Constitution State Ins. Co. v. Iso-Tex Inc.
| Decision Date | 21 August 1995 |
| Docket Number | ISO-TEX,No. 94-20574,94-20574 |
| Citation | 61 F.3d 405 |
| Parties | The CONSTITUTION STATE INSURANCE COMPANY, Plaintiff-Counter-Defendant-Appellee, v.INC., Iso-Tex Diagnostics, Inc., Bio-Tex Laboratories, Inc., Defendants-Counter-Plaintiffs-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
David A. Slaughter, Krist, Gunn, Weller, Neumann & Morrison, Houston, TX, for appellants.
Martin D. Minsker, James E. Rocap, III and Kirsten D. Levingston, Miller, Cassidy, Larroca & Lewin, Washington, DC, James K. Peden, III and J. Wiley George, Dallas, TX, for amicus curiae: Insurance Environmental.
Joseph R. Ballard, Asst. Atty. Gen., Louisiana Dept. of Justice, Baton Rouge, LA, for amicus curiae: Aetna.
Appeal from the United States District Court for the Southern District of Texas.
Before JONES and PARKER, Circuit Judges, and KAZEN *, District Judge.
In this insurance coverage dispute, the district court granted summary judgment for Constitution State Insurance Co., denying coverage to the insureds, Iso-Tex, Inc., Iso-Tex Diagnostics, Inc., and Bio-Tex Laboratories, Inc. (hereinafter, "Iso-Tex") for liability to individuals injured by nuclear waste stored at Iso-Tex's facilities. With the case submitted in part on an Agreed Stipulation of Facts, the district court relied upon an absolute pollution exclusion in the policy. Iso-Tex appeals, suggesting that the pollution exclusion does not apply to nuclear risks, or is ambiguous and should be interpreted in its favor. We do not agree and therefore affirm.
The insureds are in the business of handling, transporting, storing, and disposing of radioactive medical waste. Iso-Tex disposes of the radioactive medical waste by storage on its premises in Friendswood, Texas. Iso-Tex held three commercial general liability policies from Constitution State. The parties agree that two of those policies do not apply, and coverage is sought only under Policy No. CP 119455 ("the policy").
Iso-Tex was sued in a Texas state district court by plaintiffs alleging wrongful death, personal injuries and "survivor" claims "resulting from Iso-Tex's alleged deposit of 'enormous quantities of hazardous radioactive materials ... in close proximity to the plaintiff's [sic] residences without the knowledge or warning to the plaintiffs.' " Stipulated Facts, p 3. Judgment was entered against Iso-Tex for $7,000,000. Constitution State denied coverage for the claims in that lawsuit, spawning this case.
The policy contained a "Nuclear Energy Liability Exclusion Endorsement (Broad Form)" and an "Absolute Pollution Exclusion." While the district court ruled that the "Nuclear Energy Liability Exclusion Endorsement" did not exclude coverage for the claim in the underlying lawsuit, she also decided that the "Absolute Pollution Exclusion" did bar coverage, and granted the insurer's motion for summary judgment.
The interpretation of an insurance contract, including the question whether the contract is ambiguous, is a legal determination, which, like the court's summary judgment, is reviewed de novo on appeal. National Union Fire Ins. Co. v. Kasler Corp., 906 F.2d 196, 198 (5th Cir.1990). In Texas, insurance contracts are interpreted by the same rules as are other contracts. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). If an insurance policy is worded so that it can be given only one reasonable construction, it will be enforced as written. State Farm Fire & Cas. Co. v. Reed, 873 S.W.2d 698, 699 (Tex.1993). Only where a contract of insurance is susceptible to more than one reasonable interpretation must there be resort to the rule requiring adoption of the interpretation most favorable to the insured. Id.
The "Absolute Pollution Exclusion" 1 contained in the policy reads as follows:
EXCLUSION--ALL POLLUTION (ABSOLUTE) 2
This insurance does not apply to:
(1) "Bodily injury" or "property damage" arising out of the permanent or transient contamination of the environment by pollutants.
(2) Any loss, cost, or expense arising out of any governmental direction or request that you test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.
Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemical and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Iso-Tex argues that the policy exclusion does not cover biomedical nuclear waste as a matter of law, or alternatively that the clause is ambiguous. Iso-Tex first avers that "nuclear waste as handled by Iso-Tex has not been shown to be pollution." However, the definition of pollution in the above clause includes "any ... contaminant, including ... waste." The parties have stipulated that Iso-Tex is "in the business of handling, transporting, storing, and disposing of medical waste."
Iso-Tex next contends that if its biomedical nuclear waste were considered "pollution," then there would have been no need for the separate "Nuclear Energy Liability Exclusion Endorsement (Broad Form)" found in the policy in question. This argument holds no water; the nuclear exclusion only applies to "nuclear material" at a "nuclear facility" or to injuries for which the insured is also insured by "a nuclear energy liability policy issued by the Nuclear Energy Liability Insurance Association." Stipulated Facts, p 9. This exclusion does not apply to Iso-Tex, whose activities, as found by the district court, do not involve "nuclear material" of that type, and whose operations do not fall within the definition of a "nuclear facility." Further, Iso-Tex's nuclear liability carrier denied coverage under a separate nuclear policy. Accordingly, it is perfectly logical that Constitution State would include both a nuclear liability exclusion for certain nuclear operations that might be covered by separate insurance, and an "Absolute Pollution Exclusion." The two clauses exclude separate, but potentially overlapping types of conduct. The existence of a nuclear exclusion does not prove that Iso-Tex's nuclear waste is not pollution.
Iso-Tex further observes that its prior policies from Constitution State contained "Absolute Nuclear Exclusion" clauses applying to any "injury or damage to or arising out of any nuclear device, radioactive material, isotope, ... or any other chemical element having an atomic number above 83 or any other material having similar properties of radioactivity." Because this provision, which, Iso-Tex contends, would have excluded liability for the underlying claims, was dropped from the subject policy, "it would seen [sic] plausible that both parties understood the risk to be insured to be the nuclear risk and that the 'Absolute Pollution' Exclusion would not apply to that risk." Iso-Tex seeks, in other words, to manufacture an ambiguity from a comparison of the previous and present policies. Iso-Tex supported this argument in the district court with reference to industry custom and the clauses' regulatory history before the Texas Insurance Board.
The problem with this argument is that it has been squarely rejected by the Texas Supreme Court in interpreting a policy containing a similar "absolute pollution exclusion":
If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous. Parol evidence is not admissible for the purpose of creating an ambiguity.
If, however, the contract is reasonably susceptible to more than one meaning, it is ambiguous. Whether a contract is ambiguous is a question of law for the court. Only where a contract is first determined to be ambiguous may the courts consider the parties' interpretations, and admit extraneous evidence to determine the true meaning of the instrument.
When the language of the policy or contract is susceptible to more than one reasonable construction, it is patently ambiguous. A patent ambiguity is evident on the face of the contract. A latent ambiguity arises when a contract which is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some collateral matter. The circumstances surrounding and underlying the contract are first applied to the subject matter of the agreement. If a latent ambiguity arises from this application, parol evidence of the parties' true intentions is admissible....
The ambiguity must become evident when the contract is applied to the surrounding circumstances, not after parol evidence is admitted to create an ambiguity.
National Union Fire Ins. Co. v. CBI Indus., Inc., 38 Tex.Sup.Ct.J. 332, 1995 WL 92215, * 2 (Tex. March 2, 1995) (citations and footnotes omitted, emphasis added). In National Union, the Texas Supreme Court reversed an intermediate court decision that had remanded for further discovery to examine a potential latent ambiguity in certain absolute pollution exclusion clauses. The intermediate court based its opinion on precisely the same "industry custom" and regulatory history discussion offered by Iso-Tex in this case. Construing exclusions substantially similar to that in the policy sub judice 3, the Texas Supreme Court held:
Courts usually strive for uniformity in construing insurance provisions, especially where, as here, the contract provisions are identical across jurisdictions. Most courts which have examined the same or substantially similar absolute pollution exclusions have concluded that they are...
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