United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT August 15, 2007
_______________________
Charles R. Fulbruge III
No. 06-20335 Clerk
_______________________
UNITED NATIONAL INSURANCE COMPANY,
Plaintiff-Appellee,
versus
HYDRO TANK, INC., ET AL,
Defendants,
MOTIVA ENTERPRISES, L.L.C.,
Defendant-Appellant.
On Appeal from the United States District Court
for the Southern District of Texas
Before JONES, Chief Judge, and BENAVIDES and STEWART, Circuit
Judges.
EDITH H. JONES, Chief Judge:
This insurance coverage dispute requires the
interpretation of an insurance policy’s Pollution Exclusion clause
and a Contractors Limitation Endorsement Clause. Finding no error
in the district court’s conclusion that coverage was barred by the
first clause and not resurrected by the latter one, we AFFIRM.
I. BACKGROUND
Three Hydro Tank workers were injured in July 2002 while
removing petroleum-byproduct sludge from a mixing tank owned and
operated by Appellant Motiva Enterprises at its Port Arthur, Texas,
refinery. Shortly after entering the tank, two of the workers were
overcome by fumes and fell face-first into the sludge. The
stricken men were courageously pulled out of the tank by Jimmy
Duriso, their coworker. All three were hospitalized and survived.
The injured Hydro Tank workers (collectively, the “Duriso
Plaintiffs”) sued Motiva in Texas state court, alleging severe
brain and cardio-pulmonary damage from exposure to “toxic levels of
hydrogen sulfide and/or other chemicals and vapors.” Motiva
settled the lawsuit.
The sludge removal in which the Duriso Plaintiffs were
injured was conducted pursuant to a March 2002 contract between
Motiva and Hydro Tank, in which Hydro Tank agreed to indemnify
Motiva against any claims arising out of the tank cleaning and to
procure an umbrella liability insurance policy naming Motiva as an
“additional insured.” Hydro Tank accordingly obtained a one-
million-dollar commercial general liability (“CGL”) policy from
American Equity Insurance and a five-million-dollar umbrella policy
from Appellee United National Insurance Company. Both policies
were effective on the date of the incident, but only the coverage
of the United National policy is at issue in this appeal.1
1
United National has stipulated that the American Equity CGL policy
“provides valid and collectible coverage to Motiva for the claims of the Duriso
plaintiffs and for Hydro Tank’s liability to Motiva.” Moreover, for purposes of
this suit, United National does not dispute Motiva’s contention that the CGL
policy is enforceable against Hydro Tank and that Hydro Tank agreed to indemnify
Motiva against the Duriso Plaintiffs’ claims.
2
The umbrella policy extends to Motiva the same degree of
coverage offered by Hydro Tank pursuant to its indemnity agreement
with Motiva.2 After settling the Duriso suit, Motiva sought
indemnity from United National up to the policy limit.
United National denied Motiva’s claim and sued Motiva in
the Southern District of Texas, requesting a declaratory judgment
that it owed Motiva nothing. The district court granted summary
judgment to United National based on the policy’s Pollution
Exclusion clause, interpreting it to bar Motiva’s indemnification
claim. Motiva appeals.
II. DISCUSSION
This court reviews a summary judgment grant de novo,
applying the same standards as the district court. Adams v.
Travelers Indem. Co., 465 F.3d 156, 163 (5th Cir. 2006). Summary
judgment is proper if “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law.” FED. R. CIV. P. 56(c).
In this case, governed by Texas law, United National
contended that it has no contractual responsibility for Motiva’s
defense costs or to indemnify Motiva for the settlement. Texas
2
Although the underlying American Equity policy only covered indemnity
up to one million dollars, Hydro Tank did not limit the amount of its
indemnification obligation to Motiva in the May 2002 agreement.
3
follows the “eight-corners” rule of insurance contract
interpretation. See, e.g., GuideOne Elite Ins. Co. v. Fielder Rd.
Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). The “insurer’s
duty to defend is determined by the underlying plaintiff’s
pleadings, considered in light of the policy provisions, without
regard to the truth or falsity of those allegations.” Liberty Mut.
Ins. Co. v. Graham, 473 F.3d 596, 599 (5th Cir. 2000). If the
pleadings allege facts stating a cause of action potentially
falling within the insurance policy’s scope of coverage, the
insurer has a duty to defend. Id. at 600. Doubtful cases will be
resolved in favor of the insured. Nat’l Union Fire Ins. Co. of
Pittsburgh v. Merchants Fast Motor Lines, Inc., 939 S.W.3d 139, 141
(Tex. 1997). The insured party bears the initial burden of showing
that there is coverage, while the insurer bears the burden of
showing that any exclusion in the policy applies. Lincoln General
Ins. Co. v. Reyna, 401 F.3d 347, 350 (5th Cir. 2005).
The duty to indemnify, however, is separate from, and
narrower than, the duty to defend. See Lincoln General Ins. Co. v.
Aisha's Learning Cent., 468 F.3d 857, 858 (5th Cir. 2006).
Liability is not based solely on the pleadings, but rather on the
facts actually established in the underlying suit. GuideOne,
197 S.W.3d at 310.
A. Pollution Exclusion
4
United National contends that Motiva is not entitled to
recover under the umbrella policy because the injuries arising out
of the tank-cleaning incident fall within the policy’s Pollution
Exclusion clause.3 United National argues that since the Duriso
Plaintiffs allege injury by a pollutant – namely, hydrogen sulfide
gas – it has no duty to indemnify. Motiva, conversely, argues that
the pleadings can be read to allege that the workers were not
injured by chemicals that constitute pollutants within the meaning
of the exclusion, and therefore its claim is covered.
1. Sufficiency of the Pleadings
The Duriso Plaintiffs alleged they “were caused to
sustain serious injuries and damages while working in a tank when
they were exposed to toxic levels of hydrogen sulfide and/or other
chemicals and vapors.” As a result, they “became overcome by
chemicals and toxins owned by [Motiva]...causing brain injury and
3
The relevant policy language states:
2. Exclusions
This insurance does not apply to:
(...)
F. (1) “Bodily injury” or “property damage” which would not
have occurred in whole or in part but for the actual,
alleged or threateded [sic] discharge, seepage,
migration, dispersal, release or escape of “pollutants”
at any time. . . .
“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.
5
damage.” Motiva argues that use of the conjunction “and/or”
creates two injury scenarios: one in which the workers were injured
by hydrogen sulfide gas, a pollutant,4 and one in which they were
injured by “other chemicals and vapors” that are not necessarily
pollutants. Under the second scenario, Motiva asserts, the workers
have not alleged injury by a pollutant.
Motiva’s interpretation ignores the policy’s plain
language. The relevant clause states that coverage will be denied
so long as “‘bodily injury’...which would not have occurred in
whole or in part but for the...alleged...release...of
‘pollutants.’” Thus, if a claim alleges that injury arose at least
in part from a pollutant, coverage is denied. See, e.g., Amoco
Prod. Co. v. Hydroblast Corp., 90 F. Supp. 2d 727, 732-33 (N.D.
Tex. 1999) (allegation of pollutant-related injury sufficient to
trigger pollution exclusion clause); Bituminous Cas. Corp. v.
Kenworthy Oil Co., 912 F. Supp. 238, 241 (W.D. Tex. 1996) (same).
Motiva’s argument amounts to the converse of the policy
language. Motiva claims that if any aspect of an allegation
includes a claim that injury did not arise as a result of a
pollutant, then coverage is permitted. This patently contradicts
the policy’s language. Even assuming that Motiva’s view of the
complaint’s language is plausible, the phrase “toxic levels of
4
Motiva does not dispute that hydrogen sulfide is per se a pollutant
within the meaning of the policy.
6
hydrogen sulfide” alleges that the Duriso Plaintiffs’ injuries
arose at least in part from exposure to a pollutant.
A second textual argument Motiva employs in support of
its interpretation also fails. Depending largely on dicta from an
unpublished Fifth Circuit opinion interpreting a damages clause in
a service contract, Motiva argues that the correct interpretation
of the Duriso pleading reads the phrase “toxic levels of” as
applying only to “hydrogen sulfide,” and not to the latter phrase
“other chemicals and vapors.” See Vaulting & Cash Servs., Inc. v.
Diebold, Inc., 1999 WL 1068257, at *2 (5th Cir., Oct. 22,
1999)(unpublished). The Vaulting court, however, was construing
contractual language that is syntactically and semantically
dissimilar from the operative language of the Duriso pleading.5
Moreover, the panel explicitly stated that “grammatical parsing” is
only part of the interpretive process, and the “reasonableness of
the interpretation advanced by each party” also plays a significant
role. Id.
If anything, the Vaulting decision supports United
National’s position. The most reasonable interpretation of the
pleadings is that the phrase “toxic levels of” modifies both
“hydrogen sulfide” and “other chemicals and vapors,” particularly
5
The Vaulting court determined that, in the phrase “in no event shall
Diebold be liable to Subcontractor for indirect, incidental, consequential or
similar damages, lost profits, [sic] lost business opportunities,” the adjectival
series “indirect, incidental, consequential, or similar” modified only “damages”
and not the subsequent nouns. 1999 WL 1068257, at *2.
7
in light of the fact that the Duriso Plaintiffs only a few
sentences later allege brain injury from “chemicals and toxins.”
Moreover, when general terms like “chemicals” and “vapors” follow
specific terms like “hydrogen sulfide,” there is a presumption that
the general terms are to be construed to belong to the same class
or category as the more specific term. See, e.g., In Re Biloxi
Casino Belle Inc., 368 F.3d 491, 499 & n.8 (5th Cir.
2004)(discussing, in an insurance context, the ejusdem generis6
canon). Accordingly, the most natural reading of the phrase “toxic
levels of hydrogen sulfide and/or other chemicals and vapors”
suggests that injury resulted from (1) toxic levels of hydrogen
sulfide; (2) toxic levels of other chemicals or vapors; or (3) a
combination of both.
2. Is properly stored sludge a pollutant?
Next, Motiva argues that a plausible reading of the
complaint suggests that the Duriso Plaintiffs were injured not by
hydrogen sulfide gas, but by the sludge itself, which Motiva
contends is not a pollutant because it was properly stored in the
mix tank. Motiva claims that since the workers do not allege the
particular mechanism of their exposure to hydrogen sulfide, it is
possible that they were injured by skin-to-sludge contact, rather
than by inhalation of a gas. If the workers were overcome, for
example by heatstroke or a non-pollutant chemical, and subsequently
6
“Of the same kind.”
8
fell into the sludge only then to be injured by contact with
hydrogen sulfide, they could not allege injury by a pollutant
because heat is not a pollutant under the policy, and any injury
sustained would have been caused only by direct contact with the
sludge, which Motiva also claims is not a pollutant.
Citing Certain Underwriters at Lloyd’s London v. C.A.
Turner Construction Co., 112 F.3d 184, 186-88 (5th Cir. 1997),
Motiva contends that the “common-sense approach” used in this
circuit to define what constitutes a pollutant within the meaning
of a pollution exclusion clause permits indemnification. Under
that approach, the terms of a pollution exclusion clause must be
given their ordinary meaning so that the clause is not illogically
or impermissibly broadened. See, e.g., id. at 188 (explaining that
although Drano is toxic, slipping on the contents of a spilled
Drano bottle is not a pollutant-related injury). Motiva suggests
that since “petroleum products are not pollutants when they are
stored where they belong,” a hydrogen-sulfide-related injury caused
by direct skin-to-sludge contact in the storage tank cannot be
considered injury by a pollutant.
Although clever, this argument is legally incorrect.
Importantly, the policy at issue in Certain Underwriters did not
define the term “pollutant,” see id. at 186, whereas the policy at
issue here does define “pollutant” and does so broadly, see supra,
note 3. Additionally, the Certain Underwriters court held that the
pollution exclusion in that case did apply because the emission of
9
harmful fumes from gas in a welding pipe is distinguishable from a
small spill of Drano. Certain Underwriters, 112 F.3d at 188.
Similarly, the Duriso Plaintiffs allege they were exposed to such
high levels of toxic substances that brain damage resulted – not a
slight exposure that would ordinarily cause no harm.
Motiva ignores entirely the substantial body of caselaw
holding that substances need not be released into the surrounding
environment to qualify as pollutants for purposes of a pollution
exclusion clause. See, e.g., id. at 188 (pollution exclusions are
not limited “to only those discharges causing environmental harm”);
Hamm v. Allstate Ins. Co., 286 F. Supp. 2d 790, 794-95 & n.2 (N.D.
Tex. 2003) (pollution exclusion barred insurer’s duty to defend
when injury resulted from indoor accumulation of toluene fumes
during an office renovation); Zaiontz v. Trinity Universal Ins.
Co., 87 S.W.3d 565, 571-72 (Tex. App. 2002) (injury caused by “odor
eliminator” chemical that was confined to its proper area of
application triggered pollution exclusion). Thus, a pollution
exclusion clause applies whenever a pollutant causes harm by a
physical mechanism enumerated in the policy, irrespective of where
the injury took place or whether the pollutant was released into
the environment. Here, as in Zaiontz and Hamm, the area in which
the pollutant was properly confined was itself the site of the
injury. The fortuity that the locus of storage and injury happen
to coincide does not negate the Pollution Exclusion in this
instance.
10
3. Causation
Finally, Motiva contends that since the Duriso Plaintiffs
do not specifically explain the causal mechanism by which they were
injured, their damages are not excludable under the clause.
Texas law recognizes two types of causation relevant to
interpretation of the pleading language at issue here. In cases
involving “separate and independent causation, the covered event
and the excluded event each independently cause the plaintiff’s
injury, and the insurer must provide coverage despite the
exclusion.” Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co.,
141 S.W.3d 198, 204 (Tex. 2004) (citing Guaranty Nat’l Ins. Co. v.
N. River Ins. Co., 909 F.2d 133, 137 (5th Cir. 1990)). Conversely,
in cases involving “concurrent causation, the excluded and covered
events combine to cause the plaintiff’s injuries. Because the two
causes cannot be separated, the exclusion is triggered.” Id.
(citing Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d
761, 771-72 (5th Cir. 1999)).
Motiva argues that there are two independent and discrete
events at issue in the Duriso Plaintiffs’ suit: (1) the Plaintiffs’
being “overcome”; and (2) the Plaintiffs’ contact with the sludge.
Motiva claims that the first event is not excludable under the
policy because the Plaintiffs have not specifically alleged that
they were overcome by a pollutant; heatstroke or a non-pollutant
could also be to blame. The second event, says Motiva, is not an
11
excludable injury because properly stored sludge cannot be a
pollutant. Thus, since the pleadings can be read to indicate that
Plaintiffs’ injuries were independently caused by an event not
covered by the policy, United National has a duty to indemnify.
Motiva’s causation argument fails because the pleadings
unambiguously allege, as we have noted, that the injuries were
sustained both by exposure to excluded pollutants and by direct
contact with the sludge. Although the mechanism of injury is not
explicitly described, the pleadings allege that the pollutant-
related injuries arose concurrently out of inhalation and contact
with the sludge. Thus, the concurrent causation doctrine precludes
United National’s duty to indemnify.
B. Contractors Limitation Endorsement
Motiva additionally cites the umbrella policy’s
Contractors Limitation Endorsement (“CLE”) clause, arguing that the
CLE provides coverage even if the Pollution Exclusion applies. The
CLE excludes Motiva from coverage for any tort liability assumed by
Hydro Tank under its contract with Motiva, unless coverage for the
assumed liability is available pursuant to the underlying CGL
policy.7 Motiva argues that since Hydro Tank assumed liability for
7
The relevant CLE language states:
III. Except insofar as coverage is available to the insured in
valid and collectible ‘underlying insurance’ [i.e., the American
Equity policy]...and then only for such liability for which coverage
is afforded under the ‘underlying insurance’ for the full limit
shown, this insurance does not apply to:
(a) Any liability assumed by any insured under any contract
or agreement;...
12
the Duriso claims under its contract with Motiva, and those losses
were covered by the CGL, the umbrella policy therefore adopts the
coverage of the CGL with regard to Motiva’s liability. As a
result, says Motiva, the Pollution Exclusion is irrelevant to the
entire indemnity question because the CLE permits coverage for the
Duriso claims irrespective of the Pollution Exclusion. In
contrast, United National argues that the CLE does not nullify the
Pollution Exclusion and that the CLE cannot be read to create
coverage that does not otherwise exist.
Both Texas insurance law and the language of the umbrella
policy support United National’s argument. An exclusion like CLE
§ III(a) cannot affirmatively grant coverage that would not
otherwise exist under the policy and is to be read independently of
every other exclusion contained therein. See Forbau v. Aetna Life
Ins. Co., 876 S.W.2d 132, 133-34 (Tex. 1994) (coverage excluded
under a specific policy provision cannot be reinstated by another
more general grant of coverage). Moreover, each policy provision
is, to the greatest extent possible, to be given independent
significance and effect. See id. at 133; Barnett v. Aetna Life
Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987). No single provision
should be interpreted in isolation from the rest of the policy.
See Forbau, 876 S.W.2d at 134.
13
Motiva’s CLE claim ignores these maxims. What Motiva’s
argument amounts to is that the prefatory language of CLE § III
creates an exception not only to the exclusions contained in CLE
§ III(a)-(c), but to every exclusion contained in the United
National policy – including the Pollution Exclusion. Put
otherwise, CLE § III overrides all other policy provisions.
Accepting this argument would require this court to disregard the
explicit exclusion provisions that comprise most of the United
National policy, which plainly state that “[t]his insurance does
not apply to” several enumerated types of property damage and
bodily injury, including injury by pollutants. Motiva provides no
legitimate basis upon which the language of CLE § III can be
construed to reach such a sweeping result.
Moreover, the authority Motiva cites in support of its
expansive reading of the CLE is distinguishable. In XL Specialty
Insurance Co. v. Kiewit Offshore Services, Ltd., 336 F. Supp. 2d
673 (S.D. Tex. 2004), the district court interpreted an umbrella
policy with a CLE clause identical to the instant one to permit the
kind of follow-form coverage Motiva advocates. Id. at 676.
Significantly, however, the CLE at issue in XL Specialty did not
contain additional relevant exclusion clauses, such as a pollution
exclusion. Thus, the XL Specialty court never considered the only
question relevant to Motiva’s argument: whether additional
exclusionary clauses contained in an umbrella policy are trumped by
a CLE exclusion.
14
Motiva also cites Gould, Inc. v. Arkwright Mutual
Insurance Co., 907 F. Supp. 103 (M.D. Pa. 1995). Like the policy
in XL Specialty, the Gould policy contained a CLE that permitted
follow-form coverage according to the terms of the underlying
insurance. See id. at 106. Unlike United National’s CLE language,
however, the policy language found to grant coverage in Gould was
part of a specific exception to the pollution exclusion clause.
See id. at 106-07 (“This policy shall not apply, unless insurance
is provided by a policy listed in the schedule of underlying
insurance...to any liability of any insured arising out of the
discharge, dispersal, release or escape of...pollutants.”).8 The
instant policy contains no such exception. Accordingly, the
district court correctly noted that applying the logic of Gould to
the instant policy would “be at odds with the Texas canons of
interpretation.”
A recent decision of the Texas Supreme Court further
contradicts Motiva’s claim. In Fiess v. State Farm Lloyds,
202 S.W.3d 744 (Tex. 2006), the court interpreted a homeowners’
policy that excluded any “loss caused by mold,” but permitted any
“ensuing loss” for water damage that would otherwise be covered
8
Moreover, the court determined that the Gould policy was ambiguous,
and the ambiguity must be resolved in favor of the insured. Id. at 108. Here,
courts have held that so-called “absolute pollution exclusions” substantially
indistinguishable from the instant policy’s are unambiguous as a matter of law.
See Certain Underwriters, 112 F.3d at 186-88; Constitution State Ins. Co. v. Iso-
Tex Inc., 61 F.3d 405, 409 (5th Cir. 1995); Nat’l Union Fire Ins. Co. of
Pittsburgh v. CBI Indus., Inc., 907 S.W.2d 517, 521-22 (Tex. 1995) (per curiam).
15
under the policy. Because mold-related losses were explicitly
barred by the mold exclusion, the court opined that the “ensuing
loss” clause could not create mold-loss coverage even though the
mold damage arose in part because of water damage. See id. at 748-
52. In so ruling, the court reaffirmed the general interpretive
maxim that a general clause permitting coverage cannot render
ineffective another clause that contains a specific and unambiguous
coverage exclusion. See Forbau, 876 S.W.2d at 133-34. Motiva’s
reading of the United National CLE would require this court to hold
that an exception to an exclusion contained in an umbrella policy’s
CLE can impliedly neutralize all other specific exclusions to
coverage. We decline to reach this anomalous result.
III. CONCLUSION
The Duriso plaintiffs alleged that they were injured, in
whole or in part, by the release of hydrogen sulfide, a pollutant.
Thus, the policy’s Pollution Exclusion is invoked. Because the CLE
cannot trump explicit exclusions and create coverage where it would
otherwise not exist, Motiva’s claim for indemnification must also
fail.
AFFIRMED.
16