«HEADWATERS RESOURCES, INC., Plaintiff - Appellant, v. No. 13-4035 ILLINOIS UNION INSURANCE COMPANY and ACE AMERICAN INSURANCE COMPANY, Defendants - ...»
express the intention of the parties may be understood to have two or more plausible meanings”). Similarly, when an insurance policy is less than clear to the reasonable purchaser of insurance, Utah courts consistently interpret “ambiguous or uncertain language in an insurance contract that is fairly susceptible to different interpretations [ ] in favor of coverage.” U.S. Fid. & Guar. Co. v. Sandt, 854 P.2d 519, 522 (Utah 1993).
But the identification of an ambiguity is a matter first for the court. Cf.
Farmers Ins. Exch. v. Versaw, 99 P.3d 796, 800–01 (Utah 2004) (finding ambiguities first, before construing the lack of clarity in favor of the insured). In other words, unless the language is unclear, the general rule applies, and the court interprets the contract in accordance with the parties’ intent as expressed by the plain language of the relevant instruments. See Holmes Dev., LLC v. Cook, 48 P.3d 895, 902 (Utah 2002); State Farm Mut. Auto. Ins. Co. v. DeHerrera, 145 P.3d 1172, 1174 (Utah Ct. App. 2006). And it is important to remember, a policy provision is not ambiguous simply because the parties ascribe different meanings to it according to their own interests. See Camp v. Deseret Mut. Benefit Ass’n, 589 P.2d 780, 782 (Utah 1979).
With this legal background in mind, we turn next to the language of the pollution exclusions.
The various policies that insured Headwaters contain similar but not identical exclusionary language. Broadly stated, the pollution exclusions are forms of the “total pollution exclusion” that “[t]he majority of courts have held [to be] ‘clear and unambiguous.’” See 9 Steven Plitt et al., Couch on Ins.
§ 127:13 (3d ed. 1995, database updated 2014). 4 Headwaters, however, maintains that the comprehensiveness of the pollution exclusions reveals ambiguity within the policies because literal application of the exclusions abolishes coverage. But a plain reading of the exclusion provisions contradicts Headwaters’ appeal for ambiguity. Simply stated, the pollution exclusions, while far-reaching, are not ambiguous and do not abolish all coverage under the policies. We reach this conclusion by first reviewing the various iterations of the pollution exclusions incorporated into the relevant policies.
The 2003 and 2006 policies, which contain an identical pollution 4 As a historical note, the “total pollution exclusion” within CGL policies has evolved over the past forty years as an effort by the insurance industry to limit its liability for the potentially large costs associated with environmental litigation. See Kenneth S. Abraham, The Rise and Fall of Commercial Liability Insurance, 87 Va. L. Rev. 85, 104 (2001). Accordingly, there is no question that the standard-form pollution exclusions have aimed for the broad applicability that Headwaters challenges here. Id.
from “actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’” when combined with at least one of five circumstances enumerated in lettered subparts. App. Vol. II at 283–84; App. Vol.
III at 530. 6 The district court held that the allegations in the complaint fell within subpart c of the pollution exclusion.
That provision excludes coverage for bodily 5 Before the district court, Headwaters argued that certain “endorsements” contained in the 2006 policy effectively deleted the pollution exclusion in its entirety. The district court disagreed, and Headwaters does not make the argument on appeal. See Aplt. Br. at 18–19. Accordingly, for our purposes the pollution exclusions for the 2003 and 2006 policies are the same.
In relevant part, the exclusions take away coverage for:
or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for: (i) [a]ny insured; or (ii) [a]ny person or organization for whom [the insured] may be legally responsible.” Id. “Pollutants,” under the 2003 and 2006 policies, are defined 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.” App. Vol. II at 295; App. Vol. III at 541.
The 2004, March 2005, and October 2005 policies contain a differently worded pollution exclusion from the policies described above. These policies bar coverage for “any injury, damage, expense, cost, loss, claims, liability or legal obligation arising out of or in any way related to pollution, however caused.” App. Vol. II at 344, 403, 464. Moreover, the definition of pollution includes the alleged presence or introduction into the environment of “(i.) any substance, if such substance has, or is alleged to have, the effect of making the environment impure, harmful, or dangerous, (ii.) hazardous substances, hazardous materials, (iii.) or any ‘pollutant.’” Id. In turn, “Pollutant” is defined as,
The pollution exclusions within the 2007 and 2008 policies adopt components of the definitions and provisions from the policies from the previous years. First, like the 2004 and 2005 policies, the 2007 and 2008 policies broadly exclude coverage for “pollution, however caused.” App. Vol. III at 598, 697. In addition, the 2007 and 2008 policies define “pollution” in a way that is, for all relevant purposes, the same as the counterparts from the 2004 and 2005 policies.
Id. Finally, the 2007 and 2008 policies embrace the definition of “pollutants” contained in the 2003 and 2006 policies. See id.
Before further discussing the language contained within the four corners of the policy provisions, we must also examine the precise nature and characteristics of the allegations within the four corners of the Chesapeake complaints.
The district court found that the “the complaints in the... lawsuits alleged bodily injury and property damage arising out of the actual or threatened dispersal of pollutants from waste that was processed by Headwaters.” Headwaters Res., Inc., 913 F. Supp. 2d at 1212. Taken broadly, the complaints allege pollution of the type that falls within the pollution exclusions in all the policies.
Complaint and the Sears Complaint allege causes of action that arise exclusively on the basis of the polluting activities of Headwaters and its co-defendants. The Fentress Complaint, 7 for example, asserts a number of pollution-based accusations
that comprise the gist of plaintiffs’ claims:
7 The Fentress Complaint and the Sears Complaint do not materially differ in their allegations. In their briefs, both parties treat the complaints as largely indistinguishable.
The extent of the pollution described in the underlying complaints cannot be reasonably disputed—in short, these allegations of Headwaters’ polluting activities are the sole cause of plaintiffs’ claimed injuries.
As we discuss below, the allegations, therefore, fall squarely within the pollution exclusions of the policies and under the eight corners rule they except from the scope of coverage the incidents of environmental pollution caused by the Chesapeake construction project.
In the typical duty-to-defend case, we would next turn directly to the application of the eight corners rule to determine whether the policies unambiguously except from coverage the allegations of pollution chronicled in the complaints. But, as we alluded to above, Headwaters’ call for ambiguity is not of the usual sort because Headwaters does not convincingly argue that the terms of the pollution exclusions are susceptible to multiple meanings, either
Instead, Headwaters asserts that these provisions are fundamentally ambiguous in light of their breadth and raises several arguments urging a different result, all of which avoid the plain language of the pollution exclusions. And so, before applying the policy provisions to the facts alleged in the complaints as required under the eight corners rule, we address Headwaters’ overarching argument of ambiguity.
First, Headwaters contends that the pollution exclusions are so broad that they bar from coverage events arising from Headwaters’ “regular business activities” and use of its “products.” See Aplt. Br. at 21 But we are not aware of any categorical rule that prohibits a normal business activity from also producing pollution, or a product from also being classified as a pollutant. See Bituminous Cas. Corp. v. St. Clair Lime Co., 69 F.3d 547, at *4–5 (10th Cir. 1995) (unpublished table decision) (“There is no language in the policy to suggest that the insured’s ‘product,’ as contemplated in the products-completed operations hazard coverage, could not be a ‘pollutant.’”). Stated otherwise, euphemistically designating an activity or a material in a certain way does not necessarily insulate it from the force of a broad pollution exclusion. In the end, the fact that coverage may be excluded for regular business activities and projects does not shortcut our analysis, and we have frequently concluded that the routine commercial activities of the insured can occasion application of a CGL policy’s pollution exclusion to
Fund Ins. Co., 52 F.3d 1522, 1528 (10th Cir. 1995); Anaconda Minerals Co. v.
Stoller Chem. Co., 990 F.2d 1175, 1178–79 (10th Cir. 1993); Hartford Acc. & Indem. Co. v. U.S. Fid. & Guar. Co., 962 F.2d 1484, 1489 (10th Cir. 1992) 8; see also Great Lakes Container Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 727 F.2d 30, 33 (1st Cir. 1984); Am. States Ins. Co. v. Nethery, 79 F.3d 473, 477 (5th Cir. 1996) (“[N]umerous courts have found substances constituted pollutants regardless of their ordinariness or usefulness.”).
Put another way, in light of our straightforward comparison of the policies and the complaints, no amount of semantic sleight-of-hand can transform the alleged pollution into something less pernicious. Resisting this conclusion, Headwaters points to the unpublished district court case in United National Insurance Co. v. International Petroleum & Exploration, No. 2:04-CV-00631 (BSJ), 2007 WL 4561460 (D. Utah Dec. 20, 2007) (IPE), to argue that a broad exclusion on normal business practices generates ambiguity. It is true that in IPE the court interpreted what it deemed an ambiguous policy exclusion applicable to the facts of that case to avoid excluding coverage for the insured’s normal 8 Headwaters rightly notes that these cases arose during a wave of litigation about the applicability of the “sudden and accidental” exception to the former standard version of a CGL pollution exclusion. See Aplt. Reply at 11–12.
But we nevertheless adopt the persuasive general principle from these decisions that a pollution exclusion itself can apply to the ordinary business activities of the insured.
exclusions similar to those at issue in this case to be ambiguous, we disagree, particularly as the exclusions apply to the allegations here. The fact that certain policy provisions, including pollution exclusions, may broadly apply to bar coverage does not make them ambiguous.
Further, at least one Utah decision suggests the converse of Headwaters’ line of reasoning. See Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 136 (Utah 1997). In Sharon Steel, the Supreme Court of Utah interpreted an exception to a pollution exclusion for “sudden and accidental” occurrences to be inapplicable to the “insured’s normal course of operation.” Id. In fact, the court indicated that
And while it is possible Headwaters’ business might generate more pollution than the average CGL policy holder, we cannot sustain Headwaters’ argument that it is deprived of coverage under ACE’s CGL policy because pollution from its normal business activities is uncovered. In fact in examining the policies, they still cover foreseeable claims in myriad instances, such as the
property, claims for property damage caused when a piece of its machinery accidentally bursts a water main, or for numerous other fortuitous occurrences within the scope of its CGL coverage. 9 And of course, Headwaters can purchase additional special-purpose coverage for environmental pollution liability that provides more comprehensive coverage for the unique risks associated with its business model. See Abraham, supra, at 103–04.
Headwaters’ ambiguity arguments are also unpersuasive inasmuch as they all amount to a veiled attempt to introduce extrinsic evidence to interpret an unambiguous contract. 10 Therkelsen, 27 P.3d at 561 (finding that in cases where the insurer’s duty is based on the allegations in the complaint “extrinsic evidence... is wholly irrelevant”). Utah law does not grant a party the opportunity to reimagine a clear contract to suit its position, and we decline to do so here.
We also do not credit Headwaters’ parade-of-horribles argument about the types of materials—e.g., paint or dust or a frozen puddle of water—that might be considered pollutants under the broadly applicable pollution exclusions. To 9 At oral argument, counsel for ACE represented that Headwaters had submitted, and ACE covered, other claims involving its products and regular business.
10 Headwaters wants this court to consider ACE’s knowledge of Headwaters’ business operations, use of coal combustion products, and work at the Fentress site as evidence of the intended scope of coverage. See Aplt. Br. at 8–13. Simply stated, this information is immaterial extrinsic evidence.