Standard Waste Systems Ltd v. Mid-Continent Casualty Co, et al

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Standard Waste Systems Ltd v. Mid-Continent Casualty Co, et al

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Case: 09-10973

Document: 00511175725

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Date Filed: 07/16/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
July 16, 2010 N o . 09-10973 Lyle W. Cayce Clerk

S T A N D A R D WASTE SYSTEMS LTD., P la in t if f ­ A p p e lla n t , v. M I D -C O N T I N E N T CASUALTY CO., Mid-Continent Insurance Co.; O K L A H O M A SURETY CO., D e fe n d a n t s ­ A p p e lle e s .

A p p e a l from the United States District Court for the Northern District of Texas

Before DENNIS, OWEN, and SOUTHWICK, Circuit Judges. P E R CURIAM: S t a n d a r d Waste Systems Ltd. appeals from the district court's grant of s u m m a r y judgment in favor of Mid-Continent Casualty Co. and Oklahoma S u r e t y Co. (collectively, the Insurers). Standard seeks declaratory relief and m o n e y damages arising out of the Insurers' alleged wrongful failure to defend S t a n d a r d in a personal injury lawsuit in the Eastern District of Oklahoma. On a p p e a l, Standard argues that the district court incorrectly found that the p la in t iffs ' claims in the underlying lawsuit fell within a policy exclusion and thus t h a t the Insurers had no duty to defend. We affirm.

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Case: 09-10973

Document: 00511175725

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Date Filed: 07/16/2010

No. 09-10973 I In the underlying lawsuit, plaintiffs asserted claims for negligence against S t a n d a r d , J.B. Hunt, and The Scotts Company based on personal injuries the p la in t if f s suffered as a result of exposure to a hazardous chemical. The

p la in t iffs , employees at the Georgia-Pacific paper plant, were injured after h a n d lin g the contents of a trailer delivered to Georgia-Pacific by J.B. Hunt and lo a d e d with scrap paper by Standard. Initially, the plaintiffs only filed suit a g a in s t J.B. Hunt. J.B. Hunt filed a third-party complaint against Standard, a lle g in g that Standard negligently caused the plaintiffs' injuries by allowing a t o x ic chemical to be loaded with the waste paper into the trailer. T h e plaintiffs then filed their first amended complaint, which added S t a n d a r d as a defendant and alleged: 1 0 . On or about June 25, 2004, an enclosed t r a ile r under the control of J.B. Hunt and previously lo a d e d with scrap paper at Standard Waste Systems, L T D , was delivered by J.B. Hunt employee/driver D a n ie l Kuder to the Georgia-Pacific paper plant in M u s k o g e e , Oklahoma. The floor of the trailer also c o n t a in e d a hazardous chemical. As the trailer was a c c e s s e d , unloaded, swept, and its contents otherwise h a n d le d , Plaintiffs . . . were injured by inhaling or o t h e r w is e being exposed to the chemical. 11. J.B. Hunt, individually, and by and through it s employees and/or agents, including Daniel Kuder, w a s negligent in the following respects: a. Im p roperly load i n g , tra n s p o r t i n g , d e liv e r in g , inspecting for hazardous cargo s p illa g e and/or generally mishandling h a z a r d o u s chemicals; F a ilin g to decontaminate or improperly d e c o n t a m in a t in g the trailer prior to its d e liv e r y to Georgia-Pacific paper plant;

b.

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No. 09-10973 c. F a ilin g to warn of the existence of the h a z a r d o u s chemical to those who would fo r s e e a b l y come into contact with the tr a ile r ; O t h e r acts or omissions to be discovered.

d.

1 2 . Standard Waste Systems, LTD, by and t h r o u g h its employees, was negligent in the following resp ects: a. I m p r o p e r ly receiving, loading, and/or in s p e c t in g the load of waste paper prior to p la c e m e n t in the trailer for transport; F a ilin g to adequately advise Daniel Kuder o f the existence of a chemical in the load of w a s t e paper prior to loading and transport; and O t h e r acts or omissions to be discovered.

b.

c.

S u b s e q u e n t ly , the plaintiffs filed their second amended complaint, adding S c o tt s Company as a defendant. The second amended complaint alleged: 1 2 . On or about June 25, 2004, an enclosed t r a ile r under the control of J.B. Hunt and loaded with s c r a p paper at Standard Waste Systems, LTD, was d e liv e r e d by J.B. Hunt employee/driver Daniel Kuder to t h e Georgia-Pacific paper plant in Muskogee, O k l a h o m a . The floor of the trailer also contained a h a z a r d o u s chemical, the type of which can be used in c e r t a in fertilizers. Prior to the delivery of the w a s t e p a p e r to Georgia-Pacific, the trailer was used to d e liv e r fertilizer from Scotts Company. As the trailer w a s accessed, unloaded, swept, and its contents o t h e r w is e handled, Plaintiffs . . . were injured by in h a lin g or otherwise being exposed to the chemical. 1 3 . J.B. Hunt, individually, and by and through it s employees and/or agents, including Daniel Kuder, w a s negligent in the following respects: a. Im properly loa d i n g , transportin g , d e liv e r in g , inspecting for hazardous cargo

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No. 09-10973 s p illa g e and/or generally h a z a r d o u s chemicals; b. mishandling

F a ilin g to decontaminate or improperly d e c o n t a m in a t in g the trailer prior to its d e liv e r y to Georgia-Pacific paper plant; F a ilin g to warn of the existence of the h a z a r d o u s chemical to those who would fo r s e e a b ly come into contact with the tr a ile r ; O t h e r acts or omissions to be discovered.

c.

d.

1 4 . Standard Waste Systems, LTD, by and t h r o u g h its employees, was negligent in the following resp ects: a. I m p r o p e r ly receiving, loading, and/or in s p e c t in g the load of waste paper prior to p la c e m e n t into the trailer for transport; F a ilin g to adequately advise Daniel Kuder o f the existence of a chemical in the load of w a s t e paper prior to loading and transport; and O t h e r acts or omissions to be discovered.

b.

c.

15. Scotts Company, by and through its e m p lo y e e s , was negligent in the following respects: a. I m p r o p e r ly loading and/or securing the h a z a r d o u s chemical such that spillage o c c u r r e d and caused the presence of the c h e m ic a l. F a ilin g to advise or notify J.B. Hunt d r iv e r s of the circumstance pertaining to t h e presence of the chemical. O t h e r acts or omissions to be discovered.

b.

c.

T h e plaintiffs' third amended complaint contained identical liability allegations. S t a n d a r d has a commercial general liability policy with Oklahoma Surety, a n d Standard contends that this policy obligated the Insurers to defend it in the

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No. 09-10973 u n d e r ly in g action. Standard tendered both the third-party complaint and the fir s t amended complaint to the Insurers, but the Insurers assert that Standard d id not tender the second or third amended complaints. The Insurers informed S t a n d a r d that they would not provide a defense to Standard in the underlying s u it because the pollution exclusion in the policy barred coverage for the a lle g a t io n s against Standard in the third-party complaint and the first amended c o m p la in t . The pollution exclusion states that the policy does not apply to: (1 ) "Bodily injury" or "property damage" arising out of t h e actual, alleged or threatened discharge, dispersal, s e e p a g e , migration, release or escape of "pollutants": (a ) A t or from any premises, site or location w h ic h is or was at any time owned or o c c u p ie d by, or rented or loaned to, any in s u r e d . . . .

.... (c ) W h ic h are or were at any time transported, h a n d le d , stored, treated, disposed of, or p r o c e s s e d as waste by or for: (i) (ii) A n y insured; or A n y person or organization for whom y o u may be legally responsible . . . .

T h e policy defines "pollutants" as "any solid, liquid, gaseous or thermal irritant o r contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals a n d waste. Waste includes materials to be recycled, reconditioned or reclaimed." Standard filed suit against the Insurers in Texas state court, seeking a d e c la r a to r y judgment that the Insurers were required to defend Standard in the u n d e r ly in g litigation according to the terms of its policy. Standard also seeks d a m a g e s for various claims arising from the Insurers' alleged violations of the t e r m s of the policy. The Insurers timely removed to federal district court. Standard filed a partial motion for summary judgment on its claims against

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No. 09-10973 O k la h o m a Surety for declaratory judgment, breach of contract, and violations o f the Texas Insurance Code. The Insurers filed a cross-motion for summary ju d g m e n t , arguing that the pollution exclusion in the policy precluded coverage. The district court found "that all of the liability theories asserted against S t a n d a r d in the underlying lawsuit fall within the exclusion in the Policy." While noting "that the underlying plaintiffs are somewhat oblique regarding the s o u r c e of the contamination," the court concluded "that the underlying plaintiffs a lle g e that Standard was negligent only if Standard was the source of the c h e m ic a l." The court based this conclusion on the facts that: (1) "none of the v a r io u s complaints alleges any facts that would support liability on Standard if S t a n d a r d were not the source of the chemical"; and (2) "the liability allegations r e g a r d i n g Standard make sense only in the context of alleging that Standard w a s the source of the chemical." Accordingly, the court determined that the I n s u r e r s did not have a duty to defend Standard in the underlying lawsuit and, b e c a u s e it found there was no coverage, granted summary judgment to the I n s u r e r s on all of Standard's claims. This appeal followed. II W e review de novo the district court's grant of summary judgment and a p p ly the same legal standards as the district court.1 III S t a n d a r d argues that the district court's grant of summary judgment must b e reversed because the Insurers failed to plead the policy exclusion as an a ffir m a t iv e defense. Under Texas law, a policy exclusion is an affirmative d e fe n s e ,2 and Federal Rule of Civil Procedure 8(c) requires that "a party must

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Travelers Lloyds Ins. Co. v. Pac. Emp'rs Ins. Co., 602 F.3d 677, 681 (5th Cir. 2010).

TEX. INS. CODE § 554.002 ("Language of exclusion in the contract or an exception to coverage claimed by the insurer or health maintenance organization constitutes an avoidance or an affirmative defense.").

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No. 09-10973 a ffir m a t iv e ly state any avoidance or affirmative defense" in responding to a p le a d in g . "[F]ailure to abide by Rule 8(c) leads to waiver."3 However, "[w]here t h e matter is raised in the trial court in a manner that does not result in unfair s u r p r is e , . . . technical failure to comply precisely with Rule 8(c) is not fatal." 4 " [A ] defendant does not waive an affirmative defense if it is raised at a p r a g m a t ic a lly sufficient time, and [the plaintiff] was not prejudiced in its ability t o respond." 5 T h e Insurers' failure to plead the policy exclusion as an affirmative d e fe n s e did not result in unfair surprise or prejudice. The only issue in this case h a s been the applicability of the pollution exclusion. In their denial letters, the I n s u r e r s expressly stated that the pollution exclusion barred any duty to defend S t a n d a r d in the underlying suit. In the joint status report filed with the district c o u r t, the Insurers stated that it was their contention that coverage was barred b y the pollution exclusion. In the Insurers' designation of expert witnesses, the I n s u r e r s attested that their expert would testify about the applicability of the p o llu t io n exclusion. Standard also centered its allegations on the exclusion and, in its petition initiating this coverage suit, asked for a declaratory judgment that t h e pollution exclusion did not apply. Standard also moved for partial summary ju d g m e n t and asked the district court to declare the pollution exclusion in a p p lic a b le . Therefore, the Insurers did not waive a defense based on the p o llu t io n exclusion. IV S t a n d a r d also argues that the district court erred in finding that the a lle g a t io n s in the underlying suit did not require the Insurers to defend

3

Rogers v. McDorman, 521 F.3d 381, 385 (5th Cir. 2008). Allied Chem. Corp. v. Mackay, 695 F.2d 854, 855-56 (5th Cir. 1983). Rogers, 521 F.3d at 386 (internal quotation marks omitted).

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No. 09-10973 S t a n d a r d in the underlying litigation. "A liability insurer is obligated to defend a suit if the facts alleged in the pleadings would give rise to any claim within the c o v e r a g e of the policy."6 Texas uses the "eight corners" rule to determine

w h e t h e r an insurer has a duty to defend.7 This rule "requires the finder of fact t o compare only the allegations in the underlying suit--the suit against the in s u r e d -- w it h the provisions of the insurance policy to determine if the a lle g a t io n s fit within the policy coverage."8 Courts must apply the eight corners r u le liberally and resolve any doubts in favor of the insured.9 "If any allegation in the complaint is even potentially covered by the policy then the insurer has a d u t y to defend its insured."1 0 However, courts must not "read facts into the p le a d in g s ," "look outside the pleadings, or imagine factual scenarios which might t r ig g e r coverage." 11 T h e pollution exclusion in Standard's policy bars coverage for claims of b o d ily injury from pollutants if Standard was the source of the pollutant. Thus, t h e Insurers only had a duty to defend Standard in the underlying litigation if t h e underlying complaints allege that Standard is liable independent of S t a n d a r d being the source of the hazardous chemical. On appeal, neither party c o n t e s t s the district court's finding that the pollution exclusion applied to the a lle g a t io n s in the third-party complaint. However, the Insurers argue that the c o u r t should only consider the first amended complaint in determining whether

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Willbros RPI, Inc. v. Cont'l Cas. Co., 601 F.3d 306, 310 (5th Cir. 2010). Primrose Operating Co. v. Nat'l Am. Ins. Co., 382 F.3d 546, 552 (5th Cir. 2004). Id. Willbros, 601 F.3d at 310. Primrose, 382 F.3d at 552 (internal quotation marks omitted).

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9

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Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 142 (Tex. 1997) (per curiam).

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No. 09-10973 t h e y had a duty to defend because Standard failed to tender the second and third a m e n d e d complaints. Because we hold that the Insurers did not have a duty to d e fe n d based on the allegations in any of the complaints, we need not resolve t h is issue. S t a n d a r d argues that the underlying complaints would allow the u n d e r ly in g plaintiffs to pursue causes of action against Standard for improper lo a d in g and failure to warn, even if Standard was not the source of the pollutant. Standard contends that, because the third amended complaint includes a lle g a t io n s that Scotts Company was the source of the chemical, the allegations in the complaint are reasonably interpreted as alleging that Standard was n e g lig e n t in loading its waste paper into a trailer that already contained a c h e m ic a l fertilizer on its floor and in subsequently failing to alert the driver r e g a r d i n g the pre-existing chemical fertilizer. Standard asserts that it is also r e a s o n a b le to interpret the underlying complaints as alleging that as the waste p a p e r was being loaded into the trailer, it interacted with the chemical fertilizer a n d itself became contaminated. In that case, Standard argues, the waste paper w a s not hazardous or a pollutant prior to loading, and thus the pollutant did not o r ig in a t e from Standard and the pollution exclusion is not triggered. The third amended complaint asserts that Standard was negligent in " [i]m p r o p e r ly receiving, loading, and/or inspecting the load of waste paper prior t o placement into the trailer for transport" and in "[f]ailing to adequately advise D a n ie l Kuder of the existence of a chemical in the load of waste paper prior to lo a d in g and transport." The complaint states that the trailer was "loaded with s c r a p paper at Standard" and delivered by J.B. Hunt. It also alleges that "[t]he flo o r of the trailer also contained a hazardous chemical, the type of which can be u s e d in certain fertilizers." It notes that "[p]rior to the delivery of the

w a s t e p a p e r to Georgia-Pacific, the trailer was used to deliver fertilizer from S c o tt s Company." 9

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No. 09-10973 T h e allegations in the underlying complaints fall within the policy e x c lu s io n as all allegations against Standard are premised on Standard being t h e source of the chemical. The first and third amended complaints specifically a lle g e that Standard was negligent for failing to inspect the paper and failing to w a r n the driver of the existence of a chemical in the paper prior to loading and t r a n s p o r t , which would require Standard to be the source of the chemical. While t h e complaints allege that Standard was negligent in loading the paper, the facts d o not suggest that Standard would be liable for any reason other than loading p a p e r that was already contaminated or failing to warn the driver that the paper w a s contaminated prior to loading. The third amended complaint includes allegations that Scotts Company w a s the source of the chemical. However, despite these allegations, no facts in t h e complaint suggest that Standard knew or should have known that the c h e m ic a l was present in the trailer and should have notified the driver or r e fu s e d to load the paper as a result. Accordingly, we agree with the district c o u r t that the complaint alleges that either: (1) Standard is liable if it was the s o u r c e of the chemical; or, alternatively, (2) Scotts Company is liable if it was the s o u r c e of the chemical. All of the allegations against Standard in the underlying c o m p la in t s fall within the pollution exclusion, and thus the Insurers did not h a v e a duty to defend Standard in the underlying litigation. * * *

F o r the foregoing reasons, we AFFIRM the district court's grant of s u m m a r y judgment.

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