Guaranty Nat. Ins. Co. v. Vic Mfg. Co.
| Decision Date | 05 June 1998 |
| Docket Number | No. 97-20730,97-20730 |
| Citation | 143 F.3d 192 |
| Parties | 28 Envtl. L. Rep. 21,366 GUARANTY NATIONAL INSURANCE COMPANY and Landmark American Insurance Company, Plaintiffs-Counter Defendants-Appellees, v. VIC MANUFACTURING COMPANY, Defendant-Counter Claimant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Daniel F. Shank, Norman William Peters, Davis & Shank, Houston, TX, for Plaintiff-Counter Defendants-Appellees.
Kenneth Scott Statham, Lynn G. Haufrect, David H. Brown, Kathryn Lynn Hays, Vinson & Elkins, Houston, TX, for Defendant-Counter Claimant-Appellant.
Appeal from the United States District Court for the Southern District of Texas.
Before REAVLEY, DeMOSS and PARKER, Circuit Judges.
Guaranty National Insurance Company sued Vic Manufacturing Company, seeking a declaratory judgment that it did not have a duty to defend Vic under its product liability insurance policy. The district court granted summary judgment in favor of Guaranty. We affirm.
Vic manufactures dry cleaning equipment that uses perchlorethylene (perc), a toxic chemical classified as a "hazardous waste" by the Environmental Protection Agency. 1 Pilgrim Enterprises, Inc., purchased the equipment from Vic for use in its dry-cleaning business. The equipment contaminated Pilgrim's property as well as adjoining properties. Pilgrim sued Vic, together with other manufacturers of dry cleaning equipment and suppliers of perc, seeking to recover substantial cleanup costs. Harold and Georgina Agim, who live next door to a Pilgrim facility, sought to intervene to recover for pollution on their property.
Guaranty issued several general liability and umbrella policies to Vic that cover the relevant period. The policies at issue contain a "sudden and accidental" pollution exclusion which states that the policy does not provide coverage for:
bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. (emphasis added)
The district court found that the Pilgrim suit did not allege damages within the "sudden and accidental" exception to the pollution exclusion, and, thus, that Guaranty had no duty to defend Vic in the underlying suit.
We review a district court's grant of summary judgment de novo. 2 Summary judgment is proper when "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 the moving party is entitled to judgment as a matter of law." 3
We review a district court's determination of state law de novo. 4 The parties agree that Texas law governs this diversity suit. Texas law provides that insurance coverage is determined under the "Eight Corners" or "Complaint Allegation" test. The court compares the four corners of the insurance policy with the four corners of the plaintiff's pleading to determine whether any claim alleged by the pleading is potentially within the policy coverage. 5 The duty to defend is determined "without reference to the truth or falsity of such allegations." 6
The insured bears the initial burden of showing that there is coverage, while the insurer bears the burden of proving the applicability of any exclusions in the policy. 7 Once the insurer has proven that an exclusion applies, the burden shifts back to the insured to show that the claim falls within an exception to the exclusion. 8 The perc contamination is clearly within the pollution exclusion, so Vic has the burden to show, at this stage to plead satisfactorily, that the pollution was "sudden and accidental." Even so, all doubt is resolved in the insured's favor. 9
The Texas Supreme Court has not addressed the "sudden and accidental" pollution exclusion clause. 10 This court, reviewing Texas appellate court decisions and Texas contractual interpretation rules, has held that the clause contains a temporal element in addition to the requirement of being unforseen or unexpected. 11
The court held that the "sudden and accidental" requirement unambiguously excluded coverage for all "pollution that is not released quickly as well as unexpectedly and unintentionally." 12
The general rule is that the insurer's duty to defend is determined solely from the allegations in the petition. 13 A total of four petitions have been filed in the underlying case: Pilgrim's Original petition, First Amended Petition, Second Amended Petition, and Agim's Plea in Intervention. An amended pleading completely supersedes prior pleadings, such that the duty to defend rests on the most recent pleading. 14
In the Seconded Amended Petition, Pilgrim brings claims for negligence, gross negligence, strict products liability, negligent misrepresentation, breach of warranties, and violations of the Texas Deceptive Trade Practices Act. The petition lists 37 dry-cleaning sites polluted with perc. The petition alleges that Vic and the other manufacturers "were aware of the use of PERC in the dry cleaning process and in this equipment and materials, but despite such knowledge, designed the equipment in a manner that was inherently defective and which would result in spills and/or discharges of PERC during Plaintiff's operations." Additionally, Pilgrim alleges that Vic instructed Pilgrim to drain perc into the sewage system knowing that perc would sink to the bottom and remain a potentially hazardous material. The Plea in Intervention that the Agim family filed alleges that Vic was "aware of the use of PERC in the dry cleaning process, but despite such knowledge, designed the equipment in a manner that was inherently defective and which would result in spills and/or sudden and accidental discharges of PERC during Pilgrim's operations." Although the petitions append the words "sudden and accidental," they describe gradual pollution in the regular course of the dry-cleaning business. 15
The court may look at evidence outside the pleadings under certain circumstances. A Texas court of appeals summarized the rule on extrinsic evidence as follows:
Where the insurance company refuses to defend its insured on the ground that the insured is not liable to the claimant, the allegations in the claimant's petition control, and facts extrinsic to those alleged in the petition may not be used to controvert those allegations. But, where the basis for the refusal to defend is that the events giving rise to the suit are outside the coverage of the insurance policy, facts extrinsic to the claimant's petition may be used to determine whether a duty to defend exists. 16
This court held in Western Heritage Ins. Co. v. River Entertainment that the court may look to evidence outside the pleadings and policy "when the petition does not contain sufficient facts to enable the court to determine if coverage exists." 17
To the extent that the Pilgrim pleadings are incomplete, the extrinsic evidence shows that there is no duty to defend in this case. The interrogatories demonstrate that the perc pollution was not the result of "sudden and accidental" events. Pilgrim's answers list seventy-seven spills at nineteen of the facilities, occurring over a period of approximately forty years. Several of the listed spills actually are multiple spills, so that the perc pollution is the result of over a hundred separate events. Listed events include multiple still boilovers, small spills of perc upon removal and changing of filter cartridges, spills from failed filter gaskets, and spills while cleaning the machines. The amounts range from small spills of undetermined amounts to one spill of almost sixty gallons.
A single covered claim will suffice to require the insurer to defend the entire case. 18 In this case, the factual allegations do not create a single covered cause of action. Vic cannot create a duty to defend by microanalyzing the case and finding a single spill that may have been "sudden and accidental." The pollution exclusion clause prevents coverage 19
The Texas Supreme Court recently confirmed that "a court must focus on the factual allegations rather than the legal theories asserted in reviewing the underlying petition." 20 In this case, regardless of the catch phrases used in the petition, pollution is not "sudden and accidental" when it consists of repeated, regular discharges over numerous years in the usual course of business operation.
A case out of the Seventh Circuit, Cincinnati Insurance Company v. Flanders Electric Motor Service, Inc., 21 provides a similar scenario. The insured company, Flanders, sent electric transformers over a twenty year period to a service shop for repairs. Flanders was later held liable for part of the cost to cleanup leaks of polychlorinated biphenyls (PCBs) from transformers at the repair site. The court held that the insurer did not have a duty to defend or indemnify Flanders. 22 Several other circuits have also held that numerous pollution discharges over the years are not within the "sudden and accidental" exception to the coverage exclusion. 23
The trial court dismissed the...
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