Standard Waste Systems Ltd. v. Mid-Continent Casualty Co.

Case: 09-10973 Document: 00511175725 Page: 1 Date Filed: 07/16/2010

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
July 16, 2010

No. 09-10973 Lyle W. Cayce
Clerk

STANDARD WASTE SYSTEMS LTD.,

Plaintiff–Appellant,
v.

MID-CONTINENT CASUALTY CO., Mid-Continent Insurance Co.;
OKLAHOMA SURETY CO.,

Defendants–Appellees.

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

Before DENNIS, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:
Standard Waste Systems Ltd. appeals from the district court’s grant of
summary judgment in favor of Mid-Continent Casualty Co. and Oklahoma
Surety Co. (collectively, the Insurers). Standard seeks declaratory relief and
money damages arising out of the Insurers’ alleged wrongful failure to defend
Standard in a personal injury lawsuit in the Eastern District of Oklahoma. On
appeal, Standard argues that the district court incorrectly found that the
plaintiffs’ claims in the underlying lawsuit fell within a policy exclusion and thus
that the Insurers had no duty to defend. We affirm.
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No. 09-10973

I
In the underlying lawsuit, plaintiffs asserted claims for negligence against
Standard, J.B. Hunt, and The Scotts Company based on personal injuries the
plaintiffs suffered as a result of exposure to a hazardous chemical. The
plaintiffs, employees at the Georgia-Pacific paper plant, were injured after
handling the contents of a trailer delivered to Georgia-Pacific by J.B. Hunt and
loaded with scrap paper by Standard. Initially, the plaintiffs only filed suit
against J.B. Hunt. J.B. Hunt filed a third-party complaint against Standard,
alleging that Standard negligently caused the plaintiffs’ injuries by allowing a
toxic chemical to be loaded with the waste paper into the trailer.
The plaintiffs then filed their first amended complaint, which added
Standard as a defendant and alleged:
10. On or about June 25, 2004, an enclosed
trailer under the control of J.B. Hunt and previously
loaded with scrap paper at Standard Waste Systems,
LTD, was delivered by J.B. Hunt employee/driver
Daniel Kuder to the Georgia-Pacific paper plant in
Muskogee, Oklahoma. The floor of the trailer also
contained a hazardous chemical. As the trailer was
accessed, unloaded, swept, and its contents otherwise
handled, Plaintiffs . . . were injured by inhaling or
otherwise being exposed to the chemical.
11. J.B. Hunt, individually, and by and through
its employees and/or agents, including Daniel Kuder,
was negligent in the following respects:
a. Im p roperly load in g , tra n sp ortin g ,
delivering, inspecting for hazardous cargo
spillage and/or generally mishandling
hazardous chemicals;
b. Failing to decontaminate or improperly
decontaminating the trailer prior to its
delivery to Georgia-Pacific paper plant;

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c. Failing to warn of the existence of the
hazardous chemical to those who would
forseeably come into contact with the
trailer;
d. Other acts or omissions to be discovered.
12. Standard Waste Systems, LTD, by and
through its employees, was negligent in the following
respects:
a. Improperly receiving, loading, and/or
inspecting the load of waste paper prior to
placement in the trailer for transport;
b. Failing to adequately advise Daniel Kuder
of the existence of a chemical in the load of
waste paper prior to loading and transport;
and
c. Other acts or omissions to be discovered.
Subsequently, the plaintiffs filed their second amended complaint, adding
Scotts Company as a defendant. The second amended complaint alleged:
12. On or about June 25, 2004, an enclosed
trailer under the control of J.B. Hunt and loaded with
scrap paper at Standard Waste Systems, LTD, was
delivered by J.B. Hunt employee/driver Daniel Kuder to
the Georgia-Pacific paper plant in Muskogee,
Oklahoma. The floor of the trailer also contained a
hazardous chemical, the type of which can be used in
certain fertilizers. Prior to the delivery of the
wastepaper to Georgia-Pacific, the trailer was used to
deliver fertilizer from Scotts Company. As the trailer
was accessed, unloaded, swept, and its contents
otherwise handled, Plaintiffs . . . were injured by
inhaling or otherwise being exposed to the chemical.
13. J.B. Hunt, individually, and by and through
its employees and/or agents, including Daniel Kuder,
was negligent in the following respects:
a. Im p rop erly loa d ing, transportin g ,
delivering, inspecting for hazardous cargo

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No. 09-10973

spillage and/or generally mishandling
hazardous chemicals;
b. Failing to decontaminate or improperly
decontaminating the trailer prior to its
delivery to Georgia-Pacific paper plant;
c. Failing to warn of the existence of the
hazardous chemical to those who would
forseeably come into contact with the
trailer;
d. Other acts or omissions to be discovered.
14. Standard Waste Systems, LTD, by and
through its employees, was negligent in the following
respects:
a. Improperly receiving, loading, and/or
inspecting the load of waste paper prior to
placement into the trailer for transport;
b. Failing to adequately advise Daniel Kuder
of the existence of a chemical in the load of
waste paper prior to loading and transport;
and
c. Other acts or omissions to be discovered.
15. Scotts Company, by and through its
employees, was negligent in the following respects:
a. Improperly loading and/or securing the
hazardous chemical such that spillage
occurred and caused the presence of the
chemical.
b. Failing to advise or notify J.B. Hunt
drivers of the circumstance pertaining to
the presence of the chemical.
c. Other acts or omissions to be discovered.
The plaintiffs’ third amended complaint contained identical liability allegations.
Standard has a commercial general liability policy with Oklahoma Surety,
and Standard contends that this policy obligated the Insurers to defend it in the

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underlying action. Standard tendered both the third-party complaint and the
first amended complaint to the Insurers, but the Insurers assert that Standard
did not tender the second or third amended complaints. The Insurers informed
Standard that they would not provide a defense to Standard in the underlying
suit because the pollution exclusion in the policy barred coverage for the
allegations against Standard in the third-party complaint and the first amended
complaint. The pollution exclusion states that the policy does not apply to:
(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. . . .
....
(c) Which are or were at any time transported,
handled, stored, treated, disposed of, or
processed as waste by or for:
(i) Any insured; or
(ii) Any person or organization for whom
you may be legally responsible . . . .
The policy defines “pollutants” as “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.”
Standard filed suit against the Insurers in Texas state court, seeking a
declaratory judgment that the Insurers were required to defend Standard in the
underlying litigation according to the terms of its policy. Standard also seeks
damages for various claims arising from the Insurers’ alleged violations of the
terms of the policy. The Insurers timely removed to federal district court.
Standard filed a partial motion for summary judgment on its claims against

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Oklahoma Surety for declaratory judgment, breach of contract, and violations
of the Texas Insurance Code. The Insurers filed a cross-motion for summary
judgment, arguing that the pollution exclusion in the policy precluded coverage.
The district court found “that all of the liability theories asserted against
Standard in the underlying lawsuit fall within the exclusion in the Policy.”
While noting “that the underlying plaintiffs are somewhat oblique regarding the
source of the contamination,” the court concluded “that the underlying plaintiffs
allege that Standard was negligent only if Standard was the source of the
chemical.” The court based this conclusion on the facts that: (1) “none of the
various complaints alleges any facts that would support liability on Standard if
Standard were not the source of the chemical”; and (2) “the liability allegations
regarding Standard make sense only in the context of alleging that Standard
was the source of the chemical.” Accordingly, the court determined that the
Insurers did not have a duty to defend Standard in the underlying lawsuit and,
because it found there was no coverage, granted summary judgment to the
Insurers on all of Standard’s claims. This appeal followed.
II
We review de novo the district court’s grant of summary judgment and
apply the same legal standards as the district court.1
III
Standard argues that the district court’s grant of summary judgment must
be reversed because the Insurers failed to plead the policy exclusion as an
affirmative defense. Under Texas law, a policy exclusion is an affirmative
defense,2 and Federal Rule of Civil Procedure 8(c) requires that “a party must

1
Travelers Lloyds Ins. Co. v. Pac. Emp’rs Ins. Co., 602 F.3d 677, 681 (5th Cir. 2010).
2
TEX . INS . CODE § 554.002 (“Language of exclusion in the contract or an exception to
coverage claimed by the insurer or health maintenance organization constitutes an avoidance
or an affirmative defense.”).

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affirmatively state any avoidance or affirmative defense” in responding to a
pleading. “[F]ailure to abide by Rule 8(c) leads to waiver.”3 However, “[w]here
the matter is raised in the trial court in a manner that does not result in unfair
surprise, . . . technical failure to comply precisely with Rule 8(c) is not fatal.” 4
“[A] defendant does not waive an affirmative defense if it is raised at a
pragmatically sufficient time, and [the plaintiff] was not prejudiced in its ability
to respond.” 5
The Insurers’ failure to plead the policy exclusion as an affirmative
defense did not result in unfair surprise or prejudice. The only issue in this case
has been the applicability of the pollution exclusion. In their denial letters, the
Insurers expressly stated that the pollution exclusion barred any duty to defend
Standard in the underlying suit. In the joint status report filed with the district
court, the Insurers stated that it was their contention that coverage was barred
by the pollution exclusion. In the Insurers’ designation of expert witnesses, the
Insurers attested that their expert would testify about the applicability of the
pollution exclusion. Standard also centered its allegations on the exclusion and,
in its petition initiating this coverage suit, asked for a declaratory judgment that
the pollution exclusion did not apply. Standard also moved for partial summary
judgment and asked the district court to declare the pollution exclusion
inapplicable. Therefore, the Insurers did not waive a defense based on the
pollution exclusion.
IV
Standard also argues that the district court erred in finding that the
allegations in the underlying suit did not require the Insurers to defend

3
Rogers v. McDorman, 521 F.3d 381, 385 (5th Cir. 2008).
4
Allied Chem. Corp. v. Mackay, 695 F.2d 854, 855-56 (5th Cir. 1983).
5
Rogers, 521 F.3d at 386 (internal quotation marks omitted).

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Standard in the underlying litigation. “A liability insurer is obligated to defend
a suit if the facts alleged in the pleadings would give rise to any claim within the
coverage of the policy.”6 Texas uses the “eight corners” rule to determine
whether an insurer has a duty to defend.7 This rule “requires the finder of fact
to compare only the allegations in the underlying suit—the suit against the
insured—with the provisions of the insurance policy to determine if the
allegations fit within the policy coverage.”8 Courts must apply the eight corners
rule liberally and resolve any doubts in favor of the insured.9 “If any allegation
in the complaint is even potentially covered by the policy then the insurer has a
duty to defend its insured.”10 However, courts must not “read facts into the
pleadings,” “look outside the pleadings, or imagine factual scenarios which might
trigger coverage.” 11
The pollution exclusion in Standard’s policy bars coverage for claims of
bodily injury from pollutants if Standard was the source of the pollutant. Thus,
the Insurers only had a duty to defend Standard in the underlying litigation if
the underlying complaints allege that Standard is liable independent of
Standard being the source of the hazardous chemical. On appeal, neither party
contests the district court’s finding that the pollution exclusion applied to the
allegations in the third-party complaint. However, the Insurers argue that the
court should only consider the first amended complaint in determining whether

6
Willbros RPI, Inc. v. Cont’l Cas. Co., 601 F.3d 306, 310 (5th Cir. 2010).
7
Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 552 (5th Cir. 2004).
8
Id.
9
Willbros, 601 F.3d at 310.
10
Primrose, 382 F.3d at 552 (internal quotation marks omitted).
11
Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchs. Fast Motor Lines, Inc., 939
S.W.2d 139, 142 (Tex. 1997) (per curiam).

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they had a duty to defend because Standard failed to tender the second and third
amended complaints. Because we hold that the Insurers did not have a duty to
defend based on the allegations in any of the complaints, we need not resolve
this issue.
Standard argues that the underlying complaints would allow the
underlying plaintiffs to pursue causes of action against Standard for improper
loading and failure to warn, even if Standard was not the source of the pollutant.
Standard contends that, because the third amended complaint includes
allegations that Scotts Company was the source of the chemical, the allegations
in the complaint are reasonably interpreted as alleging that Standard was
negligent in loading its waste paper into a trailer that already contained a
chemical fertilizer on its floor and in subsequently failing to alert the driver
regarding the pre-existing chemical fertilizer. Standard asserts that it is also
reasonable to interpret the underlying complaints as alleging that as the waste
paper was being loaded into the trailer, it interacted with the chemical fertilizer
and itself became contaminated. In that case, Standard argues, the waste paper
was not hazardous or a pollutant prior to loading, and thus the pollutant did not
originate from Standard and the pollution exclusion is not triggered.
The third amended complaint asserts that Standard was negligent in
“[i]mproperly receiving, loading, and/or inspecting the load of waste paper prior
to placement into the trailer for transport” and in “[f]ailing to adequately advise
Daniel Kuder of the existence of a chemical in the load of waste paper prior to
loading and transport.” The complaint states that the trailer was “loaded with
scrap paper at Standard” and delivered by J.B. Hunt. It also alleges that “[t]he
floor of the trailer also contained a hazardous chemical, the type of which can be
used in certain fertilizers.” It notes that “[p]rior to the delivery of the
wastepaper to Georgia-Pacific, the trailer was used to deliver fertilizer from
Scotts Company.”

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The allegations in the underlying complaints fall within the policy
exclusion as all allegations against Standard are premised on Standard being
the source of the chemical. The first and third amended complaints specifically
allege that Standard was negligent for failing to inspect the paper and failing to
warn the driver of the existence of a chemical in the paper prior to loading and
transport, which would require Standard to be the source of the chemical. While
the complaints allege that Standard was negligent in loading the paper, the facts
do not suggest that Standard would be liable for any reason other than loading
paper that was already contaminated or failing to warn the driver that the paper
was contaminated prior to loading.
The third amended complaint includes allegations that Scotts Company
was the source of the chemical. However, despite these allegations, no facts in
the complaint suggest that Standard knew or should have known that the
chemical was present in the trailer and should have notified the driver or
refused to load the paper as a result. Accordingly, we agree with the district
court that the complaint alleges that either: (1) Standard is liable if it was the
source of the chemical; or, alternatively, (2) Scotts Company is liable if it was the
source of the chemical. All of the allegations against Standard in the underlying
complaints fall within the pollution exclusion, and thus the Insurers did not
have a duty to defend Standard in the underlying litigation.
* * *
For the foregoing reasons, we AFFIRM the district court’s grant of
summary judgment.

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