Fed. Ins. Co. v. Northfield Ins. Co.

• Decision Date: 16 September 2016
• Docket Number: No. 14-20633,14-20633
• Citation: 837 F.3d 548
• Parties: Federal Insurance Company, Plaintiff–Appellant, v. Northfield Insurance Company, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

837 F.3d 548

Federal Insurance Company, Plaintiff–Appellant,

v.Northfield Insurance Company, Defendant–Appellee.

No. 14-20633

United States Court of Appeals, Fifth Circuit.

September 16, 2016

Levon G. Hovnatanian, Bruce Edwin Ramage, Martin, Disiere, Jefferson & Wisdom, L.L.P., Houston, TX, for Plaintiff–Appellant.

Celeste Darmstadter Elliott, Anne Elizabeth Briard, Esq., Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, New Orleans, LA, for Defendant–Appellee.

Before KING, DENNIS, and OWEN, Circuit Judges.

PRISCILLA R. OWEN, Circuit Judge:

Two insurance companies, Northfield Insurance Company (Northfield) and Federal Insurance Company (Federal), issued policies to Bryan C. Wagner. Wagner had previously obtained oil and gas properties in Louisiana from ExxonMobil Corporation, and Wagner agreed to indemnify and defend ExxonMobil against various claims and liabilities. Wagner and ExxonMobil were sued for damages in Louisiana by owners of land that is subject to these mineral rights, and ExxonMobil then sued Wagner in Texas state court seeking to enforce Wagner's alleged contractual obligations to ExxonMobil. In the present action, Federal acknowledges its duty to defend Wagner in ExxonMobil's suit, but Federal contends that Northfield also owes a duty to defend Wagner, and Federal seeks a declaration to that effect as well as recovery of 50% of Wagner's defense costs. The district court determined that Northfield was not obligated to defend Wagner because of a pollution exclusion clause in Northfield's policy. We reverse and remand.

I

Wagner obtained oil and gas interests in Louisiana from ExxonMobil. An Assignment, Bill of Sale and Quitclaim (to which we shall refer as the Assignment) governs the respective rights, obligations and liabilities of Wagner and ExxonMobil regarding those properties. Three lawsuits have been filed in Louisiana by third parties against ExxonMobil and others regarding these properties (the Louisiana Litigation). Wagner refused to defend or indemnify ExxonMobil in those suits.

In the ExxonMobil suit in Texas state court, ExxonMobil seeks a declaratory judgment that Wagner is “obligated to defend and indemnify Exxon Mobil Corporation from and against the claims asserted against it” in the Louisiana Litigation. In its petition in Texas state court, ExxonMobil characterizes the Louisiana Litigation as asserting environmental damage and seeking restoration of the land.

Federal issued pollution liability insurance to Wagner, providing coverage from January 31, 2003 to January 31, 2010. The policies obligated Federal to defend covered claims asserted against Wagner. Federal is currently defending Wagner in the ExxonMobil Suit, and the terms of Federal's policies are not at issue.

Northfield issued Wagner a general liability policy effective for one year, from January 31, 1999 to January 31, 2000, as well as an umbrella policy for that period of time (collectively, the Northfield Policy). Federal contends that the Northfield Policy requires Northfield to defend Wagner in the ExxonMobil suit and to reimburse Federal for a portion of the fees and expenses it has incurred defending Wagner. Northfield has refused to defend Wagner in the ExxonMobil suit, and Federal filed the current action against Northfield.

Both parties moved for summary judgment. The district court granted Northfield's motion for summary judgment in part and denied Federal's motion for summary judgment. The district court rejected Northfield's argument that Federal had failed to show that any property damage occurred during the one-year 1999-2000 policy period. The district court reasoned that: “ExxonMobil's petition does not directly address the issue of when the damage allegedly occurred,” that ExxonMobil's pleadings alleged facts that potentially came within the policy's period, and that “[t]he [c]ourt cannot say that the occurrence giving rise to the property damage ... did not occur, at least in part, within the Policy period.”

However, the district court held that the Pollution Endorsement relieves Northfield of the duty to defend Wagner in the ExxonMobil Suit, reasoning that “[t]he language of the Pollution Endorsement is broad and clearly excludes coverage for damages arising from the ‘environmental damage’ and ‘restoration and remediation’ alleged in ExxonMobil's Petition.”

Northfield's policy contains an Underground Resources & Equipment Buyback (“UREB”) provision, which takes precedence over the Pollution Endorsement. The district court held that the UREB Endorsement “does not operate to restore coverage to Wagner in this instance.” The district court did not reach the question of whether the Contractual Liability exclusion in the policy relieves Northfield of a duty to defend Wagner, in light of the district court's conclusion that the Pollution Endorsement excluded coverage. Federal appealed.

II

Texas's law of contract interpretation applies in this diversity action.¹ “Insurance policies are controlled by rules of interpretation and construction which are applicable to contracts generally,”² meaning that a court's primary concern in construing a written contract “is to ascertain the true intent of the parties as expressed in the instrument.”³ “An insurer's duty to defend is determined by the allegations in the pleadings and the language of the insurance policy.”⁴ In Texas, this is commonly referred to as the “eight-corners rule,” which provides that “when an insured is sued by a third party, the liability insurer is to determine its duty to defend solely from the terms of the policy and the pleadings of the third-party claimant.”⁵ “The rule takes its name from the fact that only two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the third-party claimant.”⁶ “Facts outside the pleadings, even those easily ascertained, are ordinarily not material to the determination and allegations against the insured are liberally construed in favor of coverage.”⁷

All doubts regarding the duty to defend are resolved in favor of the insured.⁸ “Where the complaint does not state facts sufficient to clearly bring the case within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially , a case under the complaint within the coverage of the policy.”⁹ In other words, if there is doubt as to whether “the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in insured's favor.”¹⁰

“The insured bears the initial burden of showing that the claim against her is potentially within the insurance policy's scope of coverage.”¹¹ If an insurer relies on a policy's exclusions to deny that it has a duty to defend, “it bears the burden of proving that one or more of those exclusions apply.”¹² Courts must “construe the exclusion narrowly, resolving any ambiguity in favor of the insured.”¹³ The facts alleged in the claim against the insured, not legal theories, control.¹⁴

III

Federal first contends that the Pollution Endorsement does not exclude coverage of at least some potential claims ExxonMobil has made against Wagner. Our court has recognized that under Texas law, absent policy provisions to the contrary, “[e]ven if the plaintiff's complaint alleges multiple claims or claims in the alternative, some of which are covered under the policy and some of which are not, the duty to defend arises if at least one of the claims in the complaint is facially within the policy's coverage.”¹⁵

The Northfield Policy's “Pollution Endorsement” excludes coverage for

‘[b]odily injury’, ‘property damage’, ‘personal injury’, loss of, damage to or loss of use of property, or any other form of liability or damages to which any insured may be subject arising out of the actual, alleged, or threatened discharge, dispersal, release, seepage, migration or escape of pollutants at any time at any location by whomsoever caused.

The Pollution Endorsement defines “Pollutants” as

any solid, liquid, gaseous or thermal irritant, contaminant or waste, including but not limited to saline, saltwater, smoke, vapors, soot, dust, fumes, acids, alkalis and chemicals. Waste includes any materials which are intended to be recycled, reconditioned or reclaimed, regardless of whether the waste has the effect of making something impure or hazardous.

It is certainly plausible that some of ExxonMobil's claims against Wagner may come within the terms of the Pollution Endorsement. For example, ExxonMobil seeks a declaration that “the Wagner Group has assumed all obligations and liabilities of ExxonMobil under all agreements insofar as they pertain to the assigned property, including but not limited to, all liabilities for the assessment, remediation, removal and disposal of hazardous substances....” But because of the breadth and generality of the allegations in ExxonMobil's state court petition, we cannot say that all of the claims fall clearly within the exclusion.

ExxonMobil's petition does not attach any of the petitions in the Louisiana Litigation. ExxonMobil's petition provides very little information about the nature of the claims made in the Louisiana Litigation, for which ExxonMobil seeks indemnity and defense costs from Wagner. ExxonMobil's petition asserts only that “[a]ll three lawsuits in the underlying [Louisiana] litigation allege environmental damage and seek restoration and remediation of the land subject to mineral rights purchased by the Wagner Group.” ExxonMobil's petition also alleges that its agreements with Wagner “cover claims arising from ExxonMobil's alleged negligence, strict liability, and any obligation to comply with environmental statutes including the Clean Water Act.” Similarly, ExxonMobil alleges that under its agreements with Wagner, “the Wagner Group is also responsible for the remediation and restoration of the assigned...