Revised May 14, 1999

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

____________

No. 98-10289

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MATADOR PETROLEUM CORPORATION,

Plaintiff–Appellant,

versus

ST PAUL SURPLUS LINES INSURANCE COMPANY,

Defendant–Appellee.

Appeal from the United States District Court

for the Northern District of Texas

May 12, 1999

Before JONES, SMITH, and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Matador Petroleum Corporati on (“Matador”) appeals the district court’s grant of summary

judgment in favor of St. Paul Surplus Lines Insurance Company (“St. Paul”). Matador contends that

St. Paul wrongfully denied coverage under an insurance policy. We affirm.

I

St. Paul provided Matador with insurance coverage pursuant to an oil and gas commercial-2-

general liabilit

y policy. Under the terms of the policy, St. Paul agreed t o defend and indemnify

Matador against liabilit

y for “bodily injury” and “property damage” caused by an “accident, including

continuous or repeated exposure to substantially the same general harmful conditions.” The policy

also contained an absolute pollution exclusion clause, which provided:

We won’t cover injury or damage . . . that result[s] from pollution at or from any:

• protected person’s premises;

• waste site;

• protected person’s work site;

• offshore site;

• of y

our products; or

• of your completed works.

Nor will we co ver any injury or damage that results from pollution involving any

waste pollution.

The policy defined “pollution” as “any actu al, alleged or threatened discharge, dispersal, escape,

migration, release or seepage of any pollutant.”

In conjunction with this basic insur ance po licy, Matador purchased from St. Paul an

endorsement that provided a narrow exception to the absolute pollution exclusion. The endorsement

stated that St. Paul would not apply the pollut io n exclusio n in the event of a “covered pollution

incident.” The endorsement defined “covered pollution incident” as:

the discharge, dispersal, release, or escape of pollutants that:

• Results from an event;

• Begins and ends within 72 hours, and does not resu lt from a wel l out of

control; or results from a well out of control above the surface of the ground

or waterbottom ;

• Is known to you or your operating partner within 7 days of its beginning; and

• Is reported to the company within 30 days of its beginning.

On or about March 29, 1994, a drilling pit collapsed in a well owned in part by Matador. The

collapse of the pit caused a di scharge of pollutants, which seeped onto adjacent property and

waterways. Matador repo rt ed t he incident to St. Paul’s agent on May 6, 1994—thirty-eight days-3-

after the pollution incident occurred—and requested coverage under the policy for damages claimed

by landowners adjacent to the drilling pit. After investigating Matador’s claim, St. Paul declined the

request for coverage, and in fo rmed Matador that St. Paul would not provide it with a defense or

indemnity. Matador filed suit in Texas state court seeking damages for expenses incurred in

defending against the claims asserted by the adjacent landowners. St. Paul then removed the case to

federal district court on the basis of diversity jurisdiction.

St. Paul argued before the district court that it properly denied coverage to Matador because

Matador failed to report the pollution incident within thirty days as required by the endorsement. The

district court agreed and granted St. Paul summary judgment. Matador timely appealed.

II

We review the district court’s grant of summary judgment de novo

. See American Guarantee

Liability Ins. Co. v. The 1906 Co. , 129 F.3d 802, 805 (5 th Cir. 1997). We sit as an Erie court, and

therefore, we must attempt “to rule the way the Texas Supreme Court would rule on the issue[s]

presented.” H

anson Prod. Co. v. Americas Ins. Co.

, 108 F.3d 627, 629 (5 th Cir. 1997). Matador

raises three principal issues on appeal.

A

Matador first argues that the district court erroneously granted St. Paul summary judgment

because the endorsement to the insurance policy is ambiguous. The endorsement obligated St. Paul

to provide insurance coverage for a pollution incident only if the incident was “repo rted to the

company within 30 days of its beginning .” Matador contends that this provision is ambiguous

because “the company” could refer to either St. Paul or Matador. According to Matador, because

the provision is ambigu o us, we must construe the provision in its favor; in other words, we must-4-

interpret “the company” to mean Matador. Matador had notice of the incident within thirty days after

the incident began, and therefore, in Matador ’s opinion, it complied with the terms of the

endorsement.

Texas law controls our interpretation of St. Paul’s insurance policy. S ee Canutillo Indep. Sch.

Dist. v. National Union Fire Ins. Co.

, 99 F.3d 695, 700 (5 th Cir. 1996) (citing T EX

. I NS

. C ODE A NN

.

art. 21.42 (West 1981)). Under Texas law, the same rules that apply to contracts in general govern

the interpretation of insurance contracts. S ee National Union Fire Ins. Co. v. CBI Indus., Inc.

, 907

S.W.2d 517, 520 (Tex. 1995).

When interpreting a contract, our primary concern “is to ascertain and to give effect to the

intentions of the parties as expressed in the instrument.” R & P Enter. v. LaGuarta, Garvel & Kirk,

Inc

. , 596 S.W.2d 517, 518 (Tex. 1980). To achieve this objective, we consider the contract as a

whole. S ee Forbau v. Aetna Life Ins. Co.

, 876 S.W.2d 132, 133 (Tex. 1994) (“This court is bound

to read all parts of a contract together to ascertain the agreement of the parties. The contract must

be co nsidered as a whole . . . [and] each part of the contract should be given effect.”). When

considered as a whole, a contract is ambiguous only if “it is reasonably susceptible to more than one

meaning.” Coker v. Coker

, 650 S.W.2d 391, 393 (Tex. 1983). As Texas courts have recognized,

“ not every difference in the interpretation of a contract or an insurance policy amounts to an

ambiguity.” F

orbau

, 876 S.W.2d at 134. We will not find a contract ambiguous if we may properly

give it a certain legal meaning or interpretation. S ee CBI Indus.

, 907 S.W.2d at 520. Although we

will construe ambiguities in an insurance contract against the insurer and in favor of coverage, see

National Union Fire Ins. Co. v. Hudson

, 811 S.W.2d 552, 555 (Tex. 1991), we will not “‘strain to

find such ambiguities, if, in so doing, [we] defeat the probable intentions of the parties.’” Sharp v.-5-

F ederal Sav. & Loan Ins. Corp.

, 858 F.2d 1042, 1045 (5 th Cir. 1988) (quoting Calcasieu-Ma rine

Nat’l Bank v. American Employers’ Ins. Co. , 533 F.2d 290, 296 (5 th Cir. 1976)); see also Yancey

v. Floyd West & Co. , 755 S.W.2d 914, 918 (Tex. App.—Fort Worth 1988, writ denied).

Examining the policy as a whole shows that the reading espoused by Matador entai l s an

awkward and unreasonable interpretation of the endorsement. Under the endorsement, a pollution

incident is covered only if the incident:

• Is known to you or your operating partner within 7 days of its beginning; and

• Is reported to the company within 30 days of its beginning.

Neither party disputes that “you,” as used in the seven-day notice provision, refers to Matador. Thus,

we may infer that “the company” does not refer to Matador. Had the parties intended to require that

Matador also receive notice within thirty days, the policy reasonably would read: “Is reported to you

within 30 days of its beginning. C f. Mississippi Poultry Assoc. v. Madigan

, 992 F.2d 1359, 1363 (5 th

Cir. 1993) (noting that “[t]he use of different words or terms within a statute indicates that Congress

intended to establish a diffe rent meaning for those words”). Moreover, Matador’s suggested

interpretation mak es the thirty-day reporting requirement potentially superfluous. The endorsement’s

use of the conjunction “and” indi cat es t hat, to obtain coverage, the insured must satisfy the

requirements of both the seven-day notice provision and the thirty-day reporting provision. If

Matador knows of a pollution incident wit hin seven days, however, it makes little sense for the

endorsement to require that Matador also have the incident reported to it within thirty days. S ee Fort

Worth Lloyds Ins. Co. v. Willham , 406 S.W.2d 76, 79 (Tex. Civ. App.—Amarillo 1966, writ ref’d

n.r.e.) (stating that “courts are without authority to needlessly reject any words or term s used i

n

contracts by the parties or delete a ny clause therein as surplusage, unless such action is judicially1 Matador argues that evidence discovered after the district court granted summary

judgment establishes that the language of the endorsement is ambiguous. It contends that the district

court abus ed its discretion when it refused to consider the additional evidence in support of

Matado r’s Motion For Reconsideration. S ee F ED

. R. C IV

. P. 59(e). Matador, however, has not

demonstrated why the evidence it relies upon qualifies as “newly discovered evidence.” S ee Becerra

v. Asher , 105 F.3d 1042, 1047 n.20 (5 th Cir. 1997) (“When a party offers alleged newly-discovered

evidence, the district court should consider whether the omitted evidence was available to the moving

party prior to the time for filing his response to the summary judgment motion.”). Matador’s failure

to explain why the evidence was not available prior to the district court’s grant of summary judgment

constitutes a valid basis for denying Ma t ador’s Motion for Reconsideration. S ee Russ v.

International Paper Co.

, 943 F.2d 589, 593 (5 th Cir. 1991) (noting that “th e unexcused fai l ure to

-6- mandatory”). Finally, the use of the word “reported” denotes that “the company” refers to St. Paul

and not to Matador. Ot her part s o f the insurance policy use derivatives of the word “report”

specifically in reference to giving notice to the insurer. For example, the basic insurance po licy

provides th at , for an additional premium, Matador may obtain an “Extended Reporting Period

Endorsement.” S ee

, e.g.

, National Ropes v. National Diving Serv., Inc.

, 513 F.2d 53, 58 (5 th Cir.

1975) (noting that “[i]t is logical to assume that

. . . words [used in different clauses of the contract]

were intended to convey the same meaning both times they were used”). C f. Sullivan v. Stroop

, 496

U.S. 478, 484, 110 S. Ct. 2499, 2504, 110 L. Ed. 2d 438,

__ (1990) (espousing “normal rule of

statutory construction” that “identical words used in different parts of the same act are intended to

have the same meaning”).

Thus, we agree with the district court that the endorsement’s language has a certain meaning

and is not “reasonably susceptible” to more than one interpretation. C oker

, 650 S.W.2d at 393. Read

as a whole, the policy unambiguously shows that Matador and St. Paul intended “the company” to

mean the insurer and not the insured. The contrary interpretation espoused by Matador strains the

language of the endorsement and creates ambiguity where none exists. Under the plain language of

the endorsement, St. Paul legitimately denied Matador coverage. 1present evidence [that] is available at the time summary judgment is under consideration constituted

a valid basis for denying a motion to reconsider”). Moreover, even if Matador had demonstrated that

the evidence constituted “newly discovered evidence,” a court may not consider extrinsic evidence

when interpreting an unambiguous policy provision. S ee CBI Indus. , 907 S.W.2d at 520 (“Only

where a contract is first determined to be ambiguous may the courts consider the parties’

interpretation, and admit extraneous evidence to determine the tr ue meaning of the instrument.”)

(internal citations omitted). Accordingly, we reject Matador’s argument that the district court abused

its discretion in refusing to consider the additional evidence.

2 An “occurrence” policy covers the insured for acts or omissions that occur within the

policy period, regardless of whether “the claim

. . . is brought to the attenti on of the insured or made

known to the insurer during the policy period.” Y ancey

, 755 S.W.2d at 918. In contrast, a “claimsmade” policy covers the insured only “for claims made during the policy [period] . . . regardless of

when the covered act or omission occurred.” N ational Union Fire Ins. Co. v. Talcott

, 931 F.2d 166,

168 n.3 (1 st

Cir. 1991); see also Yancey , 755 S.W.2d at 918.

-7- B

Matador next argues that, even if the terms of the endorsement are not ambiguous, St. Paul

cannot demonstrate that it suffered prejudice as a result of Matador’s untimely notice. In Matador’s

opinion, because St. Paul did not suffer prejudice, the delay of eight days before notice occurred did

not discharge St. Paul of its obligation to provide insurance coverage. Matador asserts that the

district court erred when it relieved St. Paul of its obligation to provide coverage.

Contrary to Matador’s apparent position, courts do not always require a showing of prejudice

in order for an insurance company legitimately to deny coverage where the insured fails to comply

with an insurance policy’s notice provisions. Instead, the impact that untimely notice has on coverage

depends on the type of insurance policy. For example, courts traditionally distinguish between two

types of insurance policies: “occurrence” policies and “claims-made” policies. 2 In the case of an

“occurrence” policy, any notice requirement is subsidiary to the event that triggers coverage. S ee

FDIC v. Booth

, 82 F.3d 670, 678 (5 th Cir. 1996) (“In occurrence based policies, the notice

requirement is generally included to aid the insurer in administration of its coverage of claims.”); see-8-

also Zuckerman v. National Union Fire Ins. Co.

, 100 N.J. 304, 324, 495 A.2d 395, 406 (N.J. 1985)

(noting that “the requirement of notice in an occurrence policy is subsidiary to the event that invokes

coverage”). Courts have not permitted insurance companies to deny co verage on the basis of

untimely notice under an “occurrence” policy unless the company shows actual prejudice from the

delay. S ee Hirsch v. Texas Law yers’ Ins. Exch. , 808 S.W.2d 561, 562 (Tex. App.—El Paso 1991,

writ denied) (noting that the prejudice-notice requirement applies to “occurrence” policies). In the

case of a “claims-made” policy, however, notice itself constitutes the event that triggers coverage.

See

, e.g.

, FDIC v. Mijalis

, 15 F.3d 1314, 1330 (5 th Cir. 1994) (noting that “notice provisions are

integral parts of claims made policies”); McCullough v. Fidelity & Deposit Co

. , 2 F.3d 110, 112 (5 th

Cir. 1993) (“Noti ce, as pro vided in the policy, is required in a claims made policy to trigger

coverage.”). Courts strictly interpret notice pro visio ns in a “claims-made” policy. S ee Booth

, 82

F.3d at 678. Thus, an insurance company may deny coverage under a “claims-made” policy without

a showing of prejudice. S ee Komatsu v. United States Fire Ins. Co.

, 806 S.W.2d 603, 607 (Tex.

App.—Fort Worth 1991, writ denied) (acknowledging the importance of exempting “claims-made”

policies from statu t ory minimum notice requirements); s ee also National Union Fire Ins. Co. v.

Talcott , 931 F.2d 166, 168 (1 st Cir. 1991).

The fact that courts strictly enforce notice requirements in “claims-made” policies, but take

a distinct approach towards notice requirements in “occurrence” policies, reflects a difference in the

nature of the bargain underlying each type of policy. Courts interpret notice provisions in “claimsmade” policies strictly because in these types of policies, unlike in “occurrence” policies, the insured

and insurer specifically negotiate the terms of the notice provisions. S ee Komatsu

, 806 S.W.2d at 607

(exempting “claims-made” policies from statutory minimum no t ice requirements, and noting that-9-

“[e]xtension of the notice period in a claims-made policy constitutes an unbargained for expansion

of coverage”); s ee also Yancey

, 755 S.W.2d at 923 (noting the advantages to both the insured and

insurer in negotiating a “claims-made” policy versus an “occurrence” policy). Hence, courts will not

“rewrite policies to permit notice-prejudice to be applied to claims-made policies.

. . . [because to do

so] would . .

. interfer[e] with the public’s ri ght to contract.” Hirsch , 808 S.W.2d at 565 (internal

citations omitted).

The policy at issue in this case shares characteristics in common with both an “occurrence”

and a “claims-made” policy. To decide, therefore, whether St. Paul needs to show prejudice to deny

Matador coverage legitimately, we look to the nature of the bargain underlying their agreement. S ee

id

. (“Insurance contracts are subject to careful scrutiny to avoid injury to the public. However, we

must look to the type of contract bargained for.”).

The basic insurance contract between Matador and St. Paul did not include coverage for

pollution. The endorsement provision supplemented the basic agreement and constituted additional

bargained for coverage. An extension of the notice period under the endorsement would expand this

coverage and would expose St. Paul to a risk broader than the risk expressly insured against in the

policy. St. Paul and Matador are both sophisticated commercial parties with comparable bargaining

power. S ee FDIC v. Insurance Co. of N. America. , 105 F.3d 778, 786 (1 st Cir. 1997) (noting that,

where the transaction involved sophisticated businesses, there exists “little r e ason to depart from

usual rule of holding parti es t o t heir bargain”). The nature of St. Paul’s and Matador’s bargain,

therefore, resembles the nature of the bargain underlying a “claims-made” policy. Accordingly, we

see no reason to apply a prejudice re quirement and not to hold the parties to the specific terms of

their bargain.3 Matador contends that Hanson Production Co. v. Americas Insurance Co.

, 108 F.3d

627 (5 th Cir. 1997), and not Certain Underwriters

, controls our decision in this case. We, however,

find Hanson inapposite. The notice provisions at issue in H anson were part of the primary insurance

policy, and, in this respect, the policy resembled a traditional “occurrence” policy.

-10- We find support for our conclusion in Certain Underwriters at Lloyd’s London v. C.A. Turner

C onstruction Co.

, 112 F.3d 184 (5 th Cir. 1997). In that case, the insurance policy contained an

“absolute pollution

exclusion” clause and a “buy-back” clause. The “buy-back” clause reinstated

coverage for certain pollution “o ccurrences” provided that the insured satisfied four conditions,

including that it report such an “occurrence” to the insurer within ninety days after the occurrence

became known to the insured. See Certain Underw riters , 112 F.3d at 189 n.5. The district court

refused to decide whether the policy constituted either an “occurrence” or “claims-made” policy, and

instead simply concluded “that the language of the ‘buy-back’ clause [was] unambiguous and [had

to] be enforced according to its plain meaning.” C erta i n Underwriters at Lloyd’s London v. C.A.

Turner Constr. Co.

, 941 F. Supp. 623, 629 (S.D. Tex. 1996). We affirmed the district court, noting

that the insured failed to comply with the policy’s notice requirement, and that under Texas law,

“notice provisions are enforceable.” Certain Underw riters , 112 F.3d at 189 n.6. 3

Likewise, in this case, under the plain language of the endorsement, timely reporting of the

claim constituted one of the events necessary to trigger coverage. We will respect the plain language

of the limitation contained in the endorsement. Matador received what it bargained for under the

endorsement, with premiums presumably reduced to reflect the limit ed coverage. Whether St. Paul

suffered prejudice as a result of Matador’s late notice is i rrelevant. The di stri ct court properl y

enforced the insurance policy according to its terms.

C-11-

Finally, Matador maintains that the district court e rred because the summary judgment

evidence established that St. Paul waived any right it may have had to deny coverage. According to

Matador, St. Paul twice charged and accepted a deductible relating to the pollution incident even after

it became aware of the late notice. Moreover, Matador contends that St. Paul attended a strategy

session with Matador and the other owners of the well without any notice of reservation of its rights.

According to Matador, St. Paul cannot now deny coverage.

Under Texas law, an insurance company, through its actions, may waive a condition precedent

to performance on an insurance policy, or become estopped from denying coverage under the policy.

S ee FDIC v. United States Fire Ins. Co.

, 956 F. Supp. 701, 705 (N.D. Tex. 1996) (listin g Texas

cases). Waiver involves the intentional relinquishment of a known right or intentional conduct

inconsistent with claiming that right. S ee Salzstein v. Bekins Van Lines Inc. , 993 F.2d 1187, 1191

(5 th Cir. 1993) (“Waiver involves the voluntary or intentional surrender of a known right.”). Estoppel

involves the reasonable reliance of one party on the conduct or statements of another party. If the

relying party suffers harm as a result of its reliance, the law estops the other party from disavowing

its earlier conduct or statements. S ee id. Under Texas law, however, waiver and estoppel cannot

operate to change either the risks covered or the insurance extended under a policy:

Whereas waiver and estoppel may operate to avoid forfeiture of a policy and may

prevent an insurance company from avoiding payment because of the failure on the

part of the insurer to comply w it h so me requirement of the policy, waiver and

estoppel cannot enlarge the risks covered by a policy and cannot be used to create a

new and different contract with respect to the risk covered and the insurance

extended.

The Minnesota Mutual Life Ins. Co. v. Morse

, 487 S.W.2d 317, 320 (Tex. 1972); s ee also Texas

Farmers Ins. Co. v. McGuire , 744 S.W.2d 601, 603 (Tex. 1988).4 Matador argues that “the evidence supporting St. Paul’s Mo t io n for Summary

Judgment was defective and it was error for the District Court to grant summary judgment thereon.”

Specifically, Matador contends that the district court erroneously denied Matador’s motion to strike

an af fidavit by Valerie Colvin, in which she attested that St. Paul charged Matador the policy

deductible as a result of an accounting error. Having concluded that, as a matter of law, waiver may

not operate to change the risks covered by an insurance policy, we find immaterial the facts attested

to in Valerie Colvin’s affidavit. Accordingly, any error by the dist rict court was harmless. S ee

Multiponics, Inc. v. Guice

, 453 F.2d 853, 855 (5 th Cir. 1972) (“We find no basis for reversal in the

admission of [witness’s] testimony, for erroneous, if it was, it was not material to the district court’s

decision.”).

-12- Applying waiver as requested by Matado r wo uld substantially alter and enlarge the risks

covered under the insurance policy. In other words, holding that coverage exists, despite Matador’s

untimely notice, would “mate rially change the scope of coverage, would be contrary to the plain

language of [the insurance policy,]

. . . and would circumvent the objective intent of the parties to the

contract.” U

nited States Fire Ins.

, 956 F. Supp. at 706. Accordingly, we conclude that St. Paul did

not waive its right to deny coverage. The district court properly granted summary judgment in favor

of St. Paul. 4

III

For the foregoing reasons, we AFFIRM the district court’s summary judgment.