IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 2, 2008
No. 07-20354 Charles R. Fulbruge III
Clerk
NOBLE ENERGY INC; ST PAUL SURPLUS LINES INSURANCE
COMPANY; ASSOCIATED ELECTRICAL & GAS INSURANCE SERVICES,
LTD
Plaintiffs-Appellants
BITUMINOUS CASUALTY COMPANY
Defendant-Appellee
Appeals from the United States District Court
for the Southern District of Texas
Before KING, WIENER, and ELROD, Circuit Judges.
WIENER, Circuit Judge:
This insurance coverage dispute concerns whether, pursuant to a general
liability insurance policy issued by Defendant-Appellee Bituminous Casualty
Company (“Bituminous”) to T&L Lease Services, Inc. (“T&L Lease”) (the
“Bituminous policy”), Bituminous had a duty to defend and owes indemnity to
one of the Plaintiffs-Appellants, Noble Energy, Inc. (“Noble”), in connection with
the underlying lawsuit arising from an explosion at an oilfield recycling facility.
Noble and its insurers, Plaintiffs-Appellants St. Paul Surplus Lines Insurance
Company (“St. Paul”) and Associated Electrical & Gas Insurance Services
(“Aegis”), appeal the district court’s grant of summary judgment in favor of
Bituminous. Plaintiffs-Appellants urge that the court erred when it held that
No. 07-20354
(1) Noble was not an “additional insured” under the Bituminous policy, and (2)
even if, arguendo, Noble was an additional insured, the policy’s pollution
exclusion negates coverage of Noble’s alleged liabilities. Convinced that the
district court properly held that the pollution exclusion applies to the claims
asserted against Noble in the underlying lawsuit, we affirm its ruling that
Bituminous does not have a duty to defend or indemnify Noble, making
resolution of the question whether Noble was an additional insured unnecessary.
I. FACTS AND PROCEEDINGS
Noble is engaged in the exploration for and production of petroleum. St.
Paul issued commercial general liability and automobile insurance policies to
Noble, and Aegis also issued liability insurance to Noble, covering the time when
the incident described below occurred.
In August 2000, Noble and T&L Lease entered into a Master Service
Agreement (the “Noble/T&L Agreement”), pursuant to which T&L Lease was
retained by Noble to collect and dispose of Basic Sediment and Water (“BS&W”)
from Noble’s storage tanks, which are located near two petroleum wells. The
Noble/T&L Agreement required T&L Lease to provide additional insurance
coverage to Noble under T&L Lease’s general liability and auto policies. Soon
after entering into the Noble/T&L Agreement, T&L Lease subcontracted its
obligations to an affiliated corporation, T&L Environmental Services, Inc. (“T&L
Environmental”). Together, T&L Lease and T&L Environmental purchased
from Bituminous a commercial general liability policy (the aforementioned
“Bituminous policy”), a commercial auto policy, and a commercial umbrella
policy. The term of each policy was from April 1, 2002 to April 1, 2003.
On January 13, 2003, T&L Environmental dispatched two trucks to pick
up BS&W from Noble’s storage tanks and haul the BS&W to a disposal facility
off premises. After collecting the BS&W from the tanks and loading it into the
two trucks, the T&L Environmental workers drove to a facility owned and
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No. 07-20354
operated by BLSR Operating, Ltd. (“BLSR”) in Rosharon, Texas. When the T&L
Environmental drivers arrived at the BLSR facility, each backed his truck onto
a mud disposal and washout pad, then got out of the truck to complete
paperwork, leaving the diesel engine running. While the BLSR employees were
unloading the BS&W, the trucks’ engines began to race. One of the engines
exploded, causing a fire that engulfed both trucks. A T&L Environmental
employee and two BLSR employees were killed, and several other workers were
injured. It was later determined that combustible vapors from the BS&W, which
contained gas condensate, had caused the diesel engines to race, leading to the
explosion and fire.
Some surviving employees and the estates of the deceased employees (the
“Plaintiffs”) filed suits against T&L Environmental, T&L Lease, Noble, and
several other companies (the “underlying lawsuit”). Thereafter, Noble’s
insurance broker, Marsh USA Inc., sent a demand letter to Bituminous,
asserting that Bituminous was obligated to defend and indemnify Noble in the
underlying lawsuit because Noble was an additional insured under the
Bituminous policy. Bituminous rejected this demand.
In April 2004, Noble entered into a settlement agreement with the
Plaintiffs in the underlying lawsuit. Pursuant to the agreement, St. Paul and
Aegis paid approximately $14,400,000 to the Plaintiffs on Noble’s behalf. In a
separate transaction, Bituminous paid approximately $5,650,000 to settle the
claims asserted directly against its insureds, T&L Lease and T&L
Environmental.
In June 2005, Noble, St. Paul, Aegis, and Bituminous arbitrated the issue
whether Noble had released its contractual indemnity claim against Bituminous
when it settled with the Plaintiffs. The arbitrator concluded that Noble had
properly preserved that claim.
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No. 07-20354
Several months later, Noble, St. Paul, and Aegis (collectively, the
“Appellants”) filed this breach-of-contract and declaratory-judgment action
against Bituminous in Texas state court. After Bituminous removed the suit to
federal court, both sides filed summary judgment motions. The Appellants
insisted in their first motion that Bituminous had a duty to defend Noble in the
underlying lawsuit; in their second motion, they asserted that Bituminous has
a duty to indemnify them for monies paid to the Plaintiffs pursuant to Noble’s
settlement agreement, up to the Bituminous policy’s limit of one million dollars.
Bituminous filed a cross-motion for summary judgment, contending that it did
not have a duty to defend and does not owe indemnification to Noble.
The district court granted Bituminous’s motion for summary judgment,
holding that Bituminous did not have a duty to defend Noble because (1) Noble
was not an additional insured under the terms of the Bituminous policy, and (2)
even if Noble were an additional insured, that policy’s pollution exclusion would
bar coverage of the Plaintiffs’ claims.1 The court determined further that,
because Bituminous did not have a duty to defend Noble, the Appellants’
summary judgment motion for indemnity was moot. After the district court
denied the Appellants’ alternative motions for a new trial and to alter or amend
the judgment, the Appellants timely filed a notice of appeal.
II. ANALYSIS
A. Standard of Review
We review a district court’s grant of summary judgment de novo, applying
the same standards as the district court.2 Summary judgment “should be
1
The district court also rejected the Appellants’ claim that Bituminous had a duty to
defend and indemnify Noble pursuant to the additional-insured clause in the Noble/T&L
Agreement. To the extent that the Appellants re-urge this contention on appeal, we adopt the
district court’s reasoning in rejecting it.
2
Adams v. Travelers Indem. Co., 465 F.3d 156, 163 (5th Cir. 2006).
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No. 07-20354
rendered if the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that
the movant is entitled to judgment as a matter of law.”3
B. Controlling Law
“Texas follows the ‘eight-corners’ rule of insurance contract interpretation.
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. 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. Doubtful cases will be resolved in favor of the
insured. 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.”4
In Texas, “[i]nsurance policies are controlled by rules of interpretation and
construction which are applicable to contracts generally.”5 Policy language is not
ambiguous if it can be given a definite or certain legal meaning but is ambiguous
if it is subject to two or more reasonable interpretations.6 “Whether a contract
is ambiguous is a question of law for the court to decide by looking at the
contract as a whole in light of the circumstances present when the contract was
entered.”7
3
Fed. R. Civ. P. 56(c).
4
United Nat’l Ins. Co. v. Hydro Tank, Inc., 497 F.3d 445, 448 (5th Cir. 2007), amended
on rehearing by No. 06-20335, 2008 WL 1799963 (5th Cir. Apr. 22, 2008) (internal quotation
marks and citations omitted).
5
Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
6
Id.
7
Id.
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No. 07-20354
C. Pollution Exclusion
The Appellants contend that the district court erred when it held that (1)
Noble was not an additional insured under the Bituminous policy, and (2) the
policy’s pollution exclusion negates coverage of the Plaintiffs’ claims against
Noble. An insurer’s duty to defend is separate from and broader than its duty
to indemnify.8 Convinced that the plain language of the exclusion clause
unambiguously excludes coverage of each the claims asserted by the Plaintiffs
against Noble in the underlying lawsuit even if Noble were held to be an
additional insured, we affirm the district court’s ruling that Bituminous was not
obligated either to defend or indemnify Noble. Accordingly, it is not necessary
for us to address whether Noble was an additional insured under the Bituminous
policy.
The pollution exclusion clause in the policy states that the policy does not
cover liability for:
(1) Bodily injury or property damage arising out of the
actual, alleged or threatened discharge, dispersal, release or escape
of pollutants.
....
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.
Texas courts have consistently held similar pollution exclusions to be
unambiguous.9 Like those courts, we hold the pollution exclusion here at issue
8
Lincoln Gen. Ins. Co. v. Aisha’s Learning Ctr., 468 F.3d 857, 858 (5th Cir. 2006).
9
See, e.g., CBI Indus., 907 S.W.2d at 521 (holding that absolute pollution exclusion in
policy is neither patently nor latently ambiguous); Zaiontz v. Trinity Universal Ins. Co., 87
S.W.3d 565, 571 (Tex. App.–San Antonio 2002, pet. denied) (holding that absolute pollution
exclusion is not latently ambiguous).
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No. 07-20354
to be unambiguous. We turn, therefore, to consider whether the accident that
allegedly caused the Plaintiffs’ injuries arose out of a “discharge, dispersal,
release or escape of pollutants.”
The Plaintiffs alleged that the BS&W was the proximate cause of the
explosion and fire that had caused their deaths or injuries.10 According to their
petitions, “[d]uring the unloading process, hazardous, harmful substances were
released into the disposal facility,” which included “hazardous chemical,
hazardous wastes, hazardous chemicals [sic], and hazardous hydrocarbons.” The
Plaintiffs alleged further that “[w]hile the trucks were unloading, the diesel
engines began to ingest the combustible vapors in the fuel rich atmosphere,
which resulted in the speed of one or both of the engines to increase
uncontrollably,” ultimately causing the ensuing explosion and fire. The
Plaintiffs categorized the BS&W at issue as “unwanted waste material” and
“hazardous oilfield waste.” Additionally, the Plaintiffs alleged that “Noble knew
that the tank bottoms on the wells in question contained a mixture of highly
flammable gas condensate and presumably innocuous basic sediment and waste
such that the material[] was more akin to gasoline than salt water.”
Based on these allegations and the Bituminous policy language, we hold
that the Plaintiffs’ claims, arising as they did out of the explosion and fire at the
BLSR facility, fall squarely within the policy’s pollution exclusion: Under the
Plaintiffs’ allegations, the BS&W and the combustible vapors that emanated
from it indisputably meet the policy’s definition of “pollutant”; and Noble’s
alleged liability for the workers’ deaths and bodily injuries indisputably arose
out of the discharge, dispersal, release, or escape of the BS&W and its vapors.
The Appellants’ contentions to the contrary are without merit.
10
Specifically, the Plaintiffs alleged that “[t]he combustible vapors, and associated
liquid provided by ... Noble ... was a cause in fact of the subject explosion and fire.”
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No. 07-20354
The Appellants first assert that the pollution exclusion does not apply
because the Plaintiffs’ injuries resulted from a fire caused by the combustible
vapors from the BS&W, acting not as a pollutant but as an accelerant. Thus, the
Appellants contend that the pollution exclusion is not implicated because the
Plaintiffs’ injuries resulted from a quality of the BS&W other than its quality as
a pollutant, viz., its quality as a flammable accelerant. The Appellants ignore,
though, that the combustible vapors from the gas condensate component of the
BS&W plainly meet the pollution exclusion’s unambiguous definition of
“pollutant.” For support of their “pollutant acting as a pollutant” argument, the
Appellants refer to Certain Underwriters at Lloyd’s London v. C.A. Turner
Construction Co.11 and Pepper Industries, Inc. v. Home Insurance Co.12 These
cases are inapplicable, though, because, among other things, the policies at issue
are distinguishable. The policy in Certain Underwriters did not define the term
“pollutant,” and the policy in Pepper offered a more limited exclusion, covering
only pollutants entering “into or upon land, the atmosphere or any watercourse
or body of water,” which language the court found to be ambiguous. In contrast
here, the Bituminous policy’s pollution exclusion precisely defines “pollutant”
and provides for broad exclusion of coverage, encompassing all bodily injury
“arising out of the actual, alleged or threatened discharge, dispersal, release or
escape of pollutants.” Moreover, the Appellants fail to recognize (or refuse to
acknowledge) that the hazardous quality of the vapors was the proximate cause
of the explosion that killed or injured the workers.
The Appellants nevertheless insist that the pollution exclusion should not
govern this case because its application here would ignore the “reasonable,
objective expectations of the insured.” As support for this argument, the
11
112 F.3d 184 (5th Cir. 1997).
12
134 Cal. Rptr. 904 (Cal. Ct. App. 1977).
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No. 07-20354
Appellants rely on a three-part test crafted in Evanston Insurance Co. v. Adkins:
To determine whether the pollution exclusion applies, the court must ascertain
(1) “whether the substance at issue falls within the insurance policy’s literal
definition of pollutant”; (2) “whether it caused the damages in the underlying
insurance claim”; and (3) “whether common sense and the ‘reasonable, objective
expectations of the insured’ at the time of contracting make it reasonable to
trigger the pollutant exclusion.”13
We observe initially that, to our knowledge, the Adkins test has not been
expressly adopted by any other court. Furthermore, the rationale set forth in
Adkins is inapplicable to the instant circumstances. The Adkins court addressed
the question whether welding slag, which caused a fire, constituted a pollutant
under the pollution exclusion clause. The court ultimately determined that the
welding slag—molten metal particles from the welding—failed the third prong
of the test because “[i]t would defy common sense and all reasonable
expectations to interpret a welder's general liability insurance policy as negated
by its pollutant exclusion any time welding slag causes damage or injury.”14
Accordingly, the Adkins court declined to enforce the pollution exclusion after
determining that doing so would render the insurance contract nugatory. Unlike
the policy in Adkins, though, the Bituminous policy was not intended to insure
Noble from liability specifically and solely arising from the accumulation,
transportation, and disposal of BS&W, a minor, tertiary aspect of Noble’s
exploration and production endeavors. Therefore, even if the policy language at
issue were ambiguous and even if we were inclined to adopt the Adkins
three-part test, the Adkins rationale is inapposite. And, finally, under Texas
13
No. 3:05-CV-2068-L, 2006 WL 2848054, at *6 (N.D. Tex. Oct. 4, 2006) (mem. op.).
14
Id. at *7.
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No. 07-20354
law, the reasonable expectations of the insured are not to be considered when
the policy language is unambiguous, as is the situation here.15
The Appellants next assert that the Plaintiffs’ allegations fall within the
scope of the policy’s hostile-fire exception to the pollution exclusion, which
exception states
[The pollution exclusion clause] does not apply to bodily injury or
property damage caused by 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.
Once again, the Appellants’ proposition misses the mark. The hostile-fire
exception applies only if a pre-existing fire causes the pollution.16 Here, the
reverse occurred: The pollutant itself directly caused the fire at the BLSR
facility, not vice versa, so the hostile-fire exception cannot apply.
Finally, the Appellants advance that the pollution exclusion does not apply
because (1) the combustible vapors from the gas condensate component of the
BS&W does not constitute a “pollutant” under the policy, and (2) even if it is a
pollutant, it was not “discharged, dispersed, or released” into the environment.
Both contentions are misguided. As previously noted, the Plaintiffs alleged in
their petitions that the BS&W (including its gas condensate component) is a
pollutant under the terms of the Bituminous policy and categorized the BS&W
as “unwanted waste material” and “hazardous oilfield waste.” In the policy’s
pollution exclusion, “waste” is plainly identified as constituting a pollutant.
Furthermore, we reject the Appellants’ argument that the BS&W was not
discharged, dispersed, or released into the environment simply because it was
15
Constitution State Ins. Co. v. Iso-Tex Inc., 61 F.3d 405, 410 n.4 (5th Cir. 1995)
(citation omitted).
16
See, e.g., Ind. Lumbermens Mut. Ins. Co. v. W. Oregon Wood Prods., Inc., 268 F.3d
639, 644-45 (9th Cir. 2001).
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No. 07-20354
“confined within the area of its intended use.” The Appellants ignore entirely
the substantial body of case law holding that substances need not be released into
the surrounding environment to qualify as pollutants for purposes of a pollution
exclusion clause.17 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.
III. CONCLUSION
The Bituminous policy’s pollution exclusion eschews coverage of the
claims asserted against Noble in the underlying lawsuit. Accordingly,
Bituminous did not have a duty to defend Noble and does not owe Noble
indemnification. As noted above, the duty to indemnify under an insurance
policy is separate from and narrower than the duty to defend, and the court
may consider facts outside the pleadings to determine whether a duty to
indemnify exists under a policy.18 As the Bituminous policy does not cover
the underlying claims asserted against Noble, Bituminous had no duty to
defend Noble and has no duty to indemnify Noble under these circumstances.
And, as the Bituminous policy’s pollution exclusion would eliminate coverage
of Noble’s alleged liabilities to the Plaintiffs, even if Noble were deemed to be
an additional insured, we need not and thus do not address the district court’s
holding that Noble was not an additional insured.
17
See Certain Underwriters at Lloyd’s London v. C.A. Turner Constr. Co., 112 F.3d 184,
188 (5th Cir. 1997) (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 Univ. Ins.
Co., 87 S.W.3d 565, 571-72 (Tex. App.–San Antonio 2002, pet. denied) (injury caused by “odor
eliminator” chemical that was confined to its proper area of application triggered pollution
exclusion).
18
See, e.g., United Nat’l Ins. Co. v. Hydro Tank, Inc., 497 F.3d 445, 448 (5th Cir. 2007),
amended on rehearing by No. 06-20335, 2008 WL 1799963 (5th Cir. Apr. 22, 2008).
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No. 07-20354
AFFIRMED.
12