United Nat. Ins. Co. v. Hydro Tank, Inc.

• Citation: 497 F.3d 445
• Decision Date: 15 August 2007
• Docket Number: No. 06-20335.,06-20335.
• Parties: UNITED NATIONAL INSURANCE COMPANY, Plaintiff-Appellee, v. HYDRO TANK, INC., et al., Defendants, Motiva Enterprises, L.L.C., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

497 F.3d 445

UNITED NATIONAL INSURANCE COMPANY, Plaintiff-Appellee, v. HYDRO TANK, INC., et al., Defendants Motiva Enterprises, L.L.C., Defendant-Appellant.

No. 06-20335.

United States Court of Appeals, Fifth Circuit.

August 15, 2007.

Brian S. Martin, Kevin Frank Risley, Thompson, Coe, Cousins & Irons, Houston, TX, for Plaintiff-Appellee.

Scott Patrick Stolley, Rachelle Hoffman Glazer, Gregory W. Curry, James Michael Heinlen, Thompson & Knight, Dallas, TX, for Defendant-Appellant.

Laura Anne Foggan, Katherine L. Van Pelt, Wiley Rein LLP, Washington, DC, for Amicus Curiae.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES, Chief Judge, and BENAVIDES and STEWART, Circuit Judges.

EDITH H. JONES, Chief Judge:

This insurance coverage dispute requires the interpretation of an insurance policy's Pollution Exclusion clause and a Contractors Limitation Endorsement Clause. Finding no error in the district court's conclusion that coverage was barred by the first clause and not resurrected by the latter one, we AFFIRM.

I. BACKGROUND

Three Hydro Tank workers were injured in July 2002 while removing petroleum-byproduct sludge from a mixing tank owned and operated by Appellant Motiva Enterprises at its Port Arthur, Texas, refinery. Shortly after entering the tank, two of the workers were overcome by fumes and fell face-first into the sludge. The stricken men were courageously pulled out of the tank by Jimmy Duriso, their coworker. All three were hospitalized and survived.

The injured Hydro Tank workers (collectively, the "Duriso Plaintiffs") sued Motiva in Texas state court, alleging severe brain and cardio-pulmonary damage from exposure to "toxic levels of hydrogen sulfide and/or other chemicals and vapors." Motiva settled the lawsuit.

The sludge removal in which the Duriso Plaintiffs were injured was conducted pursuant to a March 2002 contract between Motiva and Hydro Tank, in which Hydro Tank agreed to indemnify Motiva against any claims arising out of the tank cleaning and to procure an umbrella liability insurance policy naming Motiva as an "additional insured." Hydro Tank accordingly obtained a one-million-dollar commercial general liability ("CGL") policy from American Equity Insurance and a five-million-dollar umbrella policy from Appellee United National Insurance Company. Both policies were effective on the date of the incident, but only the coverage of the United National policy is at issue in this appeal.¹

The umbrella policy extends to Motiva the same degree of coverage offered by Hydro Tank pursuant to its indemnity agreement with Motiva.² After settling the Duriso suit, Motiva sought indemnity from United National up to the policy limit.

United National denied Motiva's claim and sued Motiva in the Southern District of Texas, requesting a declaratory judgment that it owed Motiva nothing. The district court granted summary judgment to United National based on the policy's Pollution Exclusion clause, interpreting it to bar Motiva's indemnification claim. Motiva appeals.

II. DISCUSSION

This court reviews a summary judgment grant de novo, applying the same standards as the district court. Adams v. Travelers Indem. Co., 465 F.3d 156, 163 (5th Cir.2006). Summary judgment is proper if "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 a judgment as a matter of law." FED.R.CIV.P. 56(c).

In this case, governed by Texas law, United National contended that it has no contractual responsibility for Motiva's defense costs or to indemnify Motiva for the settlement. Texas follows the "eight-corners" rule of insurance contract interpretation. See, e.g., GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex.2006). The "insurer's duty to defend is determined by the underlying plaintiff's pleadings, considered in light of the policy provisions, without regard to the truth or falsity of those allegations." Liberty Mut. Ins. Co. v. Graham, 473 F.3d 596, 599 (5th Cir.2006). If the pleadings allege facts stating a cause of action potentially falling within the insurance policy's scope of coverage, the insurer has a duty to defend. Id. at 600. Doubtful cases will be resolved in favor of the insured. Nat'l Union Fire Ins. Co. of Pittsburgh v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). The insured party bears the initial burden of showing that there is coverage, while the insurer bears the burden of showing that any exclusion in the policy applies. Lincoln General Ins. Co. v. Reyna, 401 F.3d 347, 350 (5th Cir.2005).

The duty to indemnify, however, is separate from, and narrower than, the duty to defend. See Lincoln General Ins. Co. v. Aisha's Learning Cent., 468 F.3d 857, 858 (5th Cir.2006). Liability is not based solely on the pleadings, but rather on the facts actually established in the underlying suit. GuideOne, 197 S.W.3d at 310.

A. Pollution Exclusion

United National contends that Motiva is not entitled to recover under the umbrella policy because the injuries arising out of the tank-cleaning incident fall within the policy's Pollution Exclusion clause.³ United National argues that since the Duriso Plaintiffs allege injury by a pollutant — namely, hydrogen sulfide gas — it has no duty to indemnify. Motiva, conversely, argues that the pleadings can be read to allege that the workers were not injured by chemicals that constitute pollutants within the meaning of the exclusion, and therefore its claim is covered.

1. Sufficiency of the Pleadings

The Duriso Plaintiffs alleged they "were caused to sustain serious injuries and damages while working in a tank when they were exposed to toxic levels of hydrogen sulfide and/or other chemicals and vapors." As a result, they "became overcome by chemicals and toxins owned by [Motiva] ... causing brain injury and damage." Motiva argues that use of the conjunction "and/or" creates two injury scenarios: one in which the workers were injured by hydrogen sulfide gas, a pollutant,⁴ and one in which they were injured by "other chemicals and vapors" that are not necessarily pollutants. Under the second scenario, Motiva asserts, the workers have not alleged injury by a pollutant.

Motiva's interpretation ignores the policy's plain language. The relevant clause states that coverage will be denied so long as "`bodily injury' ... which would not have occurred in whole or in part but for the ... alleged ... release ... of `pollutants.'" Thus, if a claim alleges that injury arose at least in part from a pollutant, coverage is denied. See, e.g., Amoco Prod. Co. v. Hydroblast Corp., 90 F.Supp.2d 727, 732-33 (N.D.Tex.1999) (allegation of pollutant-related injury sufficient to trigger pollution exclusion clause); Bituminous Cas. Corp. v. Kenworthy Oil Co., 912 F.Supp. 238, 241 (W.D.Tex.1996) (same).

Motiva's argument amounts to the converse of the policy language. Motiva claims that if any aspect of an allegation includes a claim that injury did not arise as a result of a pollutant, then coverage is permitted. This patently contradicts the policy's language. Even assuming that Motiva's view of the complaint's language is plausible, the phrase "toxic levels of hydrogen sulfide" alleges that the Duriso Plaintiffs' injuries arose at least in part from exposure to a pollutant.

A second textual argument Motiva employs in support of its interpretation also fails. Depending largely on dicta from an unpublished Fifth Circuit opinion interpreting a damages clause in a service contract, Motiva argues that the correct interpretation of the Duriso pleading reads the phrase "toxic levels of" as applying only to "hydrogen sulfide," and not to the latter phrase "other chemicals and vapors." See Vaulting & Cash Servs., Inc. v. Diebold, Inc., 1999 WL 1068257, at *2 (5th Cir., Oct. 22, 1999) (unpublished). The Vaulting court, however, was construing contractual language that is syntactically and semantically dissimilar from the operative language of the Duriso pleading.⁵ Moreover, the panel explicitly stated that "grammatical parsing" is only part of the interpretive process, and the "reasonableness of the interpretation advanced by each party" also plays a significant role. Id.

If anything, the Vaulting decision supports United National's position. The most reasonable interpretation of the pleadings is that the phrase "toxic levels of" modifies both "hydrogen sulfide" and "other chemicals and vapors," particularly in light of the fact that the Duriso Plaintiffs only a few sentences later allege brain injury from "chemicals and toxins." Moreover, when general terms like "chemicals" and "vapors" follow specific terms like "hydrogen sulfide," there is a presumption that the general terms are to be construed to belong to the same class or category as the more specific term. See, e.g., In Re Biloxi Casino Belle Inc., 368 F.3d 491, 499 & n. 8 (5th Cir.2004) (discussing, in an insurance context, the ejusdem generis⁶ canon). Accordingly, the most natural reading of the phrase "toxic levels of hydrogen sulfide and/or other chemicals and vapors" suggests that injury resulted from (1) toxic levels of hydrogen sulfide; (2) toxic levels of other chemicals or vapors; or (3) a combination of both.

2. Is properly stored sludge a pollutant?

Next, Motiva argues that a plausible reading of the complaint suggests that the Duriso Plaintiffs were injured not by hydrogen sulfide gas, but by the sludge itself, which Motiva contends is not a pollutant because it was properly stored in the mix tank. Motiva claims that since the workers do not allege the particular mechanism of their exposure to hydrogen sulfide, it is possible that they were injured by skin-to-sludge contact, rather than by inhalation of a gas. If the workers were overcome, for example by heatstroke...