FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GUAM INDUSTRIAL SERVICES, INC.,

DBA Guam Shipyard; MATHEWS

POTHEN,

Plaintiffs-Appellants,

v.

ZURICH AMERICAN INSURANCE

COMPANY, a corporation; STARR

INDEMNITY AND LIABILITY

COMPANY, a corporation,

Defendants-Appellees,

v.

UNITED STATES OF AMERICA,

Defendant.

No. 13-17005

D.C. Nos.

1:11-cv-00014

1:11-cv-00031

OPINION

Appeal from the United States District Court

for the District of Guam

Frances Tydingco-Gatewood, Chief District Judge,

Presiding

Argued and Submitted

August 27, 2014—Hagatna, Guam

Filed June 1, 2015
2 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

Before: Mary M. Schroeder, Alex Kozinski,

and N. Randy Smith, Circuit Judges.

Per Curiam Opinion;

Dissent by Judge Kozinski

SUMMARY*

Insurance Law

The panel affirmed the district court’s summary judgment

in favor of defendant insurance companies concerning

coverage under two policies issued to Guam Industrial

Services, Inc., arising out of the sinking of a dry dock, loaded

with barrels of oil, during a typhoon on Guam.

The Hull and Machinery Policy covered damage to the

dry dock, and required as a condition of coverage that Guam

Industrial obtain and maintain Navy Certification for the dry

dock. The panel held that strict compliance with marine

insurance policy warranties was required, even when the

breach of warranty did not cause the loss. The panel applied

that law to the facts, and concluded that Guam Industrial

failed to comply with the Navy Certification warranty.

The Ocean Marine Policy covered liability for property

damage caused by pollutants. It was 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 discharge of

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 3

pollutants, even though the containers of oil were submerged

after the sinking of the dry dock, Guam Industrial’s costs of

retrieving the containers from the sea were not covered by the

policy’s allowance of coverage for cleanup after the

“discharge, dispersal, release, or escape” of pollutants.

Judge Kozinski dissented in part, and would find that

pollutants were “discharged, dispersed, and released” from

the dry dock under the Ocean Marine Policy.

COUNSEL

Helkei S. Hemminger (argued) and David P. Ledger, Cabot

Mantanona LLP, Tamuning, Guam, for Plaintiffs-Appellants.

Marilyn Raia and Andrew B. Downs (argued), Bullivant

Houser BaileyPC, San Francisco, California, for DefendantsAppellees.
4 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

OPINION

PER CURIAM:

This insurance coverage case arises out of the sinking of

a dry dock, loaded with barrels of oil, during a typhoon on

Guam. The issues pertain to whether either of two insurance

policies covered costs of damage to the dock and the clean up

which was accomplished before any of the oil leaked out of

the containers into the Pacific Ocean.

Guam Industrial Services, Inc. (“Guam Industrial”)

owned the dry dock. At the time of the sinking, one of its

insurance policies covered damage to the dock, and one

covered liability for property damage caused by pollutants. 

After the dock sank, Guam Industrial filed a claim under each

policy. The insurers denied the claims, and Guam Industrial

brought suit. The district court granted summary judgment

for the insurers, finding that the first policy was voidable

because Guam Industrial had failed to maintain the warranty

on the dock, and that the coverage under the second policy

was never triggered because no pollutants were released.

Guam Industrial and its CEO, Mathews Pothen, appeal. We

affirm.

BACKGROUND

Guam Industrial owned and operated a dry dock called

the Machinist, located in Apra Harbor, Guam. The dry dock

sank on January 2, 2011. Guam Industrial had insured the

dry dock under two policies: a Hull and Machinery Policy,

which was underwritten collectively by Zurich American

Insurance Company (“Zurich”) and Starr Indemnity and
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 5

Liability Company (“Starr”), and an Ocean Marine Policy,

which was underwritten by Zurich alone.

The Hull and Machinery Policy covered damage to the

dry dock resulting from certain specified “perils” that

included lightning, earthquake, pirates, assailing thieves, and

various types of accidents and malfunctions. As a condition

of coverage, the policy required Guam Industrial to obtain

and maintain Navy Certification for the dry dock (“the Navy

Certification warranty”). Such certification ensures that the

dock has satisfied a certain level of structural integrity. It is

the highest standard in the industry.

It appears, however, that Guam Industrial never obtained

Navy Certification. Instead, Guam Industrial obtained

“commercial” certification from a company called Heger Dry

Dock, Inc. In October 2010, that commercial certification

expired. Heger Dry Dock informed Guam Industrial that it

would not renew the certification unless Guam Industrial

undertook significant repairs. Guam Industrial then took the

dry dock out of commission to conduct these repairs. The

dock sank while it was undergoing the repairs.

When the dry dock sank, it took with it various containers

in which were stored approximately 113,000 gallons of oil. 

None of the containers were breached, however. Following

the incident, the Coast Guard issued a letter informing Guam

Industrial that it had to remove the sunken containers holding

the oil or face the possibility of fines and strict liability for

any contamination to the surrounding waters. Guam

Industrial recovered the containers, expending approximately

$647,000; no oil ever leaked out of the containers and into the

water.
6 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

Guam Industrial then filed a claim under the Hull and

Machinery Policy with Zurich and Starr. The insurers denied

the claim on the basis of the breach of the requirement to

obtain Navy Certification.

Guam Industrial also filed a claim with Zurich under the

Ocean Marine Policy. That policy generally covered “all

sums which the insured shall become legally obligated to pay

and shall have damages because of . . . [p]roperty damage.” 

The policy also contained a “Pollution Exclusion Clause,”

which generally excluded coverage for any damages caused

by the “actual or potential discharge” of pollutants. The

scope of this exclusion was narrowed by an endorsement that

was attached to the policy (“Endorsement No. 10”). 

Together, the exclusion and the endorsement specified that

the policy would cover the costs of any damage caused by

“the discharge, dispersal, release, or escape” of any pollutants

into the environment, provided the discharge was accidental

rather than intentional. Zurich denied the claim because no

actual discharge of pollutants had occurred.

After the denial of both claims, Guam Industrial brought

this suit in the District of Guam, invoking diversity

jurisdiction, against Zurich and Starr, seeking to recover on

both policies. The district court granted summary judgment

in favor of Zurich and Starr. It concluded that the Hull and

Machinery Policy did not provide coverage because Guam

Industrial had breached the NavyCertification warranty. The

court rejected Guam Industrial’s position that Zurich and

Starr had to demonstrate that the breach caused the sinking of

the dry dock, because applicable law required strict

compliance with certification requirements.
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 7

The district court further concluded that the Ocean Marine

Policy coverage for property damage caused by pollution was

never triggered because the oil never left the containers. 

There was no “discharge, dispersal, release, or escape” of any

pollutant into the waters of Apra Harbor, and hence no

property damage within the terms of the policy.

Guam Industrial now appeals.

HULL AND MACHINERY POLICY AND THE LACK

OF CERTIFICATION

The Hull and Machinery Policy covering damage to the

dry dock was underwritten by both Zurich and Starr, and

required, as a condition of coverage, that Guam Industrial

obtain and maintain Navy Certification for the dry dock. 

Guam Industrial breached the warranty because the dry dock

was never Navy Certified. Deciding whether the insurance

policy mandates strict compliance with its requirement of

Navy Certification requires interpretation of the policy.

To interpret a marine insurance policy, we usually must

first determine whether to apply state or federal law. See

Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310,

313–14 (1955). Generally, courts are to “apply state law

unless an established federal rule addresse[s] the issues

raised, or there [is] a need for uniformity in admiralty

practice.” Yu v. Albany Ins. Co., 281 F.3d 803, 808 (9th Cir.

2002). That being said, we do not need to determine whether

to apply federal or state law in this instance because both

sources of law lead to the same rule: that marine insurance

policy warranties are to be strictly construed. The federal
8 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

rule, if one in fact exists,1 is that “admiralty law requires the

strict construction of express warranties in marine insurance

contracts; breach of the express warranty by the insured

releases the insurance company from liability even if

compliance with the warranty would not have avoided the

loss.” See Lexington Ins. Co. v. Cooke’s Seafood, 835 F.2d

1364, 1366 (11th Cir. 1988). The state majority rule also

provides that express warranties in marine insurance policies

should be strictly construed. See Yu, 281 F.3d at 808–09.

Guam’s courts have not yet spoken on this specific issue,

and where state courts are silent, “federal court[s] must make

a reasonable determination of the result the highest 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). We think that it is

reasonable to conclude that the Supreme Court of Guam

would likely follow the majority rule. Guam’s insurance

statutes are derived from California law, which requires strict

compliance with warranties when they are material. Cal. Ins.

Code § 447. 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. 

Applying that law to these facts, there is no question that

1

In Wilburn Boat Co. v. Fireman’s Fund Ins. Co., the Supreme Court

declared that no established federal rule addressedmarine insurance policy

warranty clauses, and that the clauses should be interpreted using state

law. 348 U.S. at 314-16. Since Wilburn Boat, however, a few circuits

have announced the “federal rule” identified above. See Lexington Ins.

Co. v. Cooke’s Seafood, 835 F.2d 1364, 1366 (11th Cir. 1988); see also

Lloyd’s of London v. Pagan-Sanchez, 539 F.3d 19, 24 (1st Cir. 2008). 

This circuit has neither announced a federal rule nor disclaimed such a

rule.
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 9

Guam Industrial failed to comply with the NavyCertification

warranty.

Guam Industrial contends that the insurers waived their

right to demand strict compliance with the NavyCertification

warrantybecause they had accepted commercial certification. 

Under Guam law, conduct that is inconsistent with an intent

to demand strict compliance may constitute waiver. See

Guam Hous. & Urban Renewal Auth. v. Dongbu Ins. Co.,

Ltd., 2001 Guam 24, ¶ 18. The district court nevertheless

correctly granted summary judgment in favor of the insurers,

because even if they had waived the insistence on Navy

Certification, the dry dock lacked even commercial

certification when it sank. Though the insurers may have

waived their right to insist on the Navy Certification

warranty, they did not waive their right to insist on at least

commercial certification. See id. at ¶ 16 (waiver must be

intentional).

OCEAN MARINE POLICY

Zurich was also the insurer on an Ocean Marine Policy,

covering liability for property damage caused by pollutants. 

The Ocean Marine Policy, in material part, limits coverage to

claims “arising out of the discharge, dispersal, release, or

escape of . . . oil . . . or pollutants into or upon . . . any

watercourse or body of water.” It is undisputed that no oil

leaked out of the containers and into the water in the harbor. 

Thus, the policy’s coverage could be triggered only if the

sinking of the containers constituted a “discharge, dispersal,

release, or escape” of oil or pollutants into the waters of the

Bay. It did not.
10 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

Cases in this Circuit that deal with similar property

damage insurance clauses involving pollution have arisen in

situations where pollutants had unquestionably leaked into

the environment. See, e.g., Aeroquip Corp. v. Aetna Cas. &

Sur. Co., 26 F.3d 893, 893 (9th Cir. 1994) (dealing with the

leakage of 7,500 gallons of diesel fuel into the soil, but

coverage denied because leakage not “sudden and accidental”

as required under the policy); Intel Corp. v. Hartford Acc. &

Indem. Co., 952 F.2d 1551, 1559 (9th Cir. 1991) (insurer’s

reliance on pollution exclusion not waived in connection with

hazardous waste solvents that had slowly leaked out of

storage tanks and into the groundwater and soil). Thus, we

have had no occasion to consider whether the disposal into

the environment of containers holding contaminants can

constitute a discharge of pollutants, even if no contaminants

leaked into the environment.

Contract law requires that we give unambiguous2

insurance policy terms “their ordinary meaning.” Klamath

Water Users Protective Ass’n v. Patterson, 204 F.3d 1206,

1210 (9th Cir. 1999) (“Whenever possible, the plain language

of the contract should be considered first.”). Under the

ordinary meaning of Endorsement No. 10, Zurich would

provide coverage of Guam Industrial’s damages only if either

(1) oil or (2) pollutants escaped or were discharged,

dispersed, or released into the water. We agree with Guam

Industrial’s Opening Brief, where it outlined the “ordinary

meaning” for the insurance policy terms:

The plain ordinary meaning of discharge is

the release of something from “confinement,

2 No party argues (unlike the dissent) that the language of Endorsement

No. 10 is ambiguous.
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 11

custody, or care”. [sic] Webster’s Ninth New

Collegiate Dictionary (1989). A dispersal is

the “act or result of dispersing”, [sic] and

disperse includes the meaning “to spread or

distribute from a fixed or constant source”.

[sic] Id. An escape is the “act of escaping or

the fact of having escaped: as . . . leakage or

outflow esp. of steam or a liquid” and release

includes “to set free from restraint”. [sic] Id.

Bl. Br. 39. Applying these definitions to the facts of this

case, it is clear that barrels or containers were discharged,

dispersed, and released, but that oil was not. In fact, all

parties agree that the oil remained sealed inside its containers

at all relevant times. Thus, under the ordinary meaning of

Endorsement No. 10, Zurich’s coverage cannot be said to

have been triggered by a “discharge, dispersal, release, or

escape” of oil.

Further, sealed barrels, regardless of their contents, do not

qualify as “pollutants” under the plain meaning of

Endorsement No. 10. Endorsement No. 10 provides a list of

specific substances whose “discharge, dispersal, release or

escape” triggers the clause. The substances listed are

“smoke, vapors, soot, fumes, alkalis, toxic chemicals, liquids

or gases, waste materials, oil or other petroleum substance or

derivative (including any oil refuse or oil mixed wastes).” 

These specific substances are then followed by the catchall

terms “or other irritants, contaminants or pollutants.” The

sealed barrels discharged in this case clearly do not qualify as

any of the specified substances. Thus, the only question is

whether sealed barrels fall within the catchall terms. “It is . . .

a familiar canon of statutory construction that [catchall]

clauses are to be read as bringing within a statute categories
12 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

similar in type to those specifically enumerated.” Paroline v.

United States, 134 S. Ct. 1710, 1721 (2014) (alteration in

original) (quoting Federal Maritime Comm’n v. Seatrain

Lines, Inc., 411 U.S. 726, 734 (1973)). When applying this

canon of construction to the Endorsement, it is clear that

barrels and other containers are not similar to the listed

substances. Instead, the Endorsement limits the term

“pollutants” to chemicals and other hazardous substances. 

Solid, non-hazardous items, such as barrels, are not similar in

type to the specifically enumerated hazardous substances. 

Thus, under the ordinary meaning of the policy terms, a

sealed barrel cannot be an “irritant[], contaminant[] or

pollutant.” Neither oil nor pollutants were discharged,

dispersed, or released, nor did they escape, into the waters of

Apra Harbor in this case.

The dissent argues that we err by not construing the

Ocean Marine Policy in favor of the insured (Guam

Industrial). As the authority cited by the dissent recognizes,

“should ambiguities exist in the language of the policy

provisions, they are to be liberally construed in favor of the

insured” to “protect[] . . . the objectively reasonable

expectations of the insured.” Yasuda Fire & Marine Ins. Co.

v. Heights Enterprises, 1998 Guam 5 ¶ 12–13 (emphasis

added) (internal quotation marks omitted). However, we find

no ambiguity in the terms of the Ocean Marine Policy. 

Without an ambiguous term or provision, we have nothing to

“construe” in favor of the insured. Surely, the dissent cannot

intend to suggest that any time an insurer and an insured have

a genuine disagreement concerning an insurance contract

provision, a reviewing court must accept the insured’s

interpretation. That contention has absolutely no support in

our precedent. See Klamath Water Users Protective Ass’n,

204 F.3d at 1210 (“The fact that the parties dispute a
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 13

contract’s meaning does not establish that the contract is

ambiguous . . . .”).

Instead, our precedent clearly requires that we apply the

ordinary meaning of the contract terms. See, e.g., id. at 1210. 

Utilizing Guam Industrial’s own “ordinary meanings” of the

terms in Endorsement No. 10, we conclude that Guam

Industrial’s damages were not covered by the Ocean Marine

Policy.

At least one other Circuit has expressly held that the

relevant act of pollution for purposes of similar insurance

coverage occurs when the contaminant leaks out of a

container, not when the container is disposed of. In Patz v.

St. Paul Fire & Marine Ins. Co., 15 F.3d 699, 702 (7th Cir.

1994), the Seventh Circuit addressed a similar insurance

clause that provided coverage for accidental “discharge,

dispersal, release, or escape” of contaminants or pollutants.

The insured had put sludge into barrels and then buried the

barrels. Id. at 703. The insurer had contended the burial

constituted the pollution and was not accidental. The court

held that the relevant act of pollution occurred not when the

barrels were buried but when the sludge leaked out of the

barrels. Id. (“As the barrels themselves were not

contaminants, no discharge of contaminants into the soil

occurred until the barrels leaked or broke.”).

We agree with the Seventh Circuit that the containers

themselves are not pollutants. Just as there was no pollution

in Patz when the barrels were buried in the ground, there was

no pollution in this case when the dry dock sank and the

containers fell into the water. Under the pollution clause in

the insurance policy, pollution would have occurred only
14 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

when and if the oil leaked out of the containers, which it did

not.

The district court correctly ruled that since there was no

actual discharge of pollutants, even though the containers of

oil were submerged after the sinking, Guam Industrial’s costs

of retrieving the containers from the sea were not covered by

the policy’s allowance of coverage for cleanup after the

“discharge, dispersal, release, or escape” of pollutants.

CONCLUSION

The district court correctly granted summary judgment in

favor of the defendant insurance companies on both the Hull

and Machinery Policy, and on the Ocean Marine Policy.

AFFIRMED.

KOZINSKI, Circuit Judge, dissenting in part:

If you slap a silk suit on a monkey, you still won’t want

to take it to the prom. And if you pour crude oil into a barrel,

you still won’t want it in your hot tub.

Zurich’s Ocean Marine Policy covers claims “arising out

of the discharge, dispersal, release, or escape of . . . oil . . . or

pollutants into . . . any watercourse or body of water.” Guam

Industrial paid for this coverage and Zurich happily accepted

the premiums. (Insurance companies seldom have trouble

with this part of the bargain.) What risk was Zurich paid to

assume? The risk that something nasty would get into the

water and Guam Industrial would be under a legal obligation
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 15

to clean it up. That’s just what happened here: Some very

nasty stuff—barrels containing over 100,000 gallons of

industrial oil—plunged into the harbor when the dry dock

sank. To no one’s surprise, the Coast Guard immediately

issued Guam Industrial a clean-up notice. This wasn’t an

invitation to the prom; it was a clean-up-or-else-we’ll-do-itourselves-and-make-you-pay-through-the-nose notice. Guam

Industrial did what the law required of it and, thanks to its

careful efforts, none of the oil mixed with the water. Why

should Zurich’s obligation to pay for the clean-up turn on the

largely fortuitous circumstance that none of the barrels leaked

right away? Sooner or later the monkey will rip off the silk

suit and the barrels at the bottom of the ocean will release

gunk where the fishes live. Which is no doubt why the Coast

Guard gave Guam Industrial a notice to clean up the barrels

of oil but not the other debris from the sinking.

Like the majority, Istart with the dictionary definitions of

“discharge,” “dispersal,” “release” and “escape” to ascertain

their ordinary meaning. A “discharge” is a “release from

confinement, custody, or care.” Merriam-Webster’s

Collegiate Dictionary 356 (11th ed. 2003). A “dispersal” is

the act of “spread[ing] or distribut[ing] from a fixed or

constant source.” Id. at 361. A “release” is the act of

“set[ting] free from restraint [or] confinement,” id. at 1051,

and an “escape” is “flight from confinement,” id. at 425. The

majority concludes that “barrels or containers were

discharged, dispersed, and released” from the dry dock. Op.

at 11. It then follows that the contents of those barrels were

likewise “discharged, dispersed, and released” from the dry

dock.

Let’s say you place your cell phone in your backpack

while hiking, and the backpack falls into a crevice and can’t
16 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

be recovered. You’d certainly be right in claiming that you

lost your cell phone, even though the phone is still inside your

backpack. What matters is that the backpack and its contents

are no longer in your control. If the phone was insured

against loss, no insurance company (except maybe Zurich)

would claim that the phone isn’t lost because it’s still inside

your backpack.

Endorsement No. 10 lists the “discharge, dispersal,

release, or escape” of “smoke, vapors, soot, fumes, alkalis,

toxic chemicals, liquids or gases, waste materials, oil or other

petroleum substance or derivative . . . or other irritants,

contaminants or pollutants” as hazards covered by the policy. 

The majority claims that “[s]olid, non-hazardous items, such

as barrels, are not similar in type to the specifically

enumerated hazardous substances” in the Endorsement. Op.

at 12. But we’re not talking here about empty barrels; we’re

talking about barrels filled with a known pollutant. Nor are

we talking about indestructible barrels—something that exists

only in graphic novels. In the real world, barrels are merely

temporary containment devices that will corrode or break

over time. At that point, whatever lurks inside—oil, acid,

arsenic, radioactive waste, you name it—will spill out.

Of course, we must read the catchall clause, “or other

irritants, contaminants or pollutants,” as “bringing within a

[contract] categories similar in type to those specifically

enumerated.” Paroline v. United States, 134 S. Ct. 1710,

1721 (2014) (internal quotation marks omitted). But are oil

barrels all that different from “waste materials” or the very

substance contained within the barrels—industrial oil? Once

underwater, barrels filled with oil pose a threat to the

environment and will eventuallycause the same kind of harm. 

Would you let your kids swim in waters where there are
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 17

submerged barrels filled with toxic waste? Would you drink

from a well in which such barrels were dropped? Most

people wouldn’t. The Coast Guard certainly considered the

barrels sufficiently polluting to order that Guam Industrial

remove them.

The majority misplaces its reliance on a Seventh Circuit

case that held 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 barrels of paint sludge on their property. 

A few years later, the sludge leaked from the barrels and the

Patzes were ordered to clean up the mess. Id. at 702. They

sought reimbursement for their clean-up costs under a policy

that covered the accidental “discharge, dispersal, release or

escape” of contaminants or pollutants. The insurance

company denied coverage, arguing that the discharge was not

accidental because the Patzes had buried the barrels of sludge

intentionally. Id. The Seventh Circuit did say that “the

barrels themselves were not contaminants” at the time they

were buried, and that “no discharge of contaminants into the

soil occurred until the barrels leaked or broke,” id. at 703, but

it did so while construing the insurance contract—as it was

required to do—in favor of the insureds. It acknowledged

that “[a]t first and even second glance, [the insurance

company’s] interpretation . . . has a great deal to recommend

it. Excluded from coverage, on the most natural reading of

the clause, are all discharges (etc.) of waste materials, except

those that are sudden and accidental.” Id. Construing the

Patzes’ burial of the barrels as an act of pollution may have

been the more plausible interpretation, but the Seventh

Circuit adopted the less plausible interpretation which

favored the insureds.
18 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

The real lesson of Patz, which my colleagues overlook, is

that when it comes to construing insurance contracts, the

insured need not have the best interpretation or even one just

as good as the insurer’s. The insured’s interpretation need

only be plausible. “A well settled general principle of

insurance law is that . . . ambiguities . . . are to be liberally

construed in favor of the insured.” Yasuda Fire & Marine

Ins. Co. v. Heights Enters., 1998 Guam 5 ¶ 12. An

ambiguous term must be interpreted “in the manner in which

the promisor believed the promisee understood it at the time

of its making” so as to “protect[] . . . the objectively

reasonable expectations of the insured.” Id. at ¶ 13 (internal

quotation marks omitted). The majority has hung this

venerable maxim of insurance law by its tail.

Guam Industrial argues that the language of Endorsement

No. 10 unambiguously covers the sinking of the oil barrels,

while Zurich argues that the language unambiguously

excludes such coverage. Where “both parties claim a contract

is unambiguous but advance different rational arguments as

to its meaning, a court is not limited by the parties’ failure to

specifically assert ambiguity.” Minex Res., Inc. v. Morland,

467 N.W.2d 691, 696 (N.D. 1991); see also Comm’r of the

Gen. Land Office of Tex. v. SandRidge Energy, Inc.,

454 S.W.3d 603, 612 (Tex. App. 2014) (“We may conclude

that a contract is ambiguous even when, as is the case here,

the parties do not assert ambiguity.”).

The cost of fishing out submerged oil barrels at the

command of the Coast Guard is the kind of risk for which dry

dock owners would seek coverage when buying insurance. 

It doesn’t matter whether oil mixes with water immediately

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

owners have every reason to expect that the Coast Guard will
GUAM INDUS. SERVS. V. ZURICH AM. INS. CO. 19

order the immediate removal of barrels filled with pollutant,

whether or not they ruptured when the dry dock sank. See

33 U.S.C. § 1321(c)(1)(A) (requiring the President, acting

through the Coast Guard, to ensure “mitigation or prevention

of a substantial threat” of an oil spill).

The policy’s pollution exclusion clause is designed to

exclude coverage for pollution occurring during the normal

course of an insured’s business. See Minerva Enters., Inc. v.

Bituminous Cas. Corp., 851 S.W.2d 403, 404 (Ark. 1993)

(“the [pollution] exclusion is intended to prevent persistent

polluters from getting insurance coverage for general

polluting activities”); Thompson v. Temple, 580 So. 2d 1133,

1134–35 (La. Ct. App. 1991) (“Pollution exclusion clauses

are intended to exclude coverage for active industrial

polluters, when businesses knowinglyemitted pollutants over

extended periods of time.”) (citing cases); Molton, Allen &

Williams, Inc. v. St. Paul Fire & Marine Ins. Co., 347 So. 2d

95, 99 (Ala. 1977) (“It is believed that the intent of the

‘pollution exclusion’ clause was to eliminate coverage for

damages arising out of pollution or contamination by

industry-related activities. . . . The pollution exclusion was no

doubt designed to decrease the risk where an insured was

putting smoke, vapors, soot, fumes, acids, alkalis, toxic

chemicals, liquids or gases, waste materials or other irritants,

contaminants or pollutants into the environment.”). Losing

control of pollutants as a result of an unexpected and

unintended event—here, the sinking of the dry dock during

high surf conditions—is nothing like the types of events

contemplated bythe pollution exclusion clause. Endorsement

No. 10 clears up any doubt by specifying that “[t]his

[pollution] exclusion shall not apply” where “the occurrence

[that] arose from Maritime Operations” was “caused by some
20 GUAM INDUS. SERVS. V. ZURICH AM. INS. CO.

intervening event neither foreseeable nor intended by the

insured.” This is just what happened here.

No rational dry dock owner would buy a policy that

covers government-orderedpollution clean-up if containment

vessels filled with toxic waste break apart upon sinking but

not if they remain intact. It’s absurd. Zurich’s denial of

coverage is the type of slimy conduct that gives insurance

companies a bad name. This opinion should serve as fair

warning to those who would throw away good money doing

business with Zurich.