 (W.D.N.C. 2015) (equating the consideration of evidence outside the

pleadings for purposes of determining a duty to defend “to a perfunctory review of the

merits of the underlying claims against the insured” which is “not consistent with the

duty to defend” under North Carolina law). Thus, the insurer must “investigate and

evaluate facts expressed or implied in the [ ] complaint as well as facts learned from

the insured and from other sources” when determining its duty to defend obligation,

Waste Mgmt., 315 N.C. at 692, 340 S.E.2d at 378, but these facts may only be used

“to show the facts of the claim were within coverage of the policy.” Duke Univ., 96

N.C. App. at 638, 386 S.E.2d at 764 (citation omitted). Any failure by the insurer to

consider known or accessible facts outside the pleadings which, if proven, would
require coverage, puts the insurer at risk of breaching its duty to defend. Waste

Mgmt., 315 N.C. at 691, 340 S.E.2d at 377.

III. ANALYSIS

43. Plaintiffs contend that Defendants have breached their duties to defend

under the Primary Auto Policies. Plaintiffs argue that, applying the comparison test,

the allegations in the Underlying Lawsuits’ complaints regarding Plaintiffs’ truck

operations are clearly, and therefore at least potentially or arguably, covered by the

Primary Auto Policies. On the other hand, (a) ORIC argues that the Court should

not apply the traditional comparison test because ORIC and Plaintiffs had a unique

insurance program under which ORIC has no duty to defend Plaintiffs, (b) ACE

argues that the Court should not apply the traditional comparison test because

Plaintiffs treated the claims as arising under the Primary CGL Policy, never

requested that ACE provide a defense, and defended the Underlying Lawsuits using

their own counsel for over five years without involvement from ACE; (c) the claims in

the Underlying Lawsuits are not covered because the Underlying Lawsuits do not

allege “bodily injury” or “property damage” resulting from the use of a covered “auto”;

(d) the Underlying Lawsuits are not covered because they do not allege an “accident”

or are excluded by the Expected or Intended Injury Exclusion; (e) coverage for the

Underlying Lawsuits is excluded by the Pollution Exclusion; (f) there is no duty to

defend under ORIC’s Primary Auto Policies and Plaintiffs’ have not met the Retention

Requirements under the Program Agreement; and (g) there is no duty to defend
because Plaintiffs did not provide prompt notice of the claims under the Primary Auto

Policies.

A. Applicability of the Comparison Test

44. Defendants first argue that this Court should ignore North Carolina’s

well-established precedent requiring use of the “comparison test” to determine an

insurer’s duty to defend based on comparison of the allegations in the complaint and

insurance policy. Defendants’ arguments emphasize the purposefully designed

insurance relationship between the parties, which revolved around largely self-

funded, self-administered, fully fronted CGL policies accompanied by the Primary

Auto Policies at issue, under which neither ORIC nor ACE had a duty to defend.

45. ORIC contends that, rather than relying on a comparison of the

complaints in the Underlying Lawsuits and ORIC’s Primary Auto Policies, the Court

must consider the entire “comprehensive insurance program” which consists of the

Primary CGL Policies, Primary Auto Policies, and the Program Agreement. (ECF

No. 368, at p. 14.) ORIC argues that “the Motion entirely ignores and contradicts the

Program Agreement and the predominant CGL policies.” (Id. at p. 1.) ORIC further

asserts that Plaintiffs neither wanted nor expected a defense from ORIC and

intended the insurance program with ORIC to leave defense of all claims, including

choice of counsel and litigation strategy decisions, under the exclusive control of

Plaintiffs. (Id. at pp. 1–2.) ORIC contends that the nature of the relationship created

by the Program Agreement relieves them of the duty to defend the Underlying

Lawsuits. (Id. at p. 14.) However, ORIC cites to no authority, from North Carolina
or any other jurisdiction, supporting the application of this type of duty to defend

analysis. Indeed, ORIC does not cite a single North Carolina case that has deviated

from a “comparison test” analysis in deciding an insurer’s duty to defend.

46. ACE contends that it should not be obligated to provide a defense

because Plaintiffs treated the claims as arising under the ACE Primary CGL Policy,

never requested that ACE provide a defense, proceeded on their own with defending

the Underlying Lawsuits using their own counsel for over five years without any

involvement from ACE, and then requested reimbursement of legal costs on the eve

of trial. (ECF No. 329, at pp. 16–17.) ACE argues that “[i]n circumstances such as

these, a traditional duty to defend analysis simply does not apply. Rather, . . . this

situation requires an indemnity analysis rather than a duty to defend analysis.” (Id.

at p. 17.) However, the issue before the Court is whether ACE breached its duty to

defend, which is explicitly included in ACE’s Primary Auto Policy—not whether ACE

has any duty to pay based on the facts as determined at trial. While Plaintiffs likely

will seek reimbursement of the defense costs incurred to date based on this Order,

this does not transform the Court’s “duty to defend” analysis into a much narrower

“duty to indemnify” analysis. The Court has thoroughly reviewed the authority cited

by ACE in support of its argument (Id. at pp. 17–18), and concludes that it is

inapposite and does not support ACE’s request to apply an indemnity analysis to the

duty to defend issue raised by the Motions.

47. The Court, having carefully considered Defendants’ arguments, will not

deviate from well-established North Carolina authority. The Court believes the
comparison test provides a level of certainty to policyholders regarding their right to

a defense if sued, and to insurers regarding their obligations in determining whether

they must defend. Therefore, the Court will apply the comparison test; accordingly,

any evidence outside of the insurance policies and the allegations in the Underlying

Lawsuits may only be considered if it supports coverage. See Duke Univ., 96 N.C.

App. at 638, 386 S.E.2d at 764.

B. “Bodily Injury” or “Property Damage,” and Covered “Auto”

48. ORIC argues that Plaintiffs have “failed to sustain their burden of

demonstrating that there was ‘bodily injury’ or ‘property damage’ caused by a covered

automobile under the [ORIC Primary Auto Policies].” (ECF No. 368, at p. 15.)

Specifically, ORIC first argues that Plaintiffs have “cherry-picked” allegations from

only one of the Underlying Lawsuits; and second, that the Claimants in the already-

tried Underlying Lawsuits did not seek damages for bodily injury. (Id.) ORIC makes

these arguments despite its acknowledgment in the 2016 Coverage Letters that the

Underlying Lawsuits “do allege that the operation of the CAFOs (which include the

alleged increase in truck traffic) generally have caused [bodily injury],” and “[t]he

[allegations] appear to fit in [the policy’s] definition of ‘property damage.’” (ECF No.

292.20, at pp. 19–20; ECF No. 292.26, at pp. 15–16.)

49. First, Plaintiffs indeed rely on the McGowan complaint (ECF No.

292.15, at pp. 215–60) for purposes of their argument for coverage. The McGowan

complaint alleges that Claimants were “embarrass[ed],” “humiliate[d],” “angry,

fearful, worried, and depressed” due to the alleged nuisance from Plaintiffs’ CAFOs,
and that Plaintiffs’ CAFO operations, including the use of trucks, have caused “odor,

annoyance, dust, noise” and “bright lights from headlights” resulting in the “loss of

use and enjoyment of homesteads.” (Id. at p. 217, ¶4, pp. 221–23, ¶¶ 33, 36.) Similar,

if not identical allegations are made in each of the Underlying Lawsuits. Therefore,

the Court is not persuaded that, by choosing to pull allegations from the McGowan

complaint, Plaintiffs have misrepresented the true nature of the Underlying

Lawsuits. 12

50. Accordingly, comparing the allegations in the McGowan complaint to

ORIC’s Primary Auto Policies, the Underlying Lawsuits at least arguably allege

bodily injury and property damage. The allegations of humiliation fit within ORIC’s

Primary Auto Policies’ definition of bodily injury, which specifically includes

humiliation. Further, the allegations of embarrassment, anger, worry, fear, and

depression arguably constitute forms of mental anguish or mental injury under the

ORIC Primary Auto Policies’ definition of bodily injury. As to property damage, the

allegations of “loss of use and enjoyment of homesteads” are arguably covered given

the ORIC Primary Auto Policies’ definition of property damage specifically includes

“loss of use of tangible property.”

51. Second, the fact that the Claimants did not seek damages for bodily

injury or property damage at trial is irrelevant to the Court’s duty to defend analysis.

The duty to defend is measured by the facts as alleged in the pleadings, not what

12 The Court also notes that Defendants do not argue that the duty to defend issue cannot be

decided on summary judgment because significant differences in allegations in the
Underlying Lawsuits require a case-by-case analysis of the question.
subsequently occurs at trial. Waste Mgmt., 315 N.C. at 691, 340 S.E.2d at 377.

Further, evidence outside the pleadings may only be used in a duty to defend analysis

to provide for, rather than exclude, coverage. Duke Univ., 96 N.C. App at 638, 386

S.E.2d at 764.

52. Finally, the Underlying Lawsuits contain numerous allegations of

injury and damage from Plaintiffs’ use of trucks. The Primary Auto Policies provide

an exceptionally broad definition of covered “auto.” See supra ¶ 12. Defendants do

not argue that the trucks are not covered autos.

53. The Court, having considered Defendants’ arguments, and having

compared the complaints in the Underlying Lawsuits to the Primary Auto Policies, is

not persuaded that the allegations in the Underlying Lawsuits are not even arguably

covered due to the Primary Auto Policies’ definitions of bodily injury, property

damage, and covered auto.

C. “Accident” and “Expected or Intended Injury Exclusion”

54. Defendants argue that the claims in the Underlying Lawsuits are not

covered because the alleged injuries and property damage were not caused by an

“accident” (ECF No. 368, at pp. 16–19; ECF No. 329, at pp. 24–25), and that coverage

is excluded under the Expected or Intended Injury Exclusion (ECF No. 368, at pp.

20–21; ECF No. 329, at p. 26). Specifically, Defendants contend that the Underlying

Lawsuits are not covered and excluded because the alleged bodily injury and property

damage from the CAFOs, including Plaintiffs’ truck operations, were “expected or

intended.”
55. The Primary Auto Policies do not define the term “accident” but provide

that ‘“[a]ccident’ includes continuous or repeated exposure to the same conditions

resulting in ‘bodily injury’ or ‘property damage.’” (ECF No. 292.8, at p. 64; ECF No.

292.1, at p. 29) The Expected or Intended Injury Exclusion states that coverage does

not apply for ‘“[b]odily injury’ or ‘property damage’ expected or intended from the

standpoint of the ‘insured.’” (ECF No. 292.8, at p. 58; ECF No. 292.1, at p. 23.)

56. Where an insurance policy does not define a term, the Court applies its

plain, ordinary, and accepted meaning. Williams v. Insurance Co., 269 N.C. 235, 238,

152 S.E.2d 102, 105 (1967). Our Supreme Court has defined “accident” in the context

of liability coverage as “an unforeseen event, occurring without the will or design of

the person whose mere act causes it; an unexpected, unusual, or undersigned

occurrence; the effect of an unknown cause, or, the cause being known, an

unprecedented consequence of it; a casualty.” Waste Mgmt., 315 N.C. at 694, 340

S.E.2d at 379. More simply, an “accident” is an event that is “unexpected or

unintended” from the standpoint of the insured. Cox, 263 N.C. App. at 444, 823

S.E.2d at 627. Thus, an “accident” under the Primary Auto Policies is an “unexpected

or unintended” event from the standpoint of the insured that results in bodily injury

or property damage, including that which arises from “continuous or repeated

exposure to the same events.” Accordingly, in determining whether the alleged injury

and property damage were the result of an “accident,” the Court must inevitably

determine whether the Expected or Intended Exclusion applies. See Cox, 263 N.C.

App. at 444, 823 S.E.2d at 627 (“When an insurance policy that does not define
‘accident’ includes an exclusion for acts by an insured that were ‘expected or

intended,’ our analysis does not materially change—because we must determine that

an alleged ‘bodily injury’ was ‘unexpected or unintended’ by the insured.”).

57. In determining whether an event is “expected or intended,” the

“ultimate focus is on the injury[.]” Holz-Her U.S. Inc. v. U.S. Fid. & Guar. Co., 141

N.C. App. 127, 129, 539 S.E.2d 348, 350 (2000). Thus, an “accident” can involve

intentional conduct “if the injury is not intentional or substantially certain to be the

result of the intentional act.” Russ v. Great Am. Ins. Cos., 121 N.C. App. 185, 188,

464 S.E.2d 723, 725 (1995) (emphasis omitted) (quoting Stox, 330 N.C. at 709, 412

S.E.2d at 325). Conversely, there is no “accident” where “the potentially damaging

effects of an insured’s intentional actions can be anticipated by the insured.” Plum

Props., LLC v. N.C. Farm Bureau Mut. Ins. Co., 254 N.C. App. 741, 745, 802 S.E.2d

173, 176 (2017).

58. In support of their arguments, Defendants contend that (i) the

allegations in the Underlying Lawsuits pertaining to numerous “[s]tudies, reports,

incidents and complaints” which Defendants have “amassed” over the years, detail

the “predictable nuisance caused by swine sites to nearby neighbors” (ECF No. 368,

at pp. 17–18; ECF No. 329, at p. 26); and (ii) the findings of the already-tried

Underlying Lawsuits demonstrate Plaintiffs engaged in willful and wanton conduct

(ECF No. 368, at p. 19; ECF No. 329, p. 25).
i. Studies, Reports, Incidents, and Complaints

59. Defendants argue that the allegations in the Underlying Lawsuits

establish that Plaintiffs knew injury or property damage was substantially certain to

result from Plaintiffs’ truck operations. (ECF No. 368, at pp. 17–18; ECF No. 329, at

p. 26.) While the Underlying Lawsuits contain allegations that Plaintiffs knew or

should have known that their operations of CAFOs would cause nuisance to

neighboring residents, none of the Underlying Lawsuits allege that Plaintiffs knew

injury or property damage was substantially certain to result specifically from

Plaintiffs’ truck operations. Similarly, the numerous “studies, reports, incidents, and

complaints” referenced in the Underlying Lawsuits are not alleged to have detailed

predictable nuisance specifically from Plaintiffs’ truck operations. (See e.g., ECF No.

292.11, pp. 9–13; ECF No. 292.15, at pp. 251–56; ECF No. 292.12, at pp. 23–29.)

Furthermore, to the extent Defendants have directed this Court to specific language

outside the complaints to the Underlying Lawsuits, the Court may only consider this

information to find coverage in a duty to defend analysis. See Duke Univ., 96 N.C.

App. at 638, 386 S.E.2d at 764 (citations omitted). Nevertheless, the complaints in

the Underlying Lawsuits also contain allegations of “negligence” and “reckless

disregard” with respect to the operation of the CAFOs, resulting in nuisance. See

supra ¶ 8. Therefore, the Court is not persuaded that the allegations in the

Underlying Lawsuits establish that the Plaintiffs “expected or intended” the injuries

and property damage from their truck operations—at least not to the extent that
these allegations would be considered not even arguably covered by the Primary Auto

Policies.

ii. Findings in the already-tried Underlying Lawsuits

60. Defendants argue that Plaintiffs have failed to meet their burden of

establishing an accident because punitive damages awards by juries in the already-

tried Underlying Lawsuits required a showing of willful conduct. (ECF No. 368, at p.

19; ECF No. 329, at p. 25.) Defendants contend that the juries’ findings show that

Plaintiffs’ acts were willful (i.e., intentional), and that Plaintiffs knew of (i.e.,

expected) the nuisance caused by its CAFOs, including the truck operations. (Id.)

However, the fact that a jury found Plaintiffs engaged in willful and wanton conduct

is irrelevant to this Court’s duty to defend analysis. A duty to defend analysis is

limited to the facts as alleged in the pleadings, not the facts as they are determined

at trial. Waste Mgmt., 315 N.C. at 691, 340 S.E.2d at 377.

61. Therefore, the Court, having considered Defendants’ arguments, and

having compared the allegations in the Underlying Lawsuits to the Primary Auto

Policies, is not persuaded that the allegations are not even arguably covered due to

the Primary Auto Policies’ definition of “accident” or the Expected or Intended Injury

Exclusion.

D. The Pollution-related Provisions

62. Defendants next argue that coverage for the claims raised in the

Underlying Lawsuits is excluded by the Pollution Exclusion in the Primary Auto

Policies. A duty to defend is “determined by the language of an insurance contract.”
Brown, 326 N.C. at 392, 390 S.E.2d at 153. Thus, general rules of construction which

govern the interpretation of insurance policy provisions apply to the Court’s

determination of whether the Pollution Exclusion excludes coverage, and conversely,

whether the Pollution Endorsement affords coverage. See Stox, 330 N.C. at 702, 412

S.E.2d at 321. Accordingly,

[t]hose provisions in an insurance policy which extend
coverage to the insured must be construed liberally so as to
afford coverage whenever possible by reasonable
construction. However, the converse is true when
interpreting the exclusionary provisions of a policy;
exclusionary provisions are not favored and, if ambiguous,
will be construed against the insurer and in favor of the
insured.

Id. (citations omitted).

63. “When the language of the contract is clear and unambiguous,

construction of the agreement is a matter of law for the court and the court cannot

look beyond the terms of the contract to determine the intentions of the

parties.” Bank of Am., N.A. v. Rice, 230 N.C. App. 450, 456, 750 S.E.2d 205, 209

(2013); see also Lynn v. Lynn, 202 N.C. App. 423, 431, 689 S.E.2d 198, 205 (2010).

“Whether or not the language of a contract is ambiguous . . . is a question for the court

to determine.” Lynn, 202 N.C. App. at 432, 689 S.E.2d at 205 (citation omitted).

64. The parties argue two very different constructions of the Pollution-

Related Provisions contained in the Primary Auto Policies. Plaintiffs argue that the

unambiguous language of the Primary Auto Policies establishes that the Pollution

Endorsement overrides the Pollution Exclusion and makes the Pollution Exclusion

applicable only to claims for pollution-related injury or damage arising from “liability
assumed [by Plaintiffs] under a contract or agreement.” (ECF No. 290, pp. 19–20;

ECF No. 294, pp. 18–19.) Since there is no claim in this case that Plaintiffs are

seeking coverage for liability assumed by Plaintiffs under a contract, Plaintiffs

contend that the Primary Auto Policies cover the claims in this case even if the noise,

light, or other alleged nuisance caused by Plaintiffs’ trucks is considered a

“pollutant.”

65. Defendants, on the other hand, argue that the Pollution Endorsement

only broadens coverage to the extent coverage already exists under the Second

Coverage Grant for a “covered pollution cost or expense” involving clean-up of

pollutants or lawsuits brought by governmental authorities resulting from

pollutants. Therefore, Defendants contend that coverage for the claims for bodily

injury and property damage alleged by the Claimants in the Underlying Lawsuits are

excluded from coverage because the Underlying Lawsuits allege injuries and damage

caused by “pollutants” emanating from Plaintiffs’ trucks and not arising from clean-

up of pollutants or a governmental lawsuit. (ECF No. 368, at p. 21–22; ECF No. 329,

at p. 27.) However, Defendants do not provide an explanation of how they construct

the Pollution-Related Provisions to reach this conclusion, and the Court is left to

speculate as to their interpretation. Nevertheless, the Court will address the

construction of the Pollution-Related Provisions in the Primary Auto Policies.

66. Following thorough review of the language of the Pollution-Related

Provisions, the Court reads the relevant provisions in the following order to arrive at

a conclusion as to their proper construction: (1) the First Coverage Grant (ECF No.
292.8, at p. 57; ECF No. 292.1, at p. 22); (2) the Second Coverage Grant (Id.); (3) the

definition of “covered pollution cost or expense” (ECF No. 292.8, at p. 65; ECF No.

292.1, at p. 30); (4) the Pollution Exclusion (ECF No. 292.8, at pp. 59–60; ECF No.

292.1, at pp. 24–25); (5) the definition of “pollutant” (ECF No. 292.8, at p. 66; ECF

No. 292.1, at p. 31); and (6) the Pollution Endorsement (ECF No. 292.8, at p. 169;

ECF No. 292.1, at p. 96).

67. The First Coverage Grant, generally, provides coverage for bodily injury

or property damage claims caused by an accident resulting from use of a covered auto.

(ECF No. 292.8, at p. 57; ECF No. 292.1, at p. 22.) The Second Coverage Grant,

generally, provides coverage for a “covered pollution cost or expense” (Id.), which is

defined as a “request, demand, order or statutory or regulatory requirement” or a

“claim or suit by or on behalf of a government authority” for, essentially, clean-up as

a result of an accident involving “pollutants.” (ECF No. 292.8, at p. 65; ECF No.

292.1, at p. 30.) The Pollution Exclusion, generally, excludes coverage for bodily

injury or property damage claims involving “pollutants.” (ECF No. 292.8, at pp. 59–

60; ECF No. 292.1, at pp. 24–25.) A “pollutant,” is defined as a “solid, liquid, gaseous

or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids,

alkalis, chemicals and waste.” (ECF No. 292.8, at p. 66; ECF No. 292.1, at p. 31.)

Finally, the Pollution Endorsement, inter alia, limits the application of the Pollution

Exclusion only to circumstances where liability for bodily injury or property damage

claims due to pollutants is assumed by Plaintiffs “under a contract or agreement.”

(ECF No. 292.8, at p. 169; ECF No. 292.1, at p. 96.) In other words, the Pollution
Endorsement eliminates the exclusion of claims for injury or damage caused by

pollutants except where the liability arises solely because of Plaintiffs’ contractual

assumption of the liability, and broadens coverage under the Primary Auto Policies

to claims for bodily injury and property damage caused by pollutants.

68. Applying this construction, the Underlying Lawsuits allege “bodily

injury” or “property damage” claims—not “clean-up” claims. For example, the

allegation that “[l]arge hog trucks carry hogs into and out of the facilities” causing

“odor, annoyance, dust, noise and loss of use and enjoyment of homesteads” which

“embarrasses and humiliates the [Claimants]” (ECF No. 292.15, at pp. 221–22, ¶ 33)

does not involve a “request, demand, order or statutory or regulatory requirement” or

a “claim or suit by or on behalf of a government authority” for “clean-up” of

“pollutants.” Rather, the allegations in the Underlying Lawsuits fall squarely under

the coverage afforded by the First Coverage Grant for claims involving bodily injury

or property damage. Not only is this construction clear and unambiguous, but it falls

in line with ORIC’s own analysis in its 2016 Coverage Letters. (ECF No. 292.20, at

pp. 22–23; ECF No. 292.26, at p. 17.)

69. The Court has carefully studied the relevant provisions of the Primary

Auto Policies and concludes that the language is unambiguous. The Pollution

Endorsement modifies the Pollution Exclusion so that the Primary Auto Policies

provide coverage for bodily injury and property damage caused by pollutants.

Accordingly, the allegations in the Underlying Lawsuits involving “pollutants”
caused by Plaintiffs’ truck operations are, at the very least, arguably covered under

the Primary Auto Policies.

70. Finally, regardless of the Court’s construction of the Pollution-Related

Provisions of the Primary Auto Policies, the allegations in the Underlying Lawsuits

of bodily injury or property damage caused by noise and lights from Plaintiffs’ truck

operations arguably are not excluded from coverage by the Pollution Exclusion.

“Pollutants” are defined under the Primary Auto Policies as “solid, liquid, gaseous or

thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis,

chemicals and waste.” (ECF No. 292.8, at p. 66; ECF No. 292.1, at p. 31.) While it

may be possible for noise or light to be considered pollutants, an argument to the

contrary is equally plausible, and this Court construes exclusions to coverage “strictly

. . . to provide coverage.” Trust Co., 276 N.C. at 355, 172 S.E.2d at 522–23. Therefore,

even adopting Defendants’ construction of the Pollution-Related Provisions, the

Underlying Lawsuits raise potentially covered claims not subject to the Pollution

Exclusion and, therefore, these claims trigger a duty to defend.

E. The Program Agreement and ORIC’s Primary Auto Policies

71. ORIC argues that “Smithfield must demonstrate that it has satisfied its

retention obligations under the Program Agreement before [ORIC] can have any

obligation to pay toward defense or participate in Smithfield’s defense.” (ECF No.

368, at pp. 19–20.) The Court is not persuaded by ORIC’s argument. ORIC does not

contend that the Program Agreement contains express language requiring Plaintiffs

to pay the retention before ORIC has a duty to defend under the Primary Auto
Policies, nor does it cite any authority supporting its contention that an insured must

pay a retention in order for an insurer to have a duty to defend. (Id.) Finally, there

is no evidence that ORIC ever asked Plaintiffs to pay the retention or that Plaintiffs

have refused such a request.

F. Notice of the Underlying Lawsuits

72. ACE argues that Plaintiffs’ notice to ACE regarding the Underlying

Lawsuits was improper, and therefore ACE is relieved of its duty to defend.

Specifically, ACE argues that (a) Plaintiffs never explicitly requested a defense (ECF

No. 329, at p. 16) and, (b) that despite receiving notice of the Underlying Lawsuits,

ACE was not provided “immediate notification” of the accident as an auto liability

claim, as required by the insurance policy. 13 (ECF No. 329, at pp. 16–17.)

73. Under North Carolina law, the duty to defend “arises when an insurer

receives actual notice of the underlying action.” Kubit, 210 N.C. App. at 293, 708

S.E.2d at 154. Absent any notice requirements in the insurance policy, the duty to

defend is not contingent upon any explicit demand or request. See Med. Mut. Ins. Co.

v. Am. Cas. Co., 721 F. Supp. 2d 447, 463 (E.D.N.C. 2010) (explaining that aside from

providing “written notice during the policy period of a claim for damages,” as required

by the policy, “there was nothing else for [the plaintiff] to do to receive the benefit of

a defense”); St. Paul Fire & Marine Ins. Co. v. Hanover Ins. Co., 2000 U.S. Dist. LEXIS

21792, at *25–26 (E.D.N.C. 2000) (“[T]here is no requirement in the . . . policy or in

any reported North Carolina case, that an insurer’s defense obligation is contingent

13ACE also argued that a duty to indemnify rather than a duty to defend analysis is
warranted, which the Court has previously addressed and rejected. See supra ¶¶ 46–47.
upon an insured’s explicit request, made directly to the insurer, that the insurer

provide a defense.”).

74. Upon receiving actual notice of the underlying lawsuit against its

insured, an insurer has three options:

(1) seek a declaratory judgment regarding its obligations
before or pending trial of the underlying action, (2) defend
the insured under a reservation of rights, or (3) refuse
either to defend or to seek a declaratory judgment at the
insurer’s peril that it might later be found to have breached
its duty to defend.

Imperial Casualty & Indem. Co. v. Radiator Specialty Co., 862 F. Supp. 1437, 1441

(E.D.N.C. 1994) (quoting St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 724 F.

Supp. 1173, 1182 (M.D.N.C. 1989)). While an insurer is not obligated to defend

allegations that are not within or excluded from the policy, Waste Mgmt., 315 N.C. at

691, 340 S.E.2d at 377, a “refusal to defend is unjustified even if it is based upon an

honest but mistaken belief that the claim is not covered.” Duke Univ., 96 N.C. App.

at 637, 386 S.E.2d at 764.

75. First, ACE’s Primary Auto Policy does not require any explicit demand

or request by the insured that the insurer provide a defense. ACE admits that it

received notice of the Underlying Lawsuits under its Primary CGL Policy, and that

ACE was eventually provided notice under its Primary Auto Policy. Therefore, “there

was nothing else . . . to do to receive the benefit of a defense.” Med. Mut. Ins. Co., 721

F. Supp. 2d at 463.

76. Second, ACE was first notified of the Underlying Lawsuits pending in

state court on July 19, 2013. These “First Reports of Loss” were sent to both ORIC
and ACE, and while they were only reported under the Primary CGL Policies, they

also included language stating “[t]his matter is reported under any and all applicable

policies whether or not cited.” (ECF No. 292.25, at p. 5; ECF No. 292.23, p. 5

(emphasis added).) There were roughly four months between the initial First Report

of Loss and the subsequent notice provided to ACE under its Primary Auto Policy in

November 2013. These facts, taken together, do not even arguably demonstrate that

ACE was prejudiced by late notice of the Underlying Lawsuits. Upon receiving the

initial notice letter from Plaintiffs in July 2013, ACE was sufficiently notified of the

claims under any and all applicable policies issued by ACE, whether or not cited. See

New NGC, Inc., 105 F. Supp. 3d at 570 (explaining that the insured was “only

required to comply with the requirements provided in the insurance contract” and “it

was up to [the insurer] to review the underlying suits and determine what obligations

it may owe to [the insured] under any and all applicable policies issued by [the

insurer], whether cited by [the insured] or not”).

77. Therefore, the Court is not persuaded that ACE is relieved of any duty

to defend because of Plaintiffs’ failure to request a defense, or due to late notice of the

Underlying Lawsuits.

F. Conclusion

78. The Court, having considered Defendants’ arguments, the undisputed

facts, and applicable law, finds that the Plaintiffs’ have established that a duty to

defend exists under Defendants’ Primary Auto Polices and that the Underlying
Lawsuits are arguably covered under said policies. Therefore, Defendants’ failure to

provide a defense constitutes a breach of their respective duties to defend.

THEREFORE, IT IS ORDERED that Plaintiffs’ Partial Summary Judgment

Motion against ORIC and Plaintiffs’ Partial Summary Judgment Motion against ACE

are GRANTED.

SO ORDERED, this the 22nd day of December, 2020.

/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge for
Complex Business Cases