Nascimento v. Preferred Mut. Ins. Co.

• Decision Date: 18 January 2008
• Docket Number: No. 07-1792.,07-1792.
• Citation: 513 F.3d 273
• Parties: Jack NASCIMENTO, Plaintiff, Appellant, v. PREFERRED MUTUAL INSURANCE COMPANY, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

513 F.3d 273

Jack NASCIMENTO, Plaintiff, Appellant, v. PREFERRED MUTUAL INSURANCE COMPANY, Defendant, Appellee.

No. 07-1792.

United States Court of Appeals, First Circuit.

Heard December 5, 2007,

Decided January 18, 2008.

Kevin D. Withers, with whom Robert L. Quinn and Egan, Flanagan & Cohen, P.C. were on brief, for appellant.

Michael J. Case, with whom Mark R. Freitas, Robert D. Sullivan, Jr., and Wilson, Elser, Moskowitz, Edelman & Dicker LLP were on brief, for appellee.

Before BOUDIN, Chief Judge, SELYA, Senior Circuit Judge, AND GELPÍ,^* District Judge.

GELPÍ, District Judge.

Jack Nascimento appeals a district court judgment declaring that Preferred Mutual Insurance Company ("Preferred Mutual") is under no contractual obligation to defend him in an environmental liability suit brought against him by his neighbors, Tiago and Maria Leal. We affirm, albeit on slightly different grounds than those relied upon by the district court.

I. Relevant Factual and Procedural Background

On January 9, 1964, Nascimento purchased the property at 239 Hubbard Street, Ludlow, Massachusetts ("Nascimento's property"). Nascimento's property had been part of a larger lot that included the premises at 235 Hubbard Street ("the 235 property"). The 235 property contained an underground storage tank ("UST") with a fuel line connecting to the oil furnace at Nascimento's property. The UST was located immediately adjacent to the foundation of Nascimento's garage. Nascimento was the sole user of the UST, which stored the home heating oil used to heat his automotive repair business. In November of 1982, Nascimento retired, sold his business, and leased his property. From 1982 to 1997, the lessee purchased heating oil and stored it in the UST for continued heating of Nascimento's property.

In 1979, the Leals purchased the 235 property. In September of 1997, they applied for a refinancing mortgage loan. The lender instructed the Leals to remove the UST or render it inactive as a condition to financing. The Leals hired an excavating company to remove the UST. During the October 15, 1997 excavation, the Leals discovered that oil had leaked through a hole in the UST causing substantial contamination of the soil. On October 20, 1997, the Massachusetts Department of Environmental Protection issued a Notice of Responsibility to the Leals and Nascimento ordering them to clean up the spill. The Leals asked Nascimento to take responsibility for the loss, but he refused. Therefore, the Leals undertook the cleanup of the oil spill themselves, thereby incurring expenses for investigation, assessment, reporting, and remediation of the property damage.

On February 15, 2005, the Leals sued Nascimento in Massachusetts Superior Court, Hampden County (the "Leal suit" or the "Leal complaint"), on various counts:

Count I-Continuing Trespass,

Count II—Continuing Nuisance,

Count III—Negligence,

Count IV—Response Costs Pursuant to Mass. Gen. Laws ch. 21E, §§ 4 and 4A,

Count V—Damage to Real Property Pursuant to Mass. Gen. Laws ch. 21E, § 5, and

Count VI—Declaratory Judgment Pursuant to Mass. Gen. Laws ch. 231A.

The Leals' allegations and prayer as to each Count were as follow:

I. Defendants' conduct constitutes trespass on Plaintiffs' property.

II. Defendants' actions and inaction has infringed upon. Plaintiffs' use and enjoyment of their property.

III. Defendants, and each of them, deviated from the standard of care owed Plaintiffs and proximately caused injuries to Plaintiffs.

IV. Defendants, and each of them, caused or are otherwise legally responsible for a release of fuel oil at the premises of Plaintiffs, which required performance of response actions.

V. As a result of such release, the Lea's sustained significant damage to their real property.

VI. [D]eclaring that Defendants, and each of them, are liable jointly and severally for all response costs incurred, or to be incurred, in connection with the performance of response actions to address the release of fuel oil occurring at the property and discovered on October 15, 1997.

On March 25, 2005, Nascimento placed a claim with Preferred Mutual requesting it to defend and indemnify him under his Commercial General Liability policy No. CG 03 00 01 96, effective from November 9, 1996 to November 9, 1997 ("the CGL policy"). On April 15, 2005, Preferred Mutual denied coverage under the CGL policy's total pollution exclusion, which reads in pertinent part:

This insurance does not apply to: . . .

f. Pollution

1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

a) At or from any premises, site, or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;

b) At or from any premises, site or location which is or was at any time owned or occupied by any insured or others for the handling, storage, disposal, processing or treatment of waste;. . .

2) Any loss, cost or expense arising out of any:

a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants; or

b) Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Nascimento asked for reconsideration on two subsequent occasions, but Preferred Mutual reaffirmed its denial.

On March 28, 2006, Nascimento filed this action in the Massachusetts Superior Court, Hampden County, seeking a declaratory judgment against Preferred Mutual regarding his policy and the Leal suit. Nascimento also sought damages for breach of contract and for violation of Mass. Gen. Laws ch. 93A. On April 26, 2006, Preferred Mutual removed this action to federal court invoking diversity jurisdiction and filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). On September 19, 2006, the district court heard oral arguments, and the parties agreed to treat the motion as one for summary judgment. On March 20, 2007, the district court granted the motion holding that: (1) the home heating oil is a pollutant; (2) all of the Leals' claims against Nascimento involved remediation costs incurred by the Leals in cleaning up the oil spill; and (3) since the loss is not covered, Preferred Mutual has no duty to defend or indemnify Nascimento in the Leal suit. Nascimento v. Preferred Mut. Ins. Co., 478 F.Supp.2d 143 (D.Mass.2007). The district court based its decision solely on section f(2)(a) of the total pollution exclusion.¹ On March 28, 2007, Nascimento filed a motion to amend factual findings, reconsider allowance of defendant's motion for summary judgment, and vacate judgment ("motion for reconsideration"). The district court denied the same on April 17, 2007. Nascimento now appeals.

II. Discussion

On appeal, we consider whether the district court erred in holding that the total pollution exclusion bars coverage for Nascimento's pollution cleanup cost claim and property damage claim. We hold that the district court did not err.

The district court treated Preferred Mutual's motion to dismiss as one for summary judgment. Therefore, we review the district court's decision de novo. See Anderson v. Comcast Corp., 500 F.3d 66, 71 (1st Cir.2007); Brooks v. AIG SunAmerica Life Assurance Co., 480 F.3d 579, 586 (1st Cir.2007); "This standard of review permits us to embrace or reject the rationale employed by the lower court and still uphold its order for summary judgment." Houlton Citizens' Coal. v. Town of Houlton, 175 F.3d 178, 184 (1st Cir.1999). "[I]t is within our discretion to affirm the district court's entry of summary judgment on any ground revealed by the record." Morales-Vallellanes v. Potter, 339 F.3d 9, 18 (1st Cir.2003); see also Geffon v. Micrion Corp., 249 F.3d 29, 35 (1st Cir. 2001); Burns v. State Police Ass'n, 230 F.3d 8, 9 (1st Cir.2000).

Massachusetts law controls in this diversity action. See B & T Masonry Const. Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 38 (1st Cir.2004). Under Massachusetts law, the interpretation of an insurance policy and the application of policy language to known facts pose questions of law for the court to decide. Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387, 394, 788 N.E.2d 522, 530 (2003); Specialty Nat'l Ins. Co. v. OneBeacon Ins. Co., 486 F.3d 727, 732 (1st Cir.2007). In the absence of an ambiguity, we must construe the words of the policy in their usual and ordinary sense. See Home Ins. Co. v. Liberty Mut. Fire Ins. Co., 444 Mass. 599, 602, 830 N.E.2d 186, 189 (2005); Specialty Nat'l, 486 F.3d at 732.

A court must further determine whether a liability insurer has the initial duty to defend third-party actions against the insured by matching the third party's complaint with the policy provisions. Herbert A. Sullivan, 439 Mass. at 394, 788 N.E.2d at 530. "[I]f the allegations of the complaint are `reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense." Id. "The scope of an insurer's duty to defend is based on the facts alleged in the complaint and those facts which are known to the insurer.'" Id. (quoting Boston Symphony Orch., Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10-11, 545 N.E.2d 1156, 1158 (1989)); see also Open Software Found., Inc. v. U.S. Fid. & Guar. Co., 307 F.3d. 11, 14-15 (1st Cir.2002) (holding that, under Massachusetts law, insurer must examine plaintiff's allegations in conjunction with facts it...