Headwaters Resources, Inc. v. Illinois Union Insurance

FILED
United States Court of Appeals
Tenth Circuit
October 20, 2014
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
HEADWATERS RESOURCES, INC.,
Plaintiff - Appellant,
v. No. 13-4035
ILLINOIS UNION INSURANCE
COMPANY and ACE AMERICAN
INSURANCE COMPANY,
Defendants - Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 2:09-CV-01079-DN)
Thomas V. Alleman, Cox Smith Matthews Incorporated, Dallas, Texas, (Bruce A.
Maak, Jeffrey D. Stevens, Bryan Johansen of Parr Gee & Loveless, Salt Lake
City, Utah with him on the briefs) for Appellant.
William F. Knowles, Cozen O’Connor, Seattle, Washington, (Scott M. Lilja, Van
Cott, Bragley, Cornwall & McCarthy, Salt Lake City, Utah, with him on the brief)
for Appellee.
Before LUCERO, TYMKOVICH, and BACHARACH, Circuit Judges.
TYMKOVICH, Circuit Judge.
Headwaters Resources, Inc. carried commercial liability insurance issued
by two insurance companies, Illinois Union Insurance Company and ACE
American Insurance Company. Under several applicable policies, Headwaters
sought reimbursement for its litigation costs arising from a case brought by
landowners in Virginia, alleging that Headwaters had caused personal injury and
property damage during the construction of a nearby golf course. The complaint
alleged that fly ash used in the construction process caused air and water
pollution that devalued their homes and created health risks to the homeowners.
The insurance companies told Headwaters that defense costs related to
Headwaters’ pollution were outside the scope of the coverage and denied the
claim. As a result, Headwaters sued, and the district court eventually granted
summary judgment in favor of the insurance companies, finding that the pollution
exclusions in the insurance policies precluded coverage.
Since the 1970’s, the extent to which pollution exclusions apply to preclude
coverage in commercial general liability (CGL) policies has been a ubiquitous
feature of insurance litigation. Generally speaking, jurisdictions that have
addressed the scope of the “total pollution exclusion” fall into one of two camps:
(1) courts that apply the pollution exclusions as written because they find them
clear and unmistakable; and (2) courts that narrow the exclusions to “traditional
environmental pollution,” often because they find the terms of the exclusion to be
ambiguous due to their broad applicability.
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The Utah Supreme Court has not yet weighed in on this debate, and the
district court did not pick a side on its behalf. Instead, the district court found
that certain of the at-issue pollution exclusions unambiguously applied to bar
coverage and that the remaining pollution exclusions, although possibly
ambiguous, still applied because the complaints unquestionably alleged traditional
environmental pollution. As a result, the complaints triggered the pollution
exclusions in all of the policies, and the district court granted summary judgment
in favor of the insurance companies.
Exercising jurisdiction under 28 U.S.C. § 1291, we find that each of the
pollution exclusions is unambiguous, and AFFIRM the district court’s grant of
summary judgment.
I. Background
A. Underlying Lawsuits
Over 400 current and former residents of Chesapeake, Virginia, filed two
separate lawsuits (together, the Chesapeake litigation) in Virginia state court,
alleging property damage and bodily injury sustained due to pollution generated
in connection with the development of a golf course. Headwaters Resources, Inc.
and VFL Technology Corp. (collectively, Headwaters) were named as defendants
in the Chesapeake litigation.
In the complaints, plaintiffs alleged that between 2002 and 2007 the
defendants used 1.5 million tons of toxic fly ash, during construction of a golf
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course at the Fentress site in Chesapeake. 1 They broadly assert property damage
and personal injury resulting from discharge and dispersal of the fly ash and its
byproducts, which contaminated ground water, surface water, and air. According
to plaintiffs, the defendant entities systematically transported the fly ash to an
open pit adjacent to residential neighborhoods. The complaints allege that
chemicals from the fly ash soon leached into the ground water, damaging the
private wells that the communities relied on for drinking water. In addition, the
fly ash pit released airborne contaminants that wafted toward the neighborhoods
and produced a strong smell of ammonia. As a result of this alleged
contamination, the property values of plaintiffs’ homes depreciated and members
of the community faced increased risk of serious bodily injuries caused by
exposure to the fly ash and its attendant toxins.
Two complaints are at issue here—the Sears Complaint and the Fentress
Complaint. Both were filed in 2009 and “although the cases [were] not formally
consolidated . . . they [were] dealt with together concerning all pre-trial
proceedings for purposes of judicial efficiency.” Fentress Families Trust v. Va.
Elec. & Power Co., 81 Va. Cir. 67, 2010 WL 7765113, at *1 (2010). The
complaints allege in general:
1
The term “fly ash” embodies a particularized subset of coal ash. Both
coal ash and fly ash refer to the ash waste produced during the combustion of
coal. Construction companies, including Headwaters, frequently use fly ash,
often combined with binding agents or other substances, as structural fill material
on large-scale construction projects.
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As a result of the coal ash [and binding agent] discharge,
Plaintiffs are seeking damages for losses to real and
personal property, personal injuries, loss of quality of
life, economic loss due to business disruption,
out-of-pocket expenses, and medical monitoring of their
exposure to toxic compounds in coal ash [and binding
agent] and potential health effects that may result.
Plaintiffs also seek injunctive relief ordering a complete
removal of the coal ash [and binding agent] from the
Fentress Site and from surface waters and land adjoining
their property, cleaning the aquifers, monitoring the air,
soil and water in their neighborhoods for the toxic
components of coal ash [and binding agent] from the
Fentress Site.
See App. Vol. IV at 793 (Fentress Complaint); App. Vol. VII at 1512 (Sears
Complaint) (bracketed portions added in Sears Complaint).
B. Insurance Policies
Beginning in 2002, Headwaters was insured under seven CGL insurance
policies issued by Illinois Union Insurance Company and ACE American
Insurance Company (collectively, ACE). Under each policy, ACE was required to
reimburse Headwaters for expenses associated with lawsuits that occurred during
the policy period. In particular, the provisions provided coverage for expenses
incurred in connection with the defense of a suit in which damages due to “bodily
injury” or “property damage” to which the policies apply “are alleged.” See, e.g.,
App. Vol. II at 295.
But the policies had exclusions for injuries caused by pollution. And
within the pollution exclusions, each policy contained definitions of “pollution”
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and “pollutants” that prescribe the circumstances under which the exclusions
apply to bar coverage.
Once the Chesapeake litigation commenced, Headwaters looked to ACE for
reimbursement of the cost of defending the lawsuits. After its investigation, ACE
concluded that the policies did not cover the claims because the events giving rise
to those claims fell within the pollution exclusions. For this reason, ACE denied
Headwaters’ insurance claim.
C. Procedural History
After ACE’s denial of coverage, Headwaters filed a complaint against ACE
American and Illinois Union in federal court in Utah—Headwaters’ principal
place of business and the location where ACE delivered the insurance
policies—alleging breach of the insurance contracts and bad faith in denying
coverage for the Chesapeake litigation.
ACE moved for summary judgment, arguing that the pollution exclusions
expressly precluded coverage. Headwaters responded with its own cross-motion
for partial summary judgment. The district court agreed with ACE, finding that,
under the 2003 and 2006 policies, the pollution exclusions unambiguously applied
to bar coverage. On the remaining policies, the district court found that a
determination on the ambiguity of the pollution exclusions was unnecessary
because “[w]hatever else they may arguable [sic] reach, the ‘pollution’ exclusions
clearly and unmistakably communicate that the [policies] do not provide coverage
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for traditional environmental pollution,” which the Fentress Complaint and the
Sears Complaint alleged. Headwaters Res., Inc. v. Ill. Union Ins. Co., 913 F.
Supp. 2d 1210, 1220 (D. Utah 2012). The court later denied Headwaters’ motion
to alter or amend the judgment under Rule 59 of the Federal Rules of Civil
Procedure.
II. Analysis
Headwaters claims the district court erred in several ways. Taken as a
whole, however, Headwaters’ primary contention is that the district court
recognized but failed to appreciate the effect of ambiguities in each policy’s
pollution exclusion and definitions. According to Headwaters, those ambiguities
preclude granting summary judgment in favor of ACE. Based on our review, we
disagree with Headwaters’ premise because the pollution exclusions are not
ambiguous and the underlying complaints plainly allege pollution caused
plaintiffs’ injuries.
A. Application of the Pollution Exclusions
Headwaters first contends the pollution exclusions are ambiguous and it is
entitled to a trial to determine the scope of ACE’s duty to defend and provide
indemnification of any losses associated with the Chesapeake litigation.
1. Legal Framework
In this diversity action, we apply Utah law. Houston Gen. Ins. Co. v. Am.
Fence Co., 115 F.3d 805, 806 (10th Cir. 1997) (“The interpretation of an
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insurance contract is governed by state law and, sitting in diversity, we look to
the law of the forum state.”). Under Utah law, the insurer has a duty to defend
claims that arguably fall within the scope of the coverage provided. Equine
Assisted Growth and Learning Ass’n v. Carolina Cas. Ins. Co., 266 P.3d 733, 736
(Utah 2011); see also Fire Ins. Exch. v. Therkelsen, 27 P.3d 555, 560 (Utah 2001)
(“The test is whether the complaint alleges a risk within the coverage of the
policy.” (internal citation omitted)).
In duty-to-defend cases, Utah applies the so-called “eight corners rule.”
See, e.g., Basic Research, LLC v. Admiral Ins. Co., 297 P.3d 578, 580 (Utah
2013). Under the eight corners rule, an insurer’s coverage liability is determined
by comparing the allegations within the four corners of the complaint to the
language contained in the four corners of the insurance policy. Id. 2 On this basis,
the duty to defend “is triggered when the allegations in the underlying
complaint[,] if proved, could result in liability under the policy.” Cincinnati Ins.
Co. v. AMSCO Windows, 921 F. Supp. 2d 1226, 1236 (D. Utah 2013) (internal
quotation marks omitted). But “[i]f the language found within the collective
‘eight corners’ of these documents clearly and unambiguously indicates that a
duty to defend does or does not exist, the analysis is complete.” Equine Assisted
2
By contrast, under some insurance policies, it is necessary to consult the
objective facts underlying the complaint to determine whether coverage is
warranted. Equine Assisted Growth, 266 P.3d at 736. But where, as here, the
policy defines the scope of coverage with specific reference to the allegations in
the complaint, the eight corners rule controls. See id.
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Growth, 266 P.3d at 737. It is the insurance company’s burden to “demonstrate
that none of the allegations of the underlying claim is potentially covered (or that
a policy exclusion conclusively applies to exclude all potential for such
coverage).” Cincinnati Ins. Co., 921 F. Supp. 2d at 1236–37.
Examining the four corners of the insurance policy is a matter of contract
interpretation because an insurance policy is “merely a contract between the
insured and the insurer.” Alf v. State Farm Fire and Cas. Co., 850 P.2d 1272,
1274 (Utah 1993). Like other contracts, an insurance policy is interpreted to give
effect to the intent of the parties as expressed by the plain language of the
instrument itself. Id. The insurer is permitted to limit or modify its obligations to
provide coverage through explicit exclusions and exclusionary language. See
Pollard v. Truck Ins. Exch., 26 P.3d 868, 871 (Utah 2001). But to limit coverage
in this way the insurer must set forth exclusions “using language which clearly
and unmistakably communicates to the insured the specific circumstances under
which the expected coverage will not be provided.” Alf, 850 P.2d at 1275
(internal quotation marks omitted).
The policies do not require a per se duty to defend. Rather, they provide
for reimbursement of various expenses that Headwaters incurs in connection with
the defense of lawsuits in which bodily injury or property damage within the
scope of coverage “are alleged.” See, e.g., App. Vol. II at 371–77. Under this so-
called “allocated loss adjustment expenses” provision, ACE could, but was not
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obligated to, assume from Headwaters the defense or control of any covered suit
filed against Headwaters. If ACE chose not to defend, then it would reimburse
Headwaters for all reasonable and necessary expenses in excess of a minimum
retention amount. Irrespective of its classification, this duty is one to which the
eight corners rule applies. Cf. Equine Assisted Growth, 266 P.3d at 735–36
(describing the circumstances under which the eight corners rule operates).
When an insurance policy, including its exclusions and limitations, is
unambiguous, a court is restricted from considering extrinsic evidence to
determine the parties’ intent. 3 Faulkner v. Farnsworth, 665 P.2d 1292, 1293
(Utah 1983) (“Whether an ambiguity exists is a question of law to be decided
before parol evidence may be admitted.”); see also Emp’rs Mut. Cas. Co. v.
Bartile Roofs, Inc., 618 F.3d 1153, 1171–72 (10th Cir. 2010) (collecting cases
under Utah law that show the prohibition on extrinsic evidence in duty-to-defend
cases that are based on the allegations in the complaint). On the other hand, when
a policy provision is ambiguous, extrinsic evidence is admissible to help “resolve
the ambiguity.” Fire Ins. Exch. v. Oltmanns, 285 P.3d 802, 805 (Utah 2012);
Village Inn Apartments v. State Farm Fire & Cas. Co., 790 P.2d 581, 583 (Utah
3
In its reply brief, Headwaters also contends that Utah law allows
extrinsic evidence to determine whether a latent ambiguity exists in the first
instance. See Aplt. Reply at 21–22 (citing Watkins v. Ford, 304 P.3d 841 (Utah
2013)). But Headwaters argued in its opening brief that extrinsic evidence was
only admissible to resolve the policies’ allegedly patent ambiguities, thus waiving
the argument concerning a latent ambiguity that it makes on reply.
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Ct. App. 1990) (defining ambiguity as an instance where “the terms used to
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.
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2. 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.
a. The 2003 and 2006 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.
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exclusion, 5 excise coverage for “bodily injury” and “property damage” that stems
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.
6
In relevant part, the exclusions take away coverage for:
“Bodily injury” or “property damage” arising out of the
actual, alleged, or threatened discharge, dispersal,
seepage, migration, release or escape of “pollutants”:
***
(c) Which are or were at any time transported,
handled, stored, treated, disposed of, or processed
as waste by or for:
(i) Any insured; or
(ii) Any person or organization for whom
you may be legally responsible; . . .
***
App. Vol. II at 283–84; App. Vol. III at 530.
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injury or property damage caused by the dissemination of pollutants “[w]hich are
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.
b. The 2004, March 2005, and October 2005 Policies
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,
[A]ny solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids,
alkalis, chemicals and waste. Waste means any
substance that: (a.) is left over, or no longer in use, or
discarded; (b.) is to be reclaimed or recycled, or
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reconditioned; (c.) has been removed, treated, stored or
disposed of as part of any environmental remediation
effort; or (d.) is animal or human waste.
App. Vol. II at 365–66, 424–25, 485–86.
c. The 2007 and 2008 Policies
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.
3. The Chesapeake Complaints
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.
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And after review, we agree with the district court that the Fentress
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:
• During a five-year period between 2002 and 2006, VFL
and others “dumped 1.5 million tons of coal ash into an
unlined pit at the Fentress Site . . . in the middle of the
homes of over 300 people, all of which relied on the
private wells for water.” App. Vol. IV at 790.
• The coal ash seeped into “underground aquifers . . .
thereby poisoning the residents’ drinking and household
water with . . . toxic coal ash.” App. Vol. IV at 790.
• “The coal ash . . . contained toxic substances, including
toxic metals and poisons, such as arsenic, lead, mercury,
ammonia nitrates, chromium, beryllium, aluminum, zinc,
thallium, boron, barium, and magnesium.” App. Vol. IV
at 791.
• Defendants’ pollution “not only destroyed the market
value of [Plaintiffs’] homes, but also exposed the
Plaintiff homeowners [and others] to potentially
devastating and serious bodily injuries known to be
caused by, and result from ingestion and exposure to
coal ash toxins, including, but not limited to injuries to
pulmonary systems, gastrointestinal systems,
reproductive systems, organs of the body and tissues,
brain damage, and numerous developmental injuries
unique to children . . . .” App. Vol. IV at 792.
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.
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• “At the Fentress site, toxic coal ash was ever present. It
would cover individuals at the site and the dump trucks.
It would be taken up by the wind and deposited around
the [adjacent communities]. Dump trucks would crush
the coal ash on the road and it would fly up into the air.”
App. Vol. IV at 819.
• “The hazardous substances released from the facility
were and are transported by wind, by groundwater, by
migration into and through the aquifer and other natural
processes onto and into the homes, properties, person,
pets and livestock and other areas of the surrounding
communities.” App. Vol. IV at 824.
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.
4. Ambiguity
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
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facially or when applied to the complaints from the Chesapeake litigation.
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
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bar coverage under Utah law. See Quaker State Minit-Lube, Inc. v. Fireman's
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.
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business activities. See id. at *11. But to the extent that IPE found pollution
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
[W]here incidents of pollution appear to be more like
normal business activities, the costs of cleanup should
be included in the normal cost of business by the
insured. Furthermore, holding the industrial community
liable for its pollution may be more likely to motivate
industry to improve its practices and become safer and
cleaner.
Id.
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
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typical lawsuit involving a pedestrian injured in a slip-and-fall on company
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.
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diffuse this line of thinking, we need only consult the reasonable purchaser of
insurance: would that individual interpret the unambiguous language of the
exclusions to bar coverage for occurrences involving innocuous substances like
water? See Reg’l Bank of Colo., N.A. v. St. Paul Fire and Marine Ins. Co., 35
F.3d 494, 497 (10th Cir. 1994). We think not, and that fact alone is likely enough
to distinguish those hypotheticals from the comprehensive pollution that the
underlying plaintiffs allege in the complaints here, which the pollution exclusions
unambiguously cover. To the same end, we are unconvinced that the substances
in these hypotheticals would even qualify as “irritant[s] or contaminant[s]” or
“substance[s] . . . [that have] . . . the effect of making the environment impure,
harmful, or dangerous” under the plain language of the applicable policies. 11 In
any event, those closer cases are not before us today, and we need not determine
how the pollution exclusions here might apply to different allegations.
Headwaters’ assertions of overarching ambiguity are not grounded in Utah
law, and they ultimately do not bear on our clear-cut task under the eight corners
rule. We thus turn back to the specifics of the pollution exclusion to consider
whether they apply to bar coverage for the allegations from the Chesapeake
litigation.
11
Headwaters also contends the terms “irritant” and “contaminant” are
independently ambiguous. We disagree. These terms have plain and
unambiguous meanings, see Church Mut. Ins. Co v. Clay Ctr. Christian Church,
746 F.3d 375, 380–81 (8th Cir. 2014), even if those meanings are expansive.
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a. The 2003 and 2006 Policies
Pursuant to the definitions in the 2003 and 2006 policies, the “toxic
substances” contained within the fly ash mixture clearly constitute pollutants.
Since the fly ash, including its component parts and associated binding agents, is
a “pollutant” under these policies, coverage is excluded as long as one of the
subparts applies. As the district court held, the “pollutants that allegedly resulted
in the Fentress and Sears plaintiffs’ bodily injury and property damage were
‘processed as waste[,]’” triggering subpart c of the pollution exclusion.
Headwaters Res., Inc., 913 F. Supp. 2d at 1217 (subpart c applies to “the
pollutants that allegedly resulted in the Fentress and Sears plaintiffs’ bodily
injury and property damage”). Fly ash, regardless of its possible utility, is a coal
combustion waste product according to the complaints. This is the case even
when it is mixed with other substances. For this reason, when Headwaters and its
co-defendants released the fly ash mixture, a pollutant, into the environment at
the Fentress site, the pollution exclusion from the 2003 and 2006 policies
forestalled coverage in the event of a lawsuit. Significantly, subpart c only
requires that the pollutants were processed as waste “at any time”; thus, it was
irrelevant whether the fly ash was still waste when it was dispersed at the
Fentress site.
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b. The 2004, March 2005, October 2005, 2007, and 2008
Policies
Because of the broad definitions of “pollution” and “pollutants” in the
remaining policies, it is clear that the allegations in the complaint properly invoke
the pollution exclusions. For example, the complaints allege that the “coal ash
[and binding agent] discharged . . . contains toxic substances” and that “airborne
and waterborne releases at the Fentress Site have caused [] hidden carcinogens,
poisons and hazardous substances inherent in coal ash [and binding agent] to
spread from the facility to the surrounding communities in periodic waves driven
by wind and water.” See App. Vol. IV at 791, 824; App. Vol. VII at 1509, 1561.
No ambiguity exists in the extent to which the exclusions apply because they bar
coverage for the introduction into the environment of “any substance [that] has, or
is alleged to have, the effect of making the environment impure, harmful, or
dangerous.” App. Vol. II at 344, 403, 464; App. Vol. III at 598, 697. In the
alternative, the fact that the fly ash is considered “waste” under the definition of
“pollutants” would also occasion the application of this exclusion.
Instead of relying on the plain language of the applicable exclusions in
these policies, the district court sought to avoid the possibility that the broad
pollution exclusions could “exclud[e] coverage for bodily injury or property
damage not caused by a ‘pollutant acting as a pollutant.’” Headwaters Res., Inc.,
913 F. Supp. 2d at 1220 (citing IPE, 2007 WL 4561460). In doing so, the district
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court narrowly construed the provisions in these policies to cover only
“traditional environmental pollution.” Id. But the district court came to its
conclusion without ever determining that the policies were ambiguous. While we
agree that plaintiffs complain of “traditional environmental pollution” as that term
is generally defined in other jurisdictions, see generally Apana v. TIG Ins. Co.,
574 F.3d 679, 682–83 (9th Cir. 2009) (collecting cases), we need not consider
other scenarios given that the alleged facts in the complaint are resolved by
unambiguous language. What is inescapable in this case is that the facts alleged
exemplify the type of pollution that the pollution exclusions unambiguously
describe and eliminate from the scope of coverage under the policies.
Notwithstanding its analysis regarding whether the complaints allege
“traditional environmental pollution,” the district court’s initial conclusion that
“[t]hese allegations place the [Chesapeake litigation] squarely within the
exclusions for damages arising out of pollution found in the Remaining Policies,”
Headwaters Res., Inc., 913 F. Supp. 2d at 1219, is the correct one. After finding
no ambiguity in the remaining policies, the district court’s work was done.
* * *
In sum, the dispositive feature in this case—the feature Headwaters cannot
rebut—is that the language of the pollution exclusions remains unmistakeably
plain both on its face and as applied to these facts. And because that clear
language applies to the causes of action alleged in the complaints, ACE was not
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required to reimburse Headwaters for the costs associated with defending the
Chesapeake lawsuits.
Accordingly, we agree with the district court that ACE was not liable to
reimburse Headwaters for expenses incurred in connection with defending against
the Fentress Complaint and the Sears Complaint.
B. Good Faith
Headwaters also argues that ACE violated its duty of good faith. Under
Utah law, the “obligation of good faith performance contemplates, at the very
least, that the insurer will diligently investigate the facts to enable it to determine
whether a claim is valid, will fairly evaluate the claim, and will thereafter act
promptly and reasonably in rejecting or settling the claim.” Beck v. Farmers Ins.
Exch., 701 P.2d 795, 801 (Utah 1985). Where an insurance contract indicates that
the scope of coverage is defined by the allegations in the underlying complaint,
then the insurer’s only obligation is to compare the complaint to the policy to
determine whether the occurrence is covered. Equine Assisted Growth, 266 P.3d
at 736. So, to meet its obligation of good faith, ACE in this case only needed to
compare the allegations in the complaints to the policies and timely communicate
to the insured its coverage decision. ACE fulfilled its obligation.
C. Rule 59(e) Motion
Finally, Headwaters contends the district court should have granted its Rule
59 motion to revisit summary judgment. It argues the court grounded its ruling
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on claims that the Virginia state court had dropped from that litigation. That
court specifically dropped claims alleging that the leached materials had
contaminated plaintiffs’ ground water because the complaints lacked the factual
specificity to establish the requisite causal link between the leaching and the
injury under Virginia law. See App. Vol. XIV at 3546–53. Headwaters
speculates, therefore, that the district court would have reached a different
decision had it not considered the leachate claims in concluding the pollution
exclusions applied.
We review a denial of a Rule 59 motion for abuse of discretion. Knight v.
Mooring Capital Fund, LLC, 749 F.3d 1180, 1191 (10th Cir. 2014). “[A] trial
court’s decision will not be disturbed unless the appellate court has a definite and
firm conviction that the lower court made a clear error of judgment or exceeded
the bounds of permissible choice in the circumstances.” Phelps v. Hamilton, 122
F.3d 1309, 1324 (10th Cir. 1997).
There was no abuse of discretion here. Headwaters claims the district
court’s “refusal to consider any claims other than those relating to the ‘deleted’
leachate claims meets the criteria” for a Rule 59 motion. See Aplt. Br. at 59.
This argument suffers from both a procedural flaw and a substantive flaw.
Procedurally, a Rule 59(e) motion “is not appropriate to revisit issues already
addressed or advance arguments that could have been raised in prior briefing.”
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000).
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Headwaters could have raised during summary judgment proceedings the point
that the leachate claims had been dropped from the Virginia state court litigation,
but did not do so. We cannot fault the district court for concluding the argument
was untimely and refusing to consider it in the context of Rule 59.
And from a substantive perspective, the district court specifically ruled that
the new evidence or arguments from the state court litigation “would not change
the outcome on the parties’ summary judgment motions anyway - the court sees
no distinction among pollution of the air, surface water, and ground water.” See
Docket Text Order, Headwaters Res., Inc. v. Ill. Union Ins., No.
2:09-cv-01079-DN (D. Utah), ECF #120 (filed Feb. 14, 2013). The district
court’s point is clear: the widespread pollution alleged through the Chesapeake
litigation was not contingent on the groundwater claims alone. See supra Part
II.A.3. Accordingly, the pollution exclusions would be triggered even if the
district court specifically excluded the leachate claims from the complaints.
Finally, it is worth reiterating that the district court considered the
underlying complaints and the policies—the only documents necessary to rule on
ACE’s liability—in making its decision. Thus, no supplemental evidence or
information, as a matter of law, could have influenced the district court’s
decision.
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III. Conclusion
For the foregoing reasons, we AFFIRM the district court’s disposition
below.
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