Utica Mutual Insurance v. Weathermark Investments, Inc.

United States Court of Appeals
For the First Circuit

No. 01-1767

UTICA MUTUAL INSURANCE COMPANY,
Plaintiff, Appellee,
v.

WEATHERMARK INVESTMENTS, INC., ETC.,
Defendant, Appellant,

HALL EQUIPMENT, INC., ET AL.,
Defendants.

No. 01-1768
UTICA MUTUAL INSURANCE COMPANY,

Cross-Appellant,

v.

WEATHERMARK INVESTMENTS, INC., ETC.,

Cross-Appellee,

HALL EQUIPMENT, INC., ET AL.,
Defendants.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Morris E. Lasker, Senior U.S. District Judge]
 Before
Selya, Circuit Judge,

Cyr, Senior Circuit Judge,

and O'Toole,* District Judge.

William D. Gillis, Jr., with whom Gerald E. Libby II and
Massery & Gillis, LLP were on brief for defendant, appellant.
Rachel E. Smith, with whom Lon A. Berk and Shaw Pittman, LLP
were on brief for plaintiff, appellee.

June 11, 2002

*
Of the District of Massachusetts, sitting by designation.

2
 CYR, Senior Circuit Judge. Weathermark Investments

("Weathermark"), operator of a home-heating oil business, appeals

from a district court judgment declaring that Utica Mutual
Insurance Company ("Utica") is under no contractual obligation to

indemnify its insureds for costs incurred in cleaning up a fuel oil

spill on Weathermark's property. Utica in turn cross-appeals from
a district court ruling entitling Utica's insureds to
indemnification for nonremediation "property damages" caused by the

oil contamination. We affirm the district court judgment.

I

BACKGROUND

In 1994, Weathermark hired Hall Equipment, Inc. ("Hall"),

to repair a fuel pump. Due to allegedly negligent repairs

performed by Hall, more than 3,000 gallons of fuel oil spilled at

the Weathermark oil storage facility, some of which migrated to an

adjacent property occupied by ELAW Corporation ("ELAW"). The

Massachusetts Department of Environmental Protection (DEP) issued

a notice of responsibility, requiring Weathermark to undertake
"immediate response actions."

In due course, Weathermark and ELAW brought a state court

action against Hall and its president, William Riddell, for more
than $2 million in damages, including (i) their respective costs in
cleaning up the oil spill; (ii) various permanent property damages

due to the spill; and (iii) loss of business income and profits.
As Weathermark and ELAW have settled their cross-claims and ELAW

3
has assigned its rights against Hall and Riddell to Weathermark, we

advert simply to Weathermark as the party demanding damages.

The Commercial General Liability ("CGL") policy issued by
Utica insured Hall and Riddell against all "sums that [they]

become[] legally obligated to pay as damages because of 'bodily

injury' or 'property damage' to which this insurance applies,"
subject, inter alia, to the following coverage exclusion:

(1) "Bodily injury" or "property damage" arising
out of the actual, alleged or threatened
discharge, dispersal, seepage, migration,
release, or escape of pollutants . . . .

(2) [a]ny loss, cost or expense arising out of any:

(a) Request, 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; or

(b) Claim or suit by or on behalf of a
governmental authority for damages
because of testing for, monitoring,
cleaning up, removing, containing,
treating, detoxifying or
neutralizing, or in any way
responding to, or assessing the
effects of pollutants.

CGL policy exclusion ¶ f.

Utica commenced the instant action against Hall,

Weathermark, and ELAW in federal district court, demanding a

judicial declaration that policy exclusion f(2), supra, rules out

any contractual responsibility to indemnify Hall and Riddell for

4
whatever damages ultimately may be due Weathermark in the

underlying state-court actions.1

In due course, the district court entered partial summary
judgment for Utica, declaring that ¶ f(2)(a) forecloses coverage of

any cleanup costs for which Hall and Riddell are required to

reimburse Weathermark and ELAW due to the oil spill, i.e., the so-

called environmental "response costs." Utica Mut. Ins. Co. v. Hall

Equip., Inc., 73 F. Supp. 2d 83, 87 (D. Mass. 1999). However, the

district court granted partial summary judgment for Hall as well,

ruling that ¶ f(2)(a) does not encompass "nonremediation" damages

unrelated to Weathermark's actual removal of the spilled oil,

including permanent damage to the Weathermark and ELAW properties

and any diminution in their fair market value. Id. The respective
parties cross-appealed from these district court rulings.

II

DISCUSSION

Under Massachusetts law, insurance-contract
interpretations pose legal issues for resolution by the court, and,
absent ambiguity, insurance contracts are to be enforced in
accordance with their plain language. See Somerset Sav. Bank v.

Chicago Title Ins. Co., 649 N.E.2d 1123, 1127 (Mass. 1995); Jacobs

v. U.S. Fid. & Guar. Co., 627 N.E.2d 463, 464 (Mass. 1994)("[W]here

1
Although Utica's complaint also sought a judicial declaration
as to whether its CGL policy obligated it to defend Hall and
Riddell in the underlying state court proceedings, it no longer
presses this claim.

5
the words of an insurance contract are 'plain and free from

ambiguity they must be construed in their usual and ordinary

sense.'") (citation omitted). Moreover, insurance-contract
interpretations rendered in the district court are subject to de

novo review. See EKCO Group, Inc. v. Travelers Indem. Co., 273

F.3d 409, 412 (1st Cir. 2001). "[I]insurance policies should be
construed as a whole 'without according undue emphasis to any

particular part over another.'" Mission Ins. Co. v. U.S. Fire Ins.

Co., 517 N.E.2d 463, 466 (Mass. 1988)(citation omitted). Only

where a contractual term is ambiguous does its interpretation pose

a question of fact, and though the parties may adduce extrinsic

evidence of their respective intendments, any residual ambiguity

must be resolved against the insurer. See Preferred Mut. Ins. Co.

v. Gamache, 686 NE.2d 989, 991 (Mass. 1997). Most importantly in

the present context, coverage exclusions are to be strictly

construed against the insurer. See id.

A. The Weathermark Appeal

The district court determined that, if successful, the
state-court claim Weathermark brought for reimbursement of its past
and future response costs would constitute an "expense arising out

of a[] . . .[r]equest, demand or order that any insured or others
. . . in any way respond to . . . the effects of pollutants,"
Policy ¶ f(2)(a); and, consequently, that any recovery realized by

Weathermark in its lawsuit would be excluded from coverage under
the CGL policy issued to Hall and Riddell.

6
 Weathermark maintains on appeal that the district court

erred in failing to infer the meaning of Policy ¶ f(2)(a) through

reference to ¶ f(2)(b), which excludes from coverage "[a]ny loss,
cost or expense arising out of any . . . [c]laim or suit by or on

behalf of a governmental authority for damages because of testing

for, monitoring, cleaning up, removing, containing, treating,
detoxifying or neutralizing, or in any responding to, or assessing

the effects of pollutants." Adverting to the familiar maxim that

general contract language normally must yield to more particular

language, Weathermark contends that (i) the undefined phrase

"[r]equest, demand or order," appearing in ¶ f(2)(a), is too

general to denote a lawsuit, and (ii) since ¶ f(2)(b) explicitly

addresses the subject of lawsuits, Utica needed to specify in ¶
f(2)(b) that both governmental and private-party lawsuits were to

be excluded from coverage.

The merits of these contentions need not be addressed,
however, since Weathermark failed to raise them below, see Utica

Mut. Ins. Co., 73 F. Supp. 2d at 87-88, and issues first asserted

on appeal must be deemed waived, see Vanhaaren v. State Farm Mut.

Auto. Ins. Co., 989 F.2d 1, 4-5 (1st Cir. 1993). Instead,

Weathermark merely invited the district court to compare ¶ f(2)(a)

and ¶ f(1), rather than ¶ f(2)(a) and ¶ f(2)(b). Moreover,

Weathermark subsequently abandoned the former comparison as a

ground for the instant appeal.2

2
Nor did the district court ruling constitute plain error.
See Ferrara & DiMercurio v. St. Paul Mercury Ins. Co., 240 F.3d 1,

7
 Similarly, since the remaining arguments Weathermark

asserts on appeal were never raised below, they are deemed waived.

See id. Weathermark now argues, on public policy grounds, that the
interpretation given ¶ f(2)(a) by the district court would enable

Utica to exclude coverage based on the mere fortuity as to whether

the third party seeking reimbursement was served with a "request,"
such as a notice of responsibility issued by an environmental

enforcement agency. Weathermark adds that its theory was

"apparently recognized" in the memorandum submitted in support of

Utica's motion for partial summary judgment. Be that as it may,

Weathermark presented no argumentation on this theory in opposition

to Utica's motion for partial summary judgment. Consequently, the

13 (1st Cir. 2001) (waived issue may be reversed for plain error;
i.e., only if it is egregious in nature and results in manifest
miscarriage of justice). First, although "[t]his pollution
exclusion clause is uniformly used by the insurance industry in
general commercial liability policies," Byrd v. Blumenreich, 722
A.2d 598, 600 (N.J. Super. Ct. App. Div. 1999), Weathermark can
unearth no case authority supporting its interpretation of ¶
f(2)(a). While not necessarily conclusive, its failure to cite
such authority does suggest that insureds generally have not
advocated the contract interpretation belatedly advanced on appeal
by Weathermark.
Second, although arguably the Utica pollution exclusion clause
might have been more artfully drafted, we are required to
"interpret policy language in accordance with the common meaning of
the words used, from the viewpoint of a reasonable insured." Davis
v. Allstate Ins. Co., 747 N.E.2d 141, 149 (Mass. 2001); Atl. Mut.
Ins. Co. v. McFadden, 595 N.E.2d 762, 764 (Mass. 1992). In
ordinary usage, the term "demand" indicates an act of "claim[ing]
or seek[ing] as due by right." Webster's New Universal Unabridged
Dictionary 482 (2d ed.) ("[I]n law, to summon to court."). Even in
legal parlance, the term "demand" is primarily defined as "[t]he
assertion of a legal right; a legal obligation asserted in the
courts." Black's Law Dictionary 386 (5th ed. 1979) (emphasis
added).

8
district court never reached it.3 The raise-or-waive rule serves

to forfend against "sand-bagging," viz., reserving legal theories

for initial use on appeal.
Finally, Weathermark maintains, were we to declare the

pollution exclusion ambiguous, we should consider "extrinsic

evidence" as to the parties' intent, see, e.g., 1 Gibson &
McLendon, Commercial Liability Insurance, Annotated Policy, at V.D.

(1988), even though Weathermark concedes, as it must, that it never

raised its "extrinsic evidence" argument below. Nonetheless,

Weathermark urges, since appellate interpretations of insurance

contracts are plenary, see EKCO Group, Inc., 273 F.3d at 412, we

should allow it to advance any alternative argument on appeal. Of

course, controlling authority is to the contrary: "although the
court of appeals affords de novo review to orders granting summary

judgment, it will not reverse such an order on the basis of

arguments that were not made in the trial court." Higgins v. New

Balance Athletic Shoe, Inc., 194 F.3d 252, 258 (1st Cir. 1999).

3
Nor was there plain error. The district court ruled that
Weathermark's state-court lawsuit constituted the "request, demand,
or order" which triggered the ¶ f(2)(a) pollution exclusion. As
previously noted, Weathermark waived any appellate challenge to
that ruling. Accordingly, it is immaterial whether the notice of
responsibility which Weathermark received from the Massachusetts
Department of Environmental Protection constituted a "request,
demand, or order." See Smith v. Kmart Corp., 177 F.3d 19, 26 (1st
Cir. 1999) (on 'plain error" review, appellant must meet its burden
to establish that an alleged error was prejudicial).

9
B. The Utica Cross-Appeal

The district court determined that ¶ f(2)(a) neither

encompasses the "non-remediation" damages incurred by Weathermark,

nor any costs unrelated to actual removal of the spilled oil from

the Weathermark and ELAW properties, such as permanent property

damages, diminution in the fair market value of the properties, or

losses of rental or through-put income. Utica asserts in its

cross-appeal that the district court erred in three respects. Its

conclusions may be summarized as follows:

First, these nonremediation damages nonetheless
constituted a "loss, cost or expense arising out of a[] . . .

demand . . . that [Hall] . . . in any way respond to . . . the
effects of pollutants," since such nonremediation damages arose
from the Weathermark lawsuit and would not have been incurred but

for the oil spill. Second, the case law uniformly supports the
contract interpretation advanced by Utica. Third, ¶ f(2)(a)
notwithstanding, the diminution in the fair market value of

property and the loss of rental or through-put income are
independently excluded from coverage since the definition of
"property damage" contained in the CGL policy - viz., "physical

injury to tangible property" or "loss of use of tangible property"
plainly does not encompass these types of intangible economic
losses. We address these contentions in turn.

First, irresolvably ambiguous coverage exclusions are to

be strictly construed against the insurer. See Preferred Mut. Ins.

Co., 686 N.E.2d at 991. At first glance, the ¶ f(2)(a) phrases

10
here involved - "in any way respond" and "effects of pollutants" -

appear to be fairly broad, arguably even encompassing all property

damages resulting from an oil spill. Yet construing the insurance
policy as a whole, as required, see Mission Ins. Co., 517 N.E.2d at

466, we agree with the district court that an insured reasonably

could construe the term "respond" as delimiting the scope of ¶
f(2)(a) to recoveries of remediation costs.

Contrary to the contention advanced by Utica, the term

"demand," appearing in ¶ f(2)(a), does not necessarily contemplate

the entire lawsuit Weathermark filed in state court. Rather,

"demand" may simply refer to an individual claim asserted in a

lawsuit; here, the claim for reimbursement of remediation costs.

See supra note 2. When real property becomes contaminated by a
pollutant, two distinct types of damages frequently result. First,

remediation damages obtain in the form of the expense incurred in

the containment and removal of the pollutant, to the extent
practicable, so as to return the property to its preexisting

environmental condition. Thus, in the parlance of environmental
law, costs incurred in rehabilitating a contaminated property to

its preexisting environmental condition typically are referred to

as "response costs." See, e.g., Mass. Gen. Laws. Ann. ch. 21E, §

4 ("Response actions."). Accordingly, for example, normally the

notice of responsibility issued by the DEP would not additionally

demand that the remediating party remediate other property damage

caused by the contamination, unless it too posed an environmental

threat. In the present case, even though the oil in situ itself

11
constituted "property damage," see Hazen Paper Co. v. Fid. & Guar.

Co., 555 N.E.2d 576, 583-84 (Mass. 1990), that is not to say that

other consequential or incidental property damage may not have been
caused, which the mere removal of the spilled oil would not remedy.

Thus, by employing the term "respond" in ¶ f(2)(a), the

Utica pollution exclusion gave rise to an ambiguity, particularly
since the preceding listing of activities pertained exclusively to

remediation efforts - viz., testing or monitoring for, cleaning up,

removing, or containing the pollutant. Compare Mass. Gen. Laws.

Ann. ch. 21E, § 4 ("Response actions."), with id. § 5(a)(iii)

(making responsible parties liable "to any person for damage to his

real or personal property incurred or suffered as a result of such

release or threat of release").
Further, ¶ f(1) specifically excludes from coverage

"'property damage' arising out of the actual . . . discharge . . .

of pollutants," yet lists only four circumstances in which the
exclusion applies, none of which pertain to the insureds Hall and

Riddell. See Aldridge v. A.T. Cross Corp., 284 F.3d 72, 84 (1st

Cir. 2002) (court of appeals may affirm district court on any

ground apparent in record). "It is a well settled rule of

construction for insurance policies that 'a specific provision

relating to a particular subject will govern in respect to that

subject, as against a general provision even though the latter,

standing alone, would be broad enough to include the subject to

which the more specific provision relates." So. Cal. Edison Co. v.

Harbor Ins. Co., 148 Cal. Rptr. 106, 112, 83 Cal. App. 3d 747, 759

12
(Ct. App. 1978) (citation omitted); see also Transamerica Leasing,

Inc. v. Inst. of London Underwriters, 267 F.3d 1303, 1308 (11th

Cir. 2001); 13 John A. Appleman & Jean Appleman, Insurance Law and

Practice § 7357, at 181 (1979 & Supp. 2002). Thus, even though the

reference, in ¶ f(2)(a), to "effects of pollutants" - standing

alone - may be exceedingly broad, the preceding specific reference
to "property damage" in ¶ f(1) supersedes it, rendering it

ambiguous insofar as it may purport to encompass nonremediation

damages. Moreover, had Utica so intended, it readily could have

obviated any ambiguity. See, e.g., Gaylord Container Corp. v. CNA

Ins. Cos., 807 So.2d 864, 870 (La. Ct. App. 2001) (adding final

sentence to ¶ f(2)(a)-like pollution exclusion: "To the extent that

any of the above is determined to be . . . 'Property Damage,' said
. . . 'Property Damages' [are] also excluded."].

Second, the unreported cases cited by Utica are either

inapposite or unpersuasive.4 For instance, Manufacturers Gasket

Co. v. Transcom, No. 93-3108 (6th Cir. Dec. 6, 1993), merely held

that the pollution exclusion barred coverage for a private lawsuit

seeking to recover "costs for pollutant cleanup." The issue of

nonremediation damages was never mentioned. In Coal Heat v. United

States Fidelity and Guaranty Co., 2000 WL 1680713 (E.D. Pa. Nov. 2,

2000), the court specifically rejected the remediation-

4
Normally, unpublished opinions are not to be cited. See 1st
Cir. Local R. 36.2(b)(2)(F); United States v. Meade, 110 F.3d 190,
202 (1st Cir. 1997). Here, however, we do not cite unpublished
opinions as authority. Rather, we mention these opinions merely to
demonstrate that they would not aid Utica's cause, even assuming
they had some precedential effect, which they do not.

13
nonremediation distinction drawn in Utica Mutual Ins. Co. v. Hall

Equipment,. Inc., 73 F. Supp. 2d 83 (D. Mass. 1999), citing cases

from other jurisdictions in which the courts "[broadly] interpreted
the phrase 'arising out of' in the Pollution Exclusion to indicate

a 'but for' or 'causal' relationship between the damage claimed and

the released pollutants." Id. at *7. Nevertheless, the phrase
"arising out of" does not modify "effects of pollutants," but

purports simply to require some causal connection between the

"loss" and the "demand." As already noted, exclusion ¶ f(2)(a)

does not use the term "suit," and although a suit may be a

"demand," the term "demand" does not necessarily comprehend a

lawsuit, but instead may simply refer to a claim asserted in a

lawsuit. See supra note 2. Accordingly, the underlying premise in
Coal Heat is flawed, since "demands" for remediation costs are

segregable from demands for nonremediation property damages.

Finally, we need not address the Utica contention that
some of these nonremediation damages are excludible on the

independent ground that the "property damage" definition contained
in the insurance contract does not encompass these types of

intangible economic losses. Nowhere in its motion for partial

summary judgment did Utica urge this "separate and independent

ground" for excluding coverage for this particular subset of

nonremediation damages. Accordingly, its argument must be deemed

waived. See Vanhaaren, 989 F.2d at 4-5.

Since ¶ f(2)(a) is ambiguous as concerns any exclusion of

nonremediation property damages, it is to be construed against the

14
insurer which drafted the policy. See Preferred Mut. Ins. Co., 686

N.E.2d at 991.

Affirmed. The parties are to bear their own costs.

15