UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

_________________________________ 

MJH PROPERTIES LLC, 

 Plaintiff - Appellant, 

v. 

WESTCHESTER SURPLUS LINES 

INSURANCE COMPANY, 

 Defendant - Appellee. 

No. 20-6002 

(D.C. No. 5:19-CV-00577-HE) 

(W.D. Okla.) 

_________________________________ 

ORDER AND JUDGMENT*

_________________________________ 

Before MATHESON, KELLY, and EID, Circuit Judges. 

_________________________________ 

MJH Properties, LLC (“MJH”) sued its insurer, Westchester Surplus Lines 

Insurance Company (“Westchester”) in federal court, invoking diversity jurisdiction 

under 28 U.S.C. § 1332. It sought damages for Westchester’s refusal to defend MJH 

in an underlying lawsuit brought in state court. In the underlying lawsuit, two 

* After examining the briefs and appellate record, this panel has determined 

unanimously that oral argument would not materially assist in the determination of 

this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore 

ordered submitted without oral argument. This order and judgment is not binding 

precedent, except under the doctrines of law of the case, res judicata, and collateral 

estoppel. It may be cited, however, for its persuasive value consistent with 

Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

FILED 

United States Court of Appeals 

Tenth Circuit 

June 10, 2020

Christopher M. Wolpert 

Clerk of Court
2 

individuals sued MJH for spraying pesticides that allegedly caused them substantial 

bodily injury. 

The district court granted Westchester’s motion to dismiss MJH’s breach of 

contract and bad faith claims. It determined that the incident in the underlying 

lawsuit fell under an express coverage exclusion in the policy, and Westchester 

therefore did not breach any duty to defend or act in good faith. MJH appealed. 

Exercising jurisdiction under 28 U.S.C. § 1291, we affirm. 

I. BACKGROUND 

A. Underlying Lawsuit 

The plaintiffs in the underlying lawsuit—also described as third-party 

claimants—alleged that on June 21, 2017, an MJH employee sprayed their work 

premises with pest control pesticides that released toxic chemicals and caused them 

substantial bodily injury. They contended that test samples of MJH’s spray showed it 

contained Essentria IC3, piperonyl butoxide, and permethrins. They sued MJH for 

various claims, including negligence and vicarious liability. 

B. Insurance Policy 

At the time of the underlying incident, MJH was covered by a general 

commercial liability policy from Westchester (the “Policy”). The Policy obligated 

Westchester to defend MJH against suits seeking damages due to “bodily injury” or 

“property damage,” but disclaimed a duty to defend against suits “to which this 

insurance does not apply.” App., Vol. I at 240. The Policy expressly excluded from 
3 

coverage “‘[b]odily injury’ or ‘property damage’ which would not have occurred in 

whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, 

migration, release or escape of ‘pollutants’ at any time” (the “Total Pollution 

Exclusion”). Id. at 262. The Policy also expressly defined “pollutants.”1

C. Instant Action 

MJH asked Westchester to defend it against the underlying lawsuit. 

Westchester refused, explaining in its insurance appraiser’s letter that the Total 

Pollution Exclusion precluded coverage because the plaintiffs alleged that 

“pollutants” caused their injuries. 

MJH sued Westchester, seeking damages for Westchester’s refusal to defend 

under the Policy and alleging that Westchester had (1) breached the Policy by 

refusing to defend MJH in the underlying lawsuit and (2) acted in bad faith.2

 MJH 

also alleged that its employee did not use “pollutants,” as defined in the Policy, 

because the pest control pesticides contained only Essentria, which consists of “40% 

1

 The Policy defined “pollutants” as including “any solid, liquid, gaseous or 

thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, 

chemicals and waste. Waste includes materials to be recycled, reconditioned or 

reclaimed.” App., Vol. I at 254. 

2

 MJH also sued Chubb North American Claims (“CNAC”) in its original 

complaint but not in its amended complaint. MJH requested CNAC’s dismissal in 

the joint status report, Dist. Ct. Doc. 20 at 2, and the district court dismissed CNAC, 

App., Vol. II at 15 n.1. MJH has not appealed CNAC’s dismissal. 
4 

mineral oil, 37% wintergreen oil, 10% rosemary oil and 13% other ingredients.” Id. 

at 185. 

Westchester moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) 

for failure to state a claim. It again argued that because MJH used pesticides that 

were “pollutants,” the Total Pollution Exclusion applied. Id. at 195 (“[T]here was 

and is no coverage, no breach of the policy and no basis for a claim for bad faith.”). 

The district court granted the motion. First, it held that MJH failed to state a 

breach of contract claim because the petition in the underlying lawsuit showed that 

the Total Pollution Exclusion applied and Westchester thus had no duty to defend. 

Second, the court held that because Oklahoma law required “an insured [to] show 

that he is entitled to coverage to prevail on a bad-faith claim,” MJH had “failed to 

state a bad-faith claim.” App., Vol. II at 19 (quotations omitted). 

MJH timely appealed. 

II. DISCUSSION 

A. Standard of Review 

“We review a district court’s dismissal under Federal Rule of Civil Procedure 

12(b)(6) de novo.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012). 

“[T]o withstand a Rule 12(b)(6) motion to dismiss, a complaint must contain enough 

allegations of facts, taken as true, ‘to state a claim to relief that is plausible on its 

face.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 
5 

B. Pertinent Oklahoma Law 

In this diversity suit brought in the U.S. District Court for the Western District 

of Oklahoma, the substantive law of the forum state of Oklahoma applies. Edens v. 

The Netherlands Ins. Co., 834 F.3d 1116, 1120 (10th Cir. 2016). 

Contract Law 

“Oklahoma contract law applies to this diversity action.” Automax Hyundai S., 

LLC v. Zurich Am. Ins. Co., 720 F.3d 798, 804 (10th Cir. 2013). Under Oklahoma 

law, an insurance policy is a contract and interpreted accordingly. First Bank of 

Turley v. Fid. & Deposit Ins. Co. of Md., 928 P.2d 298, 302 (Okla. 1996).3

 In the 

absence of ambiguous language, Oklahoma courts enforce an insurance contract’s 

express terms and take the language’s plain and ordinary meaning. Pitco Prod. Co. 

v. Chaparral Energy, Inc., 63 P.3d 541, 546 (Okla. 2003). “The test for ambiguity is 

whether the language is susceptible to two interpretations on its face from the 

standpoint of a reasonably prudent lay person, not from that of a lawyer.” Am. Econ. 

Ins. Co. v. Bogdahn, 89 P.3d 1051, 1054 (Okla. 2004) (quotations and alterations 

omitted). 

3

 Under Oklahoma law, “[t]he general declaration of insurance coverage, as 

established by the insurance policy and limited by its provisions, normally 

determines the insurance carrier’s liability.” Dodson v. St. Paul Ins. Co, 812 P.2d 

372, 377 (Okla. 1991). Exclusions are read serially, and each one “eliminates 

coverage and operates independently against the general declaration of insurance 

coverage and all prior exclusions.” Id. 
6 

A liability insurance policy generally contains the insurer’s two basic 

contractual duties to the insured: the duty to defend and the duty to indemnify. First 

Bank of Turley, 928 P.2d at 302-03. The insurer’s duty to defend is “broader than[] 

the duty to indemnify” and applies “whenever [the insurer] ascertains the presence of 

facts that give rise to the potential of liability under the policy.” Id. at 303 (emphasis 

omitted). This determination must be “measured by the facts that were known and 

knowable—by what the insurer knows or by what the insurer was capable of 

discovering itself—at the time the insured’s request was tendered.” Id. at 305 

(emphasis omitted); see Automax Hyundai, 720 F.3d at 804 (explaining that under 

Oklahoma law, “[t]he duty to defend is triggered by the facts reasonably available at 

the time the defense is demanded”).

Duty to Defend 

Under Oklahoma law, “[t]he insurer’s defense duty is determined on the basis 

of information gleaned from the [underlying suit’s] petition (and other pleadings), 

from the insured and from other sources available to the insurer at the time the 

defense is demanded.” First Bank of Turley, 928 P.2d at 303 (emphasis omitted). 

Although the insured bears the initial burden to request a defense, once the request is 

made, the insurer bears the burden to investigate the underlying facts and determine 

whether they trigger coverage. Id. at 304.4

 In determining whether an insured has 

4

 “[W]hen presented with a claim by its insured, an insurer must conduct an 

investigation reasonably appropriate under the circumstances . . . .” Newport v. 
7 

stated a plausible claim for breach of a duty to defend, the court may consider, in 

addition to the breach complaint, the petition in the underlying action. See Smith v. 

United States, 561 F.3d 1090, 1098 (10th Cir. 2009).5

 

In Bituminous Cas. Corp. v. Cowen Constr., Inc., 55 P.3d 1030, 1035 (Okla. 

2002), the Oklahoma Supreme Court upheld as “clear and unambiguous” a total 

pollution exclusion provision nearly identical to the one here.6

 Because the provision 

was not limited to environmental pollutants, the Bituminous court determined it 

USAA, 11 P.3d 190, 195 (Okla. 2000) (quotations omitted). “Under Oklahoma law, 

an insurer’s investigation need only be reasonable, not perfect.” Shotts v. GEICO 

Gen. Ins. Co., 943 F.3d 1304, 1317 (10th Cir. 2019) (quotations and alterations 

omitted). 

5

 To survive a motion to dismiss, the insured party must state a plausible claim 

showing the insurer’s duty to defend. In evaluating a Rule 12(b)(6) motion to 

dismiss, we may consider the petition in the underlying case. See Smith, 561 F.3d at 

1098 (“In evaluating a Rule 12(b)(6) motion to dismiss, courts may consider not only 

the complaint itself, but also attached exhibits, and documents incorporated into the 

complaint by reference[,] . . . [and] documents referred to in the complaint if the 

documents are central to the plaintiff’s claim and the parties do not dispute the 

documents’ authenticity.” (quotations and citations omitted)). MJH’s amended 

complaint references the underlying petition, which, under First Bank of Turley, is 

central to whether Westchester had a duty to defend. 928 P.2d at 303. 

6

 In Bituminous, the total pollution exclusion provision exempted from 

coverage third-party actions for “[b]odily injury or property damage arising out of the 

actual, alleged or threatened discharge, dispersal, release or escape of pollutants.” 

55 P.3d at 1031 n.1. It defined “pollutants” as “any solid, liquid, gaseous or thermal 

irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals 

and waste.” Id. 
8 

excluded the third-party claimant’s lead poisoning claims against the insured from 

coverage. Id.7

 

Good Faith 

Under Oklahoma law, “[a]n insurer has an implied-in-law duty to act in good 

faith and deal fairly with the insured to ensure that the policy benefits are received.” 

Badillo v. Mid Century Ins. Co., 121 P.3d 1080, 1093 (Okla. 2005) (quotations 

omitted). A plaintiff seeking damages for the insurer’s alleged bad faith conduct 

must prove insurance coverage for its claim. See id. at 1093-94 (finding district court 

did not erroneously dismiss plaintiff’s bad faith claim where plaintiff failed to show 

entitlement to insurance coverage); Edens, 834 F.3d at 1129 (“Under Oklahoma law, 

an insured must show that he is entitled to coverage to prevail on a bad-faith claim.”). 

C. Analysis 

Based on our review of relevant Oklahoma law, the terms of the Policy and 

Total Pollution Exclusion, and the petition in the underlying state court action, we 

affirm the district court’s determination that MJH has failed to state a breach of 

contract or bad faith claim. 

7

 Since the 1970s, courts have addressed “the extent to which pollution 

exclusions apply to preclude coverage in commercial general liability (CGL) 

policies.” Headwaters Res., Inc. v. Illinois Union Ins. Co., 770 F.3d 885, 889 (10th 

Cir. 2014). Courts either (1) “apply the pollution exclusions as written because they 

find them clear and unmistakable” or (2) “narrow the exclusions to traditional 

environmental pollution.” Id. (quotations omitted). Oklahoma falls into the first 

camp. See Bituminous, 55 P.3d at 1035.
9 

First, the district court correctly dismissed the breach of contract claim 

because MJH failed to show that Westchester had a duty to defend under the Policy. 

The underlying lawsuit’s petition alleged that MJH used Essentria IC3, piperonyl 

butoxide, and permethrins. See App., Vol. I at 283. MJH does not dispute on appeal 

that piperonyl butoxide and permethrins are “pollutants” as defined in the Policy. 

Aplt. Br. at 1, 8-9; see Aplt. Reply Br. at 1-2. Although the Oklahoma Supreme 

Court did not address these specific substances in Bituminous, it interpreted a nearly 

identical total pollution exclusion provision broadly to include non-environmental 

pollutants. 55 P.3d at 1035. As in Bituminous, we find no ambiguity here and 

conclude the district court did not err in determining that at least one of the 

underlying petition’s three alleged substances is a “pollutant” within the defined 

term’s plain and ordinary meaning. See Pitco Prod. Co., 63 P.3d at 546.8

On appeal, MJH argues that its amended complaint (1) alleged that its 

employee used only Essentria IC3, which contains non-pollutant substances; (2) 

conflicts with the underlying petition; and (3) states a plausible claim. See Aplt. Br. 

at 1, 8-9. But under Oklahoma law, the underlying petition’s alleged facts place the 

spraying incident squarely in the Policy’s Total Pollution Exclusion provision. MJH 

has not alleged that “facts that were known and knowable” by Westchester gave rise 

8

 The plain language of the Total Pollution Exclusion encompasses any 

“actual, alleged, or threatened . . . ‘pollutants.’” App., Vol. I at 262 (emphasis 

added). 
10 

to potential liability under the Policy. See First Bank of Turley, 928 P.2d at 303, 

305.9

Second, the district court correctly dismissed MJH’s bad faith claim. MJH has 

failed to show coverage under the Policy, which is necessary to prevail on a bad faith 

claim. See Badillo, 121 P.3d at 1093-94. On appeal, MJH argues that Westchester 

acted in bad faith by failing to defend, reasonably investigate, or properly consider 

the test results. See Aplt. Br. at 10-11. These arguments are unresponsive to the 

district court’s proper determination that MJH’s bad faith claim fails together with its 

breach of contract claim. 

 

9

 The underlying petition stated that although the MJH employee “initially

advised the Oklahoma Highway Patrol that he only used a spray known as Essentria 

IC3 in his spray canister to spray the Leased Premises,” the Highway Patrol’s test 

results “indicated that in addition to the Essentria IC3, the spray contained two 

additional toxic chemicals: piperonyl butoxide (PBO) and permethrins.” App., Vol. 

I at 283 (emphasis added). 

When Westchester denied coverage and a duty to defend, its appraiser’s letter 

to MJH explained that it analyzed the Policy, the Total Pollution Exclusion, and the 

underlying petition. Id. at 292-93. The record does not show that MJH responded to 

the appraiser by identifying facts that Westchester knew or should have known 

concerning its duty to defend. In its federal lawsuit, MJH’s sole support for its 

allegation that its employee used only Essentria was a one-page attachment from the 

Highway Patrol’s report listing Essentria’s ingredients. See Dist. Ct. Doc. 9-1 at 1. 

As the underlying petition alleged, this same report disclosed the test results showing 

that the spray included toxic chemicals. See App., Vol. I at 283. 
11 

III. CONCLUSION 

We affirm the district court’s grant of Westchester’s motion to dismiss. 

Entered for the Court 

Scott M. Matheson, Jr. 

Circuit Judge