Blackhawk Central City v. American Guarantee & Liability Ins.

Citation214 F.3d 1183
Decision Date31 May 2000
Docket NumberNo. 98-1075,98-1075
Parties(10th Cir. 2000) BLACKHAWK CENTRAL CITY SANITATION DISTRICT, a quasi-municipal Colorado corporation, Plaintiff-Appellant, v. AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, a New York corporation, Defendant, and ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a Minnesota corporation, Defendant-Appellee. THE INSURANCE ENVIRONMENTAL LITIGATION ASSOCIATION, Amicus Curiae
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO (D.C. No. 93-B-1252)

[Copyrighted Material Omitted] Timothy J. Flanagan and Katherine Taylor Eubank, of Fowler, Schimberg & Flanagan, P.C., Denver, Colorado, for Plaintiff-Appellant.

Richard B. Caschette, John R. Mann and Kevin P. Perez, of Kennedy & Christopher P.C., Denver, Colorado, for Defendant-Appellee.

Laura A. Foggan, Daniel E. Troy and Raymond Shepherd, III, of Wiley, Rein & Fielding, Washington, D.C., filed an amicus curiae brief for the Insurance Environmental Litigation Association.

Before BALDOCK, EBEL, and MURPHY, Circuit Judges.

ORDER

MURPHY, Circuit Judge.

This matter is before the court on petition of Defendant-Appellee, St. Paul Fire and Marine Insurance Company, seeking rehearing of this court's opinion filed April 11, 2000. The members of the hearing panel have determined that it is appropriate to clarify and substitute the opinion's discussion in Part III.D of an aspect of Appellee's argument on appeal. The members of the hearing panel have also considered Appellee's arguments on the merits of this court's disposition of this appeal, and conclude that the court's original disposition was correct. Therefore, the petition for rehearing is GRANTED in part to clarify and substitute a portion of the opinion at Part III.D, and is DENIED in all other respects. We withdraw the opinion filed on April 11, 2000, vacate the judgment, and substitute the modified opinion attached to this order.

OPINION

Plaintiff, Blackhawk-Central City Sanitation District (District), brought a declaratory action and sought damages for breach of insurance contract against St. Paul Fire and Marine Insurance Company (St. Paul) alleging St. Paul had a duty to defend and indemnify the District against environmental damage claims. The action was originally filed in Colorado state court but, on St. Paul's motion, was removed to federal court pursuant to diversity of citizenship jurisdiction under 28 U.S.C. 1332. The District moved for partial summary judgment against St. Paul on the duty to defend claim, which the district court denied. The district court held that the pollution exclusion provisions in the St. Paul insurance policies excluded coverage for the claims made against the District in the Old Timer complaint.1 Exercising jurisdiction pursuant to 28 U.S.C. 1291, we reverse.2

I. BACKGROUND
A. The Old Timer Complaint

The District owns and operates a sewage treatment facility on North Clear Creek in Blackhawk, Colorado. The facility treats sanitary sewer waste from communities of Blackhawk and Central City and, pursuant to a permit issued by the Colorado Department of Health, Water Control Division, discharges effluent into North Clear Creek. In 1993, owners of property downstream from the treatment facility sued the District, alleging that the District repeatedly discharged improperly treated sewage effluent into North Clear Creek in violation of its permit. See The Old Timer, Inc. et al. v. Blackhawk-Central City Sanitation District, D. Colo. No. 93-B-249 complaint, Appellant's App. at 61-73 (the Old Timer litigation). The Old Timer complaint lists a series of specific dates, beginning in 1985 and continuing through the date of the complaint, on which it alleges testing revealed effluent containing waste matter in excess of permitted levels. The complaint alleges that the substances contained in the District's effluent, alleged to include suspended solids, fecal coliform bacteria, ammonia, and residual chlorine in excess of its permit limits, constitute "pollutants" within the meaning of the Clean Water Act, 33 U.S.C. 1362(6). The complaint alleges that the District's conduct in violating and disregarding the permit limitations was knowing, willful and negligent.

B. The Insurance Policies

During a portion of the time frame at issue in the Old Timer litigation, the District was insured by two comprehensive general liability (CGL) insurance policies issued by St. Paul. The first policy, No. 583ZA3251 (Policy ZA) was effective from February 18, 1983 to February 18, 1986. The second policy, No. CK08300195 (Policy CK), was effective from February 18, 1986 to February 18, 1987. Both policies cover claims for property damage resulting from an "accidental event." Appellant's App. at 80, 108. An "accidental event" is defined to mean "any event that results in bodily injury or property damage that the protected person didn't expect or intend to happen." Id. Both policies obligate St. Paul to defend any suit brought against the District for covered claims, even if the suit is groundless or frivolous.

Both policies contain a standard clause known as a "pollution exclusion clause," which states St. Paul will not "cover injury or damage caused by the discharge, dispersal, release or escape of pollutants such as . . . acids, alkalis, toxic chemicals, liquids or gases; or waste material or other irritants or contaminants." Id. at 83, 111. However, Policy ZA states that "this exclusion won't apply to sudden accidents involving pollutants." Id. at 83. In other words, Policy ZA generally excludes any coverage for pollution discharges, but restores coverage for "sudden accidents involving pollutants." Id.

Policy CK contains a pollution exclusion clause identical to the one in Policy ZA, but also contains a Pollution Exclusion Endorsement (the Endorsement) which states it "replaces the [p]ollution exclusion" clause in the policy to exclude coverage. Id. at 121. The Endorsement omits the language in the pollution exclusion clause that restores coverage for "sudden accidents involving pollutants." Compare id. at 111 with id. at 121. The Endorsement is known as an "absolute pollution exclusion."

C. The Proceedings Below

In July 1994, the district court denied the District's motion for partial summary judgment, ruling that the pollution exclusion provisions in Policy ZA and CK barred coverage for the Old Timer litigation. See Blackhawk-Central City Sanitation Dist. v. American Guar. & Liab. Ins. Co., 856 F. Supp. 584, 591 (D. Colo. 1994). The district court concluded that the pollution exclusion in Policy CK, as replaced by the Endorsement, was absolute and precluded coverage for all of the claims in the Old Timer litigation. The district court concluded that the pollution exclusion provision in Policy ZA also barred coverage because the release of effluent as alleged in the Old Timer litigation was not an "accident." Thus, the district court held that St. Paul had no duty to defend the District in the Old Timer litigation. Id.

St. Paul then filed a motion for costs and entry of judgment pursuant to Fed. R. Civ. P. 58. When the District filed a response arguing that St. Paul had not filed a motion for summary judgment, St. Paul moved for summary judgment in its reply. The district court granted St. Paul's motions for summary judgment and for entry of judgment on January 29, 1998, and certified that judgment as final under Rule 54(b) on April 14, 1998.

II. STANDARD OF REVIEW

The District appeals the district court's grant of summary judgment in favor of St. Paul. We review the district court's grant of summary judgment de novo, applying the same legal standards used by that court. See Charter Canyon Treatment Ctr. v. Pool Co., 153 F.3d 1132, 1135 (10th Cir. 1998). Summary judgment should not be granted unless the evidence, viewed in the light most favorable to the party opposing the motion, shows there are no genuine issues of material fact and the moving party is due judgment as a matter of law. See id.; Fed. R. Civ. P. 56(c). Furthermore, the proper interpretation and construction of an insurance policy is a matter of law, and therefore we review the policies at issue de novo in order to determine whether they gave rise to a duty to defend. See I.D.G., Inc. v. St. Paul Fire & Marine Ins. Co., No. 99-5067, 2000 WL 135171, at *3 (10th Cir. Feb. 7, 2000).

When, as here, a federal court is exercising diversity jurisdiction, it must apply the substantive law of the forum state. See Blanke v. Alexander, 152 F.3d 1224, 1228 (10th Cir. 1998). The parties agree that Colorado law governs our interpretation of these policies; thus, we apply the most recent statement of Colorado law by the Colorado Supreme Court. See Wood v. Eli Lilly & Co., 38 F.3d 510, 513 (10th Cir. 1994). When the Colorado Supreme Court has not yet addressed an issue, we seek to predict how that court would decide the question. See Farmers Alliance Mut. Ins. Co. v. Bakke, 619 F.2d 885, 888 (10th Cir. 1980). We review the district court's determination of Colorado law de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231 (1991).

We ordered this appeal abated pending decisions by the Colorado Supreme Court in City of Englewood v. Commercial Union Assurance Cos., 940 P.2d 948 (Colo. Ct. App. 1996), cert. granted sub nom. Compass Ins. Co. v. City of Littleton, No. 96SC852 (Colo. July 28, 1997) and Public Service Co. v. Wallis & Cos., 955 P.2d 564 (Colo. Ct. App. 1997), cert. granted, No. 97SC792 (Colo. May 26, 1998). The Colorado Supreme Court has now handed down decisions in both of these cases. See Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo. 1999) and Public Service Co. v. Wallis & Cos., 986 P.2d 924 (Colo. 1999). Because both decisions address certain of the issues raised here, we analyze the District's claims in light of these recent cases.

III. DISCUSSION
A. The Duty to Defend

Under...

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