Enron Oil Trading & Transp. Co. v. Walbrook Ins. Co., Ltd., 96-35713

• Decision Date: 23 December 1997
• Docket Number: No. 96-35713,96-35713
• Parties: , 28 Envtl. L. Rep. 20,448, 97 Cal. Daily Op. Serv. 9608, 97 Daily Journal D.A.R. 15,387 ENRON OIL TRADING & TRANSPORTATION COMPANY, Plaintiff-Appellant, v. WALBROOK INSURANCE COMPANY, LIMITED; El Paso Insurance Company; Dart Insurance Company Limited; Dart & Kraft Insurance Company; Bryanston Insurance Company; Louisville Insurance Company; Ludgate Insurance Company, Limited; "Winterthur" Swiss Insurance Company; Mutual Reinsurance Company, Limited; Bermuda Fire & Marine Insurance Company; Compagnie Europeene D'Assurances Industrielles S.A.; St. Katherine Insurance Company, Limited; Underwriters at Lloyd's of London, etc., et al., under policy #552/02129100; British National Life Insurance Society, Limited; Insurance Corporation of Ireland, Limited; Yasuda Fire and Marine Insurance Company, Assicurazioni Generali S.P.A.; Lexington Insurance Company; Scan Reinsurance Company, Limited; CNA Reinsurance of London, Limited; Pine Top Insurance Company, Limited; The Dominion Insurance Company, Limited; Folksam International Insurance Company, Limited; Ancon Insurance Company, Limited; Brittany Insurance Company, Limited; Allianz Versicherungs Aktiengesellschaft; Eisen Und Stahl Ruckversicherungs Aktiengesellschaft; Chemical Insurance Company; Employers Insurance of Wausau; Evanston Insurance; Insurance Company of Florida; International Surplus Lines Insurance Company; Granite State Insurance Company; Transit Casualty; Travelers Indemnity Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 526

132 F.3d 526

40 Fed.R.Serv.3d 233, 28 Envtl. L. Rep. 20,448,

97 Cal. Daily Op. Serv. 9608,

97 Daily Journal D.A.R. 15,387

ENRON OIL TRADING & TRANSPORTATION COMPANY, Plaintiff-Appellant, v. WALBROOK INSURANCE COMPANY, LIMITED; El Paso Insurance Company; Dart Insurance Company Limited; Dart & Kraft Insurance Company; Bryanston Insurance Company; Louisville Insurance Company; Ludgate Insurance Company, Limited "Winterthur" Swiss Insurance Company; Mutual Reinsurance Company, Limited; Bermuda Fire & Marine Insurance Company Compagnie Europeene D'Assurances Industrielles S.A.; St Katherine Insurance Company, Limited; Underwriters at Lloyd's of London, etc., et al., under policy #552/02129100 British National Life Insurance Society, Limited; Insurance Corporation of Ireland, Limited; Yasuda Fire and Marine Insurance Company, Assicurazioni Generali S.P.A.; Lexington Insurance Company; Scan Reinsurance Company, Limited; CNA Reinsurance of London, Limited; Pine Top Insurance Company, Limited; The Dominion Insurance Company, Limited; Folksam International Insurance Company, Limited; Ancon Insurance Company, Limited; Brittany Insurance Company, Limited; Allianz Versicherungs Aktiengesellschaft; Eisen Und Stahl Ruckversicherungs Aktiengesellschaft; Chemical Insurance Company; Employers Insurance of Wausau; Evanston Insurance; Insurance Company of Florida; International Surplus Lines Insurance Company; Granite State Insurance Company; Transit Casualty; Travelers Indemnity Company, Defendants-Appellees.

No. 96-35713.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 12, 1997.

Decided Dec. 23, 1997.

Jean E. Faure and Glenn E. Tremper, Great Falls, Montana, for the plaintiff-appellant.

Patrick R. Watt and Kirk D. Evenson, Great Falls, Montana, for the defendants-appellees.

Appeal from the United States District Court for the District of Montana; Paul G. Hatfield, District Judge, Presiding. D.C. No. CV-90-00122-PGH.

Before: SCHROEDER and BEEZER, Circuit Judges, and SCHWARZER, ^* Senior District Judge.

SCHWARZER, Senior District Judge.

The principal issue before us is whether, under Montana law, the pollution exclusion in a commercial general liability policy excludes coverage for losses sustained as a result of the addition of a foreign substance to crude oil transported in a pipeline. We hold that it does not.

BACKGROUND

This action was brought by Enron Oil Trading & Transportation Co. ("Enron") in Montana state court against the defendants, who were its excess insurers under a liability policy. Enron seeks indemnity for amounts it paid Ashland Oil Company ("Ashland") in settlement of an action Ashland brought against Enron (formerly UPG, Inc.) and others. Ashland's complaint in that action alleged that it had suffered losses--explosions and malfunctions of its pipeline--as a result of the injection of foreign substances, so-called "B-G mix," by Enron and others into the pipeline carrying crude oil to Ashland Refinery. ¹ Ashland's complaint stated claims of negligence, strict liability, breach of contract and warranty, fraud and tariff violations. That action was settled by Enron for approximately $5 million prior to trial. Enron's primary insurer provided a defense and contributed $500,000 to the settlement. The excess insurers, however, refused to participate in the settlement and this action followed.

The insurers removed the action pursuant to 28 U.S.C. § 1441(d) and 28 U.S.C. § 1330. Enron then moved for summary judgment and the insurers countered with a motion for judgment on the pleadings under Fed.R.Civ.P. 12(c). The insurers contended that coverage under their policies was barred, first, by the "pollution" exclusion, and second, by Montana's public policy barring recovery by insureds of indemnity for intentional acts. The district court rejected the insurers' first ground but granted their motion on the second ground. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part, reverse in part and remand.

DISCUSSION

I. Standard of Review

We review de novo a dismissal under Rule 12(c). McGann v. Ernst & Young, 102 F.3d 390, 392 (9th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 1460, 137 L.Ed.2d 564 (1997). "A judgment on the pleadings is properly granted when, taking all allegations in the pleading as true, the moving party is entitled to judgment as a matter of law." Id. Because this action was removed to the district court under diversity jurisdiction, the substantive law of Montana, the forum state, applies. See Stanford Ranch, Inc. v. Maryland Cas. Co., 89 F.3d 618, 624 (9th Cir.1996); Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1407-08 (9th Cir.1989) (court exercises diversity jurisdiction where case is removed pursuant to 28 U.S.C. § 1441(d)).

II. Dismissal Under Fed.R.Civ.P. 12(c)

The district court found that Ashland's complaint alleged a series of knowing and intentional acts, including misrepresentation fraud, willful breach of contract, knowing violations of the tariff and conspiracy. It held that Montana's public policy and accepted standards of fair play would be violated if Enron were permitted to benefit from its intentional and willful acts by recovering indemnity for the Ashland settlement.

We do not need to reach the issue of Montana's public policy. "A district court will render a 'judgment on the pleadings when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law.' " George v. Pacific-CSC Work Furlough, 91 F.3d 1227, 1229 (9th Cir.1996) (quoting Yanez v. United States, 63 F.3d 870, 872 (9th Cir.1995)), cert. denied, --- U.S. ----, 117 S.Ct. 746, 136 L.Ed.2d 684 (1997). Judgment "may only be granted when the pleadings show that it is 'beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' " B.F. Goodrich v. Betkoski, 99 F.3d 505, 529 (2d Cir.1996) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)); see also Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir.1993).

Enron's complaint states a claim for breach of the insurance contract; it alleges coverage and refusal to indemnify in breach of the contract. The complaint in the underlying action shows that Ashland's claims were not limited to the intentional wrongful acts to which the district court adverted, but also included claims for negligence and strict liability not barred by Montana's public policy. Enron would be entitled to prove in this action that the settlement payment was, in whole or in part, attributable to the negligence and strict liability claims; it would be entitled to prove that the claims based on intentional acts were not factors--or were minor factors--in the settlement because they lacked merit. It was not required to allege in its complaint the evidentiary facts in support of its theory of recovery. See Fed.R.Civ.P. 8(a) ("A pleading ... shall contain ... (2) a short and plain statement of the claim showing that the pleader is entitled to relief ...."). ² See also Trustees, Missoula County Sch. Dist. No. 1 v. Pacific Employer's Ins. Co., 263 Mont. 121, 866 P.2d 1118, 1122-23 (1993) (stating that "[a]s a general rule, an insurance company must look to the allegations of a complaint to determine if a loss is covered," and finding "the potential" for damages based on negligence, covered by the policy, sufficient to require insurer to cover loss despite applicable exclusion for other theories of recovery). Even if Montana's public policy provided a defense, it did not entitle defendants to judgment on the pleadings.

III. Application of the "Pollution" Exclusion

We next address the insurers' further contention that they were entitled to judgment by reason of the pollution exclusion in the policy. According to Ashland's complaint, Enron and others, wrongfully or negligently, injected B-G mix, a commodity of significantly lesser value, into the crude oil common stream of the Portal Pipeline. Ashland alleged that Enron's actions violated the Portal tariff and resulted in economic damage and property damage to Ashland's refinery.

The policy under which Enron claims indemnity from the insurers contains the following limitation on coverage:

INDUSTRIES, SEEPAGE, POLLUTION AND CONTAMINATION CLAUSE

This insurance does not cover any liability for:

(1) Personal Injury or Bodily Injury or loss of, damage to, or loss of use of property directly or indirectly caused by seepage, pollution or contamination, provided always that this Paragraph (1) shall not apply to liability for Personal Injury or Bodily Injury or loss of or physical damage to or destruction of tangible property, or loss of use of such property damaged or destroyed where such seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this insurance.

(2) The cost of removing, nullifying or cleaning-up seeping polluting or contaminating substances unless the seepage pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this insurance.

(3) Fines, penalties, punitive or exemplary damages.

This Clause shall not extend this Insurance to cover any Liability which would not have been covered under this Insurance had this Clause not been attached.

The insurers contend that this clause bars Enron's claim for indemnification because the term "contamination" is unambiguous under Montana law and, in accordance with its plain meaning, the injection of B-G mix into the pipeline contaminated the oil because it was rendered "impure, less valuable and less useful." See Duensing v. Traveler's Cos., 257 Mont. 376, 849 P.2d 203, 206-07 (1993) (in dictum, adopting definition of contamination under the policy at issue as a "condition of impurity resulting from mixture or contact with a...