Pennzoil-Quaker State v. Aislic

• Decision Date: 04 September 2009
• Docket Number: Civil Action No. H-08-2025.
• Citation: 653 F.Supp.2d 690
• Parties: PENNZOIL-QUAKER STATE CO., Plaintiff, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., Defendant.
• Court: U.S. District Court — Southern District of Texas

653 F.Supp.2d 690

PENNZOIL-QUAKER STATE CO., Plaintiff, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE CO., Defendant.

Civil Action No. H-08-2025.

United States District Court, S.D. Texas, Houston Division.

September 4, 2009.

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Ernest Martin, Jr., Micah Ethan Skidmore, Haynes & Boone Dallas, TX, Michael J. Mazzone, Haynes & Boone LLP, Houston, TX, Plaintiff.

Erin N. McGonagle, Richard S. Kuhl, Timothy P. Kilgore, Jackson & Campbell PC, Washington, DC, Keith Ray Taunton, Attorney at Law, Houston, TX, for Defendant.

MEMORANDUM AND OPINION

LEE H. ROSENTHAL, District Judge.

Pennzoil-Quaker State Company sued its insurer, American International Specialty Lines Insurance ("AISLIC"), alleging breach of contract and a violation of Chapter 542 of the Texas Insurance Code. Pennzoil obtained a pollution legal liability policy from AISLIC for its Shreveport, Louisiana refinery. From January 2001 to May 2001, Pennzoil was sued in five lawsuits filed in the Louisiana state courts by residents who live near the refinery. In the suits, the plaintiffs alleged that Pennzoil released various pollutants into the air and groundwater surrounding the refinery, causing physical injury, mental distress, and property damage. The lawsuits were administratively consolidated in June 2003. Pennzoil seeks a defense and indemnity from AISLIC for these lawsuits.

AISLIC disputes coverage as to one of the suits on the basis of late notice. AISLIC agrees that the allegations of the other four underlying suits are within the policy. The issue is whether the underlying suits involve "related Pollution Conditions," requiring Pennzoil to pay a single deductible, or several unrelated Pollution Conditions, each requiring a deductible. AISLIC has refused to pay any of the defense costs Pennzoil has incurred to date on the basis that the underlying actions involve four unrelated Pollution Conditions. Pennzoil asserts that the pollution releases alleged in the underlying lawsuits are related and that only one deductible is due under the policy. Pennzoil has moved for partial summary judgment that AISLIC has breached its contract by failing to pay the defense costs, which exceed the single deductible, and a declaratory judgment that Pennzoil has satisfied its deductible obligation under the policy. (Docket Entry No. 20). AISLIC has responded, arguing that the evidence in the record raises a fact issue as to whether the Pollution Conditions are "related." (Docket Entry No. 32).

Based on careful review of the pleadings, the motion and response, the parties' submissions, and the applicable law, this court denies Pennzoil's motion for summary judgment. The reasons are explained below.

I. Background

Pennzoil is the named insured under a claims-made Pollution Legal Liability Select Policy No. PLS 2679236 (the Policy), issued by AISLIC for the period October 1, 1999 through October 1, 2002. (Docket Entry No. 1, at 5). The Policy describes Coverages A, B, C, D, E, F, G, H, and I, for a variety of pollution-related claims. (Docket Entry No. 20, Ex. 3-A). Under Coverage F, AISLIC agreed to "pay Loss on behalf of the Insured that the Insured becomes legally obligated to pay as a result of Claims first made against the Insured and reported to the Company in writing during the Policy Period ... for Bodily Injury or Property Damage beyond the boundaries of the Insured Property that result from Pollution Conditions, on or under the Insured Property which have migrated beyond the boundaries of the Insured Property." (Id.). The Policy states that AISLIC "shall have the right and duty to defend any Claims covered under Coverages A through I ...." (Id.). The limits of liability for Coverages D, E, and F are $25 million for "Each Incident" and $25 million in the aggregate, subject to a $2 million "Each Incident" Deductible. The Policy requires AISLIC to pay "covered Clean-Up Costs, or Loss ... in excess of the Deductible amount stated in Item 3 for that particular coverage, up to ... the applicable `Each Incident' limit of coverage. The Deductible amount applies to all Clean-Up Costs, or Loss arising from the same, related or continuous Pollution Conditions." (Id.) (emphasis added). Item 3 of the Declarations states that the Deductible amount for Coverages D, E, and F is $2,000,000.00.

The Policy defines "Pollution Conditions" as the "discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, medical wastes and waste materials into or upon land, or any structure on land, the atmosphere, or any watercourse or body of water, including groundwater ...." (Id.). The Policy states that "Loss" includes "monetary awards or settlements of punitive and compensatory damages for Bodily Injury or Property Damage" as well as "Clean-Up Costs." The Policy also states that defense costs are included in Loss and "within the Deductible amount." (Id.).

Between January and May 2001, Pennzoil was sued in five separate actions. Each lawsuit alleged personal injury and property damage suffered by residents of neighborhoods near the refinery from releases of pollutants during the Policy period. These lawsuits were consolidated in June 2003. A brief description of the pleadings in the underlying lawsuits is set out below.

• Velma White, et al. v. Pennzoil-Quaker State Company, No. 455,657-A, in the First Judicial District Court for the Parish of Caddo, Louisiana, January 17, 2001. (Docket Entry No. 1, at 6). This class-action suit was brought on behalf of individuals living near the refinery who allegedly sustained injuries and damage, including "anguish," "physical mental and emotional damage," and "property damage" as a result of alleged releases of "benzene, mixed xylenes, nitrogen oxides and possibly other dangerous substances" from Pennzoil's Shreveport refinery during a January 18, 2000 fire and explosion. (Id.). The plaintiffs alleged that the fire and explosion were caused by Pennzoil's failure to adequately maintain, inspect, and prevent the chloride corrosion of a heat exchange unit in the Naptha Unifiner Unit, as well as failures to properly train employees. (Id.). In a supplemental and amending petition, the plaintiffs alleged injury and damage from exposure to pollutants released on November 4, 2001.

• Lawrence C. Justice, et al. v. Pennzoil-Quaker State Company et al., No. 455,655-A, in the First Judicial District Court for the Parish of Caddo, Louisiana, January 19, 2001. The plaintiffs, more than 240 residents of Caddo Parish, alleged that "numerous and regular unpermitted releases of harmful and/or toxic air pollutants into the community" caused physical and mental injury as well as property damage. The plaintiffs also alleged "alarming concentrations of hazardous and/or toxic substances" in subsurface waters. The alleged pollutants released included benzene, mixed xylenes, benzoanthracene, and benzopyrene, and allegedly caused physical injury, mental distress, and property damage. (Id. at 7). One of the releases was alleged to be from the January 18, 2000 fire and explosion.

• Luberta J. Daughtry, et al. v. Pennzoil-Quaker State Company, No. 455,-648-B, in the First Judicial District Court for the Parish of Caddo, Louisiana, January 22, 2001. (Id.). The plaintiffs in the Daughtry case alleged that Pennzoil "released hazardous chemicals into the atmosphere and environment, and the release of these hazardous chemicals has caused plaintiffs, to suffer a variety of health related problems including, but not limited to, renal problems and a whole host of skin ailments, cancers, and other sicknesses" as well as "anguish," "emotional damage," and "damage to ... property, both moveable and immovable." (Id., at 7-8). These releases were also alleged to have been the result of Pennzoil's failure to adequately maintain or inspect equipment or train employees. The suit was pleaded as a class action. The plaintiffs in this suit did not separately allege damages relating to the January 18, 2000 fire and explosion in the Naptha Unifiner Unit. The suit and supplemental suit alleged continuous releases of pollutants into the air and subsurface water, causing physical injury, mental anguish, and property damage.

• Denise Worsham, et al. v. Pennzoil-Quaker State Company, No. 456,574-A, in the First Judicial District Court for the Parish of Caddo, Louisiana, March 19, 2001. (Id., at 8). The plaintiffs in this class action suit alleged continuous releases of hazardous chemicals into the air and groundwater, causing physical injury, mental injury, and property damage. There is no allegation relating to the January 18, 2000 fire or explosion. The suit alleged that Pennzoil "allowed dangerous chemicals from its facility to permeate the surrounding area, causing fear, fright, inconvenience, property damage, and personal injuries to petitioners and other persons in the vicinity of defendant's facility." (Id.). These releases were alleged to have been the result of Pennzoil's failure to inspect, maintain and repair the refinery and its equipment.

• Mary Shepard, et al. v. Pennzoil-Quaker State Company et al., No. 458,379-C, in the First Judicial District Court for the Parish of Caddo, Louisiana, May 10, 2001. (Id., at 8-9). The plaintiffs in the Shepard case alleged that releases of "benzene, mixed xylenes," "benzoanthracene, benzopyrene, bis(2-Ethylhexyl)phlthalate, benzo(b)floranthene [and] benzo(k)floranthene" into the air and groundwater near the refinery caused them physical injuries, mental distress, and property damage. (Id. at 9.). The White, Justice, Daughtry, Worsham, and Shepard lawsuits were consolidated by the First Judicial District Court on June 2, 2003. (Id.).

Pennzoil gave timely notice to AISLIC of the White, Justice, Daughtry, and Worsham lawsuits, as the Policy required. (Id., at 7). AISLIC asserts...