USA Environment, L.P. et al v. American International Specialty Lines Insurance Company

Filing 43

MEMORANDUM AND ORDER granting 19 MOTION for Partial Summary Judgment on the Duty to Defend, denying 21 MOTION for Partial Summary Judgment. It is ORDERED that Defendant ASIC must defend Plaintiffs in the Underlying Lawsuit. It is f urther ORDERED that the parties show cause on or before July 18, 2017, why this case should not be STAYED AND ADMINISTRATIVELY CLOSED until there is a need for a ruling on whether ASIC has an obligation to indemnify one or both Plaintiffs for sums that the Plaintiff is legally obligated to pay because of bodily injury or property damage to which this insurance applies, as a result of a claim in the Underlying Lawsuit. (Signed by Judge Nancy F Atlas) Parties notified. (wbostic, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
§
§
§
§
§
v.
§
§
AMERICAN INTERNATIONAL
§
SPECIALTY LINES INSURANCE CO. §
n/k/a AIG SPECIALTY INSURANCE §
CO.,
§
Defendant. §

July 07, 2017
David J. Bradley, Clerk

USA ENVIRONMENT, L.P. and
BAYOU CITY ENVIRONMENTAL
SERVICES, L.P.,
Plaintiffs,

CASE NO. 4:16-cv-2216

MEMORANDUM AND ORDER

I. 

TABLE OF CONTENTS
Introduction ........................................................................................................2 

II.  Factual Background ...........................................................................................3 
A. 

The Underlying Lawsuit........................................................................3 

B. 

Procedural Posture.................................................................................9 

III.  Legal Standards ................................................................................................11 
A. 

Summary Judgment .............................................................................11 

B. 

Legal Principles for Interpretation of Insurance Contracts and
Assessment of the Duty to Defend ......................................................12 

IV.  Analysis ............................................................................................................15 
A. 

The 2011 Policy...................................................................................17 
1. 

Paragraph 6 of the Pollution Exclusion ....................................17 

2. 

Progressive, Indivisible Property Damage … Caused By
Related or Continuous Exposure to Substantially the
Same General Harmful Conditions or Substances....................19 

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

B. 

Exclusions Under the 2011 Policy ......................................................24 
1. 

Impact of the Sites Endorsement on the Waste Disposal
Site and Pollution Exclusions ...................................................24 
a. 

2. 

Is the USOR Site a “Waste Disposal Site”? ...................26 

Exclusion g (Auto Exclusion) ...................................................27 
a. 

Does Exclusion g Apply? ...............................................30 

b. 

Property Damage Arising Out of the Use of an
Auto ................................................................................32 

c. 

Does Section 2 of the Transportation Coverage
Endorsement Preclude Coverage? ..................................35 

V.  Conclusion and Order ......................................................................................38 
VI. Appendix of Pertinent Policy Provisions…………………………………….40
I.

INTRODUCTION
Pending before the Court in this insurance coverage dispute are the parties’

cross-motions for partial summary judgment on Defendant insurer AIG Specialty
Insurance Company’s (“ASIC” or “Defendant”) duty to defend its insureds,
Plaintiffs USA Environment, L.P. (“USAE”) and Bayou City Environmental
Services, L.P. (“Bayou” and, together with USAE, “Plaintiffs”), in an underlying
lawsuit. Plaintiffs have filed a Motion for Partial Summary Judgment on the Duty
to Defend (“USAE Motion”) [Doc. # 19]. ASIC has filed a Cross-Motion for
Partial Summary Judgment and Opposition to the USAE Motion (“ASIC Motion”)
[Doc. # 21]. Plaintiffs have filed a combined reply in support of the USAE Motion
and opposition to the ASIC Motion (“USAE Reply”) [Doc. # 29], to which ASIC
has replied in kind (“ASIC Reply”) [Doc. # 30]. Plaintiffs filed a Sur-Reply [Doc.
# 36], and ASIC a Sur-Sur Reply [Doc. # 37].1 After carefully considering the
1

At the Court’s invitation, both parties also filed supplemental briefs addressing
certain issues. See ASIC Supplemental Briefing [Doc. # 39], Plaintiffs’ Letter
dated May 18, 2017 (“USAE Supplemental Briefing”) [Doc. # 40].
2

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Motions, Replies, all related filings, and the relevant law, the Court grants the
USAE Motion [Doc. # 19] and denies the ASIC Motion [Doc. # 21].
II.

FACTUAL BACKGROUND
The parties dispute, among other things, whether ASIC has a duty to defend

Plaintiffs in an environmental damage case currently pending in federal court.
Plaintiffs claim coverage under several Commercial General Liability and
Professional Liability insurance policies for periods covering, collectively, January
3, 2003 to January 3, 2014 (collectively, the “Policies”). Provisions of the Policies
that are relevant to this dispute are excerpted in the appendix to this Memorandum
and Order (“Appendix”).
A.

The Underlying Lawsuit2

USAE and Bayou engage in “environmental activities” on behalf of waste
generators.3 Plaintiffs’ work includes the brokering and transportation of waste
material to sites at which the waste will be recycled and/or otherwise disposed of.4
That work is at issue in an underlying lawsuit (“Underlying Lawsuit”), presently
pending in the United States for the Southern District of Texas,5 concerning
environmental remediation efforts at a site located in Pasadena, Texas (the “USOR
Site”). The USOR Site encompasses approximately 18 acres and is comprised of
two separate properties, the former U.S. Oil Recovery and MCC Recycling
2

The following facts are primarily derived from allegations in the operative
complaint in the underlying lawsuit USOR Site PRP Group v. A-1 Cleaning Septic
Service, LLC et al., Civil Action No. 4:14-cv-02441 (“Underlying Lawsuit”).

3

USAE Motion [Doc. # 19], at 2.

4

Id.

5

See supra note 2.

3
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

facilities.6 The MCC facility portion of the USOR Site is located on either side of
Vince Bayou, and lays southeast across railroad tracks from the U.S. Oil Recovery
facility.7 The City of Pasadena, Texas, a defendant in the Underlying Lawsuit,
owned and operated the MCC facility from approximately 1944 until January,
2009, when U.S. Oil Recovery acquired that facility from the City.8 Throughout
its operating life, the U.S. Oil Recovery facility received and performed
wastewater pretreatment of municipal and industrial Class I and II wastewater,
“characteristically hazardous waste,” used oil and oily sludges, and municipal solid
waste.9 Associated operations were conducted at the MCC Recycling facility
portion of the USOR Site after U.S. Oil Recovery acquired that facility in 2009.10
The USOR Site was abandoned by its owners and operators in June, 2010.11
The following month, in July, 2010, a state court-appointed receiver was granted
legal control and custody over the USOR Site.12 The receiver’s role is to assist in
performance of authorized response actions at the USOR Site, among other

6

Third Amended Complaint in USOR Site PRP Group v. A-1 Cleaning Septic
Service, LLC et al., Civil Action No. 4:14-cv-02441, Exh. L to USAE Motion
(“USOR Grp. Complt”) [Doc. # 19-1], at 12.

7

See id. at 14.

8

See id. at 12. Seven Trent Services, also a defendant in the Underlying Lawsuit,
operated the MCC Recycling facility from March, 1994, through April, 2004. Id.

9

USOR Grp. Complt, at 12.

10

Id.

11

Id. at 13.

12

Id.

4
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

responsibilities.13
On July 1, 2010, the Texas Commission on Environmental Quality and
Harris County Public Health and Environmental Services contacted the National
Response Center and U.S. Environmental Protection Agency (“EPA”) hotlines to
request assistance in stabilizing the USOR Site and managing a large volume of
hazardous substances and waste in preparation for the upcoming season.14 The
EPA conducted emergency response actions at the USOR Site in July, 2010,
November, 2010, and January, 2011, and identified a “historic an[d] ongoing
release of hazardous substances” at and around the USOR Site.15 In total, the EPA
removed approximately 833,500 gallons of contaminated liquids from the USOR
Site during the three emergency response actions.16 The EPA proposed the Site be
added to the National Priorities List on September 16, 2011.17 It was formally
added to the List on September 18, 2012, rendering it a Superfund site.18
Several potentially responsible parties (“PRPs”), including plaintiffs in the
Underlying Lawsuit (“USOR Site PRP Group”), entered into settlement
agreements with the EPA on August 25, 2011 (“First Removal Action”) and July
13

See id.

14

Id.

15

Id. at 14, 16.

16

Id. at 15.

17

ASIC Motion [Doc. # 21], at 4 n.8 (citing EPA Superfund Program: US OIL
Recovery,
PASADENA,
TX,
accessed
February
21,
2017,
https://cumulis.epa.gov/supercpad/cursites/csitinfo.cfm?id=0607093). Superfund
sites are parcels of land the EPA has identified as contaminated by hazardous
substances at levels that may present a threat to human health or the environment.

18

Id. at 4.

5
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

14, 2016 (“Second Removal Action”).19 The First and Second Removal Actions
obligate the PRPs to perform time-sensitive removal action activities at the USOR
Site, which efforts are ongoing.20 Additionally, members of the USOR Site PRP
Group commit to paying future response costs the EPA incurs at the USOR Site
after the effective dates of the agreements in the Removal Actions.21 Through July
31, 2016, the USOR Site PRP Group has incurred approximately $10,000,000 in
response costs at the USOR Site in performing specified activities required by the
First and Second Removal Actions.22
On December 20, 2012, the EPA advised USAE by letter (“EPA General
Notice”) that USAE is potentially liable under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (“CERCLA”), 42 U.S.C.
§ 9601 et seq., with respect to the USOR Site as a person who arranged for
disposal or treatment, or arranged with a transporter for transport for disposal or
treatment, of hazardous substances, and invited USAE to join the First Removal
Action.23 USAE allegedly timely notified ASIC of the EPA General Notice (“2013

19

See USOR Grp. Complt, at 17-18.

20

See id.

21

See id. at 17-18. The Second Removal Action also requires participating
potentially responsible parties (“PRPs”) to provide an advance payment of
$50,000 of EPA’s future response costs. See id. at 18.

22

Id. at 20. The amount also includes expenses the USOR Site PRP Group incurred
conducting a “Remedial Investigation/Feasibility Study” of the U.S. Oil Recovery
facility related to the remediation efforts, which activities are not yet completed.
See id. at 18.

23

See General Notice Letter, dated December 20, 2012, Exh. M to USAE Motion
[Doc. # 19-1], at ECF 1481. The EPA sent USAE a supplementary letter on
January 8, 2013, that included information inadvertently left out of the first
(continued…)
6

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

USAE Claim”) and submitted a claim for coverage under ASIC-issued
Commercial General Liability and Professional Liability Policy PROP 5844513,
effective January 3, 2005 to January 3, 2006 (“2005-2006 Policy”).24 ASIC denied
coverage by letter dated March 12, 2013 (“Denial Letter”), disclaiming coverage
under one exclusion and reserving the right to deny coverage under a second.25
In March, 2013, approximately three months after receiving the EPA
General Notice, USAE entered into a cost-sharing agreement (the “Participation
Agreement”) with other PRPs (the “USOR Site PRP Group”) that governed costsharing among the USOR Site PRP Group with respect to participating PRPs’
clean-up removal activities at the USOR Site.26 At some point thereafter USAE
withdrew from the USOR Site PRP Group because, USAE now argues, it lacked
support from ASIC and faced increasing expense and uncertainty by virtue of its
participation.27
(continued…)
General Notice. See Enclosure for General Notice Letter, dated January 8, 2013,
Exh. N to USAE Motion [Doc. # 19-1], at ECF 1484.
24

See USAE Motion [Doc. # 19], at 10.
The record does not include the 2013 USAE Claim, but does include ASIC’s
response denying USAE’s claim under the 2005-2006 Policy. See Denial Letter,
dated March 12, 2013, Exh. O to USAE Motion (“ASIC Denial Letter”) [Doc.
# 19-1], at 3-4, ECF 1489-90. The record also includes a claim Bayou made to
ASIC in 2016 referencing the 2013 USAE Claim. See Claim for Insured Bayou
City Environmental Services, LP, dated May 10, 2016 (“Bayou Claim”), Exh. P,
Attachment 1, to USAE Motion [Doc. # 19-1], at ECF 1459-1502.

25

See Denial Letter, dated March 12, 2013, Exh. O to USAE Motion [Doc. # 19-1],
at 3-4, ECF 1489-90.

26

See USOR Grp. Complt, at 462, 492.

27

See USAE Motion [Doc. # 19], at 10.

7
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

The USOR Site PRP Group allegedly notified Plaintiff Bayou by letter dated
July 10, 2014, that Bayou faced potential liability in connection with its work at
the USOR Site.28 The USOR Site PRP Group offered Bayou “the opportunity to
voluntarily join in the USOR Site PRP Group’s efforts at the USOR Site.” Bayou
refused.29
On August 24, 2014, the USOR Site PRP Group filed the Underlying
Lawsuit against hundreds of defendants, including USAE and Bayou.30

The

USOR Site PRP Group alleges, in relevant part, that from April, 2004 to July,
2008, USAE and Bayou each transported, or arranged for the transport and
disposal of, waste materials to the USOR Site on behalf of themselves and various
other parties.31 With respect to Bayou, the USOR Site PRP Group alleges, inter
alia, that
[F]rom at least April 2004 to July 2008, [Bayou] accepted for
transport to the USOR Site, which was selected by [Bayou], and/or by
contract, agreement, or otherwise arranged for disposal or treatment,
and/or arranged with a transporter for transport for disposal or
treatment of waste owned or possessed by [Bayou], at least 5,801,744
gallons of waste containing hazardous substances at the USOR Site.32

28

See USOR Grp. Complt, at 54.

29

See id. at 55.

30

See USAE Motion [Doc. # 19], at 10; ASIC Motion [Doc. # 21], at 5.

31

See, e.g., USOR Grp. Complt, at 41, 52-55, 74, 174, 195, 196, 200, 350, 374, 423,
430, 460-61, 472, 476. The USOR Site PRP Group alleges, in the alternative, that
one of the Plaintiffs is responsible for certain actions attributable to the other
Plaintiff. See, e.g., id. at 55 (“Alternatively, [USAE] is responsible for some or all
of the waste streams attributable to Bayou …”).

32

Id. at 52.

8
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

With respect to USAE, the USOR Site PRP Group alleges, inter alia, that
[F]rom at least January 2004 to February 2008, [USAE] accepted for
transport to the USOR Site, which was selected by [USAE], and/or by
contract, agreement, or otherwise arranged for disposal or treatment,
and/or arranged with a transporter for transport for disposal or
treatment of waste owned or possessed by [USAE], at least 5,762,581
gallons of waste containing hazardous substances at the USOR
Site.”33
Additionally, the USOR Site PRP Group claims that USAE breached the
Participation Agreement by refusing to pay USAE’s share of response costs the
USOR Site PRP Group incurred prior to USAE’s rescinding the Participation
Agreement.34 The USOR Site PRP Group seeks cost recovery, contribution, and
declaratory relief under CERCLA, and cost recovery under the Texas Solid Waste
Disposal Act (“TSWD”), Tex. Health & Safety Code § 361.001 et seq.35 The
USOR Site PRP Group also seeks a judgment against USAE with respect to the
breach of contract claim, namely, that USAE is liable for its unpaid assessments of
response costs, along with interest, costs of suit, and attorneys’ fees and consultant
fees.36
B.

Procedural Posture

USAE and Bayou are named insureds under eleven CGL policies (each
referred to as a “Policy”). ASIC issued Policies covering USAE for the periods

33

Id. at 460.

34

See id. at 492.

35

See id. at 482-91.

36

See id. at 493.

9
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

from January 3, 2003 to January 3, 2014.37 As noted, in 2013, USAE allegedly
submitted a claim to ASIC under the 2005-2006 Policy, after USAE had received
the EPA General Notice but before USAE was named a defendant in the
Underlying Lawsuit.38 On May 10, 2016, Bayou filed a claim with ASIC for
coverage under Policies covering, collectively, the period between January 3, 2003
and January 3, 2010 (“Bayou Claim”).39 The Bayou Claim states that ASIC was
notified of the underlying claim at issue by USAE’s 2013 claim.40

Bayou

requested “all insurance coverage under any policies sold to [Bayou] by [ASIC] …
for the environmental claim.”41
On July 26, 2016, before ASIC responded to the Bayou Claim, USAE and
Bayou filed the instant insurance coverage lawsuit against ASIC seeking
declaratory judgments with respect to ASIC’s duty to defend and duty to
indemnify Plaintiffs in connection with claims relating to the alleged
environmental liabilities at the USOR Site.42
37

Plaintiffs included copies of the eleven Policies in Exhibit 1 to the USAE Motion.
See Exhs. A through K, Attachment 1, to USAE Motion [Doc. # 19-1]. Defendant
attached that Exhibit to the ASIC Motion. See Attachments 1-5 to ASIC Motion
[Docs. # 21-1, # 21-2, # 21-3, # 21-4, # 21-5].

38

See USAE Motion [Doc. # 19] at 10; Bayou Claim [Doc. # 19-1], at ECF 1500.

39

Bayou Claim [Doc. # 19-1], at 1-4, ECF 1459-1502.

40

See Bayou Claim [Doc. # 19-1], at 1-2, at ECF 1499-1500 (“The claim arises from
alleged releases of hazardous substances at the U.S. Oil Recovery Superfund Site
… [USAE] previously provided notice of this claim under [the 2005-2006 Policy]
in 2013.”)

41

Id. at 2, at ECF 1500.

42

See Complaint [Doc. # 1], at 9-10. Plaintiffs also seek damages, attorneys’ fees
and pre-judgment interest on costs and expenses arising from ASIC’s alleged
breaches of the insurance policies it issued Plaintiffs; damages and attorneys’ fees
(continued…)
10

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

The pending Motions are limited to two issues: whether ASIC owes
Plaintiffs a duty to defend with respect to the Underlying Lawsuit, and whether
ASIC has breached that duty.
III.

LEGAL STANDARDS
A.

Summary Judgment

Rule 56 of the Federal Rules of Civil Procedure provides for the entry of
summary judgment against a plaintiff who fails to make a sufficient showing of the
existence of an element essential to his case and on which he will bear the burden
at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Curtis v. Anthony, 710
F.3d 587, 594 (5th Cir. 2013); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th
Cir. 1994) (en banc) (per curiam). Summary judgment “should be rendered if the
pleadings, the discovery and disclosure materials on file, and any affidavits show
that there is no genuine issue as to any material fact and that the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Celotex, 477 U.S. at 322–
23; Curtis, 710 F.3d at 594.
In deciding whether a genuine and material fact issue has been created, the
court reviews the facts and inferences to be drawn from them in the light most
favorable to the nonmoving party. Reaves Brokerage Co. v. Sunbelt Fruit &
Vegetable Co., 336 F.3d 410, 412 (5th Cir. 2003). A genuine issue of material fact
exists when the evidence is such that a reasonable jury could return a verdict for
the non-movant. Tamez v. Manthey, 589 F.3d 764, 769 (5th Cir. 2009) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The Court may make
(continued…)
in connection with ASIC’s alleged state law violation for delaying to provide a
defense or defense costs; and any other relief the Court deems proper. See id. at
10, 12-13. The pending Motions are limited to Defendant’s duty to defend.

11
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

no credibility determinations or weigh any evidence, and must disregard all
evidence favorable to the moving party that the jury is not required to believe.
Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th Cir. 2010) (citing Reaves
Brokerage Co., 336 F.3d at 412–13). The Court is not required to accept the
non-movant’s conclusory allegations, speculation, and unsubstantiated assertions
which are either entirely unsupported, or supported by a mere scintilla of evidence.
Id. (citing Reaves Brokerage, 336 F.3d at 413); Little, 37 F.3d at 1075. Affidavits
cannot preclude summary judgment unless they contain competent and otherwise
admissible evidence. See Fed. R. Civ. P. 56(c)(4); Love v. Nat’l Med. Enters., 230
F.3d 765, 776 (5th Cir. 2000).
“When evidence exists in the summary judgment record but the nonmovant
fails even to refer to it in the response to the motion for summary judgment, that
evidence is not properly before the district court.” Malacara v. Garber, 353 F.3d
393, 405 (5th Cir. 2003). “Rule 56 does not impose upon the district court a duty
to sift through the record in search of evidence to support a party’s opposition to
summary judgment.” Id. (internal citations and quotations omitted); Williams v.
Valenti, 432 F. App’x 298, 302 (5th Cir. 2011).
B.

Legal Principles for Interpretation of Insurance Contracts and
Assessment of the Duty to Defend

The Court has subject matter jurisdiction over this action based on complete
diversity of citizenship of the parties. The Court therefore is bound to apply the
substantive law of the forum state and follow federal procedural rules. See Erie R.
Co. v. Tompkins, 304 U.S. 64, 78 (1938); Hall v. G.E. Plastic Pac. PTE Ltd., 327
F.3d 391, 395 (5th Cir. 2003). Here, the parties agree that Texas law governs
substantive issues of insurance law.

12
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Texas courts interpret insurance policies according to the rules of contract
interpretation. Int’l Ins. Co. v. RSR Corp., 426 F.3d 281, 291 (5th Cir.
2005) (citing Kelley–Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464
(Tex. 1998)); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994)
(“Interpretation of insurance contracts in Texas is governed by the same rules as
the interpretation of other contracts.”). “In applying these rules, a court’s primary
concern is to ascertain the parties’ intent as expressed in the language of the
policy.” Int’l Ins. Co., 426 F.3d at 291; see also Forbau, 876 S.W.2d at
133 (“[T]he court’s primary concern is to give effect to the written expression of
the parties’ intent.”). Unless the policy dictates otherwise, courts “give words and
phrases their ordinary and generally accepted meaning, reading them in context
and in light of the rules of grammar and common usage.” See RSUI Indem. Co. v.
The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015). “‘No one phrase, sentence, or
section [of a contract] should be isolated from its setting and considered apart from
the other provisions.’” Id. (quoting Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132,
133 (Tex. 1994)). The court must give effect to all of a policy’s provisions so that
none is rendered meaningless. Int’l Ins. Co., 426 F.3d at 291.
Under the “eight corners rule” of Texas insurance law, “a court looks only at
the insurance policy itself and the pleadings in the complaint in the underlying
suit” to determine whether a lawsuit would give rise to a covered claim. See
Hartford Cas. Ins. Co. v. DP Eng’g, L.L.C., 827 F.3d 423, 426 (5th Cir. 2016).
“The duty [to defend] is triggered if the plaintiff [in an underlying lawsuit] alleges
facts that would give rise to any claim against the insured that is covered by the
policy.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 31 (Tex.
2008) (citing Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 201
(Tex. 2004)).

13
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

The eight corners rule is to be applied liberally in favor of the insured, with
any doubts resolved in favor of the insured. Guaranty Nat’l Ins. Co. v. Azrock
Indus., Inc., 211 F.3d 239, 243 (5th Cir. 2000) overruled on other grounds as
recognized by OneBeacon Ins. Co. v. Don’s Bldg. Supply Inc., 553 F.3d 901, 903
(5th Cir. 2008) (per curiam).

“If any allegation in the complaint is even

potentially covered by the policy then the insurer has a duty to defend its insured.”
Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 552 (5th Cir. 2004)
(quoting Enserch Corp. v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1492 (5th
Cir. 1992) (emphasis in original); accord Fed. Ins. Co. v. Northfield Ins. Co., 837
F.3d 548, 553 (5th Cir. 2016) (quoting Lafarge Corp. v. Hartford Cas. Ins. Co., 61
F.3d 389, 393 (5th Cir. 1995)).
In an insurance coverage dispute analyzed under the eight corners rule,
“[t]he insured bears the initial burden of showing that there is coverage, while the
insurer bears the burden of proving the applicability of any exclusions in the
policy.” Id. at 552-53. “If the insurer succeeds in showing the applicability of an
exclusion, the burden shifts back to the insured to show that an exception to the
exclusion brings the claim within coverage.” KLN Stell Products Co. v. CAN Ins.
Cos., 278 S.W.3d 429, 434 (Tex. App.—San Antonio 2008, pet. denied).
If only one party’s construction of a policy is reasonable, the policy is
unambiguous and the Court will adopt that party’s construction. RSUI Indem., 466
S.W.3d at 118. If both constructions are reasonable, however, the Court “must
resolve the uncertainty by adopting the construction that most favors the
insured[.]” See id. (quoting Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson
Energy Co., 811 S.W.2d 552, 555 (Tex. 1991).

“‘The court must adopt the

construction of an exclusionary clause urged by the insured as long as that
construction is not unreasonable, even if the construction urged by the insurer
appears to be more reasonable or a more accurate reflection of the parties’ intent.’”
14
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Trinity Universal Ins. Co. v. Empl’rs Mut. Cas. Co., 592 F.3d 687, 692 (5th Cir.
2010) (quoting Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198,
202 (Tex. 2004)). “Where the question of interpretation involves an exception or
limitation on the insurer’s liability under the policy, an even more stringent
construction is required.” See Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d
207, 212 (5th Cir. 2009) (citing Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663,
666 (Tex. 1987)).
IV.

ANALYSIS
The provisions of the eleven Policies relevant to the pending Motions are,

with one exception, nearly identical.43

The scope of coverage for property

damage” is established by Coverage A44 of the “Insuring Agreement” at section
I(A)(1)(a) of each Policy:
We [ASIC] will pay those sums that the insured becomes legally
obligated to pay as damages because of bodily injury45 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. We may at our discretion investigate any
occurrence and settle any claim or suit that may result . . . .46
43

The 2011-2014 Policies include a “Blanket Non-Owned Disposal Sites
Endorsement.” See infra Section IV.B.

44

The coverage at issue in the present case is Coverage A: “Bodily Injury and
Property Damage Liability.”

45

Defined terms in the Policies are bolded here, as in the Policies.

46

See, e.g., CGL Policy effective January 3, 2003 – January 4, 2004, Exh. A,
Attachment 1, to USAE Motion (“2003-2004 Policy”) [Doc. # 19-1], at 1, at ECF
13, § I(A)(1)(a) (emphasis in original); see infra Appendix, at 40.

15
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Section I(A)(1)(b) of the Insuring Agreement defines the scope of the phrase
“property damage to which this insurance applies.” Section I(A)(1)(b) provides:
b.

This insurance applies to . . . property damage only if:
(1)

The . . . property damage is caused by an occurrence
that takes place in the coverage territory; and

(2)

The . . . property damage occurs during the policy
period.47

There is no dispute that section I(A)(1)(b) of the Insuring Agreement, standing
alone, would trigger Defendant’s duty to defend in this context. Specifically,
ASIC does not disagree that the alleged property damage was caused by an
occurrence that takes place in the coverage territory, and that the property damage
occurred during the Policies’ policy periods. The issues that divide the parties are
whether Plaintiffs may obtain coverage under any of the Policies or whether any of
the following three exclusions in the Policies independently preclude coverage: (1)
the Pollution Exclusion (Exclusion f), (2) the Waste Disposal Site Exclusion
(Exclusion u), and (3) the Aircraft, Auto or Watercraft Exclusion (Exclusion g), as
modified by a Transportation Coverage Endorsement.48 ASIC contends that each
of the three exclusions is a bar to the coverage Plaintiffs seek and demonstrates the
general intent of the Policies, which ASIC asserts is to provide coverage for
pollution liability that occurs while the insured’s work is ongoing, and to exclude
coverage for liability in connection with waste that the insured previously
transported to and relinquished at a waste disposal site.49
47

Policies, Exhs. A-K to USAE Motion [Doc. # 19-1], § I(A)(1)(b) (emphasis in
originals).

48

See ASIC Reply [Doc. # 30], at 1, 7, 20; ASIC Sur-Sur Reply [Doc. # 37], at 2.

49

See ASIC Motion [Doc. # 21], at 10-11; ASIC Reply [Doc. # 30], at 19-20.
16

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Plaintiffs disagree and argue the Court need not reach the Pollution
Exclusion or the Waste Disposal Site Exclusion.

Significantly, the Policies

covering January, 2011 to January, 2014, include an endorsement that creates an
exception to the Pollution Exclusion for “waste disposal sites” and deletes the
Waste Disposal Site Exclusion. Plaintiffs argue that they have a viable claim
under the 2011 Policy. ASIC, however, contends that, to the extent Plaintiffs have
a claim for coverage, Plaintiffs’ claims are limited to the 2003-2004 Policy, with
respect to USAE, and the 2004-2005 Policy, for Bayou.
The Court concludes that Plaintiffs may pursue their claims under the 2011
Policy. The Court next concludes that the Aircraft, Auto or Watercraft Exclusion
(Exclusion g), as amended by an Endorsement No. 10 to the 2011 Policy, is the
only applicable exclusion under the 2011 Policy. Finally, the Court determines
that Exclusion g does not bar coverage. ASIC therefore has a duty to defend
Plaintiffs in the Underlying Lawsuit, and has breached that duty.
A.

The 2011 Policy
1.

Paragraph 6 of the Pollution Exclusion

The Policies include Exclusion f — Pollution (“Pollution Exclusion”), which
establishes a bar to coverage for, in part, “property damage arising out of the
actual, alleged, or threatened discharge, dispersal, seepage, migration, release or
escape of pollutants at any time,” which exclusion is subject to exceptions in
paragraph f(4) (“Exception 4”) and f(5) (“Exception 5”).50
The Pollution Exclusion also sets forth rules for determining which Policies
are implicated if coverage exists for property damage pursuant to Exception 4 and
Exception 5. Paragraph 6 of the Pollution Exclusion (“paragraph 6”) provides:
50

See infra Appendix, at 40-41.

17
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

(6)

With respect to paragraphs (4) and (5) of this exclusion, in
determining whether … property damage has occurred during
the policy period, the following rules apply:
(a) Progressive, indivisible … property damage over a
period of days, weeks, months or longer, caused by related or
continuous exposure to substantially the same general harmful
conditions or substances, shall be deemed to have occurred only
on the date of first exposure to such conditions or substances.
(b) However, if the date of first exposure cannot be
determined, or is before the inception date of the first policy we
issued to you which provides coverage substantially similar to
that provided under paragraphs (4) and (5) above, but the
progressive, indivisible … property damage continues in fact
to exist during this policy period, it will be deemed to have
occurred only on the inception date of the first such Policy.
(c) An occurrence may result in … property damage
which occurs during the policy periods of different policies we
issued to you which provide coverage substantially similar to
that provided under paragraphs (4) and (5) of this exclusion. In
that case, all … property damage resulting from such
occurrence shall be subject to the Each Occurrence Limit
applicable to the first such Policy during which any of such …
property damage occurred.51

ASIC contends that the USOR Group’s Complaint alleges “continuous,
progressive injury” that, pursuant to paragraph 6, is deemed to have occurred only
on the date of first exposure or the inception date of the first Policy at issue for
each of the Plaintiffs—i.e., the 2003-2004 Policy for USAE, and the 2004-2005
Policy for Bayou.52 Plaintiffs respond that because the USOR Group’s Complaint
alleges property damage resulting from, in Plaintiffs’ formulation, “different
51

See, e.g., 2003-2004 Policy [Doc. # 19-1], at 4, at ECF 16, § I(A)(2)(f)(6)
(emphasis in original).

52

See ASIC Motion [Doc. # 21], at 19.

18
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

hazardous substances that resulted from different deliveries in different years,” the
damage is not “indivisible” or “continuous.”53 And because the USOR Group’s
Complaint alleges “historic an[d] ongoing releases,” Plaintiffs contend all of the
Policies are potentially triggered.54
2.

Progressive, Indivisible Property Damage … Caused By
Related or Continuous Exposure to Substantially the Same
General Harmful Conditions or Substances

In support of its position, ASIC argues that pollutants and waste comprise
“the same general harmful conditions or substances,” and that the USOR Group’s
Complaint does not allege USAE or Bayou is responsible for particular damage to
the USOR Site “presumably because this is impossible to do in relation to longterm pollution occurring at a waste disposal site.”55 ASIC also focuses on the
USOR Group’s Complaint’s allegations that Plaintiffs are “strictly, jointly and
severally liable” for response costs under CERCLA56 in connection to the “historic
an[d] ongoing release of hazardous substances” observed by the EPA at the USOR
Site,57 pointing out that, under both CERCLA and the TSWDA, indivisible harm
caused by multiple parties gives rise to joint and several liability. See Halliburton
Energy Servs., Inc. v. NL Industries, 648 F. Supp. 2d 840, 848 (S.D. Tex. 2009);
Tex. Comm’n on Envtl. Quality v. Exxon Mobil Corp., 504 S.W.3d 532, 535 (Tex.

53

See USAE Reply [Doc. # 29], at 21.

54

See id.; USAE Supplemental Briefing [Doc. # 40], at 9 n.3.

55

See ASIC Supplemental Briefing [Doc. # 39], at 6-7.

56

See USOR Grp. Complt, at 486.

57

See id. at 14.

19
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

App.—Austin 2016, no pet.).58

Plaintiffs counter that the USOR Group’s

Complaint alleges that Plaintiffs transported or arranged for the transport or
disposal of over 11.5 million gallons of disparate types of waste in total “generated
by” at least fifty different generators from at least 2004-2008, and argue ASIC’s
position is unsupported by the allegations in the Underlying Lawsuit and the
practicalities of EPA remedial actions.
The Court concludes that Plaintiffs have established that the USOR Group’s
Complaint contains allegations that permit the reasonable interpretation that the
property damage alleged is not “progressive, indivisible property damage . . .
caused by related or continuous exposure to substantially the same general harmful
conditions or substances.” See Fair Operating, Inc. v. Mid-Continent Cas. Co.,
193 F. App’x 302, 304-05 (5th Cir. 2006) (per curiam) (unpublished) (“There is at
least doubt whether the factual allegations in the Ayala complaint state a cause of
action covered by the policy. Under Texas law, a duty to defend arises in such a
case . . . .”). First, as ASIC acknowledges, the USOR Group’s Complaint does not
allege that the property damage at issue is “progressive” or “indivisible.” The
USOR Group’s Complaint describes the result of the EPA’s emergency response
actions at the USOR Site, and lists a multitude of particular volumes of specific
different substances which were detected at distinct and varying locations around
the USOR Site.59 The USOR Group’s Complaint alleges that various hazardous

58

With respect to the TSWDA, the plaintiffs in the Underlying Lawsuit request that
the court “hold[] that all such Defendants are liable for the response costs incurred
or to be incurred by the USOR Site PRP Group . . . .” See id. at 491.

59

See USOR Grp. Complt, at 16-17. For example, the USOR Group’s Complaint
details the volume and location of acetone detected at the USOR Site. Id. at 16.

20
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

substances were detected at both of the facilities that comprise the USOR Site.60 It
further alleges that some of those substances were draining into the Vince Bayou,
while others were discovered in above-ground tanks.61

Those allegations

potentially encompass divisible property damage. Cf. Fair Operating, Inc., 193 F.
App’x at 304-05 (underlying complaint’s allegation of an “escape” of
contaminants was sufficiently broad to encompass non-sudden emissions, which
were not covered under the policy at issue, and sudden emissions, which were
covered, and thus gave rise to duty to defend); Hatco Corp. v. W.R. Grace & Co.,
801 F. Supp. 1334, 1347 (D.N.J. 1992) (concluding operator of chemical
manufacturing facility had not proved that disposals of chemical waste resulted in
“continuous, indivisible injury” to site, and theorizing that “while it may appear
that seepage and migration of chemicals into and under the ground will have been
a continuous injurious process, that does not necessarily mean that surface
contamination cannot be separated from the subsurface contamination, and
allocated to specific policy periods for purposes of coverage.”).
With respect to Plaintiffs specifically, the USOR Group’s Complaint
identifies various types of waste streams each Plaintiff allegedly transported and/or
arranged to be disposed.62 Bayou, for example, is alleged to have transported
and/or arranged for the disposal of waste streams including “rainwater,” “non
hazardous waste oil & soil,” “sump sludge and water,” “nonhaz plant wastewater,”

60

See id. at 16-17.

61

See id.

62

See id. at 53, 460-61. USAE is also alleged to have potentially “generated” the
waste streams, in addition to transporting and arranging for the disposal of the
waste streams. See id. at 460.

21
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

and “cutting oil and water.”63 USAE is alleged to have generated, transported
and/or arranged for the disposal of waste streams including “compressor oil,”
“cutting oil and water,” and “non hazardous, class I, waste water[.]”64
The USOR Group’s Complaint alleges that certain waste streams for which
Bayou and USAE were allegedly responsible “contained some or all” of certain
separately identifiable hazardous substances such as arsenic, cadmium, and
silver.65 And the USOR Group’s Complaint references contaminated liquids at the
USOR Site that “accumulated from overflowing roll-off containers, containments,
secondary containments, the retention pond, unloading bays, leaking drums and
totes, and the parking lot… .”66 But the Complaint does not tie any deliveries by
USAE or Bayou to any particular “releases” or property damage.
That Plaintiffs are alleged in the Underlying Lawsuit to be “strictly, jointly
and severally liable” for response costs under CERCLA does not make the
property damage from releases at the Site indivisible or progressive. Indeed, the
First and Second Removal Activities allegedly are ongoing, and it is impossible to
definitively conclude whether or not the property damage is “indivisible.”67
“Doubts are resolved in favor of the duty to defend.” Evanston Ins. Co. v. Lapolla

63

Id. at 53.

64

See id. at 460.

65

See id. at 54, 461. The lists of hazardous substances for which Bayou and USAE
are each allegedly potentially responsible overlap, but differ.

66

See id. at 15.

67

See id. at 17-18.

22
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Industries, Inc., 93 F. Supp. 3d 606, 613 (S.D. Tex. 2015).68
The allegations in the USOR Group’s Complaint accordingly do not clearly
bring the case within the coverage limitations imposed by paragraph 6 of the
Pollution Exclusion. Cf. Fed. Ins. Co., 837 F.3d at 554 (“…[Plaintiff in underlying
lawsuit] has alleged potential claims against Wagner that are not clearly excluded
by the Pollution Endorsement.”); Star-Tex Res., L.L.C. v. Granite State Ins. Co.,
553 F. App’x 366, 370 (5th Cir. 2014) (per curiam) (unpublished) (“…the Texas
Supreme Court has directed courts applying Texas law to ‘resolve all doubts
regarding the duty to defend in favor of the duty and . . . construe the pleadings
liberally.” (quoting Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex.
2008))).

The USOR Group’s Complaint’s lack of specificity regarding what

releases have occurred and caused property damage, plus the express allegations of
historic and ongoing releases of substances generally, allow for the possibility that
Plaintiffs are responsible for releases causing property damage that trigger the
2011 Policy.69
USAE and Bayou are entitled to seek a duty to defend under the 2011
Policy.
68

ASIC cites Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076, 1095 (5th
Cir. 1973), and Texas Comm’n on Envtl. Quality v. Exxon Mobil Corp., 504
S.W.3d 532, 535 (Tex. App.—Austin 2016, no pet.), in support of its argument
that the USOR Group’s Complaint “implies” that the damage is indivisible by
seeking joint and several liability under CERCLA. See ASIC Supplemental
Briefing [Doc. # 39], at 7 nn.15 & 16. Neither case is an insurance coverage case
evaluating whether underlying allegations give rise to the reasonable inference that
property damage is “indivisible.” Neither is persuasive support for ASIC’s
position.

69

The allegations in the USOR Group’s Complaint allow for the possibility that
releases of Plaintiffs’ transported substances occurred only during and after 2011,
for example, or during every year between 2004 through 2016.

23
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

B.

Exclusions Under the 2011 Policy

As noted, ASIC argues that three exclusions preclude coverage: (1) the
Pollution Exclusion, Exclusion f; (2) Exclusion u, the “Waste Disposal Site”
Exclusion, and (3) Exclusion g, the “Aircraft, Auto or Watercraft” Exclusion,
which is amended by Endorsement 10 (the “Transportation Coverage
Endorsement”).70 Plaintiffs counter that a “Blanket Non-Owned Disposal Sites
Endorsement” (“Sites Endorsement”) added to each of the 2011-2014 Policies,
which Endorsement deletes the Waste Disposal Site Exclusion (Exclusion u) in its
entirety and creates an exception to the Pollution Exclusion, renders those two
exclusions inapplicable.

Plaintiffs further argue that Exclusion g, the “Auto

Exclusion” for present purposes,71 even as modified by the Transportation
Coverage Endorsement, does not bar coverage.
1.

Impact of the Sites Endorsement on the Waste Disposal Site
and Pollution Exclusions

The Sites Endorsement provides, in pertinent part:
1.

SECTION I. COVERAGE A – BODILY INJURY AND PROPERTY
DAMAGE LIABILITY paragraph 2. Exclusions, subparagraph u.
Waste Disposal Site is deleted in its entirety.

2.

SECTION I. COVERAGE A – BODILY INJURY AND PROPERTY
DAMAGE LIABILITY paragraph 2. Exclusions, subparagraph f.
Pollution is amended by the addition of the following:
(7)

Parts (1) and (2) of this exclusion do not apply to waste
disposal sites.
****

70

See infra Appendix.

71

See infra note 81.

24
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

4.

SECTION IV. DEFINITIONS paragraph 29 is deleted in its entirety
and replaced with the following:
29.

Waste Disposal Sites means all waste treatment, waste storage
or waste disposal facilities utilized by or on behalf of the
Named Insured provided that such waste disposal sites are:
i.

Properly licensed to accept and dispose of waste and in
compliance with applicable federal, state, provincial or
local laws . . . .

ii.

As of the Policy inception date, such facility is not listed,
not proposed and has never been listed on the federal
National Priorities List (Superfund), State equivalent list,
or local equivalent list;

iii.

As of the Policy inception date, such facility is not
subject to Federal information requests under Section
104(e) of CERCLA or Section 3007 (a) of RCRA or[]
State or Local equivalent requests; and

iv.

As of the Policy inception date or date that the waste is
accepted from the Named Insured, whichever is later, the
waste disposal site, its owners and operators are not in
bankruptcy or financial insolvency.72

Whether the USOR Site is or is not a “waste disposal site,” as defined by the
Sites Endorsement, dictates whether the Sites Endorsement’s exception to the
Pollution Exclusion is applicable. ASIC argues that even if Plaintiffs may seek
coverage under the 2011 Policy, the Sites Endorsement does not apply because the
USOR Site does not meet the definition of “waste disposal site” introduced by the
Endorsement. The Court is unpersuaded by ASIC’s argument.

72

See, e.g., Blanket Non-Owned Disposal Sites Endorsement, Endorsement No. 24
to 2011-2012 Policy [Doc. # 19-1], at 1-2, at ECF 691-92 (emphasis in original);
see infra Appendix, at 48.

25
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

a. Is the USOR Site a “Waste Disposal Site”?
ASIC contends that the USOR Site was not a “waste disposal site” under
the 2011 Policy73 because the USOR Group’s Complaint alleges that the Site was
abandoned in 2010 and is being operated by a state-appointed receiver, both of
which facts, ASIC asserts, indicate insolvency and/or bankruptcy and thus remove
the USOR Site from the purview of the “waste disposal site” definition.74 In
support of its position, ASIC points to the following allegations in the USOR
Group’s Complaint:
The USOR Site property was abandoned by the owners and operators
in June 2010. In July 2010, a State court appointed a Receiver with
legal custody and control over the USOR Site. Among other things,
the Receiver’s role is to assist the USOR Site PRP Group in its
performance of EPA-approved response actions at the USOR Site.75
Plaintiffs persuasively argue that ASIC’s inference is unjustified. The Court
“must consider ‘any reasonable inferences that flow from the facts alleged.” See
Star-Tex Res., L.L.C., 553 F. App’x at 370 (quoting Lib. Mut. Ins. Co. v. Graham,
473 F.3d 596, 601 (5th Cir. 2006)). The USOR Group’s Complaint does not
include express allegations that the USOR Site, its owners, or its operators are in
bankruptcy or are financially insolvent, or other allegations that give rise to
73

Plaintiffs do not dispute that the USOR Site was proposed for listing on the
National Priorities List in September 2011, and is therefore not a “waste disposal
site” under the 2012-2014 Policies. See USAE Reply [Doc. # 29], at 17; supra
note 17 and accompanying text. Plaintiffs assert, however, that there is coverage
under the 2011 Policy, effective January 3, 2011, because the USOR Site was not
proposed for the List at the inception of that Policy. See USAE Sur-Reply [Doc.
# 36], at 2 n.3.

74

See ASIC Reply [Doc. # 30], at 16; ASIC Sur-Sur Reply [Doc. # 37], at 8 n.13.

75

USOR Grp. Complt, at 13.

26
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

reasonable inferences in support of those circumstances.

Indeed, the USOR

Group’s Complaint alleges merely that the owners and operators abandoned the
USOR Site.76 Therefore, for purposes of the duty to defend analysis, the USOR
Site is a “waste disposal site” under the 2011 Policy, and the Sites Endorsementcreated exception to the Pollution Exclusion applies.
To recap, the Sites Endorsement deletes Exclusion u, the Waste Disposal
Site Exclusion, and creates an exception to the Pollution Exclusion with respect to
waste disposal sites. The USOR Group’s Complaint permits the argument that the
USOR Site is a “waste disposal site” under the 2011 Policy. Thus, under the 2011
Policy, Exclusion g, i.e., the Auto Exclusion, is the only remaining exclusion on
which ASIC relies to argue coverage is barred.
2.

Exclusion g (Auto Exclusion)

Exclusion g, the Auto Exclusion for present purposes, in relevant part
precludes coverage for:
… property damage arising out of the ownership, maintenance, use
or entrustment to others of any aircraft, auto or watercraft owned or
operated by or rented or loaned to any insured. Use includes
operation and loading or unloading.77
“Auto” is defined, in pertinent part, as a “land motor vehicle, trailer or semitrailer
designed for travel on public roads, including any attached machinery or
equipment.”78

There are six exceptions to this Exclusion, one of which—

76

See supra Section II.

77

See 2011-2012 Policy [Doc. # 19-1], at 4, at ECF 626, § II(g) (emphasis in
original); see infra Appendix, at 43.

78

See 2011-2012 Policy [Doc. # 19-1], at 23, at ECF 645, § VI(2); see infra
Appendix, at 44.

27
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

paragraph g(6)—is pertinent to ASIC’s potential duty to defend.
Exclusion g is modified in all Policies, including the 2011 Policy, by an
endorsement entitled “Amendment of Aircraft, Auto or Watercraft Exclusion
(Transportation Coverage)” (“Transportation Coverage Endorsement”).

The

Transportation Coverage Endorsement in Section 1 provides:
1.

It is hereby agreed that SECTION I, COVERAGE A. – BODILY
INJURY AND PROPERTY DAMAGE LIABILITY, paragraph 2.
EXCLUSIONS, subparagraph g(6) is deleted in its entirety and
replaced with the following:
(6)

… [P]roperty damage within the exceptions described in subparagraphs (4) [ongoing work] and (5) [products-completed
operations hazard] of Exclusion f., Pollution … and which
arises out of:
(a) loading or unloading of any aircraft, auto or
watercraft owned or operated by or rented or loaned to
any insured; or
(b) transportation of materials at, to or from any job site
in the course of the performance of your work.79

79

Endorsement No. 10 to 2011-2012 Policy (“Transportation Coverage Endorsement
to 2011 Policy”) [Doc. # 19-1], at 1, at ECF 672 (emphasis in original); see infra
Appendix, at 47.
The Policies define Your work as:
a.

Work or operations performed by you or on your behalf; and

b.

Materials, parts or equipment furnished in connection with such
work or operations.

Your work includes:
a.

Warranties or representations made at any time with respect to the
fitness, quality, durability, performance or use of your work; and

b.

The providing of or failure to provide warnings or instructions.
(continued…)
28

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

In Section 2, the Transportation Coverage Endorsement provides:
2.

It is hereby agreed that solely with respect to this endorsement, the
following is added to SECTION I., COVERAGE A. - BODILY
INJURY AND PROPERTY DAMAGE LIABILITY, paragraph 2,
EXCLUSIONS:
… [P]roperty damage which occurs subsequent to the time the
transported material reaches its final destination or while it is in
storage off-loaded from the conveyance which was transporting it.80

Plaintiffs’ argument is two-fold: first, Exclusion g, the Auto Exclusion, is not
triggered by allegations in the USOR Group’s Complaint and, second, the
Transportation Coverage Endorsement does not come into play unless Exclusion g
applies.

Because Exclusion g does not apply, Plaintiffs contend, the

Transportation Coverage Endorsement is likewise inapplicable. ASIC argues that
Exclusion g, even considered separately from the Transportation Coverage
Endorsement, applies and, in any event, the Transportation Coverage Endorsement
necessarily adds a ground to Exclusion g that bars coverage.

(continued…)
See, e.g., 2011-2012 Policy [Doc. # 19-1], at 23, at ECF 651, § VI(31).
80

Transportation Coverage Endorsement to 2011 Policy [Doc. # 19-1], at 1, at ECF
672 (emphasis in original); see infra Appendix, at 47.
In contrast, the original language of subparagraph g(6) is as follows:
(6)
… property damage within the exceptions described in subparagraphs (4) and (5) of [the Pollution Exclusion], and which is
caused by:
(a) Loading or unloading of any aircraft, auto or watercraft
owned or operated by or rented or loaned to any insured; or
(b) Transportation of materials on the job site where you are
performing your work.
29

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

a. Does Exclusion g Apply?
Exclusion g precludes coverage for property damage arising from “use” of
an “auto,” as both terms are defined in the Policy.81 Plaintiffs argue that Exclusion
g does not apply because the USOR Group’s Complaint is silent with respect to
how USAE and Bayou allegedly transported materials to the USOR Site. Plaintiffs
also argue that the property damage alleged does not “arise out of use of an auto”
under well-established Texas law.82 The Court agrees with both theories.
The USOR Group’s Complaint alleges that Plaintiffs are at least partly
responsible for property damage at the USOR Site caused by waste streams
containing hazardous substances. Plaintiffs’ alleged liability is rooted in alleged
transportation, or arranging of transportation, of hazardous substances to the
USOR Site.

The mode of transportation, however, is never specified.

For

example, the USOR Group’s Complaint’s allegations with respect to USAE
include the following:
 2765. According to USOR Site Records, from at least January
2004 to February 2008, Defendant USA Environment, LP
(“USA Environment”), which is also known as USA Industrial
Services (“USA Industrial Services”) and/or does business as
USA Industrial Services, accepted for transport to the USOR
Site, which was selected by USA Environment, and/or by
contract, agreement, or otherwise arranged for disposal or
treatment, and/or arranged with a transporter for transport for
disposal or treatment of waste owned or possessed by USA

81

The Court follows the parties’ lead and focuses the analysis of Exclusion g on
“use” of an “auto,” rather than ownership or use of other vehicles.

82

The Court need not reach Plaintiffs’ additional contention that the alleged property
damage does not stem from transportation, but arises instead from releases of
hazardous waste for various reasons while the waste was onsite at the USOR Site.

30
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Environment, at least 5,762,581 gallons of waste containing
hazardous substances at the USOR Site.83
 2770. The waste streams USA Environment and/or USA
Industrial Services generated, transported to and/or arranged for
disposal at the USOR Site fall within the definition of “solid
waste” under the TSWDA.84
Similarly, the USOR Group’s Complaint alleges, inter alia, the following
regarding Bayou:
 225. According to USOR Site Records, from at least April
2004 to July 2008, Defendant Bayou City Environmental
Services, LP doing business as USA Waste Transportation
Services (“Bayou City Environmental”) accepted for transport
to the USOR Site, which was selected by Bayou City
Environmental, and/or by contract, agreement, or otherwise
arranged for disposal or treatment, and/or arranged with a
transporter for transport for disposal or treatment of waste
owned or possessed by Bayou City Environmental, at least
5,801,744 gallons of waste containing hazardous substances at
the USOR Site.85
 230. The waste streams Bayou City Environmental
transported and/or arranged for disposal fall within the
definition of “solid waste” under the TSWDA.86
It is clear that Plaintiffs are alleged to have transported materials; how they
transported those materials, however, is unspecified.

83

USOR Grp. Complt, at 460.

84

Id. at 462.

85

Id. at 52.

86

Id. at 54.

31
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

The USOR Group’s

Complaint refers to both a parking lot87 and railroad tracks88 on the USOR Site,
suggesting at least two possible forms of transportation. The railroad does not
constitute an “auto” under the Policy for purposes of triggering Exclusion g. There
are no factual allegations before this Court that can be considered within the eight
corners rule that Plaintiffs transported all the allegedly hazardous materials to the
USOR Site by “auto” as defined under the Policy. “All doubts regarding the duty
to defend are resolved in favor of the insured.” See Fed. Ins. Co., 837 F.3d at 552
(citing King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)). “‘Where
the complaint does not state facts sufficient to clearly bring the case within or
without the coverage, the general rule is that the insurer is obligated to defend if
there is, potentially, a case under the complaint within coverage of the policy.’”
Id. (quoting Nat’l Union Fire Ins. Co. of Pittsburgh v. Merchs. Fast Motors Lines,
Inc., 939 S.W.2d 139, 141 (Tex. 1997) (per curiam)). On the current record, the
USOR Group has alleged claims against Plaintiffs that are not clearly excluded by
the Auto Exclusion, Exclusion g.
b. Property Damage Arising Out of the Use of an Auto
Even if the Court assumes that the USOR Group’s Complaint must be
construed to mean Plaintiffs used a form of an “auto” as defined in the 2011 Policy
to transport materials to the USOR Site, the property damage alleged in the USOR
Group’s Complaint does not, under well-established Texas law, constitute property
damage arising out of the “use” of an automobile.
ASIC correctly notes that the Texas Supreme Court has held that “‘arise out
of’ means that there is simply a ‘causal connection or relation[]’ . . . which is
87

See USOR Grp. Complt, at 13.

88

See id. at 14.

32
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

interpreted to mean that there is but for causation, though not necessarily direct or
proximate causation.” See Utica Nat. Ins. Co. of Tex. v. Am. Indem. Co., 141
S.W.3d 198, 203 (Tex. 2004) (quoting Mid-Century Insurance Co. v. Lindsey, 997
S.W.2d 153, 156 (Tex. 1999)). The Texas Supreme Court specified in Lindsey,
however, that with respect to auto exclusions like that at issue here, “‘the use
required is of the vehicle qua vehicle, rather than simply as an article of property.’”
See Lincoln Gen. Ins. Co. v. Aisha’s Learning Center, 468 F.3d 857, 859 (5th Cir.
2006) (quoting Lindsey, 997 S.W.2d at 156). “‘The term ‘use’ is the general
catchall of the insuring clause, designed and construed to include all proper uses of
the vehicle not falling within other terms of definition such as ownership an[d]
maintenance.’” Emp’r Mut. Cas. Co. v. Bonilla, 613 F.3d 512, 517 (5th Cir. 2010)
(quoting State Farm Mut. Auto. Ins. Co. v. Pan Am. Ins. Co., 437 S.W.2d 542, 545
(Tex. 1969)).

The Lindsey Court also set forth the following list of non-

determinative factors to determine whether the injury arises out of the use of a
vehicle:89
(1) the accident must have arisen out of the inherent nature of
the automobile, as such, (2) the accident must have arisen
within the natural territorial limits of an automobile, and the
actual use must not have terminated, (3) the automobile must
not merely contribute to cause the condition which produces the

89

Lindsey concerned an exclusion in the context of auto liability insurance coverage.
See Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 154 (Tex. 1999). Texas
law, however, illustrates that “arising out of the use of an auto” language is
interpreted uniformly between the exclusion section of a CGL policy and the
coverage section of an auto liability policy. See Salcedo v. Evanston Ins. Co., 462
F. App’x 487, 490 n.4 (5th Cir. 2012) (per curiam) (unpublished) (comparing
cases).

33
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

injury, but must itself produce the injury.90
Lindsey, 997 S.W.2d at 157 (quoting 8 Couch on Ins. § 119.37 (3d ed. 1997));
accord Salcedo v. Evanston Ins. Co., 462 F. App’x 487, 490 (5th Cir. 2012) (per
curiam) (unpublished).
Applying the Lindsey factors to the issue at bar, the Court concludes that the
Auto Exclusion is not applicable. The USOR Group’s Complaint alleges that
Plaintiffs transported and/or arranged for the disposal of materials to the USOR
Site.91 Regarding the first Lindsey factor, though transportation of property may be
a “use” of a vehicle, the alleged pollution did not necessarily arise out of the
inherent nature of the automobile. The second Lindsey factor also is not met; the
USOR Group’s Complaint alleges nothing relevant with respect to the relationship
between the alleged emissions and Plaintiffs’ delivery vehicles.
The third Lindsey factor is whether the vehicle produced the injury. Lindsay
involved a child who, while attempting to enter his parents’ truck, inadvertently
caused a loaded shotgun in the truck’s gun rack to fire, injuring a passenger in
another vehicle.

See Lindsey, 997 S.W.2d at 154.

The Lindsey court, which

described this third factor as being especially troublesome because of the
difficulty, under many circumstances, of determining the degree of a vehicle’s
involvement in the production of an injury, decided that the truck at issue in that

90

The Lindsey court noted that the factors did not comprise an “absolute test,”
Lindsey, 997 S.W.2d at 157–58, but rather the factors are a conceptual framework
to analyze the exclusion at issue. See Mid-Continent Cas. Co. v. Global Enercom
Mgmt., Inc., 323 S.W.3d 151, 154 n.4; Lancer Ins. Co. v. Garcia Holiday Tours,
345 S.W.3d 50, 55-56 (Tex. 2011) (“Although not an absolute test, we
recommended [in Lindsey] the following three factors as ‘helpful in focusing the
analysis’ of the coverage question . . . .” (quoting Lindsey, 997 S.W.2d at 157)).

91

See, e.g., USOR Grp. Complt, at 52, 54, 460, 462, 484-86, 491.

34
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

case “produced” the injury in part because the child set off the gun while trying to
gain entry to the truck, and therefore “the truck was not merely the situs of activity
. . . .” See Lindsey, 997 S.W.2d at 159. Likewise, in Lincoln General Insurance
Co., the Fifth Circuit concluded that injuries suffered by a child who was trapped
in an unventilated van for several hours arose from the use of a van because the
vehicle was a producing cause of the injuries. See 468 F.3d at 860.
In the case at bar, in contrast, the alleged property damage could have
occurred regardless of the vehicles or mode of transportation used to deposit the
waste to the USOR Site. The third factor is not met. ASIC fails to show that the
“use of an auto” exclusion under Exclusion g precludes coverage.
c. Does Section 2 of the Transportation
Endorsement Preclude Coverage?

Coverage

As noted above, every Policy, including the 2011 Policy, contains a
Transportation Coverage Endorsement that amends Exclusion g, the Auto
Exclusion. Section 2 of the Transportation Coverage Endorsement (the “Section 2
Exclusion”) opens with the phrase “solely with respect to this endorsement,” and
adds a coverage exclusion for, inter alia, “property damage which occurs
subsequent to the time the transported material reaches its final destination … .”92
The parties offer alternate interpretations of the Transportation Coverage
Endorsement Section 2 exclusion. Plaintiffs argue that the phrase “solely with
respect to this endorsement” limits application of the Section 2 Exclusion to the
coverage established in Section 1 of the Transportation Coverage Endorsement,
which itself simply modifies the coverage provided by paragraph g(6), an
exception to the Auto Exclusion. Plaintiffs reason that because Exclusion g does
92

See Transportation Coverage Endorsement to 2011-2012 CGL Policy [Doc.
# 19-1], at 1, at ECF 672 (emphasis in original); see infra Appendix, at 47.

35
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

not apply, the Transportation Coverage Endorsement does not come into play and
its Section 2 Exclusion does not bar coverage. ASIC responds that Sections 1 and
2 of the Transportation Coverage Endorsement are separate from each other, and
that the Endorsement’s Section 2 supplements Exclusion g by adding a new
exclusion not tied to use of an auto and not tied to the exception in paragraph g(6)
of the Auto Exclusion. According to ASIC, if the Section 2 Exclusion, read alone,
would preclude coverage, Exclusion g precludes coverage for Plaintiffs in this
case. ASIC argues that its interpretation is consistent with what it asserts is the
intent of the Policies, namely, to provide coverage for accidents that occur during
the course of an insured’s work and to preclude coverage for pollution claims
arising out of waste relinquished by the insured.
The Court finds ASIC’s interpretation of the Section 2 Exclusion strained.
ASIC’s interpretation is inconsistent with a strict reading of Section 2’s prefatory
phrase “solely with respect to this Endorsement.”

That phrase conveys that

Section 2 may be applied only within the Transportation Coverage Endorsement,
and thus modifies the scope of coverage created by Section 1’s exception to the
Auto Exclusion (Exclusion g). Notably, ASIC’s construction would make sense if
Section 2 started with the introductory phrase “by this Endorsement,” and read:
AMENDMENT OF AIRCRAFT, AUTO OR WATERCRAFT
EXCLUSION
(TRANSPORTATION COVERAGE)
It is hereby agreed that, by this Endorsement, the following is added to
SECTION I., COVERAGE A. – BODILY INJURY AND
PROPERTY
DAMAGE
LIABILITY,
paragraph
2.
EXCLUSIONS:
…[P]roperty damage which occurs subsequent to the time the
transported material reaches its final destination or while it is in
storage off-loaded from the conveyance which was transporting it.

36
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Furthermore, to adopt ASIC’s interpretation of “solely with respect to this
endorsement” would be to render that phrase meaningless, contrary to longstanding
statutory cannons of construction.

Accordingly, ASIC’s interpretation is not

reasonable. Plaintiffs have supplied a reasonable interpretation of the scope of the
Section 2 Exclusion, and the Exclusion does not enable ASIC to avoid its duty to
defend in the Underlying Lawsuit.
The same result pertains even if the Court were to conclude that ASIC’s
interpretation of the Section 2 Exclusion is reasonable when read in the context of
the Endorsement and Policy as a whole, and thus the Section 2 Exclusion is subject
to more than one reasonable interpretation. Under this approach, the Policy is
ambiguous to this extent. See RSUI Indemnity Co., 466 S.W.3d at 130 (“To be
ambiguous, both interpretations must be a reasonable interpretation of the words
chosen by the parties when read in the context of the policy as a whole.” (citing
Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126
(Tex. 2010)); North Shore Energy L.L.C. v. Harkins, 501 S.W.3d 598, 602 (Tex.
2016) (quoting Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312
(Tex. 2005) (per curiam)).
Assuming the Transportation Coverage Endorsement and its Section 2
Exclusion are subject to more than one reasonable interpretation in this regard, the
Policy as modified by that Endorsement must be construed strictly against ASIC
and liberally in favor of Plaintiffs. See Mid-Continent Cas. Co., 557 F.3d at 212
(citing Barnett, 723 S.W.2d at 666); RSUI Indemnity Co., 466 S.W.3d at 118-19;
Trinity Universal Ins. Co., 592 F.3d at 692 (quoting Utica Nat’l Ins. Co. of Tex.,
141 S.W.3d at 202) (“When assessing the insurer’s proffered exclusion, ‘[t]he
court must adopt the construction of an exclusionary clause urged by the insured as
long as that construction is not unreasonable, even if the construction urged by the

37
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

insurer appears to be more reasonable or a more accurate reflection of the parties’
intent.’”).
Plaintiffs’ interpretation of the Transportation Coverage Endorsement is
reasonable. Accordingly, Plaintiffs’ interpretation of the Section 2 Exclusion is
adopted for the purposes of evaluating ASIC’s duty to defend Plaintiffs in the
Underlying Lawsuit.

The Court therefore concludes that the Transportation

Coverage Endorsement, including the Section 2 Exclusion, is not triggered because
Exclusion g does not preclude coverage.
V.

CONCLUSION AND ORDER
In sum, the 2011 Policy governs the determination of Defendant AIG

Specialty Insurance Company’s duty to defend Plaintiffs USA Environment, L.P.
and Bayou City Environmental Services, L.P. in the Underlying Lawsuit. Under
the 2011 Policy, the only potentially applicable exclusion is Exclusion g. ASIC
has failed to show that Exclusion g precludes coverage. ASIC accordingly has a
duty to defend Plaintiffs in the Underlying Lawsuit, and ASIC has breached that
duty. It is therefore
ORDERED that Plaintiffs’ Motion for Partial Summary Judgment on the
Duty to Defend [Doc. # 19] is GRANTED. It is further
ORDERED that Defendant’s ASIC’s Cross-Motion for Partial Summary
Judgment and Opposition to the USAE Motion [Doc. # 21] is DENIED. It is
further
ORDERED that Defendant ASIC must defend Plaintiffs in the Underlying
Lawsuit. It is further
ORDERED that the parties show cause on or before July 18, 2017, why this
case should not be stayed and administratively closed until there is a need for a
ruling on whether ASIC has an obligation to indemnify one or both Plaintiffs for
38
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

sums that the Plaintiff is legally obligated to pay because of bodily injury or
property damage to which this insurance applies, as a result of a claim in the
Underlying Lawsuit.
Signed at Houston, Texas, this 7th day of July, 2017.

NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE

39
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

APPENDIX OF PERTINENT POLICY PROVISIONS
This Appendix includes relevant excerpts from the insurance policies in issue in
this coverage suit (“Policies”). The provisions appear in the order in which they appear
in the Policies. Provisions inserted by amendment have been combined with the original
language of the Policies.
The provisions presented here are taken from the 2011 Policy, though almost all
are contained in all eleven Policies.
SECTION I – COVERAGE, Coverage A. Bodily Injury and Property Damage
Liability
1.

Insuring Agreement
a.

b.

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. We may at our
discretion investigate any occurrence and settle any claim or suit that may
result…
****
This insurance applies to bodily injury and property damage only if:
(1)
The bodily injury or property damage is caused by an occurrence
that takes place in the coverage territory; and
(2) The bodily injury or property damage occurs during the policy
period.

2.

Exclusions
****
f.

Pollution
(1)

Bodily injury or property damage arising out of the actual,
alleged, or threatened discharge, dispersal, seepage,
migration, release or escape of pollutants at any time.
40

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

(2)

Any loss, cost or expense arising out of any:
(a)

(b)

(3)

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
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.

Part (1) of this exclusion does not apply to:
(a)
(b)

(4)

Bodily injury or property damage arising out of heat,
smoke or fumes from a hostile fire…
Bodily injury if…

This exclusion does not apply to bodily injury or property
damage when:
(a)

The actual or alleged discharge, dispersal, seepage,
migration, release or escape of pollutants arises out of
your work and takes place at a job site where you or
your subcontractors are working; and

(b)

Such job site was never at any time owned or occupied
by, or rented or loaned to any insured, other than an
insured which is an additional insured or qualifies as
an insured under Section II, paragraph 5.

(5)

This exclusion does not apply to bodily injury or property
damage when the actual or alleged discharge, dispersal,
seepage, migration, release or escape of pollutants arises out
of the products-completed operations hazard of your
work, as described in Section VI- DEFINITIONS, paragraph
23.

(6)

With respect to paragraphs (4) and (5) of the exclusion, in
determining whether bodily injury or property damage has
occurred during the policy period, the following rules apply:
41

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

(a)

(b)

However, if the date of first exposure cannot be
determined, or is before the inception date of the first
policy we issued to you which provides coverage
substantially similar to that provided under paragraphs
(4) and (5) above, but the progressive, indivisible
bodily injury or property damage continues in fact
to exist during this policy period, it will be deemed to
have occurred only on the inception date of the first
such Policy.

(c)

(7)

Progressive, indivisible bodily injury or property
damage over a period of days, weeks, months or
longer, caused by related or continuous exposure to
substantially the same general harmful conditions or
substances, shall be deemed to have occurred only on
the date of first exposure to such conditions or
substances.

An occurrence may result in bodily injury or
property damage which occurs during the policy
periods of different policies we issued to you which
provide coverage substantially similar to that provided
under paragraphs (4) and (5) of this exclusion. In that
case, all bodily injury and property damage resulting
from such occurrence shall be subject to the Each
Occurrence Limit applicable to the first such Policy
during which any of such bodily injury or property
damage occurred.

Parts (1) and (2) of this exclusion do not apply to waste
disposal sites.93
****

93

Paragraph f(7) was added by the Blanket Non-Owned Disposal Sites Endorsement
in the 2011-2014 Policies.

42
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

g.

Aircraft, Auto or Watercraft94
Bodily injury or property damage arising out of the ownership, maintenance,
use or entrustment to others of any aircraft, auto or watercraft owned or
operated by or rented or loaned to any insured. Use includes operation and
loading or unloading.
This exclusion does not apply to:
****
(6)

Bodily injury or property damage within the exceptions
described in sub-paragraphs (4) and (5) of Exclusion f.,
Pollution, of Section 1.- COVERAGE A – BODILY INJURY
AND PROPERTY DAMAGE LIABILITY, Paragraph 2,
EXCLUSIONS, and which is caused by:
(a)

Loading or unloading of any aircraft, auto or watercraft
owned or operated by or rented or loaned to any insured; or

(b)

Transportation of materials on the job site where you are
performing your work.
****

[u.

Waste Disposal Site
Any claim based upon or arising out of any waste or products or materials
which have been delivered to a waste disposal site, beyond the boundaries of a
site at which your work is being performed.]95

****
Coverage B. Personal and Advertising Injury Liability
****
Coverage C. Medical Payments
****
94

Exclusion g is modified by the Transportation Coverage Endorsement, which is
included under all Policies and copied in full below.

95

This Exclusion was deleted in its entirety by the Blanket Non-Owned Disposal
Sites Endorsement in the 2011-2014 Policies.

43
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Coverage D. Professional Liability
****

SECTION VI - DEFINITIONS
2.

****
Auto means a land motor vehicle, trailer or semitrailer designed for travel on
public roads, including any attached machinery or equipment. But auto does not
include mobile equipment.

18.

****
Occurrence means an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.
****

21.

23.

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.
****
Products – completed operations hazard:
a.

Includes all bodily injury and property damage occurring away from
premises you own or rent and arising out of your product or your work
except:
(1)

Products that are still in your physical possession; or

(2)

Work that has not yet been completed or abandoned.
However your work will be deemed completed at the earliest
following times:
(a)

When all of the work called for in your contract has
been completed;

(b)

When all of the work to be done at the job has been
completed if your contract calls for work at more than
one job site; or

(c)

When that part of the work done at a job site has been
put to its intended use by any person or organization
other than another contractor or subcontractor working
on the same project.
44

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

Work that may need service, maintenance, correction,
repair or replacement, but which is otherwise
complete, will be treated as completed.
b.

Does not include bodily injury or property damage arising out of:
(1)

The transportation of property, unless the injury or damage
arises out of a condition in or on a vehicle not owned or
operated by you, and that condition was created by the
loading or unloading of that vehicle by any insured …
* * * * 

25.

Property damage means:
a.

Physical injury to or destruction of tangible property of parties other than
the insured, including all resulting loss of use and diminution of value
thereof. All such loss of use shall be deemed to occur at the time of the
physical injury that caused it; or

b.

Loss of use of tangible property, but not diminution of value, that is not
physically injured. All such loss of use shall be deemed to occur at the time
of the occurrence that caused it;

c.

Natural resource damage; or

d.

Solely with respect to coverage within the scope of paragraphs (4) and (5)
of Exclusion f., Pollution, in Section I., Coverage A, 2. Exclusions,
property damage also means those costs or expenses arising out of the
testing, monitoring, clean up, removal, containment, treatment,
detoxification, neutralization or other response to or assessment of the
effect of pollutants.
****

29.

Waste Disposal Sites96 means all waste treatment, waste storage or waste
disposal facilities utilized by or on behalf of the Named Insured provided that such
waste disposal sites are:

96

The Blanket Non-Owned Disposal Sites Endorsement, contained in the 2011-2014
Policies and copied below, substitutes this definition for the original “Waste
disposal site” definition located in Section VI – Definitions. The original
(continued…)
45

P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

i.

Properly licensed to accept and dispose of waste and in compliance with
applicable federal, state, provincial or local laws …

ii.

As of the Policy inception date, such facility is not listed, not proposed and has
never been listed on the federal National Priorities List (Superfund), State
equivalent list, or local equivalent list;

iii.

As of the Policy inception date, such facility is not subject to Federal information
requests under Section 104(e) of CERCLA or Section 3007(a) of RCRA or, [sic]
State or Local equivalent requests; and

iv.

As of the Policy inception date or date that the waste is accepted from the Named
Insured, whichever is later, the waste disposal site, its owners and operators are
not in bankruptcy or financial insolvency.
****

31.

Your work means:
a.

Work or operations performed by you or on your behalf; and

b.

Materials, parts or equipment furnished in connection with such work or
operations.

Your work includes:
a.

Warranties or representations made at any time with respect to the fitness,
quality, durability, performance or use of your work; and

b.

The providing of or failure to provide warnings or instructions.

****

(continued…)
definition stated, “29. Waste disposal sites means sites utilized for the purpose of
the disposal, handling, storage, processing, or treatment of any waste, whether
hazardous or not and whether authorized or not.”

46
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

AMENDMENT OF AIRCRAFT, AUTO OR WATERCRAFT EXCLUSION
(TRANSPORTATION COVERAGE)97
1.

It is hereby agreed that SECTION I. Coverage A. – Bodily Injury and
Property Damage Liability paragraph 2. Exclusions, subparagraph g(6) is
deleted in its entirety and replaced with the following:
(6)

… [P]roperty damage within the exceptions described in sub-paragraphs
(4) and (5) of Exclusion f., Pollution, of SECTION 1. – COVERAGE A –
BODILY INJURY AND PROPERTY DAMAGE LIABILITY, Paragraph
2. EXCLUSIONS, and which arises out of:
(a)

loading or unloading of any aircraft, auto or watercraft
owned or operated by or rented or loaned to any insured; or

(b)

transportation of materials at, to or from any job site in the
course of the performance of your work.

2.

It is hereby agreed that solely with respect to this endorsement, the following
is added to SECTION I., COVERAGE A. – BODILY INJURY AND
PROPERTY DAMAGE LIABILITY, paragraph 2. EXCLUSIONS:
…[P]roperty damage which occurs subsequent to the time the transported
material reaches its final destination or while it is in storage off-loaded from
the conveyance which was transporting it.
****

97

Though the Endorsement itself is included under all Policies at issue in this case,
the number of this Endorsement varies among the Policies. This Endorsement is
Endorsement No. 10 to the 2011 Policy.

47
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

BLANKET NON-OWNED DISPOSAL SITES ENDORSEMENT98
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY AND PROFESSIONAL LIABILITY
POLICY
It is hereby agreed that the policy is amended as follows:
1.

SECTION I. Coverage A. – Bodily Injury and Property Damage Liability
paragraph 2. Exclusions, subparagraph u. Waste Disposal Site is deleted in its
entirety.

2.

SECTION I. Coverage A – Bodily Injury and Property Damage Liability
paragraph 2. Exclusions, subparagraph f. Pollution is amended by the addition of
the following:
(7) Parts (1) and (2) of this exclusion do not apply to waste disposal sites.

3. SECTION IV. Conditions, paragraph 2. is amended by the addition of the following:
1. Solely with respect to any Occurrence, Offense, Claim or Suit arising
from or related to waste disposal sites, it is a condition precedent to
coverage that we receive notice of any claim for bodily injury or property
damage in no event more than three (3) years after the end of the policy
period.
4.

SECTION VI. Definitions paragraph 29. is deleted in its entirety and replaced
with [the definition of Waste Disposal Sites provided above].

98

This Endorsement is included in the 2011-2014 Policies. It is Endorsement No. 24
to the 2011 Policy.

48
P:\ORDERS\11-2016\2216MSJ.docx 170707.1224