An Arch Capital Group Ltd. unit does not have to provide a defense for Kentucky coal company employees who submitted fraudulent coal-dust samples to federal regulators, under a pollution exclusion in its directors and officers liability insurance policy, a federal appeals court ruled Wednesday in affirming a lower court ruling.
To prevent miners from contracting black lung, the Department of Labor’s Mine Safety and Health Administration limits the concentration of coal dust that can be in the air in a mine and requires coal companies to monitor and report their dust levels, according to the ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Charley Barber et. al. v. Arch Insurance Co.
The agency can halt production and assess fines if a mine is too dusty or a coal company fails to follow MSHA regulations.
In 2018, a federal grand jury indicted eight employees of Madisonville, Kentucky-based Armstrong Coal Co. Inc. on one count of conspiracy to defraud the United States for allegedly conspiring to falsify coal-dust samples. The criminal case against the employees is pending, the ruling said.
The employees sought defenses against their charges from Arch Capital unit Arch Insurance under its D&O policy, which generally provides that Arch pay any Armstrong employee’s defense costs related to a criminal proceeding that resulted from the employee’s wrongful act, the ruling said.
Arch denied the employees’ claims, based on a pollution exclusion in its coverage, which said the insurer is not liable for any claim involving a pollutant or any direction to test for or monitor any pollutant, the ruling said.
“Arch determined that coal dust was a ‘pollutant’ and that the criminal proceedings arose from a direction to monitor and test for coal dust,” the ruling said.
The employees sued the insurer, charging breach of contract and bad faith. The U.S. District Court in Owensboro, Kentucky, ruled in the insurer’s favor, and was affirmed by a three-judge appeals court panel.
“Because coal dust contaminates and irritates, and because it is regulated by Armstrong, it fits comfortably within the (pollution) exclusion’s intended scope,” the ruling said.
The panel also concluded that “the criminal proceedings arose from a direction to test for or monitor a pollutant, and the pollution exclusion bars coverage for the criminal proceedings.”
Attorneys in the case did not respond to requests for comment.