Case: 17-60307      Document: 00514471348         Page: 1    Date Filed: 05/14/2018




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                       Fifth Circuit

                                                                                   FILED
                                                                                May 14, 2018
                                      No. 17-60307
                                                                                Lyle W. Cayce
                                                                                     Clerk
GRAIN DEALERS MUTUAL INSURANCE COMPANY,

               Plaintiff - Appellee

v.

TAMMY COOLEY, Individually and doing business as Sunrise Trading Post;
WALTER COOLEY, Individually and doing business as Sunrise Trading
Post; SUNRISE TRADING POST, L.L.C.,

               Defendants - Appellants



                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                              USDC No. 2:16-CV-39


Before KING, ELROD, and GRAVES, Circuit Judges.
PER CURIAM:*
       This case stems from an insurance policy on a gas station in Mississippi.
The district court held that the policy did not cover claims against the insureds
resulting from a leakage of gasoline into a nearby pond. We reverse in part and
affirm in part.




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                 No. 17-60307
                               BACKGROUND
      Appellants Tammy and Walter Cooley (the “Cooleys”) owned Sunrise
Trading Post, LLC (“Sunrise”), a gas station, in Forrest, Mississippi from
2002–2008. The Cooleys insured their operation of Sunrise through business
owners’ policy No. SBP 516 456 (the “Policy”) issued by Grain Dealers Mutual
Insurance Company.
      In 2008, Pine Belt Oil Company, Inc. (“Pine Belt”) purchased Sunrise
from the Cooleys. Shortly after the sale, a neighboring property owner notified
the Mississippi Department of Environmental Quality (“MDEQ”) that gasoline
was leaking into a pond on his property. While investigating the leak, the
MDEQ sent a letter to Pine Belt requesting an assessment of Sunrise’s fuel
lines. Pine Belt then forwarded that letter to the Cooleys.
      Upon receiving the MDEQ’s letter, the Cooleys requested a defense and
indemnification from Grain Dealers under the Policy. Grain Dealers responded
on November 20, 2008, stating that if the Cooleys were “ordered to take part
in the actual clean up, it will not be covered.” Nonetheless, Grain Dealers
concluded that the Policy did provide a defense. As a result, Grain Dealers
hired an attorney to defend the Cooleys in the MDEQ proceedings. Grain
Dealers did not, however, offer the Cooleys the opportunity to hire an attorney
of their choice.
      The MDEQ subsequently concluded that the Cooleys and Pine Belt must
remediate the spill site, but made no determination of relative fault. The order
stated that if the Cooleys were “aggrieved” by that conclusion they could
“request a hearing before the [MDEQ] . . . within 30 days after the date of [the]
Order.” Neither the Cooleys nor Grain Dealers’ hired counsel did so. Nor did
Grain Dealers’ hired counsel inform the Cooleys of their right to request a
hearing. “[T]he MDEQ action remains pending.”


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                                 No. 17-60307
      Years later, in 2016, Pine Belt demanded indemnification from the
Cooleys for the cost of compliance with the MDEQ order. The Cooleys in turn
requested a defense and indemnification from Grain Dealers against Pine
Belt’s claim. Grain Dealers denied both requests, concluding that the Policy
excluded coverage of the Pine Belt suit under a Total Pollution Exclusion
clause.
      Grain Dealers then filed the instant case, seeking a declaratory
judgment that it had no duty to defend or indemnify the Cooleys. The Cooleys
counterclaimed, seeking a declaratory judgment that coverage was owed
against both the MDEQ claims and the Pine Belt lawsuit.
      On January 10, 2017, the Cooleys deposed Grain Dealers’ corporate
representative. Throughout the deposition, Grain Dealers’ counsel objected to
a number of questions posed by the Cooleys’ counsel. As a result, the Cooleys
moved under Rule 30(b)(6) for sanctions, claiming that the objections
frustrated the fair examination of the representative. The district court
adopted a magistrate judge’s order denying sanctions on the grounds that, inter
alia, though Grain Dealers’ counsel “plainly overused the objection,” the
Cooleys “were able to complete the deposition and obtain sufficiently
responsive answers.”
      The parties then cross-moved for summary judgment. The district court
granted summary judgment in favor of Grain Dealers, holding there was no
duty to defend or indemnify under the Policy because: (1) the Cooleys could not
show that Grain Dealers’ failure to provide independent counsel prejudiced the
Cooleys; and (2) “gasoline” was a pollutant under the Total Pollution Exclusion.
Further, the court concluded that because there was no coverage under the
Policy, the Cooleys were not entitled to extracontractual damages.
      The Cooleys timely appealed.


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                                  No. 17-60307
                                 DISCUSSION
      The Cooleys present four arguments on appeal. Our resolution of the
estoppel issue makes it unnecessary to reach two of those issues. Accordingly,
we address the Cooleys’ arguments that: (1) Grain Dealers is estopped from
denying coverage under Mississippi insurance law; and (2) the District Court
erred in denying Rule 30(d)(2) sanctions.
I.    Grain Dealers is estopped from denying coverage.
      The district court held that Grain Dealers was not estopped from denying
coverage because the Cooleys could not show prejudice resulting from Grain
Dealers’ failure to provide independent counsel. The Cooleys argue that this
was error, as they sufficiently provided proof of prejudice. We agree.
      In Mississippi, “[w]hen an insured under a liability insurance policy is
sued, the insurance company is contractually obligated to pay up to the limits
of the policy all sums the insured becomes legally obligated to pay.” Moeller v.
Am. Guar. & Liab. Ins. Co., 

, 1068 (Miss. 1996). “Because the
insurer must eventually pay whatever sums the insured becomes legally
obligated to pay, the insurance carrier has the right to select the attorney
retained to defend the claim.” 

      However, while an insurer “has an absolute duty to defend a complaint
which contains allegations covered by the language of the policy; it clearly has
no duty to defend a claim outside the coverage of the policy.” 

carrier therefore “has a right to offer the insured a defense, while at the same
time reserving the right to deny coverage in event a judgment is rendered
against the insured.” 

under [such] a reservation of rights
. . . a special obligation is placed upon the insurance carrier.” 

insured [must] be given the opportunity to select his own counsel to defend
the claim.” 

to provide independent counsel stems from the
fact that “where an insurer asserts either policy or coverage defenses, and
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                                  No. 17-60307
defends its insured under a reservation of rights, there are various conflicts of
interest between the insurer and the insured.” 

of Alaska, Inc.
v. Employers Reins. Corp., 

, 1116 (Alaska 1993)). If the insurer
breaches that duty, it “may be estopped from denying liability . . . if its conduct
results in prejudice to the insured.” Twin City Fire Ins. Co. v. City of Madison,

, 906 (5th Cir. 2002). This is true even if a policy exclusion would
otherwise apply. 

provided the Cooleys a defense, yet simultaneously
disclaimed coverage if the Cooleys were ordered to clean the spill. In doing so,
Grain Dealers failed to inform the Cooleys of their right to hire independent
counsel. When the MDEQ ultimately found the Cooleys liable for the spill,
Grain Dealers then refused to defend or indemnify the Cooleys against a
resulting claim. Under Moeller and Twin City, if the Cooleys can establish
prejudice from Grain Dealers’ failure to provide independent counsel, Grain
Dealers may not now deny coverage. See Twin 

; 

.
      The record shows the Cooleys were prejudiced. Specifically, the Cooleys
presented evidence that Grain Dealers’ attorney never informed them of their
right to challenge the MDEQ decision. That right has since lapsed. The loss of
the right to challenge the underlying administrative order with the benefit of
non-conflicted counsel is clearly prejudicial.
      Grain Dealers does not dispute that the Cooleys’ counsel failed to inform
them of the right to challenge the MDEQ order. Instead, Grain Dealers argues
there is no prejudice because the Cooleys received the MDEQ order and should
have therefore known of the right to appeal. We are unimpressed with this
argument, which ignores the very benefit counsel is to provide. See Miss. R.
Prof. Conduct 1.4(b) (“A lawyer shall explain a matter to the extent reasonably


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                                        No. 17-60307
necessary to permit the client to make informed decisions regarding the
representation.”).
        Grain Dealers asserts two further arguments to avoid its liability under
Moeller. Neither has merit.
        First, Grain Dealers argues that Moeller does not control because Grain
Dealers did not defend under a “reservation of rights.” The Moeller court,
however, was concerned with conflicts that occur when an insurer provides a
defense “while at the same time reserving the right to deny coverage in event
a judgment is rendered against the 

. We see no
relevant distinction between Grain Dealers’ outright denial of coverage from
the start versus a reservation to later deny coverage. Grain Dealers’ refusal to
ultimately cover the claim creates the same conflict of interest addressed in
Moeller.
        Second, Grain Dealers claims that “estoppel cannot expand coverage
where none exists.” We rejected this argument in Twin City. 

.
        Accordingly, Grain Dealers is estopped from denying coverage. 1
II.     Cooleys not entitled to sanctions.
        The district court found no clear error in the magistrate’s conclusion that
Grain Dealers’ counsel did not unfairly impede completion of the deposition.
The Cooleys argue this was an abuse of discretion. We disagree.




        1 Based on this determination, we need not reach two of the Cooleys’ issues. First, the
Cooleys challenge the district court’s denial of damages. That denial, however, was based on
the court’s conclusion that no coverage existed under the Policy. Because we reverse the
district court on that issue, we leave consideration of damages to the district court in the first
instance. Second, the Cooleys challenge the district court’s determination that gasoline is a
“pollutant” under the Policy. Grain Dealers’ failure to provide independent counsel renders
that point meaningless, as Grain Dealers is liable even if the Total Pollution Exclusion would
otherwise apply. See Twin 

.
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                                  No. 17-60307
      “[A] court may impose an appropriate sanction - including the reasonable
expenses and attorney’s fees incurred by any party - on a person who impedes,
delays, or frustrates the fair examination of the deponent.” Fed. R. Civ. P.
30(d)(2). “We review discovery orders for abuse of discretion, including the
denial of a motion for discovery sanctions.” Baker v. St. Paul Travelers Ins. Co.,

, 122 (1st Cir. 2012); see also Security Nat’l Bank of Sioux City v.
Day, 

, 941 (8th Cir. 2015).
      Upon review of the deposition transcript, we find no abuse of discretion
in denying sanctions. The record supports the magistrate’s conclusion that
“[a]lthough there were a number of unnecessary objections, [Grain Dealers’]
counsel did not frustrate the examination of the deponent to such an extent
that remedial actions are necessary.”
                                CONCLUSION
      We REVERSE the district court’s determination that Grain Dealers
may deny coverage under the Policy and AFFIRM the court’s denial of Rule
30 sanctions. We REMAND for further proceedings consistent with this
opinion.




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