Indiana Lumbermens Mutual Ins. Co. v. W. Oregon Wood Porducts, PLAINTIFF-APPELLEE

Decision Date27 November 2001
Docket NumberDEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,No. 00-35621,00-35621
Citation268 F.3d 639
Parties(9th Cir. 2001) INDIANA LUMBERMENS MUTUAL INSURANCE COMPANY, AN INDIANA CORPORATION,, v. WEST OREGON WOOD PRODUCTS, INC., AN OREGON CORPORATION,
CourtU.S. Court of Appeals — Ninth Circuit

William A. Drew, Elliott, Ostrander & Preston, P.C., Portland, Oregon, for the defendant-appellant.

Lisa E. Lear, Bullivant Houser Bailey PC, Portland, Oregon, for the plaintiff-appellee.

Laura A. Foggan, Wiley, Rein & Fielding, Washington, D.C., for the amicus curiae.

Appeal from the United States District Court for the District of Oregon James A. Redden, District Judge, Presiding. D.C. No. CV-99-01013-RE

Before: Thompson, Tashima and Graber, Circuit Judges.

Graber, Circuit Judge:

Defendant West Oregon Wood Products, Inc., appeals the district court's grant of summary judgment in favor of Plaintiff Indiana Lumbermens Mutual Insurance Company. The district court held that Plaintiff, which provided Defendant with commercial liability insurance, had no duty to defend Defendant in a nuisance action. We affirm.

BACKGROUND
1. Procedural History

On April 12, 1999, Finos Lunsford filed an action ("Lunsford Action") on behalf of himself and other plaintiffs. The complaint alleged that, since 1998, Defendant's plant had emitted gases and particulates, causing personal injury and property damage to the Lunsford Action plaintiffs. Defendant tendered the defense to Plaintiff, which denied any duty to defend. Plaintiff concluded that the pollution exclusions in each of its policies barred coverage for liability arising from any of the claims alleged in the Lunsford Action.

On June 1, 1999, Defendant demanded a defense based on the "hostile fire" exception to the pollution exclusions. Plaintiff again denied any obligation to defend on the ground that the complaint did not allege harm caused by a fire. Plaintiff then filed this declaratory judgment action, seeking a declaration that it had no duty to defend Defendant in the Lunsford Action. Defendant asserted two counterclaims for breach of contract in its answer: (1) for the refusal to defend the Lunsford Action"; and (2) for business interruption coverage.

On October 28, 1999, Lunsford filed a first amended complaint. It was identical to the original complaint, except that it alleged that some of the emissions included "sudden and accidental discharge of gases, smoke, fires, and other pollutants."1 Defendant again demanded that Plaintiff provide a defense, contending that the amendment to the complaint made it clear that the "hostile fire" exception applied to the allegations in the complaint. Plaintiff still disagreed.

The district court reviewed the first amended complaint and concluded that the idea that the allegations of fires "superimposed on the original complaint" alleged "hostile fires" was "fanciful." The court also concluded that the pollution exclusion provisions were not void for failure to comply with Oregon Revised Statute ("ORS") 742.246. Accordingly, the court granted Plaintiff's motion for summary judgment, holding that Plaintiff had no duty to defend Defendant in the Lunsford Action, denied Defendant's motion for partial summary judgment, and dismissed the case.

Defendant timely filed this appeal.

2. Factual History
A. The Insurance Policies

Plaintiff insured Defendant from 1995 through 1999. Each year, Plaintiff provided Defendant with two policies. The first was a common policy containing three parts: a "commercial property coverage part," a "commercial inland marine coverage part," and a "commercial general liability coverage part." The second was a commercial umbrella policy.

Each of the commercial umbrella policies excludes coverage for "[a]ny claim for `Bodily Injury,'`Property Damage,' `Personal Injury,' or `Advertising Injury' arising out of the discharge, dispersal, release, escape, or presence of pollutants anywhere in the world." The policies contain no exception to that exclusion.

The common policies for 1995-1996 and 1996-1997 provide identical commercial general liability (CGL) coverage. Both policies provide coverage for damage claims against the insured stemming from "bodily injury" or "property damage" that occurred during the policy period. In particular, the policies cover "bodily injury" and "property damage" that (1) "is caused by an `occurrence' that takes place in the `coverage territory' " and (2) "occurs during the policy period." An "occurrence" is "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policies define "bodily injury " as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." They define "property damage" as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it"; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

Both the common and commercial umbrella policies contain the following pollution exclusion:

This insurance does not apply to:

f. Pollution

(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 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:

(i) if the pollutants are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor; or

(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants.

Subparagraphs (a) and (d)(i) do not apply to "bodily injury" or "property damage" arising out of heat, smoke or fumes from a hostile fire.

As used in this exclusion, a hostile fire means one which becomes uncontrollable or breaks out from where it was intended to be.2

(Emphasis added.)

The policies define pollutants as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

Finally, the CGL components of the common policies for 1997-1998 and 1998- 1999 are nearly identical to the 1995-96 and 1996-97 policies. However, the parties replaced the pollution exclusion from the earlier policies with a"Total Pollution Exclusion Endorsement." The pertinent parts of the endorsement provide:

This insurance does not apply to:

f. Pollution

(1) "Bodily injury" or "property damage " which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.

Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

B. The Lunsford Complaint

The first amended complaint contains four claims: for nuisance, for trespass, for negligence, and for strict liability. The requested remedies include (1) damages for personal injury, property damage, economic damage, and non-economic damage; and (2) injunctive relief.

The first amended complaint alleges that Defendant has knowingly emitted from its factory various pollutants from 1988 through October 28, 1999 (the date on which the first amended complaint was filed). Those emissions allegedly consisted of "gases, smoke and particulates, including sudden and accidental discharge of gases, smoke, fires and other pollutants." (Emphasis added.) The first amended complaint further alleges that such emissions (1) "obstruct[ ] the reasonable, comfortable use and enjoyment of [Lunsford's] real property," and are thus a nuisance; (2) physically invade Lunsford's property, and that "such invasion constitutes a trespass"; (3) result from Defendant's failure"to use due care to avoid injuring Plaintiff and other persons in the area of the factory"; and (4) are the result of an ultrahazardous activity, rendering Defendant strictly liable for harm caused by them. The complaint also alleges that the emissions caused Lunsford to suffer damages because of physical injury, property damage, pain and suffering, diminished life expectancy, loss of earnings, diminution of value of real and personal property, and loss of enjoyment of real and personal property. The emissions allegedly must be enjoined in order to prevent future damages to Lunsford.

Finally, in order to preserve for Lunsford the opportunity to amend the complaint further to seek punitive damages, the first amended complaint alleges that Defendant's operation of its plant so as to "cast out" harmful emissions constitutes the intentional infliction of harm on Lunsford and others exposed to the emissions. Specifically, it alleges that, since 1991, various public entities have notified Defendant of the need to "abate the nuisance," but that Defendan...

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