US Fidelity & Guar. v. B & B Oil Well Service, Civil A. No. 4:94-CV-12(L)(N).

• Decision Date: 12 June 1995
• Docket Number: Civil A. No. 4:94-CV-12(L)(N).
• Citation: 910 F. Supp. 1172
• Court: U.S. District Court — Southern District of Mississippi
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff, v. B & B OIL WELL SERVICE, INC., Defendant.

910 F. Supp. 1172

UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff, v. B & B OIL WELL SERVICE, INC., Defendant.

Civil A. No. 4:94-CV-12(L)(N).

United States District Court, S.D. Mississippi, Eastern Division.

June 12, 1995.

COPYRIGHT MATERIAL OMITTED

Robert C. Galloway, Galloway & Galloway, Gulfport, MS, S. Wayne Easterling, Hattiesburg, MS, Frank Winston, Jr., Wiley, Rein & Fielding, Washington, DC, for plaintiff.

Kenna L. Mansfield, Jr., Wells, Wells, Marble & Hurst, Jackson, MS, for defendant.

TOM S. LEE, District Judge.

MEMORANDUM OPINION AND ORDER

Beginning in 1985, plaintiff United States Fidelity and Guaranty Company (USF & G) issued successive commercial general liability policies to defendant B & B Oil Well Service, Inc. (B & B). The policies covered the period commencing December 1985 and extending through December 1992. In the spring and summer of 1994, a number of landowners on whose properties oil and gas wells were situated filed lawsuits against B & B and a number of other defendants charging that as a consequence of the activities of the defendants in connection with the oil and gas operations, their properties had become contaminated with what has become known as "naturally occurring radioactive material," or NORM. USF & G agreed to defend B & B in those lawsuits under a reservation of rights, and filed the present action seeking a declaratory judgment that under the contracts of insurance issued to B & B, it has no indemnity or defense obligations to B & B in connection with any claims or lawsuits involving damage caused by or related to NORM.

USF & G has now moved for summary judgment, contending that each of the subject insurance contracts contains either an "absolute pollution exclusion" or a "qualified" pollution exclusion which bars coverage for NORM-related claims or lawsuits as a matter of law. B & B has responded in opposition to USF & G's motion and has filed its own cross-motion for summary judgment seeking a declaration that USF & G has a duty to defend and indemnify it in connection with the landowners' lawsuits, and requesting, alternatively, partial summary judgment declaring that USF & G has a duty to defend B & B. After much deliberation, the court concludes that the policies do not provide coverage for the claims asserted against B & B in the underlying actions and the court will therefore grant USF & G's motion. However, the court recognizes that many of the issues presented by this case are the subject of judicial debate and that many close questions are presented. Accordingly, in an effort to be comprehensive, the court herein has undertaken to address all of the issues which the parties have submitted for consideration and not merely those it deems dispositive.

Whether an insurer has an obligation to defend its policyholder is typically determined by measuring the allegations of the underlying complaint against the coverage provided by the policy. Equal Employment Opportunity Comm'n v. Southern Publishing Co., Inc., 894 F.2d 785 (5th Cir.1990).

An insurer's duty to defend an action is measured in the first instance by the allegations in the plaintiff's pleadings, and if such pleadings state facts bringing the injury within the coverage of the policy, the insurer must defend, irrespective of the insured's ultimate liability to the plaintiff.

7A Appleman, Insurance Law & Practice § 4683 (1962). An insurer is obligated to defend an insured not only when the suit is within the coverage afforded by the policy, but also when the allegations of the suit state a claim or facts that are potentially within the policy's coverage, Merchants Co. v. American Motorists Ins. Co., 794 F.Supp. 611, 616 (S.D.Miss.1992); thus, if there is any basis for potential liability under the policy, the insurer is bound to defend. Id. at 617. And any doubt as to the existence of a defense obligation is resolved in favor of the insured. Rhodes v. Chicago Ins. Co., 719 F.2d 116 (5th Cir.1983). Therefore, to ascertain whether USF & G has a duty to defend B & B in any of the underlying lawsuits, the court must examine each of the claims asserted in each of the complaints against B & B and the pertinent policy provisions to determine whether any claim or claims in a given case fall within the coverage of USF & G's policy.

THE UNDERLYING LAWSUITS

In each of twelve underlying lawsuits,¹ the landowner plaintiffs allege that an oil company or companies located oil and gas wells, and in some cases salt water disposal wells, on plaintiffs' properties pursuant to lease agreements, and that during the operation of these wells, the equipment on plaintiffs' properties became contaminated with NORM, causing plaintiffs' properties, in turn, to become NORM-contaminated. Regarding B & B, the plaintiffs in three of the cases, James, McDonald and Robinson, allege:

Upon information and belief the Defendant, B & B at various times performed workovers on said oilwell. That during the workover operations the rods and/or tubing were pulled from said well causing rust, scale, salt water, and sediments from deep within the earth to fall upon the oil well location. That said Defendant, well service company, either knew or should have known that NORM materials were contained in the rust, scale, salt water, and sediments which were deposited on the well site. That neither said Defendant nor Chevron, the operator of the well, made any effort to clean up the NORM materials from the site.

The complaints in Jennings, Ramey, David Van Hendry, Wes Hendry, Morgan, Brown, Ball, Ruffin and Easterling are virtually identical to one another and, as they pertain to B & B, are substantively similar to those in James, McDonald and Robinson. In each of these cases, the plaintiffs aver that they are the owners of properties on which variously named oil company defendants have located, owned and/or operated oil well facilities. They allege that during the operation of these wells, the equipment, as well as plaintiffs' properties, has become contaminated by NORM. Regarding B & B, these plaintiffs allege:

That from time to time, the Defendant well operators retained and hired the Defendant ... B & B to do certain construction/workover work on the well and well site. Plaintiffs affirmatively allege that at all times pertinent hereto the Defendant ... B & B, their employees, agents, and servants were acting as agents and servants for their master, the well operators, and were in the course and scope of their employment.²

They further allege:

That B & B repaired, and performed workover operations on the wells and its appurtenances in such a manner as to cause the well sites and their appurtenances including Plaintiffs' real property to be contaminated with radioactive materials at a time when the Defendants and all of them knew or should have known that the manner in which they were conducting the work would result in radiation contamination of Plaintiffs' property.

The plaintiffs in all of the cases charge that B & B, as well as each of the other defendants, "knew, or in the exercise of reasonable diligence, should have known that the materials presented an environmental hazard and would cause damage to others, particularly your complaining Plaintiff." And they charged that "each of the Defendants" breached "one or more of the following duties" to them:

duty to test, duty to warn, duty to use less hazardous technology, duty to provide care for Plaintiff, and duty to clean up the radioactive waste.

Finally, each of the landowners complains that the NORM contamination of their property constitutes an ongoing nuisance that has trespassed on plaintiffs' property to the injury of the plaintiffs.

THE COVERAGE

I. Bodily Injury and Property Damage Coverage

The coverage provided by the policies is set forth in Section 1, and under the heading "Coverage A. Bodily Injury and Property Damage Liability," the following appears:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.... The "bodily injury" or "property damage" must be caused by an "occurrence". We will have the right and duty to defend any "suit" seeking those damages.

"Occurrence" is defined as "an accident, including repeated exposure to substantially the same general harmful conditions."

The landowner plaintiffs charge that they have been continuously and repeatedly exposed to NORM contamination as a result of which they have or will sustain bodily injury, and that their property has been damaged or "rendered useless" as a consequence of NORM contamination. For purposes of this motion, USF & G concedes that such allegations fall within these insuring provisions. The primary question which the parties have submitted for the court's consideration is whether the claims are excluded from this coverage by exclusionary provisions in the policies.

The "Absolute" Pollution Exclusion

A number of the policies issued by USF & G to B & B contain what USF & G terms, and what other courts have termed an "absolute" pollution exclusion, which applies to the bodily injury and property damage coverage. This exclusion provides:

This insurance does not apply to:

(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 used by or for any insured or others 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 any insured or any person or organization for whom you may be legally responsible; or

(d) At or from any site or location on

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