Two Liberty Mutual Insurance subsidiaries asked a Texas federal court Friday to throw out a lawsuit brought by Copart of Connecticut Inc., arguing that claims of breach and bad faith are premature until a related case decides whether the insurers had any obligation to indemnify.

In their motion to dismiss, Liberty Mutual Fire Insurance Co. (LMFIC) and Liberty Insurance Corp. (LIC) called Copart’s allegations “pure speculation,” insisting that no breach can be established without first interpreting the insurers’ policies in the separate case pending before the Northern District of Texas.

Bad Faith Claim Under Fire

The Liberty units also moved to kill Copart’s bad faith claim, asserting Texas law shields insurers from such liability when handling third-party claims against a policyholder.
“Since there is no bad faith cause of action in the third-party context, Copart cannot pursue damages for any failure of indemnification here,” the insurers told the court.

Dispute Rooted in Stormwater Runoff Case

The coverage battle stems from a 2016 South Carolina state court suit filed by neighboring property owners who accused Copart’s Lexington County salvage facility expansion of unleashing stormwater runoff into creeks, wetlands, and ponds.

LMFIC initially defended Copart under five consecutive general liability policies, though it reserved its rights. Together with LIC—backing Copart under three umbrella policies—the insurers filed a 2019 declaratory action in Texas federal court seeking clarity on their duty to defend or indemnify.

The court sided with the insurers, prompting them to withdraw their defense. Copart appealed and later reached a May 2022 settlement with the property owners. By July 2023, the Fifth Circuit upheld that the insurers had no duty to defend but reversed and remanded the indemnification issue.

Copart Strikes Back

In July of this year, Copart launched the present action, alleging breach of policy and violations of the Texas Insurance Code. The Liberty Mutual units argue Copart is ignoring the unresolved indemnification question, warning that its settlement blended both covered and excluded losses without allocation—a flaw they say is fatal to the claim.

“The absence of allocation is fatal to Copart’s claim, and dismissal is therefore required,” the insurers stressed in their filing.

Legal Counsel in Play

• Copart is represented by Amy Elizabeth Stewart and Melinda K. Bradley of Amy Stewart PC.
• Liberty Mutual is represented by Catherine L. Hanna, Jeffrey C. Glass, and Samantha L. McCoy of Hanna & Plaut LLP.