Central Crude v. Liberty Mutual Ins

Case: 21-30707 Document: 00516523068 Page: 1 Date Filed: 10/26/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
October 26, 2022
No. 21-30707 Lyle W. Cayce
Clerk
Central Crude, Incorporated,
Plaintiff—Appellant,
versus
Liberty Mutual Insurance Company; Great American
Assurance Company, incorrectly named Great
American Insurance Company,
Defendants—Appellees.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 2:17-CV-308
Before Davis, Dennis, and Higginson, Circuit Judges.
W. Eugene Davis, Circuit Judge:
Plaintiff-Appellant Central Crude, Inc. (“Central Crude”) challenges
the district court’s interpretation of the “total pollution exclusion
endorsement” in its policy with Defendant-Appellee Liberty Mutual
Insurance Company (“Liberty Mutual”). 1 We agree with the district court
1
Defendant-appellee Great American Assurance Company (“Great American”)
participates as Central Crude’s excess insurer.
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that coverage for Central Crude’s environmental pollution claim is excluded
under Liberty Mutual’s policy. Therefore, we AFFIRM.
I. BACKGROUND
In January 2007, Central Crude discovered a crude oil leak on its
property and a neighboring tract owned by Chevron in Paradis, Louisiana. Of
the four to five acres of property covered in oil, Central Crude claimed that
“less than a half acre” was on its property. Central Crude subsequently
reported the leak to the Louisiana Department of Environmental Quality
(“LDEQ”), as it was required to do. Central Crude then retained a
contractor, ES&H Consulting & Training Group, to perform remediation
work. Central Crude paid approximately one million dollars to the contractor
to perform this work. Apparently, the property has not been completely
remediated, and according to Central Crude’s representative in 2019, it is
possible that the spill is ongoing. Although remediation efforts have
continued for over fifteen years, the source of the leak remains unclear.
Specifically, there has been no determination as to whether the spill occurred
from Central Crude’s pipelines or from Chevron’s wells, or whether (as
Central Crude’s representative testified was possible) it was simply the result
of oil seeping from the ground.
Central Crude had a commercial general liability (“CGL”) policy
with Liberty Mutual. The insurance policy requires Liberty Mutual to pay
sums “to which [the] insurance applies” and to defend Central Crude against
suits for covered damages. The policy also contains a “total pollution
exclusion endorsement” which limits coverage as follows:
This insurance does not apply to: . . .
f. Pollution
(1) “Bodily injury” or “property damage” which would
not have occurred in whole or part but for the actual, alleged
2
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or threatened discharge, dispersal, seepage, migration, release
or escape of “pollutants” at any time.
(2) Any loss, cost or expense arising out of any:
(a) Request, demand, order or statutory or regulatory
requirement 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
....
(emphasis added).
Central Crude sought coverage from Liberty Mutual for the costs it
incurred in remediating its property in Paradis. Initially, Liberty Mutual
agreed to provide limited coverage, but ultimately informed Central Crude
on August 23, 2007, that there was “no coverage for the claim.”
On January 3, 2008, Columbia Gulf Transmission Company
(“Columbia Gulf”) sued Central Crude and others in state court (the “CGT
Lawsuit”), alleging that the spill threatened to damage Columbia Gulf’s
natural gas pipeline located on property adjacent to the Paradis spill. The
CGT Lawsuit alleged that the spill occurred on “Chevron’s tract” and that
the source of the spill “could only have been the pipelines owned and/or
operated by Central Crude, Inc. or Chevron’s [w]ells.” Citing to the total
pollution exclusion, Liberty Mutual refused to defend Central Crude in the
CGT Lawsuit.
In January 2017, Central Crude filed this lawsuit in state court seeking:
(1) coverage for past and future expenses it incurred in cleaning up the
Paradis spill; (2) coverage for defense costs in connection with the CGT
Lawsuit; and (3) damages, penalties, and attorney fees for Liberty Mutual’s
alleged bad faith denial of coverage.
Liberty Mutual removed the case to federal district court and
promptly moved for summary judgment on both coverage, and bad faith.
3
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The district court determined that the total pollution exclusion barred
coverage for Central Crude’s claims and granted summary judgment in favor
of Liberty Mutual. Central Crude moved for reconsideration, and the district
court denied the motion. Central Crude timely appealed.
II. DISCUSSION
This Court reviews the district court’s grant of summary judgment de
novo. 2 Under Rule 56(a), a movant is entitled to summary judgment when it
demonstrates that there is no genuine dispute as to any material fact and it is
entitled to judgment as a matter of law. “A genuine dispute of material fact
exists if the evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” 3
The resolution of this insurance coverage dispute turns on the
interpretation of the total pollution exclusion in Central Crude’s CGL policy
with Liberty Mutual. Under Louisiana law, 4 an insurance policy is a contract
between the parties and is construed under the same general rules for
interpreting contracts. 5 The parties’ intent, as reflected by the words of the
policy, determines the extent of coverage. 6 If a policy is clear and expresses
the intent of the parties, the agreement must be enforced as written. 7
However, an insurance policy should not be interpreted to achieve an absurd
2
Kitchen v. BASF, 952 F.3d 247, 252 (5th Cir. 2020).
3
Id. (internal quotation marks and citation omitted).
4
When jurisdiction is based on diversity, this Court must apply the substantive law
of the forum state, here Louisiana. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191
(5th Cir. 2010) (citing Erie R. v. Tompkins, 304 U.S. 64 (1938)).
5
Blackburn v. Nat’l Union Fire Ins. Co. of Pittsburgh, 784 So. 2d 637, 641 (La. 2001).
6
Id.7
Bossier Plaza Assocs. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 813 So.2d 1114, 1119
(La. App. 2d Cir. 2002).
4
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result. 8 Further, because the purpose of liability insurance is to afford the
insured protection from damage claims, policies should be construed to
effect, and not to deny coverage. 9 Nonetheless, an insurer has the right to
limit coverage in any manner it desires, unless those limitations conflict with
law or public policy. 10
Central Crude, as the party seeking coverage, has the burden of
proving that the Paradis spill falls within the CGL policy’s terms. 11 Liberty
Mutual has the burden of proving the applicability of an exclusionary
clause. 12 If Liberty Mutual unambiguously shows that an exclusion applies,
it will not owe Central Crude indemnification for past or future remediation
costs, or a duty to defend and indemnify in the CGT Lawsuit. 13 Additionally,
Liberty Mutual would not be liable for any penalties and fees under
Louisiana’s bad faith statutes. 14
Central Crude seeks both defense and indemnity from Liberty
Mutual. “An insurer’s duty to defend suits on behalf of an insured presents
a separate and distinct inquiry from that of the insurer’s duty to indemnify a
8
Magnon v. Collins, 739 So.2d 191, 197 (La. 1999).
9
See Yount v. Maisano, 627 So.2d 148, 151 (La. 1993).
10
Elliott v. Cont’l Cas. Co., 949 So. 2d 1247, 1254 (La. 2007).
11
Doerr v. Mobil Oil Corp., 774 So. 2d 119, 124 (La. 2000).
12
Id.13
La. Citizens Prop. Ins. Co. v. Age, 104 So. 3d 675, 677 (La. App. 4 Cir. 2012) (“It
is settled that when an exclusion to a policy is applicable, the insurer owes no duty to defend
or indemnify the insured.”).
14
Under Louisiana law, an insurer breaches its duty of good faith by failing to timely
pay a claim after receiving satisfactory proof of loss when “that failure to pay is arbitrary,
capricious, or without probable cause.” Reed v. State Farm Mut. Auto. Ins. Co., 857 So. 2d
1012, 1020 (La. 2003). “An insurer does not act arbitrarily or capriciously when its refusal
to pay a claim is based on a genuine dispute over coverage or the amount of loss.” In re
Chinese Manufactured Drywall Prods. Liability Lit., 759 F. Supp. 2d 822, 843 (E.D. La. 2010)
(citing Reed, 857 So. 2d at 1021).
5
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covered claim . . . .” 15 Whether an insurer has a duty to defend “is
determined by the allegations of the plaintiff’s petition [against the insured],
with the insurer being obligated to furnish a defense unless the petition
unambiguously excludes coverage.” 16 Conversely, whether an insurer has a
duty to indemnify is determined by the court’s application of “the Policy to
the actual evidence adduced at the underlying liability trial together with any
evidence introduced in the coverage case.” 17
The parties agree that Doerr v. Mobil Oil Corp. 18 is the leading
Louisiana case interpreting the total pollution exclusion endorsement
contained in the insurance policy between Central Crude and Liberty
Mutual. In Doerr, the plaintiffs alleged that Mobil Oil discharged
petrochemicals into the Mississippi River, and that St. Bernard Parish drew
those chemicals into its drinking water system and redistributed it to users
throughout the Parish. 19 The plaintiffs, who consumed the water, filed a class
action claiming personal injuries from the contaminated water. 20 They sued
St. Bernard Parish and its liability insurer, Genesis Insurance Company. 21
Genesis moved for summary judgment, arguing that the total
pollution exclusion endorsement in its insurance policy excluded coverage
15
Martco Ltd. P’Ship v. Wellons, Inc., 588 F.3d 864, 872 (5th Cir. 2009) (citing
Elliott, 949 So. 2d at 1250). For example, one difference stems from the fact that it is “the
insurer’s obligation to defend suits against its insured is generally broader than its
obligation to provide coverage for damage claims.” Steptore v. Masco Const. Co., 643 So. 2d
1213, 1218 (La. 1994).
16
Steptore, 643 So. 2d at 1218.
17
Martco, 588 F.3d at 877.
18
774 So.2d at 119.
19
Id. at 122.
20
Id.
21
Id.
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for plaintiffs’ alleged damages. 22 The trial court denied Genesis’s motion,
citing the policy’s total pollution exclusion endorsement. 23 The Fourth
Circuit Court of Appeal reversed and dismissed the claim against Genesis.24
The Louisiana Supreme Court, however, reversed the appellate court,
reinstating the trial court’s denial of summary judgment and remanding the
matter to the trial court. 25
The Doerr court began by overruling one of its recent decisions,
Ducote v. Koch Pipeline Co. 26 In Ducote, a contractor was cutting the grass near
an ammonia pipeline when his tractor overturned, and the
tractor’s bushhog blade struck the pipeline, causing the release of anhydrous
ammonia into the atmosphere. 27 The plaintiffs, who inhaled the gas, sued
the pipeline owner, claiming personal injury damages. 28 The Louisiana Su-
preme Court held that the total pollution clause excluded coverage. 29
In overruling Ducote, the court in Doerr engaged in a lengthy
discussion about the text, history, and purpose of the total pollution
exclusion. 30 The court made clear that courts should “construe [a] pollution
exclusion clause in light of its general purpose, which is to exclude coverage
for environmental pollution, and under such interpretation, [the] clause will
not be applied to all contact with substances that may be classified as
22
Id.
23
Id. at 121.
24
Id.
25
Id. at 136.
26
730 So. 2d 432 (La. 1999).
27
Id. at 435.
28
Id.
29
Id. at 437.
30
Doerr, 774 So.2d at 122.
7
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pollutants.” 31 Accordingly, the court held that its opinion in Ducote, which
did not involve environmental pollution, conflicted “with the intent of the
policy exclusion and disrupt[ed] the expectations of both insurers and
insured.” 32
To assist courts in determining whether a case involves environmental
pollution, Doerr provides three factors to be considered: 33
(1) Whether the insured is a “polluter” within the
meaning of the exclusion; 34
(2) Whether the injury-causing substance is a
“pollutant” within the meaning of the exclusion; 35 and
31
Id. at 135 (quoting 9 COUCH ON INS. 127:6 (3d ed. 1997)) (emphasis added).
32
Id. at 127-28.
33
See In re Chinese Manufactured Drywall, 759 F. Supp. 2d at843 (stating that based
“upon all three [Doerr] considerations,” plaintiffs’ claims were “outside the ambit of the
Louisiana Supreme Court’s concern with and focus upon environmental pollution for
purposes of the exclusion”); cf. Gaylord Container Corp. v. CNA Ins. Companies, 807 So. 2d
864, 872 (La. App. 1st Cir. 2001) (finding that because the “pollution exclusion was
designed to exclude coverage for environmental pollution only” and the insured was “not
seeking defense or indemnity for suits that relate to environmental cleanup claims,” it was
“unnecessary [for the court] to engage in an extensive analysis of the Doerr three-step
inquiry”); Jones v. Francis Drilling Fluids, Ltd., 62 F. Supp. 2d 643, 666-70 (S.D. Tex.
2009) (analyzing Louisiana post-Doerr caselaw to conclude “that a lengthy analysis of [the
Doerr] factors is not required if the type of ‘pollution’ alleged is so far removed from the
type of ‘environmental pollution’ contemplated by Doerr”).
34
To make this determination, the factfinder may consider “the nature of the
insured’s business, whether that type of business presents a risk of pollution, whether the
insured has a separate policy covering the disputed claim, whether the insured should have
known from a read of the exclusion that a separate policy covering pollution damages would
be necessary for the insured’s business, who the insurer typically insures, any other claims
made under the policy, and any other factor.” Doerr, 774 So.2d at 135.
35
To make this determination, the factfinder may consider “the nature of the
injury-causing substance, its typical usage, the quantity of the discharge, whether the
substance was being used for its intended purpose when the injury took place, whether the
8
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(3) Whether there was a “discharge, dispersal, seepage,
migration, release or escape” of a pollutant by the insured
within the meaning of the policy. 36
Here, there is little dispute about the first two Doerr factors. As to the
first consideration, Central Crude, a pipeline company that transports large
volumes of oil, is a type of business that presents a risk of pollution, and thus
is a “polluter” within the meaning of the exclusion. 37 As to the second
consideration, the parties agree that crude oil is a “pollutant.” With respect
to the third consideration, it is undisputed that a “dispersal” or “release” of
crude oil occurred; that the spill impacted four or five acres of property; that
initial response activities resulted in the removal of more than 25,000 gallons
of liquid; and that Central Crude has spent over one million dollars in
remediation efforts. 38
Central Crude contends that the total pollution exclusion is applicable
only if the insured is found to be responsible for the release or discharge of
the pollutant. It latches onto the language in Doerr “by the insured” to argue
that Liberty Mutual is required to show that the escape of oil was the fault of
Central Crude. We disagree.
substance is one that would be viewed as a pollutant as the term is generally understood,
and any other factor.” Id.36
To make this determination, the factfinder may consider “whether the pollutant
was intentionally or negligently discharged, the amount of the injury-causing substance
discharged, whether the actions of the alleged polluter were active or passive, and any other
factor.” Id.37
See Grefer v. Travelers Inc., 919 So. 2d 758, 768 (La. App. 5 Cir. 205) (finding that
“[o]il drilling and related activities present a clear and obvious risk of pollution”).
38
See Apollo Energy, LLC v. Certain Underwriters at Lloyd’s, London, 387 F. Supp.
3d 663, 674 (M.D. La. 2019) (“Here, though the discharge was unintentional, the Court
has little doubt that the amount of discharge—which caused over one-hundred, forty
thousand dollars’ worth of cost in remediation and clean up, constituted a ‘discharge, . . .
release or escape’ of the pollutant.” (citation omitted)).
9
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Neither the CGL policy nor Doerr requires identification of the party
at fault for the oil spill in determining whether the total pollution exclusion
applies here. The CGL policy’s total pollution exclusion broadly precludes
coverage for bodily injury or property damage that “would not have occurred
in whole or in part but for the actual, alleged or threatened discharge,
dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.”
The provision requires a dispersal of pollutants but makes no requirement
that the party responsible for the dispersal be determined. Doerr’s third
factor similarly asks whether there was a “discharge, dispersal, seepage,
migration, release or escape” of a pollutant. 39
Doerr instructs courts to look at the actions of the “alleged polluter.” 40
The allegations in the CGT Lawsuit, 41 as well as the evidence introduced in
this matter on summary judgment, 42 show that Central Crude was alleged to
be one of two potential parties that caused a large discharge and dispersal of
crude oil. Moreover, imposing a fault requirement for application of a total
pollution exclusion in cases involving environmental pollution would run
counter to the Louisiana Supreme Court’s instruction in Doerr that pollution
exclusions must be read in accordance with their general purpose “to exclude
coverage for environmental pollution.” 43
39
Doerr, 774 So.2d at 135.
40
Id.41
The petition in the CGT Lawsuit alleged that the oil spill “could only have been
[caused by] the pipelines owned and/or operated by Central Crude, Inc. or Chevron.”
42
For example, the Department of Environmental Quality identified Central
Crude as the “potentially responsible party.”
43
See Doerr, 774 So.2d at 135. More broadly, requiring a finding of fault
impermissibly collapses the distinct questions of coverage and liability. In Meridian
Chemicals, LLC v. Torque Logistics, LLC, No. 18-002, 2018 WL 4656396, 6 (M.D. La. Sept.
27, 2018), a district court applying Louisiana law rejected such an attempt to conflate these
issues under Doerr’s third factor, noting that the insured’s assertion that it did not cause
10
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The key to our discussion today is that we are persuaded that Doerr
teaches that the total pollution clause has full application to a case, such as
this, where several acres of land are covered with oil from a leak alleged, at
least in part, to have been caused by the insured. The fundamental point the
Doerr court made was that there is a material distinction between
environmental pollution cases on one hand, and certain types of personal
injury cases on the other. 44 The leading Louisiana Insurance Treatise also
reads Doerr in this fashion. The author of the Treatise states, “[t]he ultimate
conclusion [in Doerr] is that the pollution ‘exclusion was designed to exclude
coverage for environmental pollution only and not for all interactions with
irritants or contaminants of any kind.’” 45
The Louisiana Second Circuit Court of Appeal in Lodwick v. Chevron 46
similarly understood Doerr to be limited in this way. In that case, the
defendant and its predecessors operated oil and gas production facilities on
land adjacent to plaintiffs’ land. 47 Plaintiffs alleged that the defendants failed
to clean toxic pollutants from the production facilities which migrated and
spread to plaintiffs’ property. 48 Because plaintiffs’ claims were based on
“contamination and pollution damages” 49 that plaintiffs represented
resulted from defendant’s open pit and tank battery, the court found that all
three Doerr factors were met, and held that the exclusion precluded
the pollution was immaterial for purposes of deciding “whether [the] policy covers the
alleged loss,” because “liability and causation [were] not at issue.”
44
Doerr, 774 So.2d at 136.
45
15 William Shelby McKenzie & H. Alston Johnson, III, La
Civ. Law Treatise, Insurance Law and Practice § 6:15 (4th ed. 2021).
46
126 So. 3d at 544.
47
Id. at 550-51.
48
Id. at 551.
49
Id. at 552.
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coverage. 50 The court noted that such a “legacy lawsuit is the exact type of
case that the Doerr court found pollution exclusions to be applicable.” 51 The
court stated:
Doerr did not involve the type of claims for which the exclusion
was designed; it was a personal injury case, not an
environmental pollution case as alleged here. Thus, guided by
the principles set forth in Doerr, we find that when long term
pollution damages are alleged . . . pollution exclusions are applicable
to exclude coverage. As stated in Doerr, this is the very purpose
of a pollution exclusion. 52
This case, unlike Doerr and Ducote, does not involve claims for
personal injury. Instead, the claims for which Central Crude seeks coverage
involve only long-term pollution damages related to an oil spill. As in
Lodwick, excluding coverage in a case like this one is the very purpose of total
pollution exclusion clauses. 53
50
Id. at 560-61.
51
Id. (“Plaintiffs’ allegations make it clear that all three Doerr factors are met—(1)
[Defendant] is a ‘polluter’ within the policy; (2) the injury-causing substances, such as
NORM, are ‘pollutants’ within the policy; and, (3) there was a ‘discharge, dispersal,
seepage, migration, release or escape’ of pollutants. In any event, we find that this legacy
lawsuit is the exact type of case the Doerr court found pollution exclusions to be
applicable.”).
52
Id. at 560.
53
Louisiana case law confirms that courts have generally applied total pollution
exclusions to cases that involve long-term environmental pollution claims. See, e.g.,
Pro-Boll Chem. & Fertilizer Co. v. U.S. Fire & Guar. Co., 01-1531, 2004 WL 3494045, at 7
(W.D. La. Nov. 15, 2004) (finding that the application of a pollution exclusion clause to a
case involving a toxaphene spill “fulfill[s]” the “purpose of the pollution exclusion (to
strengthen environmental protection standards by imposing the full risk of loss due to
personal injury or property damage from pollution upon the polluter)”); Constance v.
Austral Oil Exploration Co., No. 12-1252, 2016 WL 902574, at 1 (W.D. La. Mar. 3, 2016)
(finding a pollution exclusion precluded a duty to defend the insured against claims alleging
damage from the insured’s oil and gas exploration activities); Grefer v. Travelers Ins. Co.,
919 So. 2d 758, 772 (La. App. 5 Cir. 2005) (reversing the trial court’s finding that a pollution
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In sum, the absolute pollution exclusion in Liberty Mutual’s policy
unambiguously excludes coverage for Central Crude’s costs related to “clean
up” or “remov[al]” of the crude oil, as well as for any “‘property damage’
which would not have occurred in whole or part but for the . . . release or
escape” of the crude oil. We therefore determine that Liberty Mutual has
established the applicability of the total pollution exclusion endorsement, and
thus does not owe Central Crude a duty to defend in the CGT Lawsuit, or
indemnification of past or future remediation costs.
III. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED. 54
exclusion in the insured’s policy did not apply to claims against the insured for
environmental property damage that allegedly resulted from the insured’s pipe-cleaning
waste products).
54
The district court also granted summary judgment in favor of Central Crude’s
excess insurer, Great American Assurance Company. However, because Central Crude
failed to raise any issues related to Great American in its opening or reply brief, it has
waived any potential error related to the district court’s summary judgment in favor of
Great American. See Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994). Moreover, we
agree with the district court that because the Liberty Mutual policy does not provide
coverage for Central Crude’s claims, the Great American policy likewise does not provide
coverage.
13