Revised May 14, 1999

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

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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 Corporation (“Matador”) appeals the district court’s grant of summary

judgment in favor of St. Paul Surplus LinesInsurance 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
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general liability policy. Under the terms of the policy, St. Paul agreed t o defend and indemnify

Matador against liability 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 your products; or

• of your completed works.

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

waste pollution.

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

migration, release or seepage of any pollutant.”

In conjunction with this basic insurance 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 pollution exclusion 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 result from a well 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 discharge of pollutants, which seeped onto adjacent property and

waterways. Matador reported the incident to St. Paul’s agent on May 6, 1994—thirty-eight days
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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 informed 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 asrequired by the endorsement. The

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

II

We review the district court’s grant ofsummary judgment de novo. See American Guarantee

Liability Ins. Co. v. The 1906 Co., 129 F.3d 802, 805 (5th 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.” Hanson Prod. Co. v. Americas Ins. Co., 108 F.3d 627, 629 (5th 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 “reported 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 ambiguous, we must construe the provision in its favor; in other words, we must
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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.

Texaslaw controls our interpretation ofSt. Paul’sinsurance policy. SeeCanutillo Indep. Sch.

Dist. v. National Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir. 1996) (citing TEX. INS. CODE ANN.

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

the interpretation of insurance contracts. See 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. See 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 considered 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.” Forbau, 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. See 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.
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Federal Sav. & Loan Ins. Corp., 858 F.2d 1042, 1045 (5th Cir. 1988) (quoting Calcasieu-Marine

Nat’l Bank v. American Employers’ Ins. Co., 533 F.2d 290, 296 (5th 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 entails 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 partydisputesthat “you,” as used in the seven-day notice provision, refersto 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 reasonablywould read: “Is reported to you

within 30 days ofits beginning. Cf. Mississippi Poultry Assoc. v. Madigan, 992 F.2d 1359, 1363 (5th

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

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

interpretationmakes the thirty-day reporting requirement potentially superfluous. The endorsement’s

use of the conjunction “and” indicates that, 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 within seven days, however, it makes little sense for the

endorsement to require that Matador also have the incident reported to it within thirty days. See 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 terms used in

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

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

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

Matador’s Motion For Reconsideration. See FED. R. CIV. P. 59(e). Matador, however, has not

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

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

evidence, the district courtshould 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 ofsummary judgment

constitutes a valid basis for denying Matador’s Motion for Reconsideration. See Russ v.

International Paper Co., 943 F.2d 589, 593 (5th Cir. 1991) (noting that “the unexcused failure to

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

and not to Matador. Other parts of the insurance policy use derivatives of the word “report”

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

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

Endorsement.” See, e.g., National Ropes v. National Diving Serv., Inc., 513 F.2d 53, 58 (5th 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”). Cf. 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’slanguage has a certain meaning

and is not “reasonably susceptible” to more than one interpretation. Coker, 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.1
present evidence [that] is available at the time summary judgment is under consideration constituted

a valid basisfor 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. See 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 true 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 coversthe insured for acts or omissionsthat occur within the

policy period, regardless of whether “the claim . . . is brought to the attention of the insured or made

known to the insurer during the policy period.” Yancey, 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.” National Union Fire Ins. Co. v. Talcott, 931 F.2d 166,

168 n.3 (1st Cir. 1991); see also Yancey, 755 S.W.2d at 918.

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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 alwaysrequire 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. See

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

requirement is generally included to aid the insurer in administration of its coverage of claims.”); see
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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 issubsidiary to the event that invokes

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

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

delay. See Hirsch v. Texas Lawyers’ 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 (5th Cir. 1994) (noting that “notice provisions are

integral parts of claims made policies”); McCullough v. Fidelity & Deposit Co., 2 F.3d 110, 112 (5th

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

coverage.”). Courts strictly interpret notice pro visions in a “claims-made” policy. See Booth, 82

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

a showing of prejudice. See 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 statutory minimum notice requirements); see also National Union Fire Ins. Co. v.

Talcott, 931 F.2d 166, 168 (1st 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 insurerspecificallynegotiate the terms ofthe notice provisions. See Komatsu, 806 S.W.2d at 607

(exempting “claims-made” policies from statutory minimum notice requirements, and noting that
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“[e]xtension of the notice period in a claims-made policy constitutes an unbargained for expansion

of coverage”); see 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 policiesto permit notice-prejudice to be applied to claims-made policies. . . . [because to do

so] would . . . interfer[e] with the public’s right 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. See

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

where the transaction involved sophisticated businesses, there exists “little reason to depart from

usual rule of holding parties to their 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 requirement and not to hold the parties to the specific terms of

their bargain.
3 Matador contendsthat Hanson Production Co. v. AmericasInsurance Co., 108 F.3d

627 (5th Cir. 1997), and not Certain Underwriters, controls our decision in this case. We, however,

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

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

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We find support for our conclusioninCertain Underwriters at Lloyd’s London v. C.A. Turner

Construction Co., 112 F.3d 184 (5th 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 “occurrences” 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 Underwriters, 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.” Certain 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 Underwriters, 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 limited coverage. Whether St. Paul

suffered prejudice as a result of Matador’s late notice is irrelevant. The district court properly

enforced the insurance policy according to its terms.

C
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Finally, Matador maintains that the district court erred because the summary judgment

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

Matador, St. Paultwice 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 itsrights.

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

Under Texaslaw, aninsurance company, throughits actions,maywaive a condition precedent

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

See FDIC v. United States Fire Ins. Co., 956 F. Supp. 701, 705 (N.D. Tex. 1996) (listing Texas

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

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

(5th Cir. 1993) (“Waiver involvesthe voluntary or intentionalsurrender 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. See 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 with some 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); see 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 Motion for Summary

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

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

an affidavit 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 district court was harmless. See

Multiponics, Inc. v. Guice, 453 F.2d 853, 855 (5th 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.”).

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Applying waiver as requested by Matador would substantially alter and enlarge the risks

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

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

language of [the insurance policy,] . . . and would circumvent the objective intent ofthe partiesto the

contract.” United States Fire Ins., 956 F. Supp. at 706. Accordingly, we conclude that St. Paul did

not waive itsright 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.