La. Generating, L.L.C. v. Ill. Union Ins. Co.

• Decision Date: 04 August 2016
• Docket Number: No. 15-30914,15-30914
• Citation: 831 F.3d 618
• Parties: Louisiana Generating, L.L.C.; NRG Energy, Incorporated, Plaintiffs-Appellees, v. Illinois Union Insurance Company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

831 F.3d 618

Louisiana Generating, L.L.C.; NRG Energy, Incorporated, Plaintiffs-Appellees,

v.Illinois Union Insurance Company, Defendant-Appellant.

No. 15-30914

United States Court of Appeals, Fifth Circuit.

August 4, 2016

John Edward Heintz, Esq., Erin L. Webb, Blank Rome LLP, Washington, DC, Linda Sarradet Akchin, Kean Miller, L.L.P., Baton Rouge, LA, for Plaintiffs-Appellees.

Jonathan D. Hacker, O'Melveny & Myers, L.L.P., Washington, DC, Jennifer Elmer Michel, Esq., Danielle Marie Smith, Lewis, Brisbois, Bisgaard & Smith, L.L.P., Lafayette, LA, for Defendant-Appellant.

Before HIGGINBOTHAM, SMITH, and OWEN, Circuit Judges.

PATRICK E. HIGGINBOTHAM

, Circuit Judge:

The EPA accused Louisiana Generating (“LaGen”) of violating the Clean Air Act. In an ensuing consent decree, LaGen promised to upgrade part of its power plant, surrender emissions allowances, and fund various environmental projects. LaGen asked its insurer, Illinois Union (“ILU”), to pay the costs of these measures, arguing that they qualified as “remediation costs” under LaGen's policy. ILU refused. The district court entered summary judgment for LaGen, finding that the policy bound ILU to pay LaGen's costs in full. We VACATE and REMAND.

I

We summarized the early history of this dispute in a prior opinion:

[This case concerns] Big Cajun II (“BCII”), a coal-fired electric steam generating plant owned by LaGen in Louisiana. In February 2005 and December 2006 the EPA sent LaGen Notices of Violation (“NOVs”) alleging that certain major modifications performed without a permit at BCII in 1998 and 1999 caused net emissions increases in violation of the [Clean Air Act]. In January 2009, NRG Energy, LaGen's parent, purchased a Custom Premises Pollution Liability Insurance Policy (“the [P]olicy”) from ILU to cover a large number of its facilities, including BCII. The effective date of the [P]olicy is January 22, 2009.

On February 18, 2009, the EPA filed ... suit over the modifications made to BCII, asserting violations of the [Clean Air Act] and Louisiana environmental laws.... The suit allege[d] that the previous owner of BCII did work on the plant that increased certain emissions which under applicable law would be considered “major modifications” and would have required a Prevention of Significant Deterioration of Air Quality permit (“PSD permit”) before being completed. The suit also allege[d] that the plant modifications failed to employ best available control technology (“BACT”) to limit emissions, as required by the CAA and Louisiana law. The complaints allege[d] that since acquiring BCII, LaGen ha[d] continued to operate the plant without seeking a PSD permit for the modifications. As a result, the complaints assert[ed], BCII ha[d] emitted excess amounts of regulated pollutants into the air....

LaGen sought coverage from ILU under the [P]olicy for legal fees associated with the underlying EPA suit, and ILU denied that the EPA suit was covered by the [P]olicy. LaGen filed suit in Louisiana federal court seeking a declaratory judgment that ILU ha[d] a duty to defend and indemnify LaGen in the EPA suit. The district court bifurcated the trial between the duty to defend and the duty to indemnify.... In a January 30, 2012 order, the district court granted summary judgment for LaGen with regard to the duty to defend and denied the motion for summary judgment filed by ILU.¹

On ILU's motion, the district court certified its January 30 order for interlocutory appeal under 28 U.S.C. § 1292(b)

. We accepted the appeal and affirmed, finding that the relief the EPA sought, including civil penalties, the surrender of LaGen's emission allowances, and “other appropriate actions to remedy, mitigate, and offset the harm to public health and the environment caused by the [alleged] violations,” potentially fell within the [P]olicy's coverage for “ ‘claims, remediation costs, and associated legal defense expenses ... as a result of a pollution condition’ at a covered location.”² Because New York law, which governs the Policy, gave insurers an “exceedingly broad” duty to defend, enforceable “whenever the allegations of the complaint suggest ... a reasonable possibility of coverage,” ILU had a duty to defend LaGen against the EPA's allegations.³

Around the same time, the EPA and LaGen settled the underlying dispute and negotiated a consent decree. In relevant part, the decree required LaGen to (1) install selective non-catalytic reduction (“SNCR”) technology upgrades at Unit 3 of BCII, a part of the plant not alleged to have been out of compliance in the EPA's suit; (2) surrender certain emissions allowances;⁴ and (3) pay for a variety of “environmental mitigation projects.”⁵

LaGen sought indemnification from ILU for the costs of these measures (hereinafter the “Consent Decree Measures”), asserting that they were “remediation costs” under the Policy. ILU refused. Both parties then moved in the ongoing district court action for summary judgment on the indemnification issue. In the alternative, ILU moved to postpone summary judgment proceedings to allow further discovery.

The district court granted summary judgment for LaGen. First, the court found that the Policy's “remediation costs” language encompassed projects that generally offset pollution or moderated its effects, rather than only projects that physically removed or contained pollution. Second, it found that each of the Consent Decree Measures would “remediate” pollution in this way, obligating ILU to pay for them. Third, it found that the costs LaGen incurred to complete the Consent Decree Measures were reasonable, entitling the company to coverage in full. The court also denied ILU's request for a continuance and further discovery, stating that ILU “failed to satisfactorily explain its position to the Court.”

ILU appealed.

II

“This court reviews the district court's grant of summary judgment de novo, applying the same legal standards as the district court.”⁶ “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”⁷ “The court must view the facts developed below in the light most favorable to the non-moving party.”⁸

New York law governs the Policy.⁹ As the Second Circuit explained in another insurance coverage dispute:

Under New York law “the initial interpretation of a contract is a matter of law for the court to decide.” Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous. An ambiguity exists where the terms of a contract could suggest “more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.” Ambiguity with respect to the meaning of contract terms can arise either from the language itself or from inferences that can be drawn from this language. Hence, “only where the language and the inferences to be drawn from it are unambiguous” may a district court “construe a contract as a matter of law and grant summary judgment accordingly.”

If the court finds that the contract is not ambiguous it should assign the plain and ordinary meaning to each term and interpret the contract without the aid of extrinsic evidence. If the court finds that the terms, or the inferences readily drawn from the terms, are ambiguous, then the court may accept any available extrinsic evidence to ascertain the meaning intended by the parties during the formation of the contract.¹⁰

Finally, we review the district court's discovery ruling for abuse of discretion.¹¹

III

ILU argues that none of the expenses LaGen has incurred (or will incur) in performing the Consent Decree Measures are “remediation costs” eligible for indemnification. ILU's argument is in three parts. First, ILU claims that indirect mitigation efforts are not “remediation.” Second, ILU claims that even if they are, the Consent Decree Measures do not actually mitigate past pollution as the Policy requires. Third, ILU claims that LaGen's expenses are partially unreasonable. We address each argument in turn.

ILU first and most broadly contends that projects, like the Consent Decree Measures, that may indirectly reduce past pollution and its effects do not fall under the Policy's “remediation costs” provision. The Policy covers “ ‘remediation costs' ... as a result of a ‘pollution condition’ on, at, under, or beyond the boundaries and that migrated from the ‘covered location(s).’ ”¹² It defines “remediation costs” to include “reasonable expenses incurred to investigate, quantify, monitor, mitigate, abate, remove, dispose, treat, neutralize, or immobilize ‘pollution conditions' to the extent required by ‘environmental law.’ ” ILU argues that this definition cannot possibly encompass the costs for which LaGen seeks indemnification. According to ILU, a reasonable interpreter familiar with the customs and usages of modern-day business practice would understand “remediation,” in the air pollution context, to connote only “physically remov[ing], contain[ing], or treat[ing] contaminants already in the air or address[ing] harms they caused to land, water, structures, animals, or persons.”

Because the Consent Decree Measures cannot and do not accomplish this, ILU insists, they are not remediation measures, and LaGen's expenses in carrying them out are not “remediation costs” under the Policy.¹³ ILU acknowledges that some of the words the Policy uses in defining “remediation costs,” chiefly “mitigate” and “abate,” appear to suggest a broader notion of remediation, but argues that those words are better understood to denote direct, physical remediation, and must in any event be “read in a manner consistent with the ‘remediation costs' they define, not to stretch the concept of ‘remediation’ beyond its logical...