Court Opinion

ID: 3040901
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:04:25.64958+00
Date Added: 2024-06-11T11:48:58.339441
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 05-3594
                                   ___________

Continental Casualty Company;        *
Transportation Insurance Company,    *
                                     *
            Appellees,               *
                                     * Appeal from the United States
       v.                            * District Court for the
                                     * District of Minnesota.
Advance Terrazzo & Tile Company,     *
Inc.; James M. Fanjoy; Nancy L.      *
Fanjoy,                              *
                                     *
            Appellants.              *
                                ___________

                             Submitted: May 19, 2006
                                Filed: August 30, 2006
                                 ___________

Before SMITH, HANSEN, and COLLOTON, Circuit Judges.
                            ___________

SMITH, Circuit Judge.

      Advance Terrazzo and Tile Company, Inc. ("Advance Terrazzo") and James
and Nancy Fanjoy ("the Fanjoys") appeal the district court's1 declaratory judgment in
favor of insurance companies Continental Casualty Company and Transportation
Insurance Company ("insurance companies"). The Fanjoys sued Advance Terrazzo

      1
      The Honorable Michael J. Davis, United States District Judge for the District
of Minnesota.
and others after James Fanjoy was allegedly exposed to an excessive amount of
carbon monoxide gas released from Advance Terrazzo's propane-powered grinders,
causing him to fall and injure his back at a construction site. The district court found
that the insurance companies had no duty to defend Advance Terrazzo in a lawsuit
brought by the Fanjoys based upon the "absolute" pollution exclusion contained in the
insurance policies. We affirm.

                                      I. Facts
       In March 1999, Advance Terrazzo, as subcontractor for Gopher State
Contractors, Inc. ("Gopher State"), installed terrazzo flooring in the hallways of a
school building for the Foley Independent School District in Foley, Minnesota.
Advance Terrazzo used its own propane-powered terrazzo floor grinders, which emit
carbon monoxide as a gaseous exhaust byproduct. James Fanjoy, an independent
contractor for a painting subcontractor, was working on drywall at the construction
site. According to Fanjoy, carbon monoxide emitted from Advance Terrazzo's
propane-powered grinders caused him to fall and sustain injuries that have left him
physically and mentally impaired.

       On January 21, 2002, Fanjoy and his wife sued Advance Terrazzo, Gopher
State, and Fanjoy's employer in state court. The complaint alleges that Advance
Terrazzo was negligent in failing to provide proper ventilation when operating its
floor grinders and failed in its duty to properly monitor the work environment for
carbon monoxide gas. Advance Terrazzo's insurance companies2 began defending
Advance Terrazzo in the state lawsuit. However, the insurance companies later filed
the instant declaratory judgment action in federal court, contending that the absolute

      2
       Transportation Insurance Company issued to Advance Terrazzo a commercial
general liability policy with limits of $1,000,000 for the period of February 28, 1999
through February 28, 2000. In addition to primary coverage, Continental Casualty
Company insured Advance Terrazzo under a commercial umbrella policy for up to
$4,000,000 for the same period.

                                          -2-
pollution exclusion3 bars coverage under the general liability policy issued to Advance
Terrazzo.

       The general liability policy provided coverage for claims based upon bodily
injury or property damage, but the policy specifically excludes coverage for bodily
injury or property damage caused by pollution in what is referred to as the absolute
pollution exclusion:

      f. Pollution

      (1) "Bodily injury" or "property damage" arising out of the actual,
      alleged or threatened discharge, dispersal, seepage, migration, release or
      escape of pollutants:

            (d) At or from any premises, site or location on which any insured
      or any contractors or subcontractors working directly or indirectly on
      any insured's behalf are performing operations:

                   (i) If the pollutants are brought on or to the premises, site or
      location in connection with such operations by such insured, contractor
      or subcontractor . . .

Pollution is defined under the policy as "any solid, liquid, gaseous or thermal irritant
or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste." Id. at 432.

      3
        "The exclusions at issue are known as 'absolute pollution exclusions' to
differentiate them from the earlier widely used pollution exclusions that limited the
definition of pollutants to those that contaminated the 'land, atmosphere, or any water
course or body of water,' and did not apply if the contamination was 'sudden and
accidental.'" Auto-Owners Ins. Co. v. Hanson, 588 N.W.2d 777, 778 n.1 (Minn. Ct.
App. 1999).

                                          -3-
       Advance Terrazzo moved to dismiss the declaratory judgment complaint or, in
the alternative, to stay the action based on the abstention doctrine, claiming that there
is no Minnesota Supreme Court decision governing this case. The district court denied
the motion, resolving the coverage issues based upon existing Minnesota case law.
The insurance companies then filed for summary judgment to determine whether the
policies at issue apply to the underlying state lawsuit. The district court granted the
insurance companies' motion for summary judgment, finding that the insurance
companies' absolute pollution exclusion barred coverage of the Fanjoys' claims against
Advance Terrazzo under Minnesota law. Advance Terrazzo and the Fanjoys appeal.

                                     II. Discussion
       Advance Terrazzo submits three arguments on appeal. First, Advance Terrazzo
requests that this court certify the legal question presented in this case to the
Minnesota Supreme Court or, in the alternative, abstain from reaching a decision.
Second, Advance Terrazzo argues that the absolute pollution exclusion contained in
the general liability insurance policy is ambiguous and should not apply to ordinary
business activities. Therefore, the policy should provide coverage to Advance
Terrazzo for the Fanjoys' claims. Third, Advance Terrazzo avers that coverage should
be found for other reasons, including (1) the "brought on"4 and "heater"5 exceptions
to the absolute pollution exclusion provision and (2) estoppel. We will address each
claim in turn.

      4
       The pollution exclusion applies "if the pollutants are brought on or to the
premises, site or location in connection with such operations by such insured,
contractor or subcontractor . . . ."
      5
       The "heater" exception to the absolute pollution exclusion provides coverage
for bodily injury if the injury is "sustained within a building and caused by smoke,
fumes, vapor or soot from equipment used to heat that building."

                                          -4-
                   A. Certification to the Minnesota Supreme Court
       Both parties agree that Minnesota law governs this declaratory judgment action.
Advance Terrazzo states that the Minnesota Supreme Court has not interpreted the
absolute pollution exclusion, and thus, this court would have to predict how the
Minnesota Supreme Court would resolve the issue. Additionally, the appellants claim
that the Minnesota Court of Appeals' decisions are inadequate and improper precedent
for interpreting the absolute pollution exclusion in the context of carbon monoxide
emitted from ordinary business activities. Therefore, Advance Terrazzo asserts that
the district court erred in denying its motion to certify and requests that this court
certify to the Minnesota Supreme Court the question of whether the absolute pollution
exclusion bars coverage for carbon monoxide emitted during ordinary business
activities.

       We hold that the district court did not abuse its discretion in denying the
appellants' motion to certify this question to the Minnesota Supreme Court. In an order
dated December 14, 2005, we addressed the certification issue stating, "Appellants'
motion to certify a question of law to the Minnesota Supreme Court has been
considered by the court and is denied." The argument has gained no additional merit
in the interim, and we again decline appellants' request to certify this question to the
Minnesota Supreme Court. The Minnesota Court of Appeals decisions are consistent
and long-standing precedent. They provide adequate guidance as to the current state
of Minnesota law.

                                       B. Abstention
       The appellants contend that the district court should not have exercised
jurisdiction during the pendency of parallel state court proceedings. Alternatively, if
this court finds that no parallel state court proceedings exist, the appellants claim that
the district court should have exercised its discretion to stay or dismiss the action
because, under the Detco factors, abstention is warranted. Scottsdale Ins. Co. v. Detco
Indus., Inc., 426 F.3d 994, 998 (8th Cir. 2005). The appellants argue, first, that state

                                           -5-
courts should clarify and settle the legal questions at issue rather than federal courts.
Second, the state has an interest in resolving the unsettled question of Minnesota law
on the absolute pollution exclusion, as well as deciding the factual question on the
source of carbon monoxide in the pending state action. Third, the federal court, by
abstaining, would allow the state court system to address the legal issues and clarify
its legal precedent. For these reasons, inter alia, the appellants maintain that the
district court abused its discretion in not staying or dismissing this action.

      "We review for abuse of discretion a decision to stay or dismiss a declaratory
judgment." Id. at 996. The court reviews de novo whether parallel proceedings were
pending in state court at the time the insurance companies brought the declaratory
judgment action. Id."Generally, a federal district court must exercise its jurisdiction
over a claim unless there are 'exceptional circumstances' for not doing so." Id.

       A threshold issue is whether parallel proceedings in state court were pending
when the appellees brought this declaratory judgment action. Id. "Suits are parallel if
substantially the same parties litigate substantially the same issues in different
forums." Id. (internal quotation omitted). In Detco, we held that there were no parallel
proceedings pending in state court because (1) the insurer was not a party to the suit
pending in state court; and (2) the state court actions involved issues regarding the
insured's liability, whereas the federal suit involved matters of insurance coverage. Id.
at 997. The same is true of this case. The underlying state court action is between
Advance Terrazzo and the Fanjoys; the insurance companies are not named parties in
that action. Moreover, the state court action deals with Advance Terrazzo's liability
for the Fanjoys' injuries, but the declaratory judgment action deals with whether or not
the insurance companies must provide coverage to Advance Terrazzo under the
policies. We conclude, therefore, that the suits are not parallel, "for the state court
proceedings involve parties, arguments, and issues different from those in the federal
court proceedings." Id.

                                          -6-
       Next, we address whether abstention by the district court would be appropriate
in a declaratory judgment action in which there are no parallel state court proceedings.
Id. We consider at least six factors in answering this question:

      (1) whether the declaratory judgment sought will serve a useful purpose
      in clarifying and settling the legal relations in issue; (2) whether the
      declaratory judgment will terminate and afford relief from the
      uncertainty, insecurity, and controversy giving rise to the federal
      proceeding; (3) the strength of the state's interest in having the issues
      raised in the federal declaratory judgment action decided in state courts;
      (4) whether the issues raised in the federal action can more efficiently be
      resolved in the court in which the state action in pending; (5) whether
      permitting the federal action to go forward would result in unnecessary
      entanglement between the federal and state court systems, because of the
      presence of overlapping issues of fact or law; and (6) whether the
      declaratory judgment action is being used merely as a device for
      procedural fencing – that is, to provide another forum in a race for res
      judicata or to achieve a federal hearing in a case otherwise not
      removable.

Id. at 998 (citing Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422 (4th
Cir. 1998)) (internal brackets and quotations omitted).

        The first and second factors do not favor abstaining from this declaratory
judgment action. The declaratory judgment sought will clarify and settle the legal
relations at issue, namely whether or not Advance Terrazzo is entitled to coverage
under the insurance policies. The declaratory judgment will also terminate and afford
relief from the "uncertainty, insecurity, and controversy" of whether or not Advance
Terrazzo is entitled to coverage under the insurance policies. Considering factor three,
we acknowledge the state's interest in interpreting the "absolute" pollution exclusion,
but considering the state's existing precedent, we do not see that interest as strong. As
to factors four and five, the state court cannot resolve the legal issue of coverage any
more efficiently than the federal court nor does federal action unnecessarily entangle

                                          -7-
the two court systems. Notably, the parties elected to stay the action in state court so
that the federal declaratory judgment action could take place. Lastly, we discern no
improper procedural maneuvering by the insurance companies. The action seeks only
a determination of whether Advance Terrazzo is entitled to coverage under the
policies' absolute pollution exclusion. In sum, we find that the district court did not
abuse its discretion in deciding not to abstain from this action.

                 C. Application of the Absolute Pollution Exclusion
       Advance Terrazzo argues that the absolute pollution exclusion is ambiguous
when applied to routine business hazards such as the release of carbon monoxide from
terrazzo grinders. Advance Terrazzo contends that the exclusion is susceptible to more
than one reasonable interpretation and notes that most other state courts addressing the
question have found that the absolute pollution exclusion is ambiguous. Additionally,
Advance Terrazzo asserts that the historical purpose of the pollution exclusion
supports limiting the clause to traditional environmental contamination. Advance
Terrazzo also believes that the insurance companies' own conduct shows that they
intended to cover Advance Terrazzo's floor-grinding business activities.

       "We review de novo a grant of summary judgment, considering the facts in the
light most favorable to the nonmoving party. Summary judgment is proper when no
genuine issues of material fact exist and the moving party is entitled to judgment as
a matter of law." Nat'l Am. Ins. Co. v. W & G, Inc., 439 F.3d 943, 945 (8th Cir. 2006)
(internal citation omitted). "In insurance coverage actions involving diversity of
citizenship, state law controls our analysis of the insurance policy." Id.

       Decisions from the state supreme court as to state law are binding on this court.
Garnac Grain Co., Inc. v. Blackley, 932 F.2d 1563, 1570 (8th Cir. 1991). "Decisions
of the various intermediate appellate courts are not, but they are persuasive authority,
and we must follow them when they are the best evidence of what [the state] law is."
Id. When a state's highest court has not decided an issue, it is up to this court to predict

                                            -8-
how the state's highest court would resolve that issue. Sloan v. Motorists Mut. Ins. Co.,
368 F.3d 853, 856 (8th Cir. 2004) (citing Jackson v. Anchor Packing Co., 994 F.2d
1295, 1301 (8th Cir. 1993)).

      Minnesota courts interpret insurance policies according to their plain meaning.
Auto-Owners Ins. Co. v. Hanson, 588 N.W.2d 777, 779 (Minn. Ct. App. 1999).
Although the Minnesota Supreme Court has not interpreted an "absolute" pollution
exclusion under an insurance policy, it has interpreted a "qualified" pollution
exclusion in Bd. of Regents of the Univ. of Minn. v. Royal Ins. Co. of Am., 517 N.W.2d
888 (Minn. 1994). In that case, the Supreme Court applied a "non-technical, plain
meaning approach to interpreting a pollution exclusion . . . ." Auto-Owners, 588
N.W.2d at 779.

       However, the Minnesota Court of Appeals has had occasion to interpret
"absolute" pollution exclusions in some policies. In those cases, the court of appeals
has consistently held that the absolute pollution exclusion is unambiguous and applies
to pollutants occurring in the normal course of business activities, including indoor
pollution. Auto-Owners, 588 N.W.2d at 777; City of Maple Lake v. Am. States Ins.
Co., 509 N.W.2d 399 (Minn. Ct. App. 1993); League of Minn. Cities Ins. Trust v. City
of Coon Rapids, 446 N.W.2d 419 (Minn. Ct. App. 1989).

       In Auto-Owners, the appellant suffered severe health problems as a result of the
ingestion and absorption of lead in paint chips at a rental property. 588 N.W.2d at 778.
The Minnesota Court of Appeals held that "[b]odily injury caused by ingestion of lead
from paint applied in a residence falls within the policies' so-called 'absolute pollution
exclusions.'" Id. at 782. The court followed the test outlined in Royal and applied a
non-technical, plain-meaning approach in interpreting the pollution exclusion.6 Id. at

      6
        The insurance policy at issue in Auto-Owners "contained an exclusion for
injuries and damage resulting from 'discharge, release, escape, seepage, migration or
dispersal of pollutants' 'at or from any premises' owned by an insured. The policy

                                           -9-
779. "Applying an ordinary meaning approach to the pollution exclusion also
coincides with Minnesota's general rule for insurance policy interpretation." Id. In
applying that approach, the court concluded that lead in paint fell within the policy's
definition of a "pollutant." Id. The court further explained that "[t]his contradicts a line
of cases in other states that find either (1) the exclusion unambiguously does not
include lead paint in a home, or (2) the language is ambiguous and therefore the
exclusion does not apply. These cases are premised on a technical rather than an
ordinary reading of the exclusion, ascribing to the reader a knowledge of 'terms of art'
in environmental law and thus are inconsistent with Royal and inapplicable to
Minnesota cases." Id.

       In City of Maple Lake, property owners sued the city in an inverse
condemnation action because its wastewater treatment plant discharged effluent into
Mud Lake, which was adjacent to their property. 509 N.W.2d at 401–02. The city
argued that its reasonable expectations should override the terms of the absolute
pollution exclusions,7 but the Minnesota Court of Appeals rejected this argument. Id.
at 406. The court stated that the insurer's absolute pollution exclusion was not
ambiguous and precluded coverage for the claims against the city because the
wastewater treatment plant effluent released into the lake was a "pollutant" under the
policy. Id. at 404–06.

defined pollutant as 'any solid, liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, gases and
waste." 588 N.W.2d at 778.
       7
        The insurance policy at issue in City of Maple Lake contained an absolute
pollution exclusion, which precluded coverage for "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 land, the atmosphere or any water course or body of water."
509 N.W.2d at 402.

                                           -10-
       Lastly, in City of Coon Rapids, a number of individuals suffered lung injuries
while inside an ice arena owned by the City of Coon Rapids, Minnesota. 446 N.W.2d
at 420. "The injuries [] occurred when levels of nitrogen dioxide, a toxic by-product
of a Zamboni ice cleaning machine, built up in the arena." Id. The Minnesota Court
of Appeals held that the absolute pollution exclusion in the insurance policy was clear
and unambiguous, and the exclusion applied because "[t]he injury arose out of,
originated from, grew out of, and flowed from the release of nitrogen dioxide into the
arena." Id. at 422. Further, the court held that "merely bringing a Zamboni machine
on the premises merits exclusion under [the policy]." Id. Both the instant case and City
of Coon Rapids have a "brought on" provision within the absolute pollution exclusion.

       Applying the Minnesota precedents to the instant case, we conclude that there
is no ambiguity in the policy language. Carbon monoxide is an "irritant" under Royal
and the subsequent court of appeals' decisions. Here, the carbon monoxide was caused
by Advance Terrazzo's grinders and "dispersed" throughout the work site. Therefore,
the absolute pollution exclusion applies to deny coverage. The policy excludes
coverage for bodily injury arising out of the dispersal, release, or escape of pollutants.
Carbon monoxide, a "pollutant," was released as a byproduct of Advance Terrazzo's
terrazzo grinders. In addition, the pollutant was "brought on" to the premises by
Advance Terrazzo when it brought its terrazzo grinders to the work site. Minnesota
considers carbon monoxide an irritant and health hazard because of its "irritant effects
on the human body." Royal, 517 N.W.2d at 892.

      Factually, this case is very similar to City of Coon Rapids. There is no
discernible distinction between the release of nitrogen dioxide by a Zamboni machine
and the release of carbon monoxide from a terrazzo grinder. The Minnesota Court of
Appeals has consistently held that the absolute pollution exclusion is unambiguous
and applies to the "dispersal" or "release" of "pollutants" that are found in the ordinary
course of business, i.e. from running an ice cleaning machine or releasing effluent
from a wastewater treatment plant. There are no facts in this case that would lead to

                                          -11-
a contrary result. In short, applying Minnesota law, we are persuaded by the consistent
holdings of the Minnesota Court of Appeals that, under Minnesota law, the absolute
pollution exclusion precludes Advance Terrazzo from coverage under the insurance
policies for the Fanjoys' claims.

        Advance Terrazzo raises three additional arguments, which we address briefly.
First, Advance Terrazzo argues that it should be entitled to coverage under the
"brought on" provision of the policy because Advance Terrazzo did not bring carbon
monoxide to the construction site. Instead, it brought on LP gas, which is not a
pollutant. This argument fails because Advance Terrazzo brought on to the premises
the terrazzo grinders and the fuel to run them. The terrazzo grinders' exhaust produced
the build-up of carbon monoxide, which later injured James Fanjoy. Because Advance
Terrazzo brought on to the premises the machine that produced the carbon monoxide,
it falls squarely into the policy language triggering the absolute pollution exclusion.
See City of Coon Rapids, 446 N.W.2d at 419.

       Second, Advance Terrazzo argues that the "heater exception" should apply,
stating that the source of the carbon monoxide could have been the general
contractor's torpedo heaters. However, Advance Terrazzo does not own or operate the
torpedo heaters in question. The pollution exclusion in paragraph (f)(1)(a)8 applies

      8
       Paragraph (f)(1)(a), as modified by the Amendment for Pollution
Exclusion—Exception for Building Heating Equipment, reads as follows:

      This insurance does not apply to:

      f. Pollution

      (1) "Bodily injury" or "property damage" arising out of the actual,
      alleged or threatened discharge, dispersal, seepage, migration, release or
      escape of pollutants:

                                          -12-
only to equipment used in a building owned or rented by Advance Terrazzo, and the
heating exception applies only to the exclusion in paragraph (f)(1)(a). The insurance
companies do not rely on (f)(1)(a)—they rely on (f)(1)(d), so the heating exception
to the exclusion in paragraph (f)(1)(a) would afford Advance Terrazzo no relief, even
if applicable.

      Finally, the appellants submit that estoppel should apply to bar the insurance
companies from denying coverage because Advance Terrazzo suffered prejudice in
relying on coverage. However, the Minnesota Supreme Court "held that estoppel
cannot be used to expand or create insurance coverage where it does not exist." Minn.
Commercial Ry. Co. v. Gen. Star Indem. Co., 408 F.3d 1061, 1063 (8th Cir. 2005)
(quoting Shannon v. Great Am. Ins. Co., 276 N.W.2d 77, 78 (Minn. 1979)). In
Shannon, the supreme court stated that "it would be wholly improper to impose
coverage liability upon an insurer for a risk not specifically undertaken and for which
no consideration has been paid." Id. (quoting Shannon, 276 N.W.2d at 78) (internal
quotations omitted). Here, Shannon precludes this court from applying estoppel to the
appellants' situation because Advance Terrazzo is not entitled to coverage under the
policy.

                                  III. Conclusion
      For the reasons stated above, the judgment of the district court is affirmed in all
respects.
                       ______________________________

             (a) At or from any premises, site or location which is or
             was at any time owned or occupied by, or rented or loaned
             to, any insured.

             However, Subparagraph (a) does not apply to "bodily
             injury" if sustained within a building and caused by smoke,
             fumes, vapor or soot from equipment used to heat that
             building.

                                          -13-