770 F.3d 885 (10th Cir. 2014), 13-4035, Headwaters Resources, Inc. v. Illinois Union Insurance Co.
|Citation:||770 F.3d 885|
|Opinion Judge:||TYMKOVICH, Circuit Judge.|
|Party Name:||HEADWATERS RESOURCES, INC., Plaintiff - Appellant, v. ILLINOIS UNION INSURANCE COMPANY and ACE AMERICAN INSURANCE COMPANY, Defendants - Appellees|
|Attorney:||Thomas V. Alleman, Cox Smith Matthews Incorporated, Dallas, Texas, (Bruce A. Maak, Jeffrey D. Stevens, Bryan Johansen of Parr Gee & Loveless, Salt Lake City, Utah with him on the briefs) for Appellant. William F. Knowles, Cozen O'Connor, Seattle, Washington, (Scott M. Lilja, Van Cott, Bragley, Co...|
|Judge Panel:||Before LUCERO, TYMKOVICH, and BACHARACH, Circuit Judges.|
|Case Date:||October 20, 2014|
|Court:||United States Courts of Appeals, Court of Appeals for the Tenth Circuit|
Headwaters Resources, Inc. carried commercial liability insurance issued by two insurance companies: Illinois Union Insurance Company and ACE American Insurance Company. Headwaters sought reimbursement for its litigation costs arising from a case brought by landowners in Virginia, alleging that Headwaters had caused personal injury and property damage during the construction of a nearby golf course. The complaint alleged that fly ash... (see full summary)
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APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH. (D.C. NO. 2:09-CV-01079-DN).
Headwaters Resources, Inc. carried commercial liability insurance issued by two insurance companies, Illinois Union Insurance Company and ACE American Insurance Company. Under several applicable policies, Headwaters sought reimbursement for its litigation costs arising from a case brought by landowners in Virginia, alleging that Headwaters had caused personal injury and property damage during the construction of a nearby golf course. The complaint alleged that fly ash used in the construction process caused air and water pollution that devalued their homes and created health risks to the homeowners. The insurance companies told Headwaters that defense costs related to Headwaters' pollution were outside the scope of the coverage and denied the claim. As a result, Headwaters sued, and the district court eventually granted summary judgment in favor of the insurance companies, finding that the pollution exclusions in the insurance policies precluded coverage.
Since the 1970's, the extent to which pollution exclusions apply to preclude coverage in commercial general liability (CGL) policies has been a ubiquitous feature of insurance litigation. Generally speaking, jurisdictions that have addressed the scope of the " total pollution exclusion" fall into one of two camps: (1) courts that apply the pollution exclusions as written because they find them clear and unmistakable; and (2) courts that narrow the exclusions to " traditional environmental pollution," often because they find the terms of the exclusion to be ambiguous due to their broad applicability.
The Utah Supreme Court has not yet weighed in on this debate, and the district court did not pick a side on its behalf. Instead, the district court found that certain of the at-issue pollution exclusions unambiguously applied to bar coverage and that the remaining pollution exclusions, although possibly ambiguous, still applied because the complaints unquestionably alleged traditional environmental pollution. As a result, the complaints triggered the pollution exclusions in all of the policies, and the district court granted summary judgment in favor of the insurance companies.
Exercising jurisdiction under 28 U.S.C. § 1291, we find that each of the pollution exclusions is unambiguous, and AFFIRM the district court's grant of summary judgment.
A. Underlying Lawsuits
Over 400 current and former residents of Chesapeake, Virginia, filed two separate lawsuits (together, the Chesapeake litigation) in Virginia state court, alleging property damage and bodily injury sustained due to pollution generated in connection with the development of a golf course. Headwaters Resources, Inc. and VFL Technology Corp. (collectively, Headwaters) were named as defendants in the Chesapeake litigation.
In the complaints, plaintiffs alleged that between 2002 and 2007 the defendants used 1.5 million tons of toxic fly ash, during construction of a golf course at the Fentress site in Chesapeake.1 They broadly assert property damage and personal injury resulting from discharge and dispersal of the fly ash and its byproducts, which contaminated ground water, surface water, and air. According to plaintiffs, the defendant entities systematically transported the fly ash to an open pit adjacent to residential neighborhoods. The complaints allege that chemicals from the fly ash soon leached into the ground water, damaging the private wells that the communities relied on for drinking water. In addition, the fly ash pit released airborne contaminants that wafted toward the neighborhoods and produced a strong smell of ammonia. As a result of this alleged contamination, the property values of plaintiffs' homes depreciated and members of the community faced increased risk of serious bodily injuries caused by exposure to the fly ash and its attendant toxins.
Two complaints are at issue here--the Sears Complaint and the Fentress Complaint. Both were filed in 2009 and " although the cases [were] not formally consolidated . . . they [were] dealt with together concerning all pre-trial proceedings for purposes of judicial efficiency." Fentress Families Trust v. Va. Elec. & Power Co.,
81 Va. 67, 2010 WL 7765113, at *1 (2010). The complaints allege in general:
As a result of the coal ash [and binding agent] discharge, Plaintiffs are seeking damages for losses to real and personal property, personal injuries, loss of quality of life, economic loss due to business disruption, out-of-pocket expenses, and medical monitoring of their exposure to toxic compounds in coal ash [and binding agent] and potential health effects that may result. Plaintiffs also seek injunctive relief ordering a complete removal of the coal ash [and binding agent] from the Fentress Site and from surface waters and land adjoining their property, cleaning the aquifers, monitoring the air, soil and water in their neighborhoods for the toxic components of coal ash [and binding agent] from the Fentress Site.
See App. Vol. IV at 793 (Fentress Complaint); App. Vol. VII at 1512 (Sears Complaint) (bracketed portions added in Sears Complaint).
B. Insurance Policies
Beginning in 2002, Headwaters was insured under seven CGL insurance policies issued by Illinois Union Insurance Company and ACE American Insurance Company (collectively, ACE). Under each policy, ACE was required to reimburse Headwaters for expenses associated with lawsuits that occurred during the policy period. In particular, the provisions provided coverage for expenses incurred in connection with the defense of a suit in which damages due to " bodily injury" or " property damage" to which the policies apply " are alleged." See, e.g., App. Vol. II at 295.
But the policies had exclusions for injuries caused by pollution. And within the pollution exclusions, each policy contained definitions of " pollution" and " pollutants" that prescribe the circumstances under which the exclusions apply to bar coverage.
Once the Chesapeake litigation commenced, Headwaters looked to ACE for reimbursement of the cost of defending the lawsuits. After its investigation, ACE concluded that the policies did not cover the claims because the events giving rise to those claims fell within the pollution exclusions. For this reason, ACE denied Headwaters' insurance claim.
C. Procedural History
After ACE's denial of coverage, Headwaters filed a complaint against ACE American and Illinois Union in federal court in Utah--Headwaters' principal place of business and the location where ACE delivered the insurance policies--alleging breach of the insurance contracts and bad faith in denying coverage for the Chesapeake litigation.
ACE moved for summary judgment, arguing that the pollution exclusions expressly precluded coverage. Headwaters responded with its own cross-motion for partial summary judgment. The district court agreed with ACE, finding that, under the 2003 and 2006 policies, the pollution exclusions unambiguously applied to bar coverage. On the remaining policies, the district court found that a determination on the ambiguity of the pollution exclusions was unnecessary because " [w]hatever else they may arguable [sic] reach, the 'pollution' exclusions clearly and unmistakably communicate that the [policies] do not provide coverage for traditional environmental pollution," which the Fentress Complaint and the Sears Complaint alleged. Headwaters Res., Inc. v. Ill. Union Ins. Co., 913 F.Supp.2d 1210, 1220 (D. Utah 2012). The court later denied Headwaters' motion to alter or amend the judgment under Rule 59 of the Federal Rules of Civil Procedure.
Headwaters claims the district court erred in several ways. Taken as a whole, however, Headwaters' primary contention is that the district court recognized but failed to appreciate the effect of ambiguities in each policy's pollution exclusion and definitions. According to Headwaters, those ambiguities preclude granting summary judgment in favor of ACE. Based on our review, we disagree with Headwaters' premise because the pollution exclusions are not ambiguous and the underlying complaints plainly allege pollution caused plaintiffs' injuries.
A. Application of the Pollution Exclusions
Headwaters first contends the pollution exclusions are ambiguous and it is entitled to a trial to determine the scope of ACE's duty to defend and provide indemnification of any losses associated with the Chesapeake litigation.
1. Legal Framework
In this diversity action, we apply Utah law. Houston Gen. Ins. Co. v. Am. Fence Co., 115 F.3d 805, 806 (10th Cir. 1997) ( " The interpretation of an insurance contract is governed by state law and, sitting in diversity, we look to the law of the forum state." ). Under Utah law, the insurer has a duty to defend claims...
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