Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co.

• Decision Date: 12 May 1999
• Docket Number: No. 98-10289,98-10289
• Citation: 174 F.3d 653
• Parties: MATADOR PETROLEUM CORPORATION, Plaintiff-Appellant, v. ST PAUL SURPLUS LINES INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 653

174 F.3d 653

MATADOR PETROLEUM CORPORATION, Plaintiff-Appellant, v. ST PAUL SURPLUS LINES INSURANCE COMPANY, Defendant-Appellee.

No. 98-10289.

United States Court of Appeals Fifth Circuit.

May 12, 1999.

Robert R. Roby, Russell Hendrix Roden, Gwinn & Roby, Dallas, TX, for Plaintiff-Appellant.

Ruth Greenfield Malinas, Ball & Weed, San Antonio, TX, Cathie A. Childs, John Lawrence Riedl, Luce, Forward, Hamilton & Scripps, San Diego, CA, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before JONES, SMITH and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Matador Petroleum Corporation ("Matador") appeals the district court's grant of summary judgment in favor of St. Paul Surplus Lines Insurance Company ("St.Paul"). Matador contends that St. Paul wrongfully denied coverage under an insurance policy. We affirm.

I

St. Paul provided Matador with insurance coverage pursuant to an oil and gas commercial general liability policy. Under the terms of the policy, St. Paul agreed to defend and indemnify Matador against liability for "bodily injury" and "property damage" caused by an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy also contained an absolute pollution exclusion clause, which provided:

We won't cover injury or damage ... that result[s] from pollution at or from any:

protected person's premises;

waste site;

protected person's work site;

offshore site;

of your products; or

of your completed works.

Nor will we cover any injury or damage that results from pollution involving any waste pollution.

The policy defined "pollution" as "any actual, alleged or threatened discharge, dispersal, escape, migration, release or seepage of any pollutant."

In conjunction with this basic insurance policy, Matador purchased from St. Paul an endorsement that provided a narrow exception to the absolute pollution exclusion. The endorsement stated that St. Paul would not apply the pollution exclusion in the event of a "covered pollution incident." The endorsement defined "covered pollution incident" as the discharge, dispersal, release, or escape of pollutants that:

Results from an event;

Begins and ends within 72 hours, and does not result from a well out of control; or results from a well out of control above the surface of the ground or waterbottom;

Is known to you or your operating partner within 7 days of its beginning; and

Is reported to the company within 30 days of its beginning.

On or about March 29, 1994, a drilling pit collapsed in a well owned in part by Matador. The collapse of the pit caused a discharge of pollutants, which seeped onto adjacent property and waterways. Matador reported the incident to St. Paul's agent on May 6, 1994--thirty-eight days after the pollution incident occurred--and requested coverage under the policy for damages claimed by landowners adjacent to the drilling pit. After investigating Matador's claim, St. Paul declined the request for coverage, and informed Matador that St. Paul would not provide it with a defense or indemnity. Matador filed suit in Texas state court seeking damages for expenses incurred in defending against the claims asserted by the adjacent landowners. St. Paul then removed the case to federal district court on the basis of diversity jurisdiction.

St. Paul argued before the district court that it properly denied coverage to Matador because Matador failed to report the pollution incident within thirty days as required by the endorsement. The district court agreed and granted St. Paul summary judgment. Matador timely appealed.

II

We review the district court's grant of summary judgment de novo. See American Guarantee and Liability Ins. Co. v. The 1906 Co., 129 F.3d 802, 805 (5th Cir.1997). We sit as an Erie court, and therefore, we must attempt "to rule the way the Texas Supreme Court would rule on the issue[s] presented." Hanson Prod. Co. v. Americas Ins. Co., 108 F.3d 627, 629 (5th Cir.1997). Matador raises three principal issues on appeal.

A

Matador first argues that the district court erroneously granted St. Paul summary judgment because the endorsement to the insurance policy is ambiguous. The endorsement obligated St. Paul to provide insurance coverage for a pollution incident only if the incident was "reported to the company within 30 days of its beginning." Matador contends that this provision is ambiguous because "the company" could refer to either St. Paul or Matador. According to Matador, because the provision is ambiguous, we must construe the provision in its favor; in other words, we must interpret "the company" to mean Matador. Matador had notice of the incident within thirty days after the incident began, and therefore, in Matador's opinion, it complied with the terms of the endorsement.

Texas law controls our interpretation of St. Paul's insurance policy. See Canutillo Indep. Sch. Dist. v. National Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir.1996) (citing TEX. INS.CODE ANN. art. 21.42 (West 1981)). Under Texas law, the same rules that apply to contracts in general govern the interpretation of insurance contracts. See National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995).

When interpreting a contract, our primary concern "is to ascertain and to give effect to the intentions of the parties as expressed in the instrument." R & P Enter. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). To achieve this objective, we consider the contract as a whole. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994) ( "This court is bound to read all parts of a contract together to ascertain the agreement of the parties. The contract must be considered as a whole ... [and] each part of the contract should be given effect."). When considered as a whole, a contract is ambiguous only if "it is reasonably susceptible to more than one meaning." Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). As Texas courts have recognized, "not every difference in the interpretation of a contract or an insurance policy amounts to an ambiguity." Forbau, 876 S.W.2d at 134. We will not find a contract ambiguous if we may properly give it a certain legal meaning or interpretation. See CBI Indus., 907 S.W.2d at 520. Although we will construe ambiguities in an insurance contract against the insurer and in favor of coverage, see National Union Fire Ins. Co. v. Hudson, 811 S.W.2d 552, 555 (Tex.1991), we will not " 'strain to find such ambiguities, if, in so doing, [we] defeat the probable intentions of the parties.' " Sharp v. Federal Sav. & Loan Ins. Corp., 858 F.2d 1042, 1045 (5th Cir.1988) (quoting Calcasieu-Marine Nat'l Bank v. American Employers' Ins. Co., 533 F.2d 290, 296 (5th Cir.1976)); see also Yancey v. Floyd West & Co., 755 S.W.2d 914, 918 (Tex.App.--Fort Worth 1988, writ denied).

Examining the policy as a whole shows that the reading espoused by Matador entails an awkward and unreasonable interpretation of the endorsement. Under the endorsement, a pollution incident is covered only if the incident:

Is known to you or your operating partner within 7 days of its beginning; and

Is reported to the company within 30 days of its beginning.

Neither party disputes that "you," as used in the seven-day notice provision, refers to Matador. Thus, we may infer that "the company" does not refer to Matador. Had the parties intended to require that Matador also receive notice within thirty days, the policy reasonably would read: "Is reported to you within 30 days of its beginning." Cf. Mississippi Poultry Assoc. v. Madigan, 992 F.2d 1359, 1363 (5th Cir.1993) (noting that "[t]he use of different words or terms within a statute indicates that Congress intended to establish a different meaning for those words"). Moreover, Matador's suggested interpretation makes the thirty-day reporting requirement potentially superfluous. The endorsement's use of the conjunction "and" indicates that, to obtain coverage, the insured must satisfy the requirements of both the seven-day notice provision and the thirty-day reporting provision. If Matador knows of a pollution incident within seven days, however, it makes little sense for the endorsement to require that Matador also have the incident reported to it within thirty days. See Fort Worth Lloyds Ins. Co. v. Willham, 406 S.W.2d 76, 79 (Tex.Civ.App.--Amarillo 1966, writ ref'd n.r.e.) (stating that "courts are without authority to needlessly reject any words or terms used in contracts by the parties or delete any clause therein as surplusage, unless such action is judicially mandatory"). Finally, the use of the word "reported" denotes that "the company" refers to St. Paul and not to Matador. Other parts of the insurance policy use derivatives of the word "report" specifically in reference to giving notice to the insurer. For example, the basic insurance policy provides that, for an additional premium, Matador may obtain an "Extended Reporting Period Endorsement." See, e.g., National Ropes v. National Diving Serv., Inc., 513 F.2d 53, 58 (5th Cir.1975) (noting that "[i]t is logical to assume that ... words [used in different clauses of the contract] were intended to convey the same meaning both times they were used"). Cf. Sullivan v. Stroop, 496 U.S. 478, 484, 110 S.Ct. 2499, 2504, 110 L.Ed.2d 438 (1990) (espousing "normal rule of statutory construction" that "identical words used in different parts of the same act are intended to have the same meaning").

Thus, we agree with the district court that the endorsement's language has a certain meaning and is not "reasonably susceptible" to more than one interpretation. Coker, 650 S.W.2d at 393. Read as a whole, the policy unambiguously shows that Matador and St. Paul intended "the company" to mean the insurer and not the insured. The contrary interpretation espoused by Matador strains the...