F I L E D

United States Court of Appeals

Tenth Circuit

AUG 20 1997

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

MESA OIL, INC.,

Plaintiff-Appellant,

v.

INSURANCE COMPANY OF

NORTH AMERICA,

Defendant-Appellee,

and

INSURANCE ENVIRONMENTAL

LITIGATION ASSOCIATION,

Amicus Curiae.

No. 96-4034

Appeal from the United States District Court

for the District of Utah

(D.C. No. 2:95cv696C)

Christopher Harris, Harris, Johnson & Stonecipher, Bozeman, Montana (Joanna

Johnson, Harris, Johnson & Stonecipher assisted on the briefs), for PlaintiffAppellant Mesa Oil, Inc.

Scott R. Hoyt, Gibson, Dunn & Crutcher, Dallas, Texas (Peter C. D’Apice and

Thomas D. Boyle, Gibson, Dunn & Crutcher assisted on the briefs), for

Defendant-Appellee Insurance Company of North America.

Laura A. Foggan, Wiley, Rein & Fielding, Washington, D.C. (Daniel E. Troy and

Cherie L. Macauley, Wiley, Rein & Fielding assisted on the brief) for Amicus

Curiae Insurance Environmental Litigation Association. 
1The party defendant-appellee is Century Indemnity Company, as successor

to CCI Insurance Company, as successor to Insurance Company of North

America. For the purposes of this opinion, we refer to defendant-appellee as

“INA,” as that is what both parties have done both in their briefs and at oral

argument.

- 2 -

Before EBEL, HOLLOWAY, and MURPHY, Circuit Judges.

EBEL, Circuit Judge.

This is a diversity case involving a dispute over insurance coverage. Mesa

Oil, Inc. (“Mesa”), a New Mexico oil recycler, purchased Comprehensive General

Liability (“CGL”) policies from Insurance Company of North America (“INA”)1

for two one-year terms during the early 1980's. The policies contained general

pollution exclusions as well as specific endorsements excluding from coverage

liability resulting from the discharge of oil into bodies of water.

While it was insured by INA, Mesa sold used oil to Ekotek, a Utah oil

recycler. Ekotek’s facility in Utah was subsequently declared a Superfund site,

and Mesa was identified by the EPA as a Potentially Responsible Party (“PRP”). 

Mesa entered a $193,000 settlement with the EPA as a de minimis responsible

party, and later was sued by other PRP’s for a greater contribution to the cleanup

costs. Mesa then filed this action against INA seeking coverage for the $193,000

EPA settlement and a defense to the PRP suit. Upon INA’s motion for summary
2We previously recounted the history of soil and groundwater

contamination at the Ekotek site in Quaker State Minit-Lube, Inc. v. Fireman’s

Fund Ins. Co., 52 F.3d 1522, 1524-25 (10th Cir. 1995). In that opinion we

detailed how from 1967 through 1985 Ekotek employees engaged in “numerous

(continued...)

- 3 -

judgment, the district court granted the motion on the basis of the pollution

exclusion. 

Mesa now appeals, claiming that the pollution exclusion was inapplicable

on the facts of this case and that in any event INA had a duty to defend regardless

whether it would in the end be required to indemnify Mesa for any liability

incurred. Because we believe that, under New Mexico law, the pollution

exclusion excludes coverage in this situation, we affirm.

BACKGROUND

Between November 29, 1982 and March 1, 1984, Mesa Oil, Inc. (“Mesa”),

an oil recycler based in Albuquerque, New Mexico, sold twelve shipments of

lubricant feedstock processed from used oil to Ekotek, Inc., a Utah-based oil

recycler. None of these shipments were transported by Mesa or its agents. The

average volume of each shipment was 6,773 gallons. It was Mesa’s

understanding that, upon receiving the oil, Ekotek would refine it and resell it as

automotive lubricants. 

Ekotek mishandled oil at its Utah facility for many years, and this led to

high levels of soil and groundwater contamination.2 Eventually, the Ekotek
2

(...continued)

incidents, accidents, and practices at the Ekotek Site which resulted in discharges

of used oil and other contaminants.” Id. at 1524. On appeal, Mesa does not

challenge the description in Quaker State of the pollution events that occurred at

Ekotek. However, it does argue that under New Mexico law the pollution must be

evaluated from its perspective, and not from Ekotek’s perspective.

3The statute imposes liability on “any person who by contract, agreement,

or otherwise arranged for disposal or treatment, or arranged with a transporter for

transport for disposal or treatment, of hazardous substances owned or possessed

by such person, by any other party or entity, at any facility or incineration vessel

owned or operated by another party or entity and containing such hazardous

substances.” 42 U.S.C. § 9607a(3).

- 4 -

facility was declared a Superfund site (“the Ekotek site”) pursuant to the

Comprehensive Environmental Response Compensation and Liability Act of 1980

(“CERCLA”), 42 U.S.C. § 9601-57. Under CERCLA, Potentially Responsible

Parties (“PRPs”) are jointly and severally liable for cleanup and response costs.3

Mesa was identified by the EPA as one of the PRPs for the Ekotek site.

On May 20, 1994, the EPA offered Mesa what it characterized as a de

minimis settlement to resolve Mesa’s liability for oil contributed to the Ekotek

site. According to a letter from the EPA describing the settlement, the offer was

intended to permit Mesa to “resolve [its] liability through payment of a portion of

the cleanup costs, in proportion to the waste [it] contributed.” The terms of the

settlement provided that EPA would release all claims against Mesa for the

Ekotek site in exchange for $193,000. Mesa accepted the settlement on October

21, 1994.
- 5 -

On May 24, 1994, Mesa was named as a defendant in a lawsuit brought by a

group of other PRPs known as the Ekotek Site PRP Committee. That suit sought

a contribution from Mesa toward the costs of investigation and cleanup at the

Ekotek site. According to the complaint, the plaintiffs had by the time the suit

was filed already incurred $12,500,000 in cleanup costs.

After the PRP Committee suit was brought, Mesa notified INA that it was

seeking a defense and indemnification for both the EPA and PRP Committee

claims. Between October 12, 1982 and October 12, 1984, a time period which

coincided with the twelve Ekotek shipments, INA carried Mesa’s General

Comprehensive Liability (“CGL”) insurance, which was purchased as two

separate one-year policies and generally provided coverage for property damage

or bodily injuries at Mesa’s facilities or caused by Mesa’s products, subject to

certain exceptions.

Three clauses contained in both policies are relevant to this dispute. First,

each policy contained a clause setting out INA’s scope of coverage:

The Company will pay on behalf of the Insured all sums which the

Insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence and the

Company shall have the right and duty to defend any suit against the

Insured seeking damages on account of such bodily injury or property

damage, even if any of the allegations of the suit are groundless,

false or fraudulent, and may make such investigation and settlement

of any claim or suit as it deems expedient, but the Company shall not
- 6 -

be obligated to pay any claim or judgment or to defend any suit after

the applicable limit of the Company’s liability has been exhausted by

payment of judgments or settlements.

(Aplt. App. at 51).

Second, each policy contained a standard clause known as a “pollution

exclusion clause,” which read as follows:

This insurance does not apply: . . . (f) to bodily injury or property

damage arising out of the discharge, dispersal, release or escape of

smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or

gases, waste materials or other irritants, contaminants or pollutants

into or upon the land, the atmosphere or any water course or body of

water; but this exclusion does not apply if such discharge, dispersal,

release or escape is sudden and accidental.

(Aplt. App. at 51).

Third, each policy contained a supplementary oil exclusion, which reads as

follows:

It is agreed that, if with respect to operations described in this

endorsement there is a discharge, dispersal, release or escape of oil

or other petroleum substance or derivative (including any oil refuse

or oil mixed with wastes) into or upon any watercourse, body of

water, bog, marsh, swamp or wetland, the insurance does not apply to

bodily injury or property damage arising out of such discharge,

dispersal, release or escape whether or not sudden and accidental.

(Aplt. App. at 59).

INA denied Mesa’s request for coverage, claiming that under the pollution

exclusion and the supplementary exclusion it was not obligated either to provide

coverage or to defend Mesa against the EPA and PRP Committee actions. INA
- 7 -

recited evidence that discharges at the Ekotek site were gradual and continuous

over many years, and that the pollution was the result of continuing business

practices of Ekotek and others at that site. The record does not reflect that Mesa

disputed these factual representations, although it did challenge the legal

conclusion that the pollution exclusion and the supplementary exclusion applied

to its claims. Mesa filed a complaint in New Mexico state court seeking coverage

for the EPA settlement and a defense to the PRP Committee suit. INA, along

with several other defendants who were then involved in the case, removed the

action to the United States District Court for the District of New Mexico on the

basis of diversity. The defendants then filed a motion pursuant to 28 U.S.C. §

1404(a) to transfer the case to the District of Utah, which the New Mexico

District Court granted.

INA then filed a motion for summary judgment, claiming that the pollution

exclusion and supplementary exclusion precluded coverage for liability arising

out of the Ekotek cleanup because the soil and groundwater contamination caused

by Ekotek was not “sudden and accidental” within the meaning of those

provisions, but rather was long-term, gradual and caused by the reckless and

intentional activities of Ekotek.

The district court granted INA’s motion for summary judgment in a

decision rendered from the bench without a written opinion. The court found that
4

INA is supported on appeal by amicus curiae Insurance Environmental

Litigation Association, a trade association formed to present the position of the

insurance industry in cases involving disputes over pollution-related insurance

coverage.

- 8 -

while no New Mexico court had interpreted the pollution exclusion, the pollution

clause was unambiguous and applicable to the facts of this case. The court

concluded that “a reasonable insured would not believe that it would be covered

in a situation such as the one at hand.” The court also concluded that INA had no

duty to defend against the PRP Committee suit. The court did not address either

the applicability of the supplementary exclusion or Mesa’s contention that the oil

it sold should not be considered “pollution” within the meaning of the general

exclusion. Mesa now appeals. We have jurisdiction under 28 U.S.C. § 1291.4

DISCUSSION

Standard of Review

We review the grant or denial of summary judgment de novo, applying the

standard applied by the district court pursuant to Fed. R. Civ. P. 56(c). Kaul v.

Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996). Under that standard, summary

judgment is appropriate if the pleadings, depositions, answers to interrogatories

and admissions on file, together with the affidavits, if any, show that there is no

genuine issue of material fact and that the moving party is entitled to judgment as

a matter of law. If the movant bears the burden of showing the absence of a
- 9 -

genuine issue of material fact, the non-movant may not rest on its pleadings but

must set forth specific facts showing a genuine issue for trial as to those

dispositive matters for which it carries the burden of proof. Id.

I.

Was the Ekotek Liability Covered by Mesa’s CGL Policy?

Mesa argues that the district court erred in granting summary judgment

because: (1) the used oil it sold was not “pollution” within the meaning of the

general pollution exclusion, and thus that exclusion does not apply in this

situation; (2) from its perspective, the contamination at the Ekotek site was

“sudden and accidental,” and thus exempt even if the exclusion were applicable to

the oil it sold; and (3) the specific oil exclusion prevails over the general

pollution exclusion, and provides coverage in this situation. In addition, Mesa

argues that the district court erred in failing to find relevant provisions of the

insurance policies ambiguous; in failing to consider representations by INA to the

New Mexico Superintendent of Insurance concerning the scope of coverage; in

failing to give adequate consideration to Mesa’s reasonable expectations; and in

failing to apply New Mexico’s rules of interpreting insurance policies.
5The parties both agree that New Mexico law applies to the interpretation

of these insurance policies.

6We have also interpreted the pollution exclusion in several other cases. 

See Hartford Accident & Indem. Co. v. U.S. Fidelity & Guar. Co., 962 F.2d 1484

(10th Cir. 1992) (Utah law); Anaconda Minerals Co. v. Stoller Chem. Co., 990

F.2d 1175 (10th Cir. 1993) (Utah law); United States Fidelity & Guar. Co. v.

Morrison Grain Co., 999 F.2d 489 (10th Cir. 1993) (Kansas law); MacklanburgDuncan Co. v. Actual Cas. & Sur. Co., 71 F.3d 1526 (10th Cir. 1995) (Oklahoma

law); Federated Mut. Ins. Co. v. Botkin Grain Co., 64 F.3d 537 (10th Cir. 1995)

(Kansas law). In each of those cases we concluded that, under the applicable

state law, the pollution exclusion clause was unambiguous and that the phrase

“sudden and accidental” included a temporal requirement that the pollution occur

(continued...)

- 10 -

Although there are no New Mexico cases5

 interpreting the pollution

exclusion, we note at the outset that there is a Tenth Circuit case on point

applying Utah law. See Quaker State Minit-Lube, Inc. v. Fireman’s Fund Ins.

Co., 52 F.3d 1522 (10th Cir. 1995). Quaker State also involved a distributor of

used oil which was identified as a PRP for the Ekotek site and sought insurance

coverage for CERCLA response costs in the face of an insurance policy that

included the identical general pollution exclusion. Id. at 1524. We concluded

that the oil sold by Quaker State was pollution; that the “sudden and accidental”

exemption did not apply because the soil and groundwater contamination caused

by Ekotek was long-term, gradual and caused by the reckless and intentional

activities of Ekotek; and that whether the pollution was “sudden and accidental”

should be viewed from the perspective of Ekotek and not from that of the

distributor who sold the oil to Ekotek. Id. at 1530-31.6
6

(...continued)

quickly and abruptly.

- 11 -

Mesa seeks to distinguish Quaker State, claiming that because New Mexico

courts interpret insurance policies more liberally in favor of the insured than do

Utah courts, a New Mexico court would be more likely than would a Utah court

both to view the oil sold by Mesa as something other than pollution, and to

interpret the “sudden and accidental” exemption broadly to provide coverage in

this situation. 

A.

The Scope of the Pollution Exclusion

Mesa argues that New Mexico courts would not apply the pollution

exclusion to liability arising from its selling of oil because oil is its primary

product. Under New Mexico law, “[a] policy exclusion is repugnant to an

insuring clause ‘when, rather than creating a specific exception to a broad grant

of coverage, an exclusionary clause simply nullifies the grant.’” Western

Heritage Ins. Co. v. Chava Trucking, Inc., 991 F.2d 656 (10th Cir. 1993) (quoting

Federal Ins. Co. v. Century Fed. Sav. & Loan Ass’n., 824 P.2d 302, 309 (N.M.

1992)). Mesa contends that because oil was its primary product, liability arising

from its selling of oil cannot be considered pollution under the pollution
- 12 -

exclusion. Otherwise, Mesa argues, the exclusion would eviscerate Mesa’s

coverage under the CGL as a whole. We disagree.

Mesa compares its situation to the facts of Ivy Nelson Grain Co. v.

Commercial Union Ins. Co., 453 P.2d 587 (N.M. 1969). In that case, the insuring

clause, inserted by typewriter, stated that the policy covered the “grain warehouse

building and machinery, located at 115 1/3 North Front Street, Clayton, New

Mexico.” Id., at 588. However, the policy also had a “finely printed” and

“obscure” endorsement which stated that the machinery was covered “only while

contained in or attached to [the] building . . . .” Id. The insured suffered the loss

of a movable grain loader which was often used inside the warehouse, but which

was destroyed one night while it was parked outside. The New Mexico Supreme

Court said that the insurance policy was ambiguous because of the conflict

between the insuring clause and the exclusion. Id., at 589. To resolve the

conflict, it applied the rules of construction that typed material prevails over

printed material in a conflict and that ambiguities are construed against the

insurer. Id.

Similarly, in Western Heritage, we interpreted a policy which had an

automobile exclusion but also had a late-added endorsement that specifically

added “truckmen” to the coverage of the policy. 991 F.2d at 654. We held that

the terms of a later-added endorsement prevail over the terms in the policy itself
- 13 -

if the two are inconsistent. Id. at 654-55. We also held that the automobile

exclusion would render the added coverage for truckmen a nullity. Id. Thus, we

concluded that the automobile exclusion could not limit the coverage granted in

the endorsement to truckmen. Id.

However, Ivy Nelson Grain and Western Heritage are not dispositive in this

case because there is no “irreconcilable conflict” between the CGL policy as a

whole and the pollution exclusion. Further, the interpretive guides offered in Ivy

Nelson Grain and Western Heritage of preferring typed material over obscure

printed material, preferring endorsements over the body of the contract, and

reading exclusions so they do not render coverage a nullity have no controlling

applicability here. The pollution exclusion contained in the INA policy does not

eliminate all coverage arising out of Mesa’s selling of oil, but only coverage for

pollution that is not “sudden and accidental.” Thus, for example, if either

personal injury or property damage resulted from an exploding oil truck or a

sudden and accidental oil spill on the ground, Mesa would clearly be covered. 

Similarly, the policy continues to provide Mesa with general liability coverage for

most of the other kinds of liability that might arise in connection with its oil

business, excluding certain categories of pollution liability. Clearly, the main

thrust of the coverage was not rendered a nullity by the pollution exclusion

provisions. Thus, Mesa is simply incorrect in asserting that the pollution
- 14 -

exclusion would eviscerate its coverage if it were to exclude its liability resulting

from the pollution at the Ekotek site. In fact, Mesa’s proposed interpretation

would deprive the pollution exclusion of much of its meaning, since Mesa argues

that exclusion should not apply to liability arising out of any oil-caused pollution,

which is precisely the sort of pollution an oil reseller such as Mesa is most likely

to experience. There is no basis in the language to give it the narrow reading that

Mesa is advocating.

Mesa also argues that oil should not be considered pollution at all. Mesa’s

argument is without merit. The oil at the Ekotek site, which caused sufficiently

severe soil and groundwater contamination that the facility was declared a

Superfund site, was clearly both a “pollutant” and a “contaminant” within the

meaning of the pollution exclusion. See Quaker State, 52 F.3d at 1524. The mere

fact that oil is Mesa’s primary product, and activities related to oil sales are the

activities which Mesa sought to have covered by the CGL, does not mean that the

oil sold by Mesa could not also become a pollutant for the purposes of the

pollution exclusion once it was mishandled by Ekotek.

Thus, the pollution exclusion is applicable to Mesa’s liability arising out of

the soil and groundwater contamination of the Ekotek site. Applying the

exclusion in this situation is not “repugnant” to the policy as a whole, because
- 15 -

Mesa retains coverage in a range of situations. Further, the used oil dumped into

the ground at the Ekotek facility is clearly a pollutant.

B.

The “Sudden and Accidental” Exemption

Mesa next argues that the pollution exclusion does not operate to bar

coverage in this situation. Under an exemption from the pollution exclusion,

pollution which is “sudden and accidental” is covered by the policy. Mesa argues

that “sudden and accidental” should be viewed from the standpoint of the insured

rather than that of the polluter, and that the phrase means only “unexpected and

unintended.” INA counters that interpreting “sudden and accidental” to mean

“unexpected and unintended” only reflects the meaning of the word “accidental”

and it would ignore the word “sudden.” To give the term “sudden” some meaning,

INA contends, it must be read to imply a temporal requirement, such that only

pollution which occurs “quickly” and “abruptly” would be covered by the

exemption.

New Mexico has not addressed the issue, and courts from other

jurisdictions are divided on the proper interpretation of the pollution exclusion. 

A number of courts have focused on the plain meaning of the word “sudden” in

concluding that the term includes a temporal component, and thus that the

exemption only applies to pollution that occurs quickly during an abrupt accident. 
- 16 -

See, e.g., Quaker State, 52 F.3d at 1527-28; Sharon Steel Corp. v. Aetna Cas. &

Sur. Co., 931 P.2d 127, 134-36 (Utah 1997); Northville Indus. v. National Union

Fire Ins. Co., 679 N.E.2d 1044, 1047-49 (N.Y. 1997); North Pacific Ins. Co. v.

Mai, 939 P.2d 570, 572 (Idaho 1997); E.I. du Pont de Nemours & Co. v. Allstate

Ins. Co., 693 A.2d 1059, 1061 (Del. 1997); Dimmitt Chevrolet, Inc. v.

Southeastern Fidelity Ins. Corp., 636 So. 2d 700, 706 (Fla. 1993); Lumbermans

Mut. Cas. Co. v. Belleville Indus., 555 N.E.2d 568, 572 (Mass. 1990); Upjohn Co.

v. New Hampshire Ins. Co., 476 N.W.2d 392, 397 (Mich. 1991); Cincinnati Ins.

Co. v. Flanders Elec. Motor Serv., 40 F.3d 146, 153-54 (7th Cir. 1994); Aeroquip

Corp. v. Aetna Cas. & Sur. Co., 26 F.3d 893, 895 (9th Cir. 1994) (per curiam).

On the other hand, several state supreme courts, and a smaller number of

federal courts, have read the exemption more broadly. See, e.g., Morton Int’l,

Inc. v. General Accident Ins. Co., 629 A.2d 831, 870-76 (N.J. 1993); Queen City

Farms v. Central Nat’l Ins. Co., 882 P.2d 703, 723 (Wash. 1994); Just v. Land

Reclamation, Ltd., 456 N.W.2d 570 (Wis. 1990); Hecla Mining Co. v. New

Hampshire Ins. Co., 811 P.2d 1083, 1091 (Colo. 1991); Clausen v. Aetna Cas. &

Sur. Co., 380 S.E.2d 686, 688 (Ga. 1989). These courts conclude that the term

“sudden” can also be read to mean “unexpected,” and thus they apply the

exemption to pollution that is long-term and gradual, so long as it is unexpected
- 17 -

and accidental from the viewpoint of the insured. See North Pac. Ins. Co. v. Mai,

1995 WL 854735, at *9, (Idaho Dist. 1995), aff’d, 939 P.2d 570 (Idaho 1997). 

Notwithstanding this split in authority, in Quaker State we recognized that

the trend in this area is to read “sudden and accidental” as requiring that pollution

must occur quickly and abruptly to be covered by the exemption. 52 F.3d at

1525-30. Focusing on the plain language of the pollution exclusion, we

concluded that the word “sudden” would be superfluous if it did not impose a

temporal requirement on the exemption. Additionally, we concluded that the

plain language of the pollution exclusion precludes reading the exclusion from the

standpoint of the insured:

[T]he district court did not err when it viewed the discharges from

the viewpoint of the actual polluter, i.e., Ekotek, as opposed to the

viewpoint of Plaintiff to determine if the discharges were “sudden

and accidental.” The pollution exclusion clause does not require that

the insured make the “discharge, dispersal, release or escape” of

contaminants. Rather the plain language of the clause excludes

coverage for “bodily injury or property damage arising out of the

discharge” regardless of whether the insured actively caused or

intended the discharge. Thus, what the insured intends or foresees is

of no consequence.

52 F.3d at 1530-31 (quotation omitted).

New Mexico, we believe, would conclude that the pollution at issue here

does not fall within the “sudden and accidental” exemption. First, a New Mexico

court would likely honor the plain meaning of the word “sudden” and conclude

that the term encompasses a temporal component, and thus that pollution must
- 18 -

occur quickly or abruptly before the exemption will apply. When an insurance

policy is unambiguous, New Mexico courts “will not strain the words to

encompass meanings they do not clearly express.” Gonzales v. Allstate Ins. Co.,

921 P.2d 944, 947-48 (N.M. 1996). The word “sudden” clearly expresses a

meaning of quickness or abruptness, particularly in light of the fact that it would

be entirely redundant when paired with the word “accidental” if it merely meant

“unexpected.”

Mesa does not argue on appeal that the pollution was “sudden and

accidental” if viewed from the perspective of the polluter, Ekotek. However,

Mesa argues that the pollution could be considered “sudden and accidental” if

viewed from its (Mesa’s) perspective. Mesa notes that its Ekotek liability arose

out of twelve discrete transactions over a two year period. Mesa argues that it

had no reason to believe that Ekotek would pollute its facility with the oil it

received, and that it had no notice that it would be liable for that pollution until it

received its notification of PRP status from the EPA.

However, as we noted in Quaker State, the plain language of the pollution

exclusion is inconsistent with reading the exclusion from the standpoint of the

insured. Quaker State, 52 F.3d at 1530-31 (concluding that the district court

correctly viewed the damages from the viewpoint of the actual polluter, i.e.,

Ekotek, as opposed to the viewpoint of the distributer who sold the oil to Ekotek
- 19 -

and observing that “what the insured intends or foresees is of no consequence”). 

Moreover, as the First Circuit has noted, the CGL explicitly states that the

definition of “occurrence” means “an accident . . . neither expected nor intended

from the standpoint of the insured.” A. Johnson & Co. v. Aetna Cas. & Sur. Co.,

933 F.2d 66, 72 n. 9 (1st Cir. 1991) (emphasis added). Thus, when the policy was

intended to evaluate facts from the perspective of the insured, it said so explicitly. 

There is no similar language in the “sudden and accidental” clause of the

pollution exclusion.

Further, New Mexico law suggests that a New Mexico court would reject

Mesa’s argument that the pollution exclusion should be read from the standpoint

of the insured. The New Mexico Supreme Court has flatly stated that it will

enforce the plain language of insurance contracts. See Gonzales, 921 P.2d at 947-

48. Mesa relies on a doctrine under which New Mexico courts enforce the

“reasonable expectations of the insured” to resolve ambiguities in insurance

contracts. Barth v. Coleman, 878 P.2d 319, 323 (N.M. 1994). However, the

insured’s expectations only come into play to resolve ambiguities once the court

determines, based on the contract language together with any extrinsic evidence

offered by the parties, that the contract is ambiguous. See Jaramillo v.

Providence Wash. Ins. Co., 871 P.2d 1343, 1346-47 (N.M. 1994); see also C.R.

Anthony Co. v. Loretto Mall Partners, 817 P.2d 238, 243 (N.M. 1991) (holding
- 20 -

that whether there is an ambiguity in a contract is a question of law for the court). 

In this case, the plain language of the pollution exclusion precludes coverage, and

the district court determined that the extrinsic evidence offered by Mesa did not

create an ambiguity. Thus, there was no need to resolve an ambiguity in favor of

the insured. Here, if Mesa did harbor expectations that it was insured for the

ongoing oil spillage at Ekotek’s facility in Utah, such an expectation would not

have been a reasonable one. 

New Mexico courts generally allow a party to introduce extrinsic evidence

of a contract’s meaning to determine whether an ambiguity exists and how that

ambiguity should be resolved, Barth v. Coleman, 878 P.2d 319, 323 (N.M. 1994);

C.R. Anthony, 817 P.2d at 242-43. However, Mesa has not pointed to any

extrinsic evidence that is sufficient to overcome the plain meaning interpretation

of the pollution exclusion. 

Mesa relies on the following statements by INA executives to state

insurance regulators: “coverage would continue in cases where the pollutant or

contaminant releases are the result of a sudden happening which the insured did

not expect or intend,” (Aplt. App. at 115); and “[w]e believe that we should not
7

INA contends that the statements are unauthenticated and inadmissible

hearsay. Since we do not find the statements to be relevant, we do not need to

address either challenge.

8Mesa has also included in the record letters to the Iowa and Maryland

insurance departments. However, as Mesa does not provide any evidence that

these letters are relevant to the pollution exclusion as applied under New Mexico

law, or even any evidence that the letters referred to the same policy language as

is at issue here. Thus, those letters similarly are not shown to be relevant to the

issue upon which summary judgment was granted.

- 21 -

afford coverage when conditions that are known to the insured as causes of

pollution are permitted to continue,” (Id.).7

Neither of these statements renders the pollution exclusion ambiguous. The

second statement merely refers to one situation where the pollution exclusion

would deny coverage, that in which the insured knows about a long-term pollution

problem. Thus, that statement says nothing about the situation at issue here,

where a long-term pollution problem not known to the insured is permitted to

continue. Similarly, the first statement does not contradict the plain meaning of

the pollution exclusion. This statement only indicates that coverage would

continue for “sudden happening[s]” which the insured did not expect or intend. 

However, as we have previously indicated, the pollution involved here could not

be regarded as “sudden.” Thus, the extrinsic evidence offered by Mesa does not

contradict the plain language of the pollution exclusion.8

Accordingly, we conclude that, under New Mexico law, Mesa’s liability at

the Ekotek site is excluded from coverage under the pollution exclusion.
- 22 -

C.

The Supplementary Exclusion

For the first time on appeal, Mesa argues that the specific oil exclusion

prevails over the more general pollution exclusion. The oil exclusion provides:

It is agreed that, if with respect to operations described in this

endorsement there is a discharge, dispersal, release or escape of oil

or other petroleum substance or derivative (including any oil refuse

or oil mixed with wastes) into or upon any watercourse, body of

water, bog, marsh, swamp or wetland, the insurance does not apply to

bodily injury or property damage arising out of such discharge,

dispersal, release or escape whether or not sudden and accidental.

(Aplt. App. at 59) (emphasis added). Because the supplementary exclusion only

deals with the discharge of oil into various bodies of water, Mesa argues that by

negative implication the discharge of oil into soil or groundwater is covered under

the CGL policy.

In the district court, Mesa argued that the supplementary exclusion was not

a part of the insurance policy. (Aplt. App. at 11-12) As a general rule, we do not

consider issues on appeal that were not raised below. In re Walker, 959 F.2d 894,

896 (10th Cir. 1992). Accordingly, Mesa has waived its opportunity to rely on the

interpretation of the oil exclusion that it now advances.
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II.

The Duty to Defend

Regardless of whether the pollution exclusion bars coverage for the Ekotek

liability, Mesa argues that the insurance policy imposed on INA a duty to defend

that is broader than the duty to indemnify. The duty to defend clause provides

that INA has “the right and duty to defend any suit against the insured” seeking to

recover damages on account of property damage. (Aplt. App. at 51)

Under New Mexico law, the duty to defend is independent from the duty to

indemnify, and requires the insurer to provide coverage “‘when the complaint

filed by the claimant alleges facts potentially within the coverage of the policy.’” 

Western Heritage, 991 F.2d at 656 (quoting Foundation Reserve Ins. Co. v.

Mullenix, 642 P.2d 604, 605-06 (N.M. 1982)). Because we do not believe Mesa’s

claim was “potentially within the scope of its insurance coverage, we conclude

that INA did not breach its duty to defend in refusing to provide Mesa a defense

to the Ekotek lawsuits.”

We have concluded that a New Mexico court would honor the “plain

meaning” of the pollution exclusion and find that the CGL policy does not

provide coverage in this situation. Other courts that have reached this conclusion

have also concluded that the insurer did not breach its duty to defend. See, e.g.,

Quaker State, 868 F. Supp. at 1332-33 (holding that once coverage was barred by
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pollution exclusion, duty to defend could not be invoked). Moreover, under New

Mexico law, no duty to defend arises when the claim “clearly falls” outside the

coverage provided by the policy. Bernalillo County Deputy Sheriffs Ass’n v.

County of Bernalillo, 845 P.2d 789, 791 (N.M. 1992). Because we have

concluded that the “plain meaning” of the insurance contract does not provide

coverage in this situation, we also believe that Mesa’s claim “clearly falls”

outside the coverage provided by the policy. Thus, INA had no duty to defend

Mesa’s claims.

INA also argues that the duty to defend does not apply here because the

EPA settlement is not a “suit,” and CERCLA response costs are not “damages,”

within the meaning of that provision. Because we conclude that the Ekotek

liability was covered by the pollution exclusion, and that no duty to defend on the

part of INA arose in this situation, we need not address these issues. 

CONCLUSION

For the foregoing reasons, we AFFIRM the judgment of the district court.