Star Insurance Company v. Bear Productions, Inc. et al

Filing 65

ORDER & OPINION by Judge Ronald A. White granting Star's motion for summary judgment ( 50 Motion for Summary Judgment ) and denying as moot Bear's motion to compel discovery ( 60 Motion to Compel ) (lal, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF OKLAHOMA

STAR INSURANCE COMPANY,
Plaintiff and
Counter Defendant,
v.
Case No. CIV-12-149-RAW
(1) BEAR PRODUCTIONS, INC.
Defendant and
Counter Plaintiff,
and
(2) WILLIAM REESE,
(3) DIANE REESE,
(4) HERMAN TOLBERT,
(5) TIM TANKSLEY,
(6) SUSAN HOLMES, and
(7) CHARLES TACKETT,
Defendants.

ORDER & OPINION1
Star Insurance Company (hereinafter “Star”) filed this action on April 4, 2012, seeking a
declaratory judgment pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et seq.
Star seeks a declaration that Bear Productions, Inc. (hereinafter “Bear”) is not entitled to defense
or indemnity coverage under a commercial general liability policy in connection with an
environmental damage lawsuit originally filed in the District Court in and for LeFlore County,

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For clarity and consistency herein, when the court cites to the record, it uses the page
numbers assigned by CM/ECF.

Oklahoma (hereinafter “Underlying Action”).2 Star is currently defending Bear in the Underlying
Action under a reservation of rights.
Bear has filed a counterclaim seeking a judgment declaring that Star has a duty to defend
Bear in the Underlying Action under both the commercial general liability policy and an umbrella
policy. Bear argues that the issue of whether Star has a duty to indemnify Bear will not be ripe
until the conclusion of the Underlying Action.
Now before the court are Star’s motion for summary judgment [Docket No. 50] and
Bear’s motion to compel discovery [Docket No. 60]. In its summary judgment motion, Star
argues that there is no genuine issue as to any material fact and that it is entitled to summary
judgment as a matter of law. Bear argues, inter alia, that the liability policies at issue provide
Bear with coverage, that the policies are ambiguous, and that read literally, the policies eliminate
virtually all coverage for risks inherent to Bear’s business. For the reasons delineated below, the
motion for summary judgment is hereby granted. Bear’s motion to compel discovery is hereby
denied.
UNDERLYING ACTION
The Underlying Action, originally filed on October 6, 2011 in the District Court of

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“Declaratory relief is available in either federal court or Oklahoma state court.”
Automax Hyundai South v. Zurich Am. Ins. Co., 720 F.3d 798, 810 n. 3 (10th Cir. 2013).
Section 2201 of the Declaratory Judgment Act provides in pertinent part: “In a case of actual
controversy within its jurisdiction . . . any court of the United States, upon the filing of an
appropriate pleading, may declare the rights and other legal relations of any interested party
seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201.
“Invoking this provision, insurers often seek declaratory judgment in federal court . . . on whether
they have a duty to defend [and indemnify] an insured under the terms of a liability policy.”
Automax, 720 F.3d at 810 n. 3. As the court has previously mentioned, in deciding whether to
hear this action, the court considered the five factors listed in State Farm Fire & Cas. Co. v.
Mhoon, 31 F.3d 979, 983 (10th Cir. 1994).
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LeFlore County, Oklahoma, is a class action lawsuit against Bear and several other defendants
based on, inter alia, the defendants’ alleged disposal of waste materials that resulted in a noxious
and harmful nuisance, pollution and contamination. On October 4, 2012, a First Amended
Petition was filed in the Underlying Action in LeFlore County. On November 5, 2012, that case
was removed to federal court.3 On August 19, 2013, the plaintiffs in the Underlying Action filed
a First Amended Complaint. CIV-12-457-JH, Docket No. 314. A Corrected First Amended
Complaint was filed on August 20, 2013 to include the full caption. CIV-12-457-JH, Docket No.
315.
The Corrected First Amended Complaint (hereinafter “Underlying Complaint”) begins by
noting that the action is filed on behalf of the named plaintiffs and other similarly situated
persons “who seek to recover for the pollution and contamination of the environment in which
they live, work and recreate and for injuries and the real and immediate threat of injuries to their
person and property, which have been, or are being, caused by the presence of, or the exposure to
. . . produced fluid waste (“PFW,” specifically defined below).” CIV-12-457-JH, Docket No.
315, Underlying Complaint, at 4.
The Underlying Complaint states that Bear is an Oklahoma corporation engaged in the
transport of PFW to the MMHF4 Dump Site. Id. at 37. The Underlying Complaint defines

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That case is now before the United States District Court for the Eastern District of
Oklahoma. The case number is CIV-12-457-JH. The court herein takes judicial notice of the
pleadings in that case. See Eden v. Voss, 105 Fed.Appx. 234, 240 n. 6 (10th Cir. 2004) (noting
that “[i]n a summary judgment context, it is appropriate for the district court to take judicial
notice of pleadings in another case.” ).
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MMHF, LLC is another defendant in the Underlying Action. It is an Oklahoma
company also known as “Making Money Having Fun, LLC,” “Clean Hydro Reclamation, LLC,”
and “Clean Hydro Evacuation, LLC.” MMHF is allegedly the owner and operator of the disposal
pit at issue in the Underlying Action, the “MMHF Dump Site.” CIV-12-457-JH, Docket No.
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“Produced Fluid Waste (‘PFW’)” as:
those waste fluids and solids which are generated by operators during the course
of oil and gas drilling completion operations. PFW includes saltwater, sand, acid,
oil-based drilling fluids, water-based drilling fluids, completion flowback fluid,
frack flowback fluid, workover flowback fluid, rainwater gathered on drilling and
productions sites, drilling cuttings, pit water, including frack, mud, circulation and
reserve pits, and numerous other fluids and solid wastes generated during the
exploration and completion of oil and gas wells.
Id. at 81.
The Underlying Complaint includes Bear in a category it terms the “PFW Defendants.” It
alleges that the “PFW Defendants have transported and caused to be transported, toxic, untreated
PFW . . . into the State of Oklahoma for discharge into the open, unlined MMHF Dump Site pit
and into the public and private waters, soils, and air of the Class Area.” Id. at 44. The
Underlying Complaint further alleges that “between 2003 and 2009, the PFW Defendants
disposed of PFW from oil and gas drilling completion operations at the MMHF Dump Site in
violation of [Oklahoma Corporation Commission] Orders and safe disposal practices.” Id. at 83.
The Underlying Complaint also alleges:
the PFW Defendants acquired, created, generated, stored and disposed of
significant volumes of toxic, nonhazardous, hazardous, and regulated chemicals,
chemical compositions, silica quartz crystalline particulate matter (“proppant”),
metals, solvents, acids, salts, corrosives, anti-corrosives, refined petroleum
products, polymers, surfactants, and other regulated harmful constituents. These
toxic and potentially toxic pollutants, generated by the PFW Defendants and
discharged into the MMHF Dump Site pit, have contaminated and continue to
contaminate the air, land, and waters adjacent to, under, and around the MMHF
Dump Site and the Class Area.

Id. at 83-84.
The Underlying Complaint includes the following six causes of action against all of the

315, at 11.
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defendants, including Bear: (1) strict liability for abnormally dangerous activity, (2) public and
private nuisance; (3) trespass, (4) negligence, (5) negligence per se, and (6) unjust enrichment.
Id. at 94-100. All six claims against Bear are based on its alleged transport and disposal of PFW
at the MMHF Dump Site.
THE POLICIES
Bear has two policies with Star, a Commercial General Liability Policy, the “Primary
Policy,” and an Umbrella Policy. Both policies were in effect from March 16, 2006 until March
16, 2007.
Primary Policy
Under the title “Insuring Agreement,” the Primary Policy states:
We will pay those sums that the insured becomes legally obligated to pay as
damages because of “bodily injury” or “property damage” to which this insurance
applies. We will have the right and duty to defend the insured against any “suit”
seeking those damages. However, we will have no duty to defend the insured
against any “suit” seeking damages for “bodily injury” or “property damage” to
which this insurance does not apply.
Docket No. 50, Exh. 1, Primary Policy, at 78. (emphasis added).
The Primary Policy includes a pollution exclusion. See id. at 79-80 and 91. The section
states in pertinent part: “This insurance does not apply to . . . ‘[b]odily injury’ or ‘property
damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration,
release or escape of ‘pollutants’ . . . .” Id. at 79-80 and 116 (emphasis added). “‘Pollutants’
mean 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.” Id. at 91.
Attached to the Primary Policy is a rider that provides limited pollution coverage at
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designated well sites for bodily injury, property damage or environmental damage caused by a
“pollution incident.” Id. at 93-97. The rider specifically states:
This insurance applies to “bodily injury”, “property damage”, and “environmental
damage” only if:
(1) The “bodily injury”, “property damage”, or “environmental damage” are
caused by a “pollution incident”
(a) on or from a “designated well site”5 in the “coverage territory”, and
(b) that begins and ends within 72 hours of the incident; and
(c) that is accidental; and
(d) that is reported within 90 days of the incident
(2) The “bodily injury”, “property damage”, or “environmental damage” first
occurs during the policy period[.]
Id. at 93-94.
Also attached to the Primary Policy is a rider titled, “Exclusion – Saline Substances
Contamination.” Id. at 113. This exclusion states: “This insurance does not apply to ‘property
damage’ included within the ‘saline substance contamination hazard.’” Id. at 113.
“Saline substance contamination hazard” includes “property damage” to any of
the following wherever located:
(a) Oil, gas, water or other mineral substance, if the “property damage” is
caused directly or indirectly by a saline substance;
(b) Any other property, if the “property damage” results from the ‘property
damage’ described in (a) above.
Id.
Umbrella Policy
The Umbrella Policy provides insurance in excess of that provided by the underlying
insurance, the relevant underlying insurance in this case being the Primary Policy. See Docket
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The rider states that “[d]esignate[d] well site” refers to the “specific location(s) specified
in the Declarations of this policy upon which you own, lease or rent an oil, gas or geothermal
well(s).” Id. at 97. Then in another rider titled “Designated Well Sites – Location Schedule,” is
the statement: “schedule on file with company.” Id. at 99. The parties have not provided the
court with a copy of that schedule. Presumably, the designated site would have been the MMHF
Dump Site. Nevertheless, this information is not necessary for court to resolve the motion.
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No. 50, Exh. 2, Umbrella Policy, at 5-6. The Umbrella Policy provides:
We will have the duty to defend any claim or Suit seeking damages covered by
this policy when:
1. The applicable limits of insurance of the underlying policies listed in the
SCHEDULE OF UNDERLYING INSURANCE and the limits of
insurance of any other Underlying Insurance providing coverage to the
Insured have been exhausted by payment of the claims to which this policy
applies; or
2. Damages are sought for Bodily Injury, Property Damage, Personal Injury
or Advertising Injury covered by this policy but not covered by any
Underlying Insurance listed in the SCHEDULE OF UNDERLYING
INSURANCE or any other Underlying Insurance providing coverage to
the Insured.
Id. at 6 (emphasis added). “Suit means a civil proceeding in which Bodily Injury, Property
Damage, Personal Injury, or Advertising Injury to which this insurance applies is alleged.” Id. at
9.
The Umbrella Policy also includes a pollution exclusion. See Id. at 11-13 and 21. The
pollution exclusion clause states in pertinent part: “This insurance does not apply to . . . Bodily
Injury, Property Damage, or Personal Injury arising out of the actual or threatened discharge,
dispersal, seepage, migration, release or escape of pollutants from any source anywhere in the
world.” Id. at 11 and 21. “Pollutants means any solid, liquid, gaseous, or thermal irritant or
contaminant, including but not limited to, smoke, vapor, soot, fumes, acids, alkalis, chemicals,
and waste materials. Waste material includes materials which are intended to be or have been
recycled, reconditioned, or reclaimed.” Id. at 21.
Also included within the Umbrella Policy is a rider titled “Oil and Gas Industries
Exclusion.” Id. at 20. It states in pertinent part: “This insurance does not apply to . . . Bodily
Injury, Property Damage, Personal Injury or Advertising Injury arising out of or contributed to in
any way by pollution . . . .” The rider gives the same definition for “pollutants” as in the
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pollution exclusion.
SUMMARY JUDGMENT MOTION
“The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). At this stage, the court “view[s] the evidence and draw[s] reasonable inferences
therefrom in the light most favorable to the nonmoving party.” Burke v. Utah Transit Auth. &
Local 382, 462 F.3d 1253, 1258 (10th Cir. 2006).
The relationship between Bear and Star is contractual in nature. See First Bank of Turley
v. Fidelity & Deposit Ins. Co. of Md., 928 P.2d 298, 302-04 n. 6 (Okla. 1996). The policies
impose upon Star two basic duties – the duty to defend and the duty to indemnify. See id. at 30203. The primary duty, of course, is to provide indemnity. Id. at 303. The duty to defend is
broader than the duty to indemnify, but Star’s obligation is not unlimited. Id. The duty to defend
“is measured by the nature and kinds of risks covered by the policy as well as the reasonable
expectations of the insured.” Id. (emphasis in original).
An insurer has a duty to defend an insured whenever it ascertains the presence of
facts that give rise to the potential of liability under the policy. The insurer’s
defense duty is determined on the basis of information gleaned from the petition
(and other pleadings), from the insured and from other sources available to the
insurer at the time the defense is demanded (or tendered) rather than by the
outcome of the third-party action.
Id. at 303-04. (emphasis in original).
The Oklahoma Supreme Court also noted in First Bank of Turley that the broader scope
of an insurer’s duty to defend “is evidenced by the ordinary policy terms that bind the insurer to
defend ‘even if any of the allegations of the suit are groundless, false, or fraudulent.’” Id. at 30304 n. 10. The policies at issue in this case, however, do not include those specific “ordinary
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policy terms.” Instead, the policies do the opposite – the Primary Policy excludes coverage of
even allegations of pollution, and the Umbrella Policy states that Star will only defend claims or
“Suits” seeking damages that are covered under the Umbrella Policy when certain conditions are
met.
Moreover, while the duty to defend is broader than the duty to indemnify, “the Oklahoma
Supreme Court has repeatedly stated that ‘an insurer is not obligated to defend a groundless suit
when it would not be liable under its policy for any recovery that could possibly be obtained
therein.” Boggs v. Great Northern Ins. Co., 659 F.Supp.2d 1199, 1214 (N.D. Okla. 2009)
(citations omitted). Given the terms of the policies at issue here and the information gleaned
from the Underlying Complaint and other pleadings filed in the Underlying Action, it is clear that
there is no potential of liability under either policy. The court will examine each policy in turn.
The Primary Policy specifically excludes coverage for allegations of pollution. Docket
No. 50, Exh. 1, Primary Policy, at 79-80 and 116. The Primary Policy defines “pollutants” 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.” Id. at 91. All of the claims in the Underlying Action against Bear
are based on its business of transporting and disposing of what the Underlying Complaint terms
“produced fluid waste” to a dump site. The Underlying Complaint defines “produced fluid
waste” as:
those waste fluids and solids which are generated by operators during the course
of oil and gas drilling completion operations. PFW includes saltwater, sand, acid,
oil-based drilling fluids, water-based drilling fluids, completion flowback fluid,
frack flowback fluid, workover flowback fluid, rainwater gathered on drilling and
productions sites, drilling cuttings, pit water, including frack, mud, circulation and
reserve pits, and numerous other fluids and solid wastes generated during the
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exploration and completion of oil and gas wells.
CIV-12-457-JH, Docket No. 315, Underlying Complaint, at 81. A plain reading of these
definitions shows that the “produced fluid waste” described in the Underlying Complaint is
“pollution” as defined in the Primary Policy. All of the claims in the Underlying Complaint are
based on this alleged pollution; thus, the claims are not covered under the Primary Policy. Star
has no duty to defend against these allegations of pollution, as there is no potential of liability
under the Primary Policy.
The Primary Policy provides a limited exception for a “pollution incident” at a designated
well site within the coverage territory that lasts only 72 hours, that is accidental, that is reported
within 90 days, and that first occurs during the policy period. Id. at 93-94. That is not the case
here. The pollution alleged in the Underlying Action was between 2003 and 2009. CIV-12-457JH, Docket No. 315, Underlying Complaint, at 83. Bear entered into a contract to “dispose of
water produced in connection with the production of oil and gas wells” at the MMHF Dump Site
on November 11, 2004. See Docket No. 59, Exh. 1, Water Disposal Agreement, at 21-23. The
Primary Policy was in effect from March 16, 2006 until March 16, 2007. Docket No. 50, Exh. 1,
Primary Policy, at 6. The limited exception is not applicable, as the alleged pollution began
before the policy period, lasted well beyond 72 hours and clearly was not accidental.
The Umbrella Policy specifically excludes coverage for actual or threatened pollution.6
Docket No. 50, Exh. 2, Umbrella Policy, at 11, 20 and 21. The pollution exclusion here does
not, as the Primary Policy did, include the word “alleged.” Bear argues that this change in the

6

The Umbrella Policy defines “pollutants” the same as the Primary Policy. Id. at 21. The
court has already determined that the allegations in the Underlying Complaint are based on
pollution as defined in the policies.
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language results in Star having a duty to defend against allegations of pollution and coverage if it
is proven that Bear did not actually pollute. The language in the duty to defend clause creates the
opposite result. The Umbrella Policy provides that Star will defend “any claim or Suit seeking
damages covered by this policy.” Id. at 6. Star is not required under the Umbrella Policy to
defend against claims or Suits seeking damages that are not covered thereunder. Pollution is not
covered under the Umbrella Policy. Thus, Star has no duty to defend against those claims.
Moreover, as the court noted above, “an insurer is not obligated to defend a groundless suit when
it would not be liable under its policy for any recovery that could possibly be obtained therein.”
Boggs, 659 F.Supp.2d at 1214.
The relevant language in both the Primary Policy and the Umbrella Policy is clear,
unambiguous and reasonably susceptible to only one meaning on its face. See Certain
Underwriters at Lloyds London v. B3, Inc., 262 P.3d 397, 400 (Okla. App. Div. 1 2011). The
court thus affords those terms their plain and ordinary meaning. See Bituminous Cas. Corp. v.
Cowen Constr., Inc., 55 P.3d 1030, 1033 (Okla. 2002). “The rule that policies are to be
construed against the insurer has no application where the provisions are susceptible of only one
reasonable construction.” Certain Underwriters, 262 P.3d at 400 (citation omitted). The court
also is “mindful that an insured and insurer are free to contract for that quantum of coverage
which one is willing to extend and the other is willing to purchase.” Bituminous, 55 P.3d 1033.
The parties are bound by the terms of the policies. Id. The court may not rewrite the
policies to make them better for either party. Id. “An insured cannot insist upon a strained
construction of relevant policy language in order to claim a patent ambiguity exists nor can it
contradict the written instrument’s plain terms under the guise of a latent ambiguity.” Id. at

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1034. “Courts must not torture the policy language in order to ‘create ambiguities where none
exist.’” Id. at 1035 (citation omitted).
While not determinative, the court notes that Bear is a corporate business. It bargained
for an exception to the pollution exclusion. Bear is entitled only to the coverage for which it
negotiated and paid. Bear argues that read literally, the policies provide virtually no coverage for
risks inherent to its business. In fact, the policies do provide coverage for some risks inherent to
Bear’s business. For example, the policies cover liability as a result of an accidental spill of
waste (a “pollution incident”) or an accidental collision of one of Bear’s trucks with another
vehicle, object or person. Though it is unfortunate that the policies do not cover liability for
pollution as alleged in the Underlying Complaint, the court may not rewrite the policies.
CONCLUSION
Accordingly, Star’s motion for summary judgment [Docket No. 50] is hereby
GRANTED. Bear’s motion to compel discovery [Docket No. 60] is DENIED as moot.
IT IS SO ORDERED this 16th day of October, 2013.

Dated this 16th day of October, 2013.

J4h4i0

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