Performance Trans., Inc. v. Gen. Star Indem. Co.

• Decision Date: 18 December 2020
• Docket Number: No. 20-1022,20-1022
• Citation: 983 F.3d 20
• Parties: PERFORMANCE TRANS., INC.; Utica Mutual Insurance Company, Plaintiffs, Appellants, v. GENERAL STAR INDEMNITY COMPANY, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

983 F.3d 20

PERFORMANCE TRANS., INC.; Utica Mutual Insurance Company, Plaintiffs, Appellants,

v.GENERAL STAR INDEMNITY COMPANY, Defendant, Appellee.

No. 20-1022

United States Court of Appeals, First Circuit.

December 18, 2020

Syed S. Ahmad, Washington, DC, with whom David M. Parker, Hunton Andrews Kurth LLP, Jared A. Fiore, Douglas T. Radigan, Worcester, MA, and Bowditch & Dewey, LLP were on brief, for appellants.

Cara Tseng Duffield, Washington, DC, with whom Hume M. Ross, Washington, DC, and Wiley Rein LLP were on brief, for appellee.

Before Lynch, Thompson, and Kayatta, Circuit Judges.

LYNCH, Circuit Judge.

Performance Trans., Inc. and Utica Mutual Insurance Company (collectively "PTI") brought this Massachusetts breach of contract and unfair and deceptive insurance practices action under Mass. Gen. Laws ch. 93A, § 11 against PTI's excess insurer, General Star Indemnity Company. After the parties cross-moved for summary judgment, the district court granted summary judgment in General Star's favor on the breach of contract claim, finding the relevant excess policy provisions unambiguously excluded coverage. Finding the excess policy ambiguous, we reverse and order entry of judgment in favor of PTI on the Massachusetts breach of contract claim, and we dismiss the 93A claim.

I.

A. Facts.

PTI, a Massachusetts corporation, transports commodities, including petroleum products. As a commercial transporter of petroleum products, it obtained insurance coverage. On February 19, 2019 a PTI tanker-truck overturned in North Salem, New York "spilling approximately 4,300 gallons of gasoline, diesel fuel, and dyed diesel fuel onto the roadway and [into a] nearby reservoir." Remediation work, which counsel for PTI states has cost almost $3,000,000 to date, has been undertaken by the New York State Department of Environmental Conservation and PTI.

At the time of the accident PTI held approximately $1,000,000 in primary insurance coverage for its shipping operations. It is undisputed that the primary insurance covers this incident, including the cleanup costs.

The insurance policy at issue here is the excess liability policy covering the period of March 2018 to March 2019. The policy provided an aggregate of $5,000,000 in coverage beyond the coverage limit on PTI's primary insurance. Nothing in the record establishes that all terms of this excess policy were standard form insurance contracts.

The policy stated "[General Star] will indemnify the insured for ultimate net loss in excess of the total of the limits of underlying insurance that is covered by both the controlling underlying policy and this policy."

And "[e]xcept for the express provisions of this policy, this policy will follow the provisions, conditions, exclusions and limitations of the controlling underlying policy."

The excess policy also contained twenty riders. Out of these twenty riders, fifteen are labeled exclusions. One such exclusion is in Endorsement 14, titled "Exclusion -- Total Pollution," which states:

This policy does not apply to any damages for which the insured is legally liable, or loss, costs or expenses arising out of, resulting from, caused by or contributed to by ... [t]he actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time ... [or any] [r]equest, demand, or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants. ... This policy does not apply to damages ... caused by ... pollutants regardless of whether the underlying insurance affords coverage for such damages ....

There is another endorsement, Endorsement 13, which is not one of the named exclusions. It is rather titled "Special Hazards and Fluids Limitation Endorsement." It states:

This policy does not apply to ultimate net loss or costs from any event arising out of, contributed by or relating to any Special Hazard described in this endorsement and resulting from the ownership, maintenance or use of any auto. Special Hazards: A. Radiation Hazard[;] B. Underground Hazard[;] C. Drilling Fluids Unloading Hazard[.] However, this exclusion does not apply to an event arising out of the unloading of drilling fluids from an auto covered by this policy and covered by the controlling underlying insurance for the total limits of the underlying insurance, if the unloading of drilling fluids resulted directly from any of the following: 1. Heat, smoke or fumes from a hostile fire; 2. Upset or overturn of such auto; 3. A collision between such auto being used in your business and another object; or 4. A short term drilling fluid event, provided that coverage under this item 4: a. Will be available to bodily injury or property damage, but not damage to real property or to a body of water or to any other natural resource; and b. Will not be available unless written notice of the short term drilling fluid event is given to us or the controlling underlying insurance company as soon as practicable, but no more than thirty (30) days after the shipment of the drilling fluids was entrusted to your care. If any other limit, such as a sublimit, is specified in the underlying insurance, then paragraphs 1. and 2. above will not apply unless that limit is specified in the SCHEDULE OF UNDERLYING INSURANCE.

The Endorsement also specially defines a number of terms, including "drilling fluids unloading hazard." The parties agree for purposes of appeal that the February 19, 2019 accident falls under the second exception for upset or overturn of an auto.

On March 13, 2019, after cleanup costs exceeded PTI's $1,000,000 primary insurance limit, PTI made a claim with General Star under the excess liability policy. General Star disclaimed any coverage obligation on the basis of the Total Pollution Exclusion. PTI then contacted its insurance agent, Insurance Marketing Agency, who requested General Star reconsider the denial in light of the Special Hazards Endorsement. General Star again disclaimed any coverage, saying the Total Pollution Exclusion barred coverage, and in any event the fuel spill did not qualify as a "drilling fluids unloading hazard." General Star now accepts for purposes of appeal that the February 19, 2019 accident falls under the Drilling Fluids Unloading Hazards item in Endorsement 13.

Utica then issued PTI provisional coverage of up to $1,000,000 on condition that PTI assigned Utica its right to recover up to that amount from General Star. Utica again asked General Star to reconsider its coverage disclaimer.¹ When General Star disclaimed any coverage obligation for the third time, PTI and Utica brought this suit.

B. Relevant Procedural History.

Both parties agreed there were no genuine questions of material fact, and the policy interpretation could be decided as a pure question of law. The district court entered summary judgment in favor of General Star on all counts.

Both before the district court and on appeal General Star argues "the [February 19, 2019] [a]ccident is a classic claim for environmental contamination barred by the Total Pollution Exclusion." PTI argues that there was coverage under the Special Hazards Endorsement, or at least the policy was ambiguous, and all ambiguity must be construed against the insurer.

The district court found the policy unambiguous and characterized the Special Hazards Endorsement as an exclusion with an exception. It read Massachusetts law to create a per se rule that "if the Total Pollution Exclusion bars coverage for the [a]ccident, the Special Hazards and Fluids Limitation Endorsement cannot create ambiguity." The district court granted summary judgment in favor of General Star on the Massachusetts breach of contract claim, and dismissed the 93A, § 11 claim with prejudice.

II.

A. Legal Standard.

We review both the district court's grant of summary judgment and its interpretation of the contract de novo, "drawing all reasonable inferences in favor of the non-moving party." Pac. Indem. Co. v. Deming, 828 F.3d 19, 23 (1st Cir. 2016) (quoting Roman Cath. Bishop of Springfield v. City of Springfield, 724 F.3d 78, 89 (1st Cir. 2013) ); see also Dukes Bridge LLC v. Beinhocker, 856 F.3d 186, 189 (1st Cir. 2017). It is undisputed Massachusetts law applies to the contract-law issues in this case. See Dukes Bridge LLC, 856 F.3d at 189.

B. Analysis.

Massachusetts courts look to "what an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Dorchester Mut. Ins. Co. v. Krusell, 485 Mass. 431, 150 N.E.3d 731, 738 (2020) (internal quotation marks and citations omitted). We must "interpret the words ‘in light of their plain meaning, ... giving full effect to the document as a whole.’ " Holyoke Mut. Ins. Co. in Salem v. Vibram USA, Inc., 480 Mass. 480, 106 N.E.3d 572, 577 (2018) (quoting Golchin v. Liberty Mut. Ins. Co., 466 Mass. 156, 993 N.E.2d. 684, 688 (2013) ) (alterations in original).

Under Massachusetts law, a policy term is ambiguous when "reasonably intelligent persons would differ" as to the proper meaning of the term. Dorchester Mut. Ins. Co., 150 N.E.3d at 738 (quoting Citation Ins. Co. v. Gomez, 426 Mass. 379, 688 N.E.2d 951, 952 (1998) ). "Ambiguity does not exist simply because the parties disagree about the proper interpretation of a policy provision; rather[ ] ‘[a]mbiguity exists when the policy language is susceptible to more than one rational interpretation.’ " Valley Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir. 2012) (quoting Brazas Sporting Arms, Inc. v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1, 4-5 (1st Cir. 2000) (alteration in original)). We must construe any ambiguity in the policy in favor of the insured. Metro. Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 951 N.E.2d 662, 671 (2011).

Massachusetts courts further construe policy exclusions strictly against the insurer. Green Mountain Ins. Co., Inc. v. Wakelin, 484 Mass. 222, 140...