Mid-Continent Cas. v. Safe Tire Disposal

• Decision Date: 22 March 2000
• Docket Number: MID-CONTINENT,No. 10-98-294-CV,10-98-294-CV
• Citation: 16 S.W.3d 418
• Parties: (Tex.App.-Waco 2000) CASUALTY COMPANY, Appellant v. SAFE TIRE DISPOSAL CORPORATION, ET AL., Appellees
• Court: Texas Court of Appeals

Page 418

16 S.W.3d 418 (Tex.App.-Waco 2000)

MID-CONTINENT CASUALTY COMPANY, Appellant v. SAFE TIRE DISPOSAL CORPORATION, ET AL., Appellees

No. 10-98-294-CV

IN THE TENTH COURT OF APPEALS

March 22, 2000

From the 40th District Court Ellis County, Texas Trial Court # 54913

Kevin J. Cook, James C. Allums, Payne & Blanchard, L.L.P., Dallas, for appellant.

Lyndon F. Bittle, Cathy A. Lilford, Michael Prince, Carrington, Coleman, Sloman & Blumenthal, L.L.P., Dallas, for appellee.

Before Chief Justice DAVIS Justice VANCE and Justice GRAY.

O P I N I O N

REX D. DAVIS, Chief Justice.

Safe Tire Disposal Corporation of Texas and Safe Tire Disposal Corporation (collectively, "Safe Tire") filed suit against Mid-Continent Casualty Company seeking a declaratory judgment that Mid-Continent has a duty to defend Safe Tire under their insurance contract in three lawsuits brought by neighboring residents for damages allegedly suffered as a result of smoke from a fire on Safe Tire's premises. The trial court found that Mid-Continent has a duty to defend Safe Tire in the underlying lawsuits and awarded Safe Tire judgment for its attorney's fee and costs incurred in this declaratory judgment action and in the underlying lawsuits.

Mid-Continent claims in four issues that the court erred by: (1) finding that the pollution exclusion in the insurance policy does not apply to this case (two issues) (2) awarding Safe Tire the costs and attorney's fees incurred in the underlying lawsuits; and (3) awarding Safe Tire the costs and attorney's fees incurred in this declaratory judgment action.

BACKGROUND¹

The Texas Natural Resource Conservation Commission designated Safe Tire as a waste tire processing facility in 1992. See Act of May 26, 1991, 72d Leg., R.S., ch. 303, 1, 1991 Tex. Gen. Laws 1267, 1273, amended by Act of May 30, 1993, 73d Leg., R.S., ch. 899, 3.01, 1993 Tex. Gen. Laws 3559, 3571 (formerly codified as TEX. HEALTH & SAFETY CODE ANN. 361.471(4)).² As such, Safe Tire was permitted by the Commission as a facility "at which scrap tires are collected or deposited and shredded to facilitate the future extraction of useful materials for recycling, reuse, or energy recovery." Id. Safe Tire processes scrap tires by separating them into rubber chips and wire pieces which Safe Tire stores at its facilities for later distribution.

On December 1, 1995, an "accidental or unintended" fire broke out at Safe Tire's facilities. The fire began in a wire pile and spread to some piles of rubber chips. The fire was contained in these areas. Adjoining residents filed three separate suits against Safe Tire for damages allegedly sustained as a result of the fire. The petitions in these lawsuits each allege in pertinent part:

On December 1, 1995, a fire broke out at Defendants' Facilities, causing huge volumes of thick, black smoke to blanket the surrounding area. Many people [and much property], including [property owned [by]] plaintiffs, were subjected to offensive, noxious, toxic, and hazardous fumes, as well as high levels of particulate matter, by reason of having to breath the smoke from Defendants' fire. Many people, including plaintiffs herein, suffered damage and injury that was proximately caused by the inhalation and proximity to the smoke from Defendants' fire.³

. . . .

Because of Defendants' acts and/or negligence, Plaintiffs have been subjected to offensive, noxious, and/or dangerous odors, as well as toxic or hazardous chemicals and substances which have been released into the air in a wide area surrounding Defendants' facilities.

Mid-Continent insured Safe Tire under a general commercial liability policy which was in force and effect during the pertinent time period. The policy contains a pollution exclusion which provides in pertinent part that coverage is not provided for:

f. (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 . . . .⁴

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.

. . . .

Pollutants means 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.

Safe Tire gave Mid-Continent timely notice of the underlying lawsuits and asked Mid-Continent to defend it under the policy. Mid-Continent has denied coverage and refuses to defend Safe Tire because of its position that the pollution exclusion relieves it of its duty to provide coverage for or defend against any of the lawsuits.

APPLICABLE LAW

The Supreme Court has established the following test for determining whether an insurance company has a duty to defend its insured in a particular case:

[U]nder the "complaint allegation rule," factual allegations in the pleadings and the policy language determine an insurer's duty to defend. American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 847-48 (Tex. 1994). "If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured." Id. at 848.

Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821 (Tex. 1997); accord National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).

Texas courts sometimes refer to the "complaint allegation" rule as the "eight corners" rule. See National Union Fire Ins. Co., 939 S.W.2d at 141. When we apply this rule, we give a liberal interpretation to the allegations of the petition. Id. We "focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged." Id. (quoting lower court's decision, 919 S.W.2d 903, 905 (Tex. App.-Eastland 1996)).

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. Stated differently, in case of doubt as to whether or not 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.

Id. (quoting Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965)).

The exception to this general rule occurs "[w]hen the petition in the underlying lawsuit does not allege facts sufficient for a determination of whether those facts, even if true, are covered by the policy." State Farm Fire & Cas. Co. v. Wade, 827 S.W.2d 448, 452 (Tex. App.-Corpus Christi 1992, writ denied); accord Gonzales v. American States Ins. Co., 628 S.W.2d 184, 186 (Tex. App.-Corpus Christi 1982, no writ). In this circumstance, "the evidence adduced at the trial in a declaratory judgment action may be considered along with the allegations in the underlying petition." State Farm Fire & Cas. Co., 827 S.W.2d at 452; accord Gonzales, 628 S.W.2d at 186.

SUBDIVISION (a) OF THE POLLUTION EXCLUSION

Mid-Continent contends in its second issue that subdivision (a) of the pollution exclusion applies to the claims brought in the underlying lawsuits. Safe Tire responds that the hostile fire exception to subdivision (a) applies.

The policy plainly defines "pollutants" to include "smoke." Subdivision (a) excludes from coverage any bodily injury or property damage caused by the discharge of pollutants "from any premises . . . owned or occupied by . . . [the] insured." This subdivision does not apply, however, "to 'bodily injury' or 'property damage' arising out of heat, smoke or fumes arising from a hostile fire." Under this exception, "a hostile fire means one which becomes uncontrollable or breaks out from where it was intended to be."

The petitions in the underlying suits each allege that the claims for damages therein are due to a fire which "broke out" at Safe Tire's facilities. The evidence adduced at trial reflects that the fire was "unintended." The fire began in a wire pile, spread to some piles of rubber chips, and was contained in these areas.

Mid-Continent argues that under the terms of the policy a hostile fire occurs only when a "friendly" fire (i.e., one intentionally set in an appropriate place) "gets out of control or breaks out from where it ought to be." Mid-Continent relies on settled case law holding that a fire insurance policy covers only losses due to a "hostile" fire rather than a "friendly" fire. See, e.g., Reliance Ins. Co. v. Naman, 118 Tex. 21, 25-26, 6 S.W.2d 743, 744 (Tex. 1928); Garfield Mut. Fire & Storm Ins. Ass'n v. Calhoun, 532 S.W.2d 663, 666 (Tex. Civ. App.-Corpus Christi 1975, no writ); City of New York Ins. Co. v. Gugenheim, 7 S.W.2d 588, 589 (Tex. Civ. App.-Waco 1928, no writ). Thus, in Mid-Continent's view, the hostile fire exception will apply only if Safe Tire intentionally sets a controlled fire in an appropriate location on its premises which becomes uncontrollable or breaks out from its place of origin.

Safe Tire responds that the term "hostile fire" includes any "accidental" or "unintended" fire. See, e.g., North British & Mercantile Ins. Co. v. Arnold, 171 S.W.2d 215, 217 (Tex. Civ. App.-Galveston 1943, no writ); Maffei v. Northern Ins. Co., 12 F.3d 892, 898 (9th Cir. 1993). Webster's defines "uncontrollable" in part as "free from...