Hiland Partners GP Holdings, LLC v. Nat'l Union Fire Ins. Co. of Pittsburgh, 15-3936

• Decision Date: 31 January 2017
• Docket Number: No. 15-3936,15-3936
• Citation: 847 F.3d 594
• Parties: HILAND PARTNERS GP HOLDINGS, LLC, a foreign company; Hiland Partners, LP, a foreign partnership; Hiland Operating, LLC, a foreign company, Plaintiffs–Appellants v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant–Appellee
• Court: U.S. Court of Appeals — Eighth Circuit

847 F.3d 594

HILAND PARTNERS GP HOLDINGS, LLC, a foreign company; Hiland Partners, LP, a foreign partnership; Hiland Operating, LLC, a foreign company, Plaintiffs–Appellants

v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant–Appellee

No. 15-3936

United States Court of Appeals, Eighth Circuit.

Submitted: December 15, 2016

Filed: January 31, 2017

Counsel who presented argument on behalf of the appellant was Margaret M. Clarke, of Tulsa, OK. The following attorney(s) appeared on the appellant brief; Patrick W. Durick, of Bismarck, ND.

Counsel who presented argument on behalf of the appellee was Katherine A. McBride, of Minneapolis, MN. The following attorney(s) appeared on the appellee brief; Robert Edward Salmon, of Minneapolis, MN.

Before KELLY and MURPHY, Circuit Judges, and MONTGOMERY,¹ District Judge.

MURPHY, Circuit Judge.

Hiland Partners GP Holdings, LLC, Hiland Partners, LP, and Hiland Operating, LLC (collectively, Hiland) brought this insurance coverage action against National Union Fire Insurance Company of Pittsburgh, PA (National Union). Hiland alleged that National Union had a duty to defend and indemnify it in connection with a lawsuit arising from an explosion at its natural gas processing facility. The district court² granted National Union summary judgment after concluding that an exclusion to the insurance policy barred coverage. Hiland appeals, and we affirm.

I.

Hiland owns and operates a natural gas processing facility in Watford City, North Dakota. The processing facility receives gas and hydrocarbon products and processes them into byproducts for sale. Hiland entered into a master service contract with Missouri Basin Well Service (Missouri Basin). That contract provided that Missouri Basin would "from time to time, be requested by Hiland ... to perform certain work or furnish certain services to Hiland." The contract also required Missouri Basin to obtain insurance policies which named it as the primary insured and Hiland as an additional insured.

Missouri Basin also procured a commercial general liability insurance policy through National Union in April 2011, which was effective through April 2012. An endorsement to the policy provided that any organization to which Missouri Basin is obligated as a result of any contract or agreement would be included as an additional insured under the policy. The policy required National Union to pay all "sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ " which the policy covered. The policy also required National Union "to defend the insured against any ‘suit’ seeking those damages."

The policy included an endorsement which excluded coverage for:

(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 ... any insured....

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

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for:

(i) Any insured....

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations....

The endorsement defined "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." The endorsement provided that subparagraphs (1)(a) and (1)(d) do not apply if the pollution "commences during the term of the policy," the insured discovers the pollution within seven days "after it commences," and the insured reports the pollution to the insurer within twenty one business days following its discovery.

In October 2011, Hiland requested that Missouri Basin remove water from its hydrocarbon condensate tanks at its Watford City processing facility. Condensate is one of the marketable byproducts derived from the facility's processing of gas and hydrocarbon products. It is a flammable, volatile, and explosive product. Missouri Basin asked B&B Heavy Haul, LLC (B&B), a subcontractor, to haul the water. After B&B employee Lenny Chapman arrived at the facility he positioned his truck in front of one of the condensate tanks. Before Chapman began removing the water, one of the tanks overflowed. The condensate then caused an explosion which seriously injured Chapman.

Chapman and his wife filed a lawsuit against Hiland, alleging negligence and loss of consortium. The Chapmans later settled their claims against Hiland. National Union refused to defend and indemnify Hiland as an additional insured under its insurance policy with Missouri Basin. Hiland then filed this declaratory judgment action against National Union, arguing it was an additional insured under the insurance policy and that National Union had breached the policy by refusing to defend or indemnify it. After the parties filed cross motions for summary judgment, the district court granted National Union summary judgment. The court concluded that although Hiland was an additional insured under the policy, the Chapmans' action fell within the pollution exclusion. Hiland appeals.

II.

We review a district court's "grant of summary judgment de novo and consider the facts in the light most favorable to the nonmoving party." Nichols v. Tri–Nat'l Logistics, Inc., 809 F.3d 981, 985 (8th Cir. 2016). A district court's grant of "[s]ummary judgment is only appropriate when ‘there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law.’ " Id.(quoting Pinson v. 45 Dev., LLC, 758 F.3d 948, 951–52 (8th Cir. 2014) ). We review de novo questions of contract interpretation. Anderson v. Hess Corp., 649 F.3d 891, 896 (8th Cir. 2011).

It is undisputed that North Dakota law governs this action. In North Dakota, an "insurer's obligation to defend its insured is ordinarily measured by the terms of the insurance policy and the pleading of the claimant who sues the insured." Tibert v. Nodak Mut. Ins. Co., 816 N.W.2d 31, 42 (N.D. 2012) (quoting Schultze v. Cont'l Ins. Co., 619 N.W.2d 510, 513 (N.D. 2000) ). If the allegations in the Chapmans' complaint could have supported recovery upon a risk covered under National Union's policy, National Union would have a duty to defend Hiland. Id. The duty to defend is broader than the duty to indemnify. Id. at 43.

III.

Hiland first argues that the pollution exclusion in the National Union insurance policy is ambiguous. If language in an insurance contract is ambiguous, "any ambiguity or any reasonable doubt as to its meaning should be construed strictly against the insurer, and the doubt or ambiguity favorably to the insured." Universal Underwriters Ins. Co. v. Johnson, 110 N.W.2d 224, 226 (N.D. 1961). A term is ambiguous if "there is doubt or uncertainty as to its meaning and it is fairly susceptible of two interpretations." Id. at 227 (quoting 44 C.J.S. Insurance § 297c, at 1166–69).

National Union argues that Hiland waived any argument that the pollution exclusion was ambiguous because Hiland did not raise any such argument before the district court. We will not ordinarily "consider arguments raised for the first time on appeal." Cole v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am., 533 F.3d 932, 936 (8th Cir. 2008) (quoting Wiser v. Wayne Farms, 411 F.3d 923, 926 (8th Cir. 2005) ). A party therefore "cannot assert arguments that were not presented to the district court in opposing summary judgment in an appeal contesting an adverse grant of summary judgment." Id."We may notice plain error despite a failure to raise the issue below, but we generally do so only to prevent a miscarriage of justice." Id.(internal quotation marks omitted).

In its memorandum in support of summary judgment, National Union argued that the pollution exclusion in its policy "is clear and unambiguous." Hiland chose not to contest this point in its response in opposition to summary judgment. Hiland instead argued that hydrocarbon condensate is not a pollutant under the unambiguous terms of the policy.

Hiland argues that the following sentence in its memorandum in opposition to summary judgment preserved its ambiguity argument: "To find otherwise would require the Court to look beyond the policy's definition of ‘pollutant’ and to interpret the ambiguous term to mean what National Union wants it to mean, and not what the policy describes it as being." Read in context, however, this sentence merely reiterates Hiland's argument that the definition of pollutant is unambiguous. Indeed, the district court noted in its summary judgment order that "Hiland does not contend the language of the pollution exclusion is ambiguous." Because Hiland did not directly dispute the ambiguity issue, it is waived. See Cole, 533 F.3d at 936.

We need not review this issue for plain error because a failure to review it will not result in a miscarriage of justice. North Dakota has not addressed whether pollution exclusions like the one in this case are ambiguous. Moreover, the "majority of state and federal jurisdictions have held that absolute pollution exclusions are unambiguous as a matter of law." Church Mut. Ins. Co. v. Clay Ctr. Christian Church, 746 F.3d 375, 380 (8th Cir. 2014) (quoting Cincinnati Ins. Co. v. Becker Warehouse, Inc., 262 Neb. 746, 635 N.W.2d 112, 118 (2001) ).

IV.

Hiland next argues that the district court erred by concluding that condensate is a pollutant. National Union's insurance policy excluded from coverage bodily injuries or property damage "arising out of the ... discharge, dispersal, seepage, migration, release or escape of pollutants." The policy defined pollutants as ...