Mesa Oil, Inc. v. Insurance Co. of North America, 96-4034

• Decision Date: 20 August 1997
• Docket Number: No. 96-4034,96-4034
• Citation: 123 F.3d 1333
• Parties: 27 Envtl. L. Rep. 21,481, 97 CJ C.A.R. 1673 MESA OIL, INC., Plaintiff-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee, and Insurance Environmental Litigation Association, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1333

123 F.3d 1333

27 Envtl. L. Rep. 21,481, 97 CJ C.A.R. 1673

MESA OIL, INC., Plaintiff-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee and Insurance Environmental Litigation Association, Amicus Curiae.

No. 96-4034.

United States Court of Appeals Tenth Circuit.

Aug. 20, 1997.

Christopher Harris, Harris, Johnson & Stonecipher, Bozeman, MT (Joanna Johnson, Harris, Johnson & Stonecipher assisted on the briefs), for Plaintiff-Appellant Mesa Oil, Inc.

Scott R. Hoyt, Gibson, Dunn & Crutcher, Dallas, TX (Peter C. D'Apice and Thomas D. Boyle, Gibson, Dunn & Crutcher assisted on the briefs), for Defendant-Appellee Insurance Company of North America.

Laura A. Foggan, Wiley, Rein & Fielding, Washington, DC (Daniel E. Troy and Cherie L. Macauley, Wiley, Rein & Fielding assisted on the brief), for Amicus Curiae Insurance Environmental Litigation Association.

Before EBEL, HOLLOWAY, and MURPHY, Circuit Judges.

EBEL, Circuit Judge.

This is a diversity case involving a dispute over insurance coverage. Mesa Oil, Inc. ("Mesa"), a New Mexico oil recycler, purchased Comprehensive General Liability ("CGL") policies from Insurance Company of North America ("INA") ¹ for two one-year terms during the early 1980's. The policies contained general pollution exclusions as well as specific endorsements excluding from coverage liability resulting from the discharge of oil into bodies of water.

While it was insured by INA, Mesa sold used oil to Ekotek, a Utah oil recycler. Ekotek's facility in Utah was subsequently declared a Superfund site, and Mesa was identified by the EPA as a Potentially Responsible Party ("PRP"). Mesa entered a $193,000 settlement with the EPA as a de minimis responsible party, and later was sued by other PRP's for a greater contribution to the cleanup costs. Mesa then filed this action against INA seeking coverage for the $193,000 EPA settlement and a defense to the PRP suit. Upon INA's motion for summary judgment, the district court granted the motion on the basis of the pollution exclusion.

Mesa now appeals, claiming that the pollution exclusion was inapplicable on the facts of this case and that in any event INA had a duty to defend regardless whether it would in the end be required to indemnify Mesa for any liability incurred. Because we believe that, under New Mexico law, the pollution exclusion excludes coverage in this situation, we affirm.

BACKGROUND

Between November 29, 1982 and March 1, 1984, Mesa Oil, Inc. ("Mesa"), an oil recycler based in Albuquerque, New Mexico, sold twelve shipments of lubricant feedstock processed from used oil to Ekotek, Inc., a Utah-based oil recycler. None of these shipments were transported by Mesa or its agents. The average volume of each shipment was 6,773 gallons. It was Mesa's understanding that, upon receiving the oil, Ekotek would refine it and resell it as automotive lubricants.

Ekotek mishandled oil at its Utah facility for many years, and this led to high levels of soil and groundwater contamination. ² Eventually, the Ekotek facility was declared a Superfund site ("the Ekotek site") pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601-57. Under CERCLA, Potentially Responsible Parties ("PRPs") are jointly and severally liable for cleanup and response costs. ³ Mesa was identified by the EPA as one of the PRPs for the Ekotek site.

On May 20, 1994, the EPA offered Mesa what it characterized as a de minimis settlement to resolve Mesa's liability for oil contributed to the Ekotek site. According to a letter from the EPA describing the settlement, the offer was intended to permit Mesa to "resolve [its] liability through payment of a portion of the cleanup costs, in proportion to the waste [it] contributed." The terms of the settlement provided that EPA would release all claims against Mesa for the Ekotek site in exchange for $193,000. Mesa accepted the settlement on October 21, 1994.

On May 24, 1994, Mesa was named as a defendant in a lawsuit brought by a group of other PRPs known as the Ekotek Site PRP Committee. That suit sought a contribution from Mesa toward the costs of investigation and cleanup at the Ekotek site. According to the complaint, the plaintiffs had by the time the suit was filed already incurred $12,500,000 in cleanup costs.

After the PRP Committee suit was brought, Mesa notified INA that it was seeking a defense and indemnification for both the EPA and PRP Committee claims. Between October 12, 1982 and October 12, 1984, a time period which coincided with the twelve Ekotek shipments, INA carried Mesa's General Comprehensive Liability ("CGL") insurance, which was purchased as two separate one-year policies and generally provided coverage for property damage or bodily injuries at Mesa's facilities or caused by Mesa's products, subject to certain exceptions.

Three clauses contained in both policies are relevant to this dispute. First, each policy contained a clause setting out INA's scope of coverage:

The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage to which this insurance applies, caused by an occurrence and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.

(Aplt.App. at 51).

Second, each policy contained a standard clause known as a "pollution exclusion clause," which read as follows:

This insurance does not apply: ... (f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

(Aplt.App. at 51).

Third, each policy contained a supplementary oil exclusion, which reads as follows:

It is agreed that, if with respect to operations described in this endorsement there is a discharge, dispersal, release or escape of oil or other petroleum substance or derivative (including any oil refuse or oil mixed with wastes) into or upon any watercourse, body of water, bog, marsh, swamp or wetland, the insurance does not apply to bodily injury or property damage arising out of such discharge, dispersal, release or escape whether or not sudden and accidental.

(Aplt.App. at 59).

INA denied Mesa's request for coverage, claiming that under the pollution exclusion and the supplementary exclusion it was not obligated either to provide coverage or to defend Mesa against the EPA and PRP Committee actions. INA recited evidence that discharges at the Ekotek site were gradual and continuous over many years, and that the pollution was the result of continuing business practices of Ekotek and others at that site. The record does not reflect that Mesa disputed these factual representations, although it did challenge the legal conclusion that the pollution exclusion and the supplementary exclusion applied to its claims. Mesa filed a complaint in New Mexico state court seeking coverage for the EPA settlement and a defense to the PRP Committee suit. INA, along with several other defendants who were then involved in the case, removed the action to the United States District Court for the District of New Mexico on the basis of diversity. The defendants then filed a motion pursuant to 28 U.S.C. § 1404(a) to transfer the case to the District of Utah, which the New Mexico District Court granted.

INA then filed a motion for summary judgment, claiming that the pollution exclusion and supplementary exclusion precluded coverage for liability arising out of the Ekotek cleanup because the soil and groundwater contamination caused by Ekotek was not "sudden and accidental" within the meaning of those provisions, but rather was long-term, gradual and caused by the reckless and intentional activities of Ekotek.

The district court granted INA's motion for summary judgment in a decision rendered from the bench without a written opinion. The court found that while no New Mexico court had interpreted the pollution exclusion, the pollution clause was unambiguous and applicable to the facts of this case. The court concluded that "a reasonable insured would not believe that it would be covered in a situation such as the one at hand." The court also concluded that INA had no duty to defend against the PRP Committee suit. The court did not address either the applicability of the supplementary exclusion or Mesa's contention that the oil it sold should not be considered "pollution" within the meaning of the general exclusion. Mesa now appeals. We have jurisdiction under 28 U.S.C. § 1291. ⁴

DISCUSSION

Standard of Review

We review the grant or denial of summary judgment de novo, applying the standard applied by the district court pursuant to Fed.R.Civ.P. 56(c). Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir.1996). Under that standard, summary judgment is appropriate if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. If the movant bears the burden of showing the absence of a genuine issue of material fact, the non-movant may not rest on its pleadings but must set...