F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

G U A M I N D U S T R I A L S E R V I C E S , I N C ., DB A Guam Shipy ard; M A T H E W S P O T H E N , Plaintiffs-Appellants
,

v

.

Z U R I C H A M E R

I C A N I N S U R A N C E C O M P A N Y , a corporation; S T A R R I N D E M N I T Y A N D L I A B I L I T Y C O M P A N Y , a corporation, Defendants-Appellees
,

v

.

U N I T E D S T A T E S O F A M E R I C A , Defendant

. N o. 13-17005

D .C. Nos. 1:11-cv-00014 1:11-cv-00031

OPI NI ON

A ppeal from the United States District Court

for the District of Guam F rances Ty

ding co-Gatewood, Chief District J udg e, Presiding

Arg ued and Submitted Aug ust 27, 2014—Hag atna, Guam

F iled J une 1, 2015G U A M I N D U S

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B efore: Mary

M. Schroeder, Alex Koz inski, and N. Randy

Smith, Circuit J udg es.
Per Curiam Opinion; Dissent by

J udg e Koz inski

SUMMARY *

Insurance Law

The panel affirmed the district c ourt’s summary judg ment in f avor of d efendant i nsurance companies concerning coverag e under two policies issue d to G uam I ndustrial Services, I n c., arising out of the sinking of a dry dock, loaded with barrels of oil, during a ty phoon on Guam.

The H ull and Machinery Policy covered d a mag e to the dry dock, and r equired as a condition o f coverag e that Guam I ndustrial obtain and maintain Navy Certification for the dry dock. T h e panel h eld that strict compliance w ith marine insurance policy warra n t ies w as required, even w hen the breach of w arranty did not cause the loss. The panel a pplied th a t law to the facts, and concluded that Guam I ndustrial failed to comply with the Navy Certification warranty

.
The Ocean Marine Policy covered liability for property damag e c aused by pollutants

. I t w as undisputed that no oil leaked out of the containers and into the water in the harbor. The panel held that because there was no actual discharg e o f

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.G U A M I N D U S

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pollutants, even thoug h the containers of oil were submerg ed after the sinking of the dry dock, Guam I ndustrial’s costs of retrieving the c ontainers from the sea were not covered b y the po l icy ’s allowance of coverag e for cleanup after the “discharg e, dispersal, release, or escape” of pollutants.

J udg e Koz inski dissented in part, and would find that pollutants were “discharg ed, dispersed, and releas e d ” from the dry dock under the Ocean Marine Policy

.

COUNSEL

Helkei S. Hemming e r (argu e d ) a nd David P. L edg e r, Cabot Mantanona L L P, Tamuning
, G uam, for Plaint iffs-Appellants.

Marily n Raia and Andrew B

. Downs (arg ued), B ulli v a n t Houser B ailey PC, San F rancisco, California, for DefendantsAppellees.G U A M I N D U S

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OP INION

PER CURI AM:

This insurance coverag e case arises out of the sinking of

a dry dock, loaded wit h b ar r e ls of oil, d uring a ty phoon on Guam. The issues p ertain to whether either of two insurance policies covered costs of damag e to the dock and the clean up which was accomplished before any of the oil leak e d o ut o f the containers into the Pacific Ocean.

Guam I ndustrial Services, I nc. (“ G uam I ndustrial”)

o wned the dry dock. At the time of the sinking
, one of its insurance policies covered damag e to the dock, and o ne covered liability for property d amag e caused by pollut a n t s. After the dock sank, G uam I ndustrial filed a claim under e ach policy

. T he insurers denied the claims, a nd Guam I ndustrial broug ht suit. The d istrict c o urt g rante d s u m mary judg ment for the insurers, finding that the first policy w as voidable because G uam I ndustrial had f ailed to maintain the warranty

on the dock, and that the coverag e un d er the second p olicy

was never trig g ered because no pollutants were r e l eased. Guam I ndustrial and its CEO, Mathews Pothen, appeal. W e affirm.

BACK G ROUND

Guam I n dustrial owned and operated a dry dock called the Machinist, located in Apra Harbor, Guam. The dry dock sank on J anuary 2, 2011. Guam I n d ustrial had ins u r e d the d ry dock under two p olicies: a H ull and Machinery P o l i c y , which was u nderwritten c ollect i v ely by Z urich American I nsurance C o mpany (“Z urich”) a nd Starr I ndemnity a

ndG U A M I N D U S

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L iability Company (“Starr”), a nd an Ocean M a r ine Policy
, which was underwritten by Z urich alone.

The H ull and Machinery Policy co v e red damag e to the dry dock resulting from c er tain specified “perils” that included lig htning
, earthquake, pirates, assailing thieves, a nd various ty pes of accidents and malfunctions. As a condition of coverag e, the policy required Guam I ndustrial to obtain and maintain Navy Certification for the dry dock (“the Navy Certification warranty

”). Such certification ensures that the dock has satisfied a c ertain level of structural integ rity

. I t is the hig hest standard in the industry

.

I t appears, however, that Guam I ndustrial never obtained Navy Certification. I n stead, Guam I ndustrial obtained “commercial” certification from a c ompany called Heg e r Dry Dock, I nc. I n October 2010, that commerc i a l c e rtification

ex p ired. Heg er Dry Dock informed Gua m I n d u strial that it would n ot renew the certification unles s Gu a m I ndustrial undertook sig nificant repairs. Guam I ndustrial then took the dry dock out o f commission to conduct th ese repairs. The dock sank while it was underg oing the repairs.

W h en the dry dock sank, it took with it various containers in which were stored approx imatel y 1 1 3
, 000 g allons of oil. None of the containers were breached, h owever

. Fo llowing the incident, the Coast Guard issued a letter informing Guam I ndustrial that it had to remove the sunken containers holding the oil or face the p ossibility of fines and strict liability for any contamination to the surrounding waters. Guam I ndustrial recovered the containers, ex pending approx imately $647,000; no oil ever leaked out o f the containers a nd into the water.G U A M I N D U S

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Guam I ndustrial then f iled a claim under the H ull a nd Machinery Policy with Z urich a nd Starr. The insurers denied the claim on the basis of the breach of the requirement t o obtain Navy Certification.

Guam I ndustrial also filed a claim with Z urich under the Oce a n Marine Policy

. That policy g enerally covered “ all

sums which the insured shall become leg ally oblig ated to pay and shall hav e d a m a g es because of

. . . [ p] roperty damag e.” The policy also contained a “ P o l l u tion Ex clusion Clause,” which g e nerally e x c luded c o verag e for any d amag es c aused by the “actual or potential discharg e” of poll u t a n ts. The scope of this ex clusion was narrowed b y an endorsement that

was attached to the policy (“Endorsement No. 10”). Tog ether, the e x clusion and the endorsement specified that the policy would cover the cos t s o f any damag e caused b y “the discharg e, dispersal, release, or e scape” of any pollutants into the environment, provided the discharg e was accidental rather than intentional. Z urich denied the cla im because no actual discharg e of pollutants had occurred.

After the denial of both c laims, Guam I ndustrial broug ht this suit in the District of Guam, in v o k ing diversity jurisdiction, ag ain s t Zurich and Starr, seeking to recover on both policies. The district court g ranted summary judg ment in fa v or of Z u rich and Starr. I t concluded that the Hull a nd Machinery Policy did not provide coverag e b ecause Guam I ndustrial had breached the Navy Certification warranty

. The court rejected Guam I ndustrial’s position that Z urich a nd Starr had to demonstrate that the breach caused the sinking o f the dry dock, because applicable law re q u ired strict compliance with certification requirements.G U A M I N D U S

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T h e district court further concluded that the Ocean Marin e Policy coverag e for property damag e caused by pollution was
n e v e r trig g ered because the oil n ever left the containe r s

. There w as no “discharg e, dispersal, release, o r e scape” of any pollutant into the waters o f Apra Harbor, and hence no property damag e within the terms of the policy

.
Guam I ndustrial now appeals.

HULL AND MACHINERY P OLICY AND THE LACK

OF CERTIF ICATION

The Hull and Machinery Policy covering d amag e to t he dry d ock was unde r wr itten by b oth Z urich and Starr, a nd required, as a condition of coverag e, that Guam I ndustrial obtain and maintain Navy Certi f i c a t i on for the dry d ock. Guam I n dustrial breached the w arranty because the dry dock

was never Navy Certified. D eciding w hether the insurance policy mandates strict compliance w ith i t s requirement o f Navy Certification requires interpretation of the policy

.

To i n t erpret a marine insurance policy
, we usually must first determine w hether to a pp l y state or federal law. See W ilburn Boat Co. v. Fireman’s F und Ins. Co.
, 348 U.S. 310, 313–14 (1955). Generally
, courts are to “ap p ly state law unless an e stablished federal rule addresse[ s ] t h e issues raised, o r there [ is] a need for u niformity in admiralty practice.” Y

u v. Albany Ins. Co.
, 281 F .3d 803, 808 (9th Cir. 2002). That being said, we do not need to determine whether to apply fe d eral or state law in this instance because both

source s of law lead to the same r ule: that marine insurance policy warranties a

re to be strictly const r ued. The federalG U A M I N D U S

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rule, if one in fact ex ists, 1 is that “admiralty law requires the strict construction of ex press warranties in marine insurance contracts; breach of the e x press warranty by th e insured releases the insurance co m p a ny from liability even if compliance w ith the w arrant y w o uld not have avoided the loss.” See Lexington I

n s

. Co. v. Cooke’s Seafood
, 835 F .2d 1364, 1366 (11th Cir. 1988). The state majority ru l e also provides that ex press warranties in marine insurance policies should be strictly

construed. See Y

u , 281 F .3d at 808–09.

Guam’s courts have not y et spoken on this specific issue, and where state courts a

re silent, “federal court[ s] must make

a reasonable determination of the result the hig h est state court would reach if it were deciding the case.” Med. Lab. Mgmt. Consultants v. Am. Broad. Cos. , 306 F

. 3d 806, 812 (9th Cir. 2002) (internal quotation marks omitted). W e think that it is reasonable to conclude that the Supr e me Court of Guam would likely f

ollow the majority rule. Guam’s insurance statutes are derived from California law, which requires strict compliance with warranties when they are material. Cal. I ns. Code § 4 47. Ultimately
, whether derived from federal admiralty law or state law, we conclude that the law requires strict compliance with marine insurance policy warranties,

even when the breach of the warranty did not cause the loss. Apply ing that law to the se facts, there is no question that

1 In W ilb u rn Bo a t Co

. v. Firema n ’s Fu n d In s. Co

. , th e Su p rem e Co u rt d eclared th at n o estab lish ed f ed eral ru le ad d ressed m arin e in su r a n c e p o l i cy

w arran t y clau ses, an d t

h at th e clau ses sh o u ld b e in terp reted u sin g state law

. 34 8 U.S. at 3 14

- 16

. Sin ce W ilb urn Bo a t , h o w ev er, a f ew circu its h av e an n o u n ced t

h e “ f ed eral ru le” id en tif

ied ab ov e. S

ee Lexin g to n In s. Co

. v. Co o ke’s S ea

fo o d , 8 3 5 F.2 d 1 3 6 4, 1 3 6 6 (1 1 th Cir. 19 8 8 ); see a l so L l o y d ’s o f Lo n d o n v. Pa g a n -S

a n ch ez , 5 3 9 F.3 d 1 9
, 2 4 (1 st Cir. 2 0 0 8 )

. T h is circu it h as n eith er an n o u n ced a f ed eral ru l e n o r d i sclaim ed su ch a
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Guam I ndustrial failed to comply with the Navy Certification warranty

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Guam I ndustrial conten d s that the insurers waived their rig ht to demand strict compliance with the Navy Certification warranty b ecause they had accepted commercial certification. Under Guam law, conduct that is inconsistent with an intent to demand strict compliance may constitute waiver. See Guam H o u s

. & Urban Renewal Auth. v

. Dongbu Ins. Co., Ltd.
, 2001 Guam 24, ¶ 18. The district court ne v e rt h eless correctly g ranted summary judg ment in favor of the insurers, because even if they had w aived the insistence o n Na v y Certification, the dry d ock lacked even commerc ial certification when it sank. Thoug h the insurers may have waived their rig ht t o i n s ist o n the Navy Certification warranty , they did not waive t h e ir rig ht to insist on at least commercial certification. See id. at ¶ 1 6 (waiver must be intentional).

OCEAN MARINE P OLICY

Z urich was als o t he insurer on a n Ocean Marine Policy
, covering liability for prop e r t y damag e caused by p o llutants. The Ocean Marine Policy
, in material part, limits coverag e to claims “arising o ut of the discharg e, dispersal, release, o r escape o f

. . . oil

. . . or pollutants into or upon

. . . any waterco u rs e o r body of water.” I t is undisputed that n o oil leaked out of the containers and into the water in the harbor. Thus, the policy ’s coverag e c o uld be trig g ered o nly if the sinking of the containers constituted a “discharg e, dispersal, release, or escape” of o il or pollutants into the waters of the B ay . I t did not.G U A M I N D U S

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Cases in this Circuit that deal with similar p roper ty damag e insurance clauses involving pollution have arisen in situations where pollutants had unquestionably leaked into the environment. See, e.g. , Aeroquip Corp. v . Aetna Cas. & S u r. Co.
, 26 F .3d 893, 893 (9th Cir. 1994) (dealing with t h e leakag e of 7 ,500 g allons of diesel fuel into the soi l
, but coverag e denied because leakag e not “sudden and a ccidental” as required under the policy ); Intel Corp. v. Hartford Acc. & Indem. Co.
, 952 F .2d 1551, 1559 (9th Cir. 1991) (i n s u r er’s reliance on p ollution e x clusion not waived in c onnection with haz a rdous waste solvents that had slowly leak e d out o f stor a ge t a n k s a

nd into the g roundwater and soil). T h us, we have had no o ccasion to consider whether the d i s p o sal into the environm e n t of containers holding contaminants can constitute a discharg e of pollutants, even if no contaminants leaked into the environment.

Contract law requires that we g ive u n a m b ig u ous 2 insurance p olicy terms “their ordinary m e a n ing .” Klamath W ater Users Protective A ss’n v. Patters o n , 2 0 4 F .3d 1206, 1210 ( 9th Cir. 1999) (“W henever possible, the plain lang uag e of the c ontract should be considered firs t

. ” ). Under the ord i n ary meaning of Endorsement No. 10, Z urich would provide coverag e of Guam I ndustrial’s damag es only if either (1 ) oil or (2) pollutants escaped or were discharg ed, dispersed, or released into the water. W e ag ree with Guam I ndustrial’s O peni n g B rief, where it o utlined the “ordinary meaning ” for the insurance policy terms:

The plain ordina r y meaning of discharg e is the release of somethi ng from “confinement,

2 No p arty arg u es (u n lik e th e d issen t) th at th e lan g u ag e o f En do rsem en t No . 1 0 is am

b ig u o u s.G U A M I N D U S

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custody
, or care”. [s i c ] W e bster’s Ninth New Collegiate D i c tionary (1989). A dispersal is the “act or result of dispersin g”
, [ sic] a nd disperse includes the meaning “to spread o r d i stribute from a f

ix ed o r constant sourc e ”. [ sic] Id. An e scape is the “act of escaping o r t h e fa ct of having escaped: a s

. . . leakag e o r outflow esp. of steam or a liquid” and release includes “to set free from restraint”. [ sic] Id.

B l. B r

. 39. A pply ing these definitions to the facts of this
case, it is clear that barrels or c ontaine rs were discharg ed, dispersed, and re l e a s e d, but that oil was not. I n fact, all parties ag r ee that the oil remained sealed inside its containers at all relevant times. Thus, under the ordinary meaning o f Endorsement No. 10, Z urich’ s coverag e cannot be said to have been trig g ered by a “ d ischarg e, dispersal, r e l e a s e, o r escape” of oil.

F urther, sealed barrels, reg ardless of their contents, do not qualify as “pollu t an t s” under the plain meaning o f Endorsement N o. 1 0. Endorsement No. 10 provides a list o f specific substances w hose “dis c h a r g e , dispersal, release o r escape” trig g ers the clause. The substances listed a re “smoke, vapors, soot, fumes, alkalis, tox ic chemicals, liquids

or g ases, waste materials, oil or other p etroleum substance o r derivative (includ i n g any oil refuse o r oil mix ed wastes).” These specific substances are then followed by the catchall terms “or other irritants, contaminants or pollutants.” T h e sealed barrels discharg e d in this case clearly do not q ualify a s any of the specified substances. T hus, the onl y q u estion is whether sealed barrels fall within the catchall terms. “I t is

. . . a familiar canon of statutory c onstruction that [ catchall] clauses are to be read a s bring ing within a statute c a t eg oriesG U A M I N D U S

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similar in ty

p e to those specifically enumerated.” Paroline v

. United States
, 134 S. Ct. 1710, 1 721 ( 2014) (alteration in orig inal) (quoting Federal Maritime Comm’n v

. Seatrain Lines, Inc.
, 411 U.S. 726, 7 3 4 (1973)). W hen apply ing this

c a non of construction to the Endorsement, it is clear t h at barrels and other containers are not similar to the l i sted

s u b s t ances. I nstead, the Endorsement limits the ter m “pollutants” to chemicals and other haz ardous substances. Solid, non-haz ardous items, such as b arrels, are not similar in ty pe to the specifically enumerated h az ardous substances. Thus, u n der the o rdinary meaning o f the policy terms, a sealed barrel cann o t b e an “irritant[ ]
, contaminant[ ] o r pollutant.” Neither oil nor pollutants were discharg ed, dispersed, or released, n or d id they escape, into the waters o f Apra Harbor in this case.

The dissent arg ues that we err b y not construing the Ocean Marine Policy in favor of the i n s u red (Guam I ndustrial). As the authority cited by the dissent recog niz es,

“ should ambiguities e

xist in the language of th e p o l i cy provisions , they are to be liberally c onstrue d i n favor o f the in s u r ed” to “ protect[ ]

. . . the objectively reasonable

ex p ectations of the insured.” Y asuda Fire & Marine Ins. Co.

v. Heights Enterprises
, 1998 Guam 5 ¶ 12–13 (e m p h asis added) (internal quotation marks omitted). However, w e find

no ambig uit y in the terms of the Ocean Marine Policy

. W ithout an ambig uous term or provision, we have nothing to “construe” in favor of the insured. Surely
, the dissent cannot intend to sug g est that any time an insurer and an insured have

a g enuine disag r eement concerning an insur ance contract provision, a reviewing court must a ccept the insured’s interpretation. That co n t e n tion has absolutely no support in

our precedent. See Klamath W a ter Users Protective A ss’n
, 204 F .3d at 1 210 (“The fact that the parties d i s p u te aG U A M I N D U S

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c o n t ra ct’s meaning d oes n ot establish that the contract i s ambig uous . . . .”).

I nstead, o ur precedent c l e ar l y requires that we apply the ordinary meaning of the contract terms. See, e.g. , id. at 1210. Utiliz ing G uam I ndustrial’s own “ordinary meaning s” of the terms i n E n d o rsement No. 10, we c onclude that Guam I ndustrial’s damag es were not covered by the Ocean Marine Policy

.

At least one other Circuit has ex pressly held that the relevant act of p ollution f or purposes of similar insurance coverag e occurs when the contaminant leaks out o f a container, not when the cont a i n e r is disposed of. I n Patz v

. S t

. P a ul Fire & M

arine Ins. Co.
, 15 F .3d 699, 702 ( 7th C i r. 1994), the Seventh Circuit add ressed a similar insurance clause that provided coverag e for accidental “discharg e , d i s p ersal, r elease, or escape” of contaminants or p ollutants. The insured had put sludg e into barrels an d t h e n b uried the barrels. Id. at 703. The insurer had contended the b urial constituted the pollution and was not accidental. The court held that the r elevant act of pollution o ccurred not when the barrels were buried but when the sludg e le a ked out of the barrels. Id

. (“As the b arrels themselves were not contaminants, no discharg e o f contaminants into the soil occurred until the barrels leaked or broke.”).

W e ag ree with the Seventh Cir c u it that the containers themselves are not pollutants. J ust a s there was no pollution in P atz when the barrels were b uried in the g round, there was
no p o llution in thi s c a se when the dry dock sank and the containe rs fell into the water. Under the pollution clause in the insurance policy
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when and if the oil leaked out of the containers, which it did not.

The d istrict court correctly ruled that since there wa s n o actual discharg e of pollutants, even thoug h the containers of oil were submerg ed a fter the sinking
, Guam I ndustrial’s costs of retrieving the containers f rom the sea were not c overed b y the p olicy ’s allowance of coverag e for cleanup after the “discharg e, dispersal, release, or escape” of pollutants.

CONCLUSION

The district court correctly g ranted summary judg ment in favor of the defendant insurance companies on both the Hull and Machinery

Policy , and on the Ocean Marine Policy

.

AF F IRMED

.

KOZ I NSKI , Circuit J udg e, dissenting in part:

I f y o u slap a silk suit on a monkey
, y ou still won’t w ant to take it to the prom. And if y ou pour crude oil into a b arrel, y ou still won’t want it in y our hot tub.

Z urich’s Ocean Marine Policy covers claims “arising out of the discharg e, dispersal, release, or e scape of

. . . oil

. . . o r pollutants into

. . . any watercourse or body o f water.” Guam I ndustrial paid for this coverag e and Z u rich happily accepted the pre m i ums. (I nsurance companies seldom have trouble with this part of the barg ain.) W hat risk was Z urich paid to assume? T h e risk that something nasty would g et into the water and Guam I ndustrial would be u n der a leg al oblig ationG U A M I N D U S

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to clean it up. That’s just what hap p e n e d here: Some very nasty stuff—barrels containing over 1 00,000 g allons o f industrial o il—plung ed into the h arbor when the d r y d o ck sank. To no o ne’s surprise, the Coast Guard immed i a t ely issued Guam I ndustrial a cl e an -up notice. This wasn’t an invitation to the prom; it was a clean-up-or-else-we’ll-do-ito urselves-and-make-y

o u-pay

- t h r o u g h

- t h e

- n o s e n o t i c e

. G u a

m I ndustria l d i d what the law required of it and, thanks to its careful effor t s , none of the o il mix ed with the water. W h y should Z urich’s oblig ation to pay for the clean-up turn on the larg e ly fortuitous circumstance that none of the barrels leaked rig ht away ? Sooner or later the monkey wi ll rip off the silk suit and the barr e l s at the bottom of the ocean will release g unk where the fishes live. W h ich is no doubt why the Coast Guard g ave Guam I ndustrial a n o tice to clean up the b arrels of oil but not the other debris from the sinking

.

L ike the majority
, I start with the dictionary definitions o f “discharg e,” “dispersal,” “release” and “escape” to ascertain their ordinary meaning

. A “discharg e” i s a “release from confinement, cust ody
, o r care.” Merriam-W ebster’s Collegiate Dictionary 356 (11th ed. 2003). A “dispersal” is the act of “spread[ ing ] or distribut[ ing ] from a fix ed o r constant source.” Id. at 361. A “release” i s t h e act o f “set[ ting] f

ree from r estraint [ o r] confinement,” id. at 1051, and an “escape” is “ flig ht from confinement,” id. at 4 25. The majority concludes that “ b a r rels or containers were discharg ed, dispersed, and released” from the dry dock. Op. at 1 1. I t then follows that the contents o f those barrels were likewise “ discharg ed, dispersed, and released” from the dry dock.

L et’s say y o u p lace y our cell phone in y our backpack while hiking
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be recovered. Yo u ’d certainly be rig ht in claiming that y ou lost y our cell phone, even thoug h the phone is still inside y our backpack. What matters is that the backpack and its contents

a re no long er in y our control. I f the phone was i n s u r e d

a ga inst loss, no insurance company (ex cept may be Z uri c h ) would claim that the phone isn’t lost because it’s still inside y our backpack.

Endorsement No. 10 lists the “ d ischarg e, dispe r sal, release, or e scape” of “smoke, vapors, soot, fumes, alkalis, tox ic chemicals, liquids o r g ases, waste materials, oil or other petr o l eum substance or derivative

. . . or other irritants, contaminants or pollutants” as haz a rds covered by the policy

. The majority claims that “[ s] o lid, non-haz ardous items, such

as barrels, are not si m i l a r in ty pe to the specifically enumerated h az ardous substances” in the Endorsement. Op. at 12. B ut we’re not talking h ere about empty barrels; we’re t a l k i n g about barrels filled with a known pollutant. Nor are

w e t a l k i n g a

bout indestructible barrels—something that e xi s t s only in g raphic novels. I n the real world, barrels ar e merely temporary c ontainment devices that will corro d e o r break

over time. A t that point, w hatev e r l u r ks inside—oil, acid, arsenic, radioactive waste, y ou name it—will spill out.

Of c ourse, we must read the catchal l c l a u se, “ or other irrit a n ts, contaminants or pollutants,” as “bring ing within a [ contract] categ o r ies similar in ty pe to those specifically enumerated.” Paroline v. United States
, 134 S. C t

. 1710, 1 7 21 (2014) (internal q

uotation marks omitted). B ut are o i l barrels all that different from “waste m aterials” or the very substance c ontained w ithin the barrels—industrial oil? Once underwater, b arrels fi l l e d w ith oil pose a threat to the environment and will eventually cause the same kind of harm. W o uld y ou let y our kids swim in waters where t h ere a reG U A M I N D U S

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submerg ed barrels filled with tox ic waste? W ould y ou drink from a w ell in which such barrels w ere dropped? Most people wouldn’t. The Coast Guard certainly considered the ba r rels sufficiently polluting to order that Guam I ndustrial remove them.

The m ajority misplaces its reliance o n a Seventh Circuit

case that h e l d for the insureds. See Patz v. St. Paul Fire & Marine Ins. Co

. , 15 F .3d 699 (7th Cir. 1994). The insureds in Patz buried sealed b arrels of paint sludg e on their property

. A few y ears later, the sludg e leaked from the barrels and the Patz es were ordered to c l e an up the mess. Id. at 702. They soug h t reimbursement for their c lean-up costs under a p olicy that covered the accidental “ d i s charg e, dispersal, release o r escape” of c ontami nants or p ollutants. The insurance company denied coverag e, arg uing that the discharg e was not accidental because the Patz es had buried the barrels of sludg e intentionally

. Id. The Seventh Circuit d i d say that “the barrels themselves were not contaminant s ” a t the time they

were b uried, and that “no discharg e of contaminants into the soil occurred until the barrels leaked or broke,” id. at 7 03, but it did so while construing the in s u r ance contract—as it was required to d o—in favor of the insureds. I t a c k n o wledg ed that “[ a] t f

i rst and e ven second g lance, [ the insurance company ’s] interpretation

. . . has a g reat deal to recommend it. Ex cluded from c o v e r age , on the most natural reading o f the clause, are all discharg es (etc.) of w aste materials, e x cept those that are s u d d en and accidental.” Id. Construing the Patz es’ burial of the barrels a s an act of po l l u t i o n m ay have been the more plausible interpretation, bu t t he Seventh Circuit adopted the less p lausible interpretati on which favored the insureds.G U A M I N D U S

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The real lesson of Patz
, which my colleag ues overlook, is that when it c omes to c o n s t ruing insurance contracts, the insured need not have the best interpretation or even one just

as go od as the insurer’s. The insured’s interpretation need

o n l y be plausible. “A well settled g eneral principle o f insurance law is that

. . . ambig uiti e s

. . . a r e to be liberally construed in favor of the insured.” Y asuda Fire & M

arine Ins. Co. v. Heights E

n ters. , 1998 Guam 5 ¶ 12. An ambig uous term must b e interpreted “in the manner in which the promisor believed the promisee understood it at the time of its making ” s o a s t o “protect[ ]

. . . the objectively reasonable ex

pectations of the insured.” Id. at ¶ 13 (internal q u o t ation marks omitted). The majority has hung this venerable max im of insurance law by its tail.

Guam I ndustrial arg ues that the lang uag e of Endorsement No. 10 unambig u ously covers the sinking of the o i l b arrels, while Z uri c h arg ues that the lang uag e unambig uously

ex c ludes such c overag e. W here “both parties claim a contract is unambig uous b u t a dvance different r at i o n al arg uments a s to its meaning
, a court is not limited by the parties’ failure to specifically

assert ambig u ity .” Minex Res., Inc. v. Morland
, 467 N.W

. 2 d 691, 696 (N.D. 1991); see also Comm’r of the Gen. Land Office o

f Tex. v

. SandRidge Energy, Inc.
, 454 S.W .3d 603, 612 (Tex

. App. 2014 ) (“W e may conclude that a contr a c t is ambig uous even when, as is the case h ere, the parties do not assert ambig uity .”).

The cost of fishi n g o u t submerg ed oil barrels at the command o f the Coast Guard is the kind of risk for which dry dock owners would seek c o v erag e when buy ing insurance. I t doesn’t matter whether o i l mix es with water immediately

or sometime later ; the risk is the same. After all, dry dock

owners have e very reason to e x pect that the Coast Guard willG U A M I N D U S

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order the immediate r emoval o f barrels filled with pollutant, whether or not they r uptured when the dry dock sank. See 3 3 U.S.C. § 1 321(c)(1)(A) (requiring the President, act i n g throug h the Coast G uard, to ensure “mitig ation or prevention of a substantial threat” of an oil spill).

The p o licy ’s poll u tion ex c lusion clause is desig ned to

ex c lude coverag e f

or pollution occurring during th e n o rmal

course of an insured’s business. See Minerva Enters., Inc. v. Bituminous Cas. Corp.
, 851 S.W .2d 403, 4 0 4 (Ark. 1 993) (“the [pollution] ex clusion is intended to preven t p e r sistent polluters from g etting insurance coverag e for g eneral polluting activities”); Thompson v. Temple
, 580 So. 2d 1133, 1134–35 (L a. Ct. App. 1 991) (“Pol l u t i on ex clusion clauses

are intended to ex clude coverag e for active industrial polluters, when businesses knowing ly emitted pollutants over
ex tended periods of time.”) (citing c a ses); Molt o n , Allen & W illiams, Inc. v. St. Paul Fire & Marine Ins. Co.
, 347 So. 2d 95, 99 (Ala. 1977) (“I t is believed tha t t h e i n t ent of the ‘pollution ex clusion’ clause was to el iminate coverag e for damag es a

rising out of p o llution or contamination b y industry -related a ctivities.

. . . The pollution ex clusion was no d o ubt desig ned to decrease the risk where an insure d w a s putting smoke, vapors, soot, fumes, a cids, a l k a lis, tox ic chemicals, liquids or g a ses, waste materials or other irritants, contaminants or pollu tants into the environment.”). L osing control of pollutants as a result of an unex pecte d a nd unintended event—here, the sinking of the dry d o c k d u ring hig h surf con ditions—is nothing like the ty pes o f events

c ontemplated by the pollution ex clusion clause. End o r s e m e n t No. 1 0 clears up any doubt by specify ing that “ [ t] his [ pollution] ex clusion shall not apply ” where “the occurrence [ that] arose from Maritime Operations” was “caused by someG U A M I N D U S

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intervening event ne i t her foreseeable nor intended by the insured.” This is just what happened here.

No rational d r y d o ck owner would buy a policy that

covers g overnment-ordered p o l l u t i on clean-up if c ontainment vessels filled with tox ic waste b r eak a part upon sin k i n g but not if they remain intact. I t’s absurd. Z uric h ’ s denial o f coverag e is the ty

p e of slimy conduct that g ives i n s u ra n c e companies a b ad name. This o pinion should serve a s fair warning to those who would throw away g ood money

doing business with Z urich.