Technical Coating v. U.S. Fidelity

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_______________
No. 97-2448
_______________ FILED
U.S. COURT OF APPEALS
D. C. Docket No. 5:96CV221-RH ELEVENTH CIRCUIT
10/09/98
TECHNICAL COATING APPLICATORS, INC., THOMAS K. KAHN
CLERK
Plaintiff-Appellee,
versus
UNITED STATES FIDELITY AND GUARANTY COMPANY,
Defendant-Appellant.
______________________________
Appeal from the United States District Court
for the Northern District of Florida
______________________________
(October 9, 1998)
Before BIRCH, Circuit Judge, HILL and KRAVITCH, Senior Circuit
Judges.
BIRCH, Circuit Judge:
In this insurance contract case, United States Fidelity and
Guaranty Company ("USF&G") appeals the district court's
conclusion that, under Florida law, an "absolute pollution
exclusion" is ambiguous when applied to the emission of vapors
from products used in their normal manner. For the reasons that
follow, we conclude that the district court erred in holding that the
absolute pollution exclusion is ambiguous under these
circumstances. We therefore vacate the district court's order
awarding partial summary judgment against USF&G.
I. BACKGROUND
Plaintiff-Appellee Technical Coating Applicators ("TCA") is a
roofing contractor incorporated and located in Florida. Defendant-
Appellant USF&G is an insurance company incorporated in
Maryland. Prior to the events underlying this lawsuit, TCA
purchased two general liability insurance policies from USF&G.
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In 1992, the Okaloosa County, Florida, School District hired
TCA to perform repairs on the roof at the Baker School. As part
of the repairs process, TCA applied polyurethane foam and
several layers of elastomeric protective coatings to the roof of the
school. Several months after TCA completed its repair work,
school employees and students began reporting respiratory
problems. Ultimately, approximately thirty employees and
students filed suit against TCA, alleging that TCA negligently
applied the foam and elastomeric coatings and exposed the
employees and students to vapors emitted by these products.
TCA demanded that USF&G defend the lawsuits filed by the
employees and students pursuant to the two general liability
insurance policies issued by USF&G. Both insurance contracts
contain a clause known as an "absolute pollution exclusion,"
which excludes from coverage:
[any] "bodily injury" or "property damage" arising out of the
actual, alleged or threatened discharge, dispersal, seepage,
migration, release or escape of pollutants:
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. . . (d) At or from any premises, site or location on
which any insured or any contractors or subcontractors
working directly or indirectly on any insured's behalf are
performing operations:
(i) if the pollutants are brought on or to the
premises, site or location in connection with such
operations by such insured, contractor or
subcontractor.
R2-20 Ex. A at 9; Ex. B at 6. "Pollutants" are defined in the
policies as "any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals, and waste." Id. Stating that the vapors emitted by
TCA's roofing products fell within the definition of a pollutant in the
absolute pollution exclusion, USF&G denied coverage and
refused to defend the lawsuits. TCA then commenced this action
against USF&G.
USF&G moved for summary judgment, arguing that the
absolute pollution exclusion permitted USF&G to deny coverage
for claims arising from the emission of vapors from the roofing
products. The district judge denied USF&G's motion, reasoning
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that, because Florida law governing the construction of insurance
contracts resembled Georgia law in all relevant respects, the court
was obliged to follow Bituminous Casualty Corporation v.
Advanced Adhesive Technology, Incorporated, 73 F.3d 335 (11th
Cir. 1996). In Bituminous, we found an identically-worded
pollution exclusion clause to be ambiguous under Georgia law.
73 F.3d at 338. Consistent with Bituminous, the district court
awarded partial summary judgment in favor of TCA with respect to
USF&G's duty to defend the lawsuits against TCA. Finally, the
district judge certified his ruling for interlocutory appeal pursuant
to 28 U.S.C. § 1292(b). We agreed to review the district judge's
determination that the absolute pollution exclusion is ambiguous
under Florida law.
II. ANALYSIS
The district judge's resolution of the parties' motions for
summary judgment involved the construction of an insurance
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contract, which is a question of law and is subject to de novo
review. Elan Pharm. Research Corp. v. Employers Ins. of
Wausau, 144 F.3d 1372, 1374-75 (11th Cir. 1998). Our review of
a district court's grant or denial of summary judgment is plenary
and we apply the same legal standards as those employed by the
district court. Id. Summary judgment is appropriate when no
genuine issue of material fact exists and the moving party is
entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c).
In a contract action, a federal court sitting in diversity
jurisdiction applies the substantive law of the forum state unless
federal constitutional or statutory law compels a contrary result.
See Insurance Co. of N. Am. v. Lexow, 937 F.2d 569, 571 (11th
Cir. 1991). In particular, the federal court must follow the
decisions of the state's highest court when that court has
addressed the relevant issue. See Brown v. Nichols, 8 F.3d 770,
773 (11th Cir. 1993). Here, the Florida Supreme Court has
published an opinion that squarely addresses the issues raised by
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this appeal, Deni Associates of Florida, Incorporated v. State
Farm Fire & Casualty Insurance Company, 711 So.2d 1135 (Fla.
1998). Although the publication of Deni occurred after the district
judge issued his orders awarding summary judgment in favor of
TCA, "the law is settled that a federal appellate court sitting in a
diversity case must apply the state law as it exists at the time of
the appeal and not at the time of the district court judgment."
Kramer v. Piper Aircraft Corp., 868 F.2d 1538, 1541 (11th Cir.
1989). Intervening state decisions must be given full effect as if
the decisions existed during the pendency of the case in district
court. Id. Consequently, we apply the Florida Supreme Court's
holding in Deni to this case, despite the fact that this decision was
not available to the district judge.
In Deni, the Florida Supreme Court considered an absolute
pollution exclusion that contained language identical to that used
in the policies issued by USF&G. 711 So.2d at 1137. The court
concluded that the language is "clear and unambiguous" and
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therefore must be enforced by courts interpreting such exclusions.
Id. at 1138. Consequently, the companies that issued the policies
in Deni had no duty to defend the policyholders in lawsuits after
the policyholders (a) spilled ammonia inside a building, releasing
ammonia vapors that allegedly caused damages to people inside
the building, and (b) "oversprayed" insecticide on two men
standing outside the property scheduled to be sprayed. Id. at
1137-38, 1140.
Relying upon the Florida Court of Appeal's decision in Deni,
the district judge reasoned that the facts of this case are
distinguishable from those of Deni, thus permitting the
consultation of authority from other states. Specifically, the district
judge noted that the vapors underlying the lawsuits against TCA
were emitted pursuant to the normal, proper application of TCA's
roofing products, while Deni and other Florida decisions involved
vapors or other pollutants discharged as a result of accidents or
improper usage of products. The Florida Supreme Court opinion,
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however, eliminated this distinction, extending its holding to
encompass even those discharges that result from the proper,
everyday use of otherwise benign products and materials. Using
examples such as paint and glue, the court observed that,
although these products normally do not inflict injury, the products'
ability to produce an irritating effect places the products within the
policies' definition of an "irritant." Deni, 711 So.2d at 1139
(quoting American States Ins. Co. v. Nethery, 79 F.3d 473, 476
(5th Cir. 1996)).1 Consequently, a product that causes no harm
when used properly still may be classified as a pollutant under the
exclusion: "It can obviously cause harm when it is not used
properly. Thus, the pollution exclusion . . . precludes coverage. . .
." Id. at 1141.2
1
Nethery, which is quoted with approval by the Deni court, contains facts that are
similar to those presented in this case. In Nethery, a painting company used paint and glue
inside of a home, thus using those products in their proper, everyday manner. 79 F.3d at 474.
The homeowner later sued the painting company for injuries allegedly sustained from fumes
released by the paint and glue. Id. Interpreting Mississippi law, the Fifth Circuit held that an
absolute pollution exclusion identical to the clauses at issue in this case abrogated the insurer's
duty to defend the lawsuit. Id. at 478.
2
The Florida Court of Appeal interpreted the absolute pollution exclusion in a
similarly broad manner:
9
After the Florida Supreme Court published Deni, we issued
West American Insurance Company v. Band & Desenberg, 138
F.3d 1428 (11th Cir. 1998), which adds further support to our
decision in this case. In West American, we held that an absolute
pollution exclusion identical to the exclusion at issue in this case
abrogated the insurer's duty to defend claims that the insured's air
conditioning system transported air-borne contaminants into the
insured's office building. 138 F.3d at 1428; see also West Am Ins.
Co. v. Band & Desenberg, 925 F. Supp. 758, 761 (M.D. Fla. 1996)
("[T]he language of the exclusion is clear and unambiguous. . . .
The language requires only that the pollution occur at a premises
owned or occupied by an insured.").
To repeat ourselves, the express language of this exclusion is to exclude all
pollution bodily injury claims from coverage. The definition of pollution drafted
by these underwriters in these cases was obviously intended to be both broad and
comprehensive.... [T]he obvious meaning of the words in these categorical
exclusions is that no pollution claims will be covered."
State Farm Fire & Cas. Ins. Co. v. Deni Assoc. of Florida, Inc., 678 So.2d 397, 403 (Fla. Dist.
Ct. App. 1996) (emphasis added).
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Consistent with these decisions, we conclude that, under
Florida law, the absolute pollution exclusions contained in the
policies issued by USF&G unambiguously excluded coverage for
bodily injuries sustained by breathing vapors emitted from TCA's
roofing products, regardless of whether TCA used the products
properly or negligently. Contrary to arguments posed by TCA, our
construction of the absolute pollution exclusion does not nullify the
essential coverage provided by the policies; rather, the policies
continue to provide coverage for a wide variety of accidents and
mishaps--such as injuries from falling equipment--that may occur
during the roof repair process.
TCA argues that, even if we conclude that the absolute
pollution exception is unambiguous and enforceable, we
nonetheless should affirm the district judge's ruling because the
absolute pollution exception applies only if the discharge of
pollutants occurs while the insured is "performing operations."
The district judge, however, did not consider this argument
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because his conclusion regarding the ambiguity of the absolute
pollution exclusion eliminated the need to decide whether the
discharge occurred while TCA was performing operations. We
therefore decline to consider this argument on appeal, so that the
district judge may have an opportunity to address the argument in
the first instance. Citro Florida, Inc. v. Citrovale, S.A., 760 F.2d
1231, 1232 (11th Cir. 1985) ("We . . . decline to reach the merits
of an issue on which the district court has not ruled.") (citation and
internal quotation omitted).3
III. CONCLUSION
For the foregoing reasons, we conclude that the absolute
pollution exclusion is not ambiguous under the circumstances of
this case. We therefore VACATE the district judge's entry of
3
In a supplemental brief, TCA also argues that the district judge's ruling should be
affirmed because USF&G failed to provide TCA with adequate notice of amendments to the
absolute pollution exclusions. Because this contention is raised for the first time on appeal, we
decline to consider this argument as well.
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summary judgment in TCA's favor and REMAND the case to the
district court.
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