International Insurance v. RSR Corp. ( 2005 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS September 19, 2005
For the Fifth Circuit
Charles R. Fulbruge III
Clerk
No. 03-11272
INTERNATIONAL INSURANCE CO.,
Plaintiff-Appellant-Cross-Appellee,
VERSUS
RSR CORPORATION; QUEMETCO, INC.; QUEMETCO METALS LIMITED, INC.;
formerly known as MURPH METALS, INC.; BESTOLIFE CORPORATION; and
REVERE SMELTING & REFINING CORPORATION OF NEW JERSEY;
Defendants-Appellees-Cross-Appellants.
Appeal from the United States District Court
For the Northern District of Texas, Dallas Division
(3-00-CV-0250-P)
Before WIENER, BARKSDALE and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:*
This is a suit and counterclaim for declaratory judgment
regarding coverage issues under claims-made Environmental
Impairment Liability (“EIL”) insurance policies issued to RSR
Corporation (“RSR”) by International Insurance Co.
(“International”) that provide RSR with environmental impairment
liability coverage in connection with RSR’s activities at its lead
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
1
smelting establishment in West Dallas, Texas. The district court
granted summary declaratory judgment for RSR on all coverage issues
presented, except that the court granted judgment in favor of
International decreeing that certain coverage was excluded under
Exclusion 7(a) of the policy. International and RSR each appeal
from the judgment insofar as it is adverse to them. We affirm.
I. BACKGROUND
In 1981, the North River Insurance Company (“North River”)
issued four claims-made insurance policies to RSR and various
related entitles. The policies provided successive layers of
environmental impairment liability (“EIL”) coverage. In 1993
International succeeded to the interest of North River, and RSR
agreed to the substitution of International for North River as
insurer. The policy originally covered the period from September
4, 1981 to September 4, 1982, but RSR later purchased an extension
of the policy period to November 4, 1982, and then an extended
reporting period from November 4, 1982, to November 4, 1983.
Coverage was thus extended for alleged environmental impairment
that occurred prior to the termination of the policy period and was
reported during the extension period.
The parties’ dispute concerns whether RSR is entitled to
insurance coverage for environmental impairment caused by its lead
smeltery on a site designated by the EPA in West Dallas, Texas.
The site consists of approximately 13.6 square miles in West Dallas
that includes residential, industrial, commercial, and retail
2
establishments. Secondary lead smelting operations conducted at
the smeltery from the 1930s until 1984 caused lead pollution within
the 13.6 square miles site. RSR acquired the smeltery in 1971.
A battery wrecking facility located near the smeltery was
operated by RSR’s subsidiary, Murph Metals. That facility received
automobile batteries from common carriers, shredded them, and
separated their lead paste from their plastic and rubber
components. The plastic and rubber components were stockpiled on-
site until they were removed. Part of the contamination of the
site resulted from the use of the lead and battery chips by
residents as fill material in residential driveways and yards.
In 1983 during the policy period, the West Dallas facility was
the subject of several lawsuits alleging environmental pollution by
the West Dallas facility. These actions involved various
governmental authorities and several private personal injury and
property damage suits. RSR notified North River of the personal
injury and property damage suits and received North River’s consent
to settle some of the actions. North River paid over $24 million
for RSR’s settlements of the personal injury and property damages
claims, and for defense costs. The parties formed an escrow
agreement and a supplemental agreement in 1985 to provide for the
payment of some of the claims against RSR.
In 1991, the EPA began conducting studies relating to soil
contamination in parts of West Dallas. For purposes of
investigation and cleanup, the EPA administratively divided the
3
West Dallas site into five Operable Units (“OUs”), labeled OU 1
through OU 5. OU 1 consists of a residential area including
schools, churches, and parks, as well as private dwellings. The
EPA reported finding lead contamination in OU 1 that required
environmental remediation. Specifically, the EPA found: (1)
airborne emissions originating from the smeltery; and (2) battery
chip waste originating from the smeltery that was used as paving
material in yards and driveways by residents of OU 1. During 1991
through 1995 the EPA initiated and conducted a two-phase removal
cleanup action addressing the lead contamination in OU 1.
In 1993 RSR notified North River that it had received a notice
of its potential liability under CERCLA from the EPA regarding the
EPA’s environmental remediation activities at the West Dallas
site.1 In 1998, after the EPA threatened to take immediate action
against RSR, RSR and its related entities, Quemetco Metals, and
Quemetco, Inc., entered into a tolling agreement with the EPA.
International filed suit seeking a declaratory judgment that
it owed no duty under the EIL Policy to indemnify RSR against
liability for the EPA’s costs in remediating the environmental
impairment of the West Dallas site because RSR had breached a
condition to International’s performance when it entered into the
tolling agreement with the EPA without obtaining International’s
1
The parties do not dispute that this claim relates back to
the claims made during the coverage period of the EIL Policy
regarding the Dallas Pollution Claim and, therefore, as a “claim
made” during the period of the EIL Policy.
4
written consent. International further argues that the remediation
costs and expenses associated with the cleanup of the West Dallas
site fell under Exclusions 12(c) and 7(a) of the policy.
Additionally, International requested specific performance and
asserted a claim for breach of contract contending that the escrow
agreement it entered into with RSR in 1985 should be terminated.
RSR asserted counterclaims for a declaratory judgment that it is
entitled to indemnification for remediation costs and expenses and
for breach of contract, fraudulent inducement, and violations of
the Texas Insurance Code.
In ruling upon the parties’ cross motions for summary
judgment, the district court concluded that International was not
required to indemnify RSR for its costs associated with OUs 2-5 of
the site.2 In respect to OU 1, the district court held that RSR is
entitled to indemnification for cleanup costs and expenses
resulting from the lead pollution, but that RSR is not entitled to
coverage for remediation of contamination caused by the battery
chips because of Exclusion 7(a) in the EIL Policy. The district
court entered judgment for International on RSR’s tort, contract,
and statutory claims. We now affirm the district court’s order.
II. ANALYSIS
This Court reviews a district court’s granting of summary
judgment de novo. Baton Rouge Oil & Chem. Workers Union v.
2
RSR does not appeal that ruling by the district court.
5
ExxonMobil Corp., 289 F.3d 373, 376 (5th Cir. 2002). Summary
Judgment is appropriate where there are no genuine issues as to any
material fact and the mover is entitled to judgment as a matter of
law. Guardian Life Ins. Co. of America v. Finch, 395 F.3d 238, 240
(5th Cir. 2004).
Because this case is before us on diversity jurisdiction, we
must apply Texas’s substantive insurance law in interpreting the
insurance contract. Our goal, sitting as an Erie court, is to rule
the way the Texas Supreme Court would rule on the issues presented.
Primrose Operating Co. v. National American Ins. Co., 382 F.3d 546,
564-65 (5th Cir. 2004).
A.
International contends that it is excused from its coverage
obligation under the EIL policy because RSR breached Condition 3 of
the agreement when it entered into the tolling agreement with the
EPA in 1998 that barred RSR’s statute of limitations defense to an
EPA claim. Condition 3 of the EIL provides that:
The Insured shall not, without the consent in writing of
the Insurers, make any admission or negotiate any offer,
promise, or payment in connection with any incident or
claim related to the Insurance herein expressed.
RSR argues that International must show that it was prejudiced
by RSR’s breach of Condition 3 before it may be declared to be free
of its obligations under the insurance policy.3 Under Texas law,
3
At First, RSR argues that because Condition 3 was only meant
to apply to settlement offers and therefore did not apply to the
6
which is applicable to this diversity case, insurance policies are
contracts which are subject to the applicable rules of Texas
contract law. See Hanson v. Production Co v. American Ins. Co.,
108 F.3d 627, 630-31 (5th Cir. 1997); Hernandez v. Gulf Group
Lloyds, 875 S.W.2d 691, 692 (Tex. 1994). “It is a fundamental
principle of contract law that when one party to a contract commits
a material breach of that contract, the other party is discharged
or excused from further performance.” Mustang Pipeline Co., Inc.
tolling agreement at issue here, it did not breach Condition 3 when
it entered into the agreement with the EPA. Under Texas law,
however, if an insurance policy is worded so that it can be given
only one reasonable construction, it must be enforced as written.
State Farm Fire & Cas. Co. v. Reed, 873 S.W.2d 698, 699 (Tex.
1993). As the district court correctly found, RSR’s argument fails
at this point because when RSR entered into the tolling agreement
it “negotiated” a “promise” “in connection with an incident or
claim.”
Second, RSR argues that it obtained International’s consent or
implied consent before entering into the tolling agreement. RSR
makes no allegation, however, that International consented to the
tolling agreement in writing. RSR’s argument fails here because
Condition 3's express language requires written consent by
International.
Third, RSR argues both that International has waived its right
to enforce Condition 3 and that International is estopped from
asserting RSR’s breach of Condition 3. Under Texas law, an
insurance company may waive a condition precedent to performance on
an insurance policy through the “intentional relinquishment of a
known right or intentional conduct inconsistent with claiming that
right.” Matador Petroleum Corp. v. St. Paul Surplus Lines Ins.
Co., 174 F.3d 653, 660 (5th Cir. 1999). Estoppel applies when one
party reasonably relies on the other party’s conduct or statements
and suffers harm as a result. Id. Here, International’s silence
after RSR notified it of the tolling agreement was not sufficient
to constitute an “intentional relinquishment” of its rights, and
therefore does not constitute waiver. Therefore, RSR’s estoppel
theory also fails.
7
v. Driver Pipeline Co., Inc, 134 S.W.3d 195, 196 (Tex. 2004). To
determine whether a breach is material, “courts will consider,
among other things, the extent to which the non[-]breaching party
will be deprived of the benefit that it could have reasonably
anticipated from full performance.... The less the non-breaching
party is deprived of the expected benefit, the less material the
breach.” Hernandez, 875 S.W.2d at 693.
The Texas Supreme Court and this court sitting in diversity
and applying the substantive law of Texas, have found that in some
cases an insurer must demonstrate that it was prejudiced by the
insured’s breach of a condition in order to be excused from
performance, but in other cases prejudice is presumed and the
insurer is not required to show prejudice. Compare Hanson, 108
F.3d at 628 (holding that an insurer must show prejudice) and
Hernandez, 875 S.W.2d at 692 (same), with Federal Ins. Co. v.
CompUSA, Inc., 319 F.3d 746, 754 (5th Cir. 2003) (finding that
insurer was not required to show prejudice) and Matador, 174 F.3d
at 658-59 (same).
1.
In Hanson we found a prejudice requirement after an insured’s
breach of a notice provision, and in Hernandez the Texas Supreme
Court found such a requirement upon the breach of a settlement-
without-consent provision. Hanson, 108 F.3d at 628; Hernandez, 875
S.W.2d at 692. In CompUSA and Matador we found no such requirement
for breach of a notice clause in a claims-made policy. CompUSA,
8
319 F.3d at 754; Matador, 174 F.3d at 658-59. As explained above,
the policy in this case is a claims-made policy.
To understand the difference between the holding in Hanson and
those in CompUSA and Matador——the cases addressing the breach of
notice provisions——it is helpful to bear in mind the distinction
between claims-made and occurrence-based policies. Claims-made
policies cover the insured in respect to an occurrence when the
claim based thereon is made against the insured, and the insured
notifies the insurer, during the policy period. FDIC v. Mijalis,
15 F.3d 1314, 1330 (5th Cir. 1994). Occurrence-based policies, on
the other hand, cover claims based on an event that happened during
the policy period, even when a third-party does not make a claim
against the insured during the policy period. CompUSA, 319 F.3d at
754.
Notice provisions, which are generally contained in both
claims-made and occurrence policies, are provisions in insurance
contracts that, in a claims-made policy, require the insured to
give the insurer prompt notice of a potential claim against the
insured and in an occurrence policy, require the insured to give
prompt notice of an event that the insured seeks recovery for. The
claims-made EIL policy issued to RSR by International contains a
notice provision in Condition 2 of the policy, which requires RSR
to “promptly give written notice to the Insurers of any incident or
claim or proceedings relating to the Insurance herein....”
Condition 3, on the other hand, is a consent clause that does not
9
require RSR to give International “notice” of an event, but instead
requires International’s consent before “mak[ing] any admission or
negotiat[ing] any offer, promise or payment in connection with any
incident or claim.”
Our past holdings that an insurer was not required to show
that it was prejudiced by an insured’s breach of a notice provision
were based on the argument that it is notice to the insurer of the
claim that triggers an insured’s coverage in a claims-made policy,
and the parties therefore specifically negotiate the terms of the
notice provision. CompUSA, 319 F.3d at 754; Matador, 174 F.3d at
659. On the other hand, in the occurrence-based policies of Hanson
(which involved notice provisions) and Hernandez (which involved a
consent provision), coverage had already been triggered by an
“occurrence” before the insured’s duty to give notice to the
insurer arose. Thus, the insurer was required to show that it was
prejudiced by the insured’s breach in order to be excused from
performance.
In the present case, although the policy between RSR and
International is a claims-made policy like the policy in Matador,
this case is actually more like the Hanson/Hernandez line of cases
because a valid claim was made against RSR within the appropriate
contractual period and coverage was therefore triggered. Because
Condition 3 is not a notice provision, we conclude that Matador’s
holding finding no prejudice requirement in claims-made policies is
not applicable. Here, the distinction between claims-made and
10
occurrence-based policies is not helpful to our analysis, and we
find that the prejudice requirement imposed by the Texas Supreme
Court in Hanson, which also dealt with consent clause, applies. We
therefore find that International is not excused from performance
without demonstrating that it was prejudiced by RSR’s breach of
Condition 3.
2.
International argues that even if it is required to show
prejudice, there was inherent prejudice here, because RSR’s tolling
agreement with the EPA effectively eliminated a statute of
limitations defense that would have existed if the EPA failed to
timely file its claim. It is undisputed, however, that the EPA
told RSR that it would immediately file a claim against RSR if it
did not enter into the tolling agreement. If RSR had declined to
enter the tolling agreement, the EPA’s immediate filing of the
claim would have left International no better off. Because
International was not prejudiced by RSR’s breach of Condition 3,
International is not excused from performance on the basis of that
breach.
B.
International next argues that the district court erred when
it held that because OU 1 was not a “waste disposal site” within
the meaning of Exclusion 12(c) of the EIL policy, International was
not exempt from providing RSR with coverage for contamination in
11
that area.4 Exclusion 12(c) provides that the policy does not
apply to or include liability for or costs or expenses of or in
connection with:
(c) upgrading, monitoring, neutralizing, restoring,
landfilling, cleaning-up or inactivating any waste
disposal sites used directly or indirectly by the Insured
or for which they may otherwise be responsible. (Emphasis
added).
Under Texas law, a court must give the terms used in an
insurance policy their ordinary and generally accepted meaning.
Jarvis Christian College v. Nat’l Union Fire Ins. Co., 197 F.3d
742, 746 (5th Cir. 1999). When a provision in an insurance policy
that puts a limitation or exclusion on coverage is reasonably
susceptible of more than one meaning, Texas law instructs a court
to adopt the interpretation that provides for coverage. Id.
Here, International is unable to present any authority
classifying OU 1, which consists of residential areas, schools,
churches, parks, recreational facilities, and day care centers, as
4
We disagree with RSR’s argument that International did not
timely and adequately raise this issue in its pleadings and we
therefore review the merits of International’s argument. Although
International may not have fully developed its argument in its
original pleadings, in its third amended complaint International
clearly argued that Exclusion 12(c) “precludes coverage for any
liability for cleanup costs sought by the EPA.” Moreover, although
the pretrial order does not contain any indication that
International intended to rely on Exclusion 12(c) as to OU 1, the
district court’s order granting summary judgment to RSR specified
that the issue was discussed at the pretrial conference and it had
ordered supplemental briefing on the issue. Therefore, we find
that International did not untimely raise its defense that
Exclusion 12(c) to OU 1 applied.
12
a “waste disposal site.” International’s only argument is based on
the EPA’s allegations that the pollution in OU 1 consists of
“improper disposal or use of waste material from the smelting
process” and relies on a mis-reading of Exclusion 12(c).
International disputes the district court’s reading of
Exclusion 12(c), contending that the exclusion applies to disposal
of waste at sites that are either “direct” or “indirect” waste
disposal sites. International would define a “waste disposal site”
under Exclusion 12(c) as “any site where waste disposal occurs.”
A straightforward reading of the provision, however, shows that the
language “directly or indirectly” modifies the insured’s “use” of
the site, not the site itself. Exclusion 12(c) therefore excludes
coverage against liability for a waste disposal site established or
maintained for the purpose of disposing of waste. Because allowing
residence owners to use waste for their driveways does not
establish a waste disposal site, OU 1 is not a waste disposal site
within the meaning of the policy between RSR and International.
C.
On cross-appeal, RSR argues that the district court erred when
it held that Exclusion 7(a) of the EIL Policy precluded RSR from
recovering from International for RSR’s liability resulting from
the battery chips that were used as fill in residents’ driveways
and yards. Exclusion 7(a) provides that the policy does not apply
to or include:
Liability for Environmental Impairment arising from:
13
(a) Any commodity, article or thing supplied, repaired,
altered, or treated by the insured and happening
elsewhere than at the insured’s premises after the
insured has ceased to own or exercise physical control
over the commodity, article, or thing supplied, repaired,
altered, or treated.
RSR disputes the construction that the district court gave to
the words “thing” and “supplied” in the context of Exclusion 7(a).
RSR first argues that the district court erred in refusing to
consider extrinsic evidence concerning the meaning of the word
“thing” in Exclusion 7(a) in deciding that the battery waste that
was used as fill material was a “thing.”5 RSR argues that the
district court should have examined evidence that Exclusion 7(a)’s
drafter stated that the phrase “commodity, article, or thing
supplied, altered, repaired, or treated” was not meant to refer to
“waste products.”6 Under Texas law, however, the terms used in an
5
Both parties argue that the Delaware Supreme Court’s
decision in Monsanto Co. v. International Ins. Co., 652 A.2d 36, 40
(Del. 1994), gives support to their argument. Monsato interpreted
the very same exclusion——Exclusion 7(a)——against the very same
defendant——International——and did examine extrinsic evidence to
determine that Exclusion 7(a) did not apply to solid waste. That
case, however, was based on an interpretation of Missouri law,
which allows for the admission of extrinsic evidence even if the
contract is not ambiguous. Id. at 38. Texas law, on the other
hand, requires that a court find that the contract is ambiguous
before admitting extrinsic evidence is more strict, and will not
allow extrinsic evidence to create an ambiguity where not exists.
Nat’l Union, 907 S.W.2d at 520.
6
RSR cites to a treaty that defines a “products hazard”
exclusion to argue that Exclusion 7(a) is a products hazard
exclusion and therefore was only meant to apply to an insurer’s
liability for bodily injury and property damages that arise from
the insured’s products and occurs away from the insured’s property
and not for liability from solid waste. That argument, however,
14
insurance policy are to be given their ordinary and generally
accepted meaning. Jarvis, 197 F.3d at 746. Extrinsic evidence is
only admissible to assist a court in determining the parties’
intended definition of an ambiguous contract and is never
admissible to create an ambiguity in an insurance contract that is
worded in a way that gives it a “definite or certain legal
meaning.” Nat’l Union, 907 S.W.2d at 520. The purpose of the
provision clearly is to exclude coverage in respect to commodities
and articles incorporating or affected by waste or polluted matter
that have been transferred to a third person. “Thing” clearly
includes items, other than commodities and articles, which have
been so affected and transferred. Consequently, “thing”
necessarily includes “waste material” because “waste material” is
definitely a contaminated substance that could be transferred to
third persons. Consequently, we do not believe that “thing” can be
said to be ambiguous in the context of this provision of the EIL
policy. Because Texas law prohibits the admission of extrinsic
evidence without a showing of ambiguity, the district court was
correct not to examine RSR’s proposed extrinsic evidence. The
waste material at issue here is a “thing” within the meaning of
Exclusion 7(a).
RSR next argues that the district court’s definition of the
word “supplied” is overly broad because it did not require that RSR
overlooks the difference between Exclusion 7(a) and a normal
“products hazard” exclusion, with Exclusion 7(a) being written much
more broadly than products hazard exclusions are.
15
“intend” to make the waste material available for use by others.
As the district court explained:
The common definition of “supply” is to “add as a
supplement, to provide for, to make available for use, to
satisfy the needs or wishes of....” Merriam-Webster’s
Collegiate Dictionary at 1184. The evidence indicates
that after the batteries were taken apart, the rubber
chips that were later used as fill were stockpiled on the
smelter premises. Although the precise method of
distribution is unclear, it is undisputed that the
battery chips were found in fill throughout OU 1 over a
large geographical area.... RSR did “supply” the battery
chips because they were “made available” and were used
throughout OU 1 as fill.
We agree with the district court’s reasoning and find that it is
not necessary to know the “precise method of distribution” to
conclude that RSR supplied and made available the waste material to
the residents. It cannot be presumed that such a widespread
practice by the residents of West Dallas could have taken place
without the knowledge and consent of RSR.
RSR’s final argument relies on Texas law providing that courts
must read a contract as a whole and give effect to all of its
parts. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433
(Tex. 1995). Based on that principle, RSR argues that the district
court’s reading of Exclusion 7(a) nullifies the EIL Policy’s
coverage for environmental impairments, which are defined as the
“dispersal, disposal, release, or escape of solid contaminant.”
RSR’s argument fails, because it is based on an incomplete
reading of the agreement. Exclusion 7(a) is specifically limited
in application to things that the insured no longer owns and
environmental impairment liability that occurs away from the
16
insured’s premises. The contract’s definition of “Environmental
Impairment” does not include either of those limitations, so it is
clear that Exclusion 7(a) is a specific exclusion on certain types
of environmental impairment liability rather than an exclusion that
encompasses all environmental liability. Thus, the district court
did not err when it found that the RSR’s liability for battery chip
contamination fell under Exclusion 7(a).
D.
Finally, International argues that the district court erred in
refusing to terminate the escrow account that the parties
established in 1985 to fund the defense and settlement of the
“Dallas Pollution Claim.” When the parties agreed to create the
account they entered into an escrow agreement and a contemporaneous
supplemental agreement that set the terms of the account. The
terms of these agreements are governed by New York law.
Under New York law, the interpretation of an unambiguous
contract is a question of law for the court. Ruttenberg v. Dadidge
Data Systems Corp., 626 N.Y.S.2d 174, 175 (N.Y. App. Div. 1995).
A court should ascertain the intent of the agreement by examining
the document as a whole, giving effect to the intent of the parties
as revealed by the structure and content of the contract. Reda v.
Eastman Kodak Co., 649 N.Y.S.2d 555, 557 (N.Y. App. Div. 1996).
According to the escrow agreement in this case, the funds were
to be used “only for the purpose of settling the personal injury
and property damage lawsuits identified herein as part of the
Dallas Pollution Claim” and to pay the escrow agent’s fees and
17
expenses. The agreement specifically lists four personal injury
lawsuits and an “enforcement suit” by the City of Dallas against
RSR as part of the “Dallas Pollution Claim,” but also states that
the “Dallas Pollution Claim” includes “other lawsuits, threatened
lawsuits or demands which, after the date of this agreement, may
arise out of the same facts, circumstances, emissions and/or
pollutants which are referred to above.” The agreement provides
for termination of the escrow account when RSR notifies the escrow
agent in writing that “those portions of the Dallas Pollution
Claim, referred to herein, have been settled....”
International argues that the termination provision applies
and that the district court erred in not terminating the escrow
account. Specifically, International points out that all of the
claims that are named in the agreement have been settled or
dismissed. International’s argument, however, cannot succeed under
the plain terms of the agreement, which clearly contemplate the
fund applying to lawsuits beyond those specifically listed in the
agreement.7 Because the EPA’s claim pertaining to OU 1 falls
within the definition of the “Dallas Pollution Claim” and numerous
7
In addition to the language quoted above, there are numerous
references throughout the agreement and supplemental agreement that
make even more clear that the agreement applied to lawsuits outside
of those specifically listed. For example, when the agreement
lists the four named personal injury case, it explains that “to
date” the personal injury cases within the “Dallas Pollution Claim”
are those four. The agreement also covers threatened lawsuits,
which it states encompass the enumerated lawsuits as well as “other
lawsuits, threatened lawsuits or demands which ... may arise out of
the same facts, circumstances, emissions and/or pollutants which
are referred to in the lawsuits and threatened lawsuits....”
18
other lawsuits have been filed against RSR in state and federal
court, the district court did not err when it did not terminate the
escrow account.8
CONCLUSION
For these reasons, we affirm the district court’s refusal to
order termination of the escrow account and grant of summary
judgment declaring coverage in favor of RSR on all issues except in
respect to Exclusion 7(a), and we affirm the court’s judgment in
favor of International denying coverage on the basis of that
8
International further argues that New York caselaw suggests
that once the “essential purpose” of an escrow agreement is
fulfilled the agreement should be terminated. Calcagno v. Drew,
694 N.Y.S.2d 248, 249 (N.Y. App. Div. 1999). As explained above,
however, it is clear that because lawsuits that fall within the
parties’ definition of the “Dallas Pollution Claim” are still
pending, the “essential purpose” of the escrow account has not been
fulfilled.
Additionally, International argues that although the escrow
agreement states that the agreement will terminate when RSR gives
written notification to the escrow agent that the Dallas Pollution
Claim has been settled and paid, it was not the parties’ intent
when drafting the agreement to give RSR sole discretion to continue
the escrow agreement and withhold consent for termination when the
purpose of the escrow agreement has been fulfilled. That argument
becomes irrelevant, however, because it is clear from reading the
escrow agreement’s purpose has not been fulfilled when there are
lawsuits still pending that fall within the agreement’s definition
of the “Dallas Pollution Claim.” Thus, even if RSR should not have
sole discretion to terminate the agreement, that does not matter as
long as the agreement’s essential purpose has not been fulfilled.
Finally, International argues that equitable principles and
New York law support the termination of the escrow agreement
because the account only contains $150,000 and the termination of
the agreement will not hurt RSR or deny it any of its rights.
Although that may be true, RSR cites to no authority (under New
York or other case law) supporting the principle that an escrow
account should be terminated for equitable reasons when by its own
terms it should not be terminated.
19
exclusion.
AFFIRMED.
20