Hussey Copper, Ltd. v. Arrowood Indemnity Co.

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 09-4037
___________
HUSSEY COPPER, LTD.,
Appellant
v.
ARROWOOD INDEMNITY COMPANY,
f/k/a ROYAL INSURANCE COMPANY
___________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Nos. 07-cv-00758 & 07-cv-01286)
District Judge: Honorable Joy Flowers Conti
___________
Submitted Under Third Circuit L.A.R. 34.1(a)
on July 16, 2010
Before: FUENTES and VANASKIE, Circuit Judges,
and DITTER,* District Judge.
(Opinion Filed: August 23, 2010)
OPINION OF THE COURT
*
Honorable J. William Ditter, United States District Judge for the Eastern District
of Pennsylvania, sitting by designation.
FUENTES, Circuit Judge:
Hussey Copper, Ltd. (“Hussey”) appeals the District Court’s order granting
summary judgment to Arrowood Indemnity Company (“Arrowood”).1 We have
jurisdiction under 28 U.S.C. § 1291 and will affirm.2
I.
Because we write primarily for the parties, we discuss the facts only to the extent
necessary for resolution of the issues raised on appeal. Hussey sued Arrowood seeking
defense and indemnity pursuant to its commercial general liability policy for a lawsuit
brought against it by the Kane County Public Building Commission (the “Building
Commission”). The Building Commission complaint alleged that lead-coated copper
roofing panels, produced by Hussey and installed at the Kane County Judicial Center in
Kane County, Illinois, had eroded, resulting in the contamination of a retention pond
adjacent to the site. The Illinois Environmental Protection Agency (the “Illinois EPA”),
upon being informed of the contamination, ordered the Building Commission to
remediate the lead and copper pollution in and around the pond. Upon completion of the
remediation project, the Building Commission sued Hussey in Illinois state court seeking
recovery of its costs and expenses. Hussey sought indemnity from Arrowood.
1
At the time many of the events underlying this lawsuit transpired, Arrowood was
known as Royal Insurance Company. For simplicity, we refer to Appellee as Arrowood
throughout this opinion.
2
We exercise plenary review over the District Court’s entry of summary
judgment. See Business Edge Group, Inc. v. Champion Mortg. Co., Inc., 519 F.3d 150,
153 n.5 (3d Cir. 2008).
-2-
At issue is a broad exclusion in Hussey’s insurance policy that limits coverage for
pollution-related damages. Section f.(2) of the exclusion bars coverage for:
Any loss, cost or expense arising out of any:
(a) Request, demand or order that any insured or others test for,
monitor, clean up, remove, contain, treat, detoxify or
neutralize, or in any way respond to, or assess the effects of
pollutants; or
(b) Claim or suit by or on behalf of a governmental authority for
damages because of testing for, monitoring, cleaning up,
removing, containing, treating, detoxifying or neutralizing, or
in any way responding to, or assessing the effects of
pollutants.
(App. at 103.) Arrowood declined to indemnify Hussey, claiming that under section
f.(2)(a) of this provision, Hussey’s liability to the Building Commission was outside the
scope of the policy. Hussey ultimately settled with the Building Commission and filed
suit against Arrowood, alleging that Arrowood violated the insurance contract when it
failed to indemnify Hussey.
The parties filed cross-motions for summary judgment. The District Court ruled in
Arrowood’s favor, finding that the Building Commission suit fell unambiguously within
the scope of the pollution exclusion clause. However, the Court permitted Hussey to
conduct discovery as to whether judgment should be entered in its favor under the
doctrine of regulatory estoppel based upon statements the Insurance Services Office made
to Pennsylvania insurance regulators when seeking approval for its insurance policies.
The District Court ultimately entered judgment in Arrowood’s favor, finding that
-3-
Arrowood was not estopped from asserting that the pollution exclusion clause applied to
the Building Commission’s claims. Hussey thereafter filed this timely appeal.
II.
Hussey raises two issues on appeal—it contends (1) that the pollution exclusion
provision invoked by Arrowood and enforced by the District Court does not
unambiguously exclude coverage for the Building Commission’s lawsuit, and (2) that the
District Court erred in concluding that the doctrine of regulatory estoppel did not bar
Arrowood from relying upon the pollution exclusion to deny coverage. For all of the
reasons persuasively stated in the Magistrate Judge’s reports and recommendations and
the District Court’s opinion, as well as for the reasons set forth below, we disagree with
Hussey and will affirm the entry of summary judgment in Arrowood’s favor.
The parties agree that Pennsylvania law applies to Hussey’s claim against
Arrowood. We recently described the relevant considerations for interpreting an
insurance policy under Pennsylvania law as follows:
Our inquiry is straightforward. We look first to the terms of the policy
which are a manifestation of the intent of the parties. When the language of
the policy is clear and unambiguous, we must give effect to that language.
However, when a provision in the policy is ambiguous, the policy is to be
construed in favor of the insured. Next, we compare the terms of the policy
to the allegations in the underlying claim. It is well established that an
insurer’s duties under an insurance policy are triggered by the language of
the complaint against the insured.
Nationwide Mut. Ins. Co. v. CPB Intern., Inc., 562 F.3d 591, 595 (3d Cir. 2009)
(quotation marks and citations omitted). Where “the language of a policy is clear and
-4-
unambiguous, we must apply its plain and ordinary meaning, and not struggle to create
ambiguity solely for the purpose of finding coverage where none exists.” Techalloy Co.,
Inc. v. Reliance Ins. Co., 487 A.2d 820, 826 (Pa. Super. Ct. 1984) (citation omitted).
“Contractual language is ambiguous if ‘it is reasonably susceptible of different
constructions and capable of being understood in more than one sense.’” Gardner v. State
Farm Fire and Cas. Co., 544 F.3d 553, 558 (3d Cir. 2008) (quoting Hutchison v. Sunbeam
Coal Corp., 519 A.2d 385, 390 (Pa. 1986)).
We agree with Arrowood that the Building Commission’s suit against Hussey falls
squarely within the unambiguous language of the insurance contract’s pollution exclusion
provision, which is not reasonably susceptible to multiple interpretations. Section f.(2)(a)
of the pollution exclusion clause is sweeping—it excludes from coverage “[a]ny loss, cost
or expense arising out of any . . . [r]equest, demand or order that any insured or others . . .
in any way respond to, or assess the effects of pollutants.”3 (App. at 103 (emphasis
added).) We conclude that Hussey’s liability to the Commission is without question a
cost of Hussey’s that arises out of the Illinois EPA’s order compelling the Building
Commission to test for and clean up the effects of pollutants.4 “Cost,” Black’s Law
Dictionary makes plain, is synonymous with “expenditure,” which is defined as “[a] sum
paid out.” Black’s Law Dictionary 397, 658 (9th ed. 2009). As a result of the Building
3
Courts within and outside of Pennsylvania have interpreted this pollution
exclusion provision broadly. See Coal Heat, Inc. v. U.S. Fidelity and Guaranty Co., No.
99-CV-5647, 2000 WL 1689713, at *6-7 (E.D. Pa. Nov. 2, 2000) (citing cases).
4
Hussey does not challenge the designation of lead and copper as pollutants.
-5-
Commission’s lawsuit against Hussey, Hussey incurred such an expenditure in the form
of its liability to the Building Commission. Such an expenditure manifestly “aris[es] out
of” the Illinois EPA’s “order that any insured or others”—the “other[]” here being the
Building Commission—respond to the pollution caused by the erosion of Hussey’s
roofing panels.5 (App. at 103.) The “plain and ordinary meaning” of the broad pollution
exclusion clause unambiguously encompasses Hussey’s liability to the Building
Commission. Techalloy, 487 A.2d at 826.
Hussey advances several arguments in its effort to show that the language of the
pollution exclusion is ambiguous, but we do not find its arguments persuasive. Hussey’s
strongest argument is its suggestion that adopting the above-described construction of
section f.(2)(a)’s plain language would render section f.(2)(b) surplusage. See In re
Cendant Corp. Securities Litigation, 454 F.3d 235, 247 (3d Cir. 2006) (“A contract is to
be considered as a whole, and, if possible, all its provisions should be given effect . . . .”)
(citation omitted). According to Hussey, if section f.(2)(a) were interpreted to include
liability for a claim brought by an entity ordered by the government to remediate
pollution, “then a claim or suit by a governmental authority seeking damages for the
cleanup of pollutants likewise would be excluded under section (2)(a). If that were the
case, where would be no need for section (2)(b).” (Appellant’s Br. at 28.)
5
We have explained, in applying Pennsylvania law, that the words “arising out
of” are “normally given broad construction.” Battaglia v. McKendry, 233 F.3d 720, 727
(3d Cir. 2000).
-6-
Hussey’s argument fails, however, because the plain language of sections f.(2)(a)
and f.(2)(b) indicates that the two provisions exclude coverage for pollution-related losses
in different circumstances. Section f.(2)(a), its terms make clear, applies when the
insured or others are compelled by a “[r]equest, demand or order” (such as the Illinois
EPA’s order in this case) to respond to or assess the effects of pollutants. (App. at 103.)
By contrast, section f.(2)(b) applies when the “governmental authority” itself remediates
the pollution and then files a “[c]laim or suit” against the responsible party or parties to
recover the costs of remediation. (Id.) That the pollution exclusion provision would
contain one clause addressing private remediation of pollution and a separate clause
addressing remediation by governmental authorities is not surprising. The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
itself addresses these two categories of costs in distinct subsections, one of which makes
potentially responsible polluters liable for “all costs of removal or remedial action
incurred by the United States Government or a State or an Indian tribe not inconsistent
with the national contingency plan,” and the other of which makes potentially responsible
polluters liable for “any other necessary costs of response incurred by any other person
consistent with the national contingency plan.” 42 U.S.C. §§ 9607(a)(4)(A)-(B).
Arrowood’s pollution exclusion provision simply tracks CERCLA in separating out these
two categories of liability. In sum, our reading of the pollution exclusion clause’s
unambiguous terms gives effect to both provisions and creates no surplusage, contrary to
Hussey’s unavailing argument to the contrary.
-7-
We are likewise unpersuaded by Hussey’s suggestion that industry custom and
usage demonstrates that the insurance industry does not regard section f.(2)(a) as applying
to products-based claims like Hussey’s. It is true that, even in the absence of contractual
ambiguity, “[i]n construing policy language, courts should consider any special usage
‘[w]here terms are used in a contract which are known and understood by a particular
class of persons in a certain special or peculiar sense.’” USX Corp. v. Liberty Mut. Ins.
Co., 444 F.3d 192, 198 (3d Cir. 2006) (quoting Sunbeam Corp. v. Liberty Mut. Ins. Co.,
781 A.2d 1189, 1193 (Pa. 2001)) (emphasis added). But Hussey identifies no “terms” in
the instant contract that are subject to special or peculiar meaning. Id. Instead, Hussey
simply argues that the entire pollution exclusion provision has an industry-specific
meaning. Without providing evidence that a particular term within the policy has an
idiosyncratic, industry-specific meaning, Hussey is in effect arguing that the entire
contract does not mean what it says. Needless to say, we reject such an unpersuasive
contention.
Finally, we are unconvinced by Hussey’s argument that Arrowood should be
estopped from invoking the pollution exclusion as a result of representations made by
agents of the insurance industry to Pennsylvania insurance regulators about the exclusion.
The gist of Hussey’s argument is that an organization called the Insurance Services Office
(“ISO”), on behalf of insurance companies like Arrowood, made representations to state
insurance regulators in order to obtain regulatory approval for the pollution exclusion
clause. In these statements, Hussey contends, ISO indicated that the clause did not apply
-8-
to product-based claims, but now, according to Hussey, Arrowood is trying to benefit by
arguing that the exception applies to Hussey’s product-based claim, contrary to
Pennsylvania’s regulatory estoppel doctrine.
We disagree. Hussey is correct that under Pennsylvania’s doctrine of regulatory
estoppel, an industry that makes representations to a regulatory agency to win agency
approval “will not be heard to assert the opposite position when claims are made by
[litigants such as] insured policyholders.” Sunbeam, 781 A.2d at 1192-93. Here, the
District Court properly rejected Hussey’s equitable estoppel argument. First, Hussey’s
evidence of industry representations to Pennsylvania insurance regulators pertains to a
different pollution exclusion provision in a different contract than the one at issue in this
case; the statements simply are not relevant to any claim for estoppel relating to the
contractual language under consideration here. Moreover, even if the ISO representations
were relevant to any claim for estoppel concerning this contract (which they are not), we
agree with Arrowood that the statements, when read in context, show that the ISO
consistently represented to regulators that the pollution exclusion would apply to clean-up
costs like those the Building Commission incurred. In other words, ISO’s statements
were not so contrary to Arrowood’s position that Arrowood should be estopped from
invoking the pollution exclusion here.6
6
We have reviewed the remainder of Hussey’s arguments and find that they are
without merit.
-9-
III.
For the foregoing reasons, we will affirm the judgment of the District Court.
-10-