Court Opinion

ID: 7492
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:28:46+00
Date Added: 2024-06-11T16:46:17.424869
License: Public Domain

United States Court of Appeals,

                           Fifth Circuit.

                            No. 94-20574.

   The CONSTITUTION STATE INSURANCE COMPANY, Plaintiff-Counter-
Defendant-Appellee,

                                  v.

 ISO-TEX INC., Iso-Tex Diagnostics, Inc., Bio-Tex Laboratories,
Inc., Defendants-Counter-Plaintiffs-Appellants.

                           Aug. 21, 1995.

Appeal from the United States District Court for the Southern
District of Texas.

Before JONES and PARKER, Circuit Judges, and KAZEN*, District
Judge.

      EDITH H. JONES, Circuit Judge:

      In this insurance coverage dispute, the district court granted

summary judgment for Constitution State Insurance Co., denying

coverage to the insureds, Iso-Tex, Inc., Iso-Tex Diagnostics, Inc.,

and   Bio-Tex   Laboratories,   Inc.   (hereinafter,   "Iso-Tex")   for

liability to individuals injured by nuclear waste stored at Iso-

Tex's facilities.    With the case submitted in part on an Agreed

Stipulation of Facts, the district court relied upon an absolute

pollution exclusion in the policy.       Iso-Tex appeals, suggesting

that the pollution exclusion does not apply to nuclear risks, or is

ambiguous and should be interpreted in its favor.      We do not agree

and therefore affirm.

                        I. Factual Background

      The insureds are in the business of handling, transporting,

      *
      District Judge of the Southern District of Texas, sitting
by designation.
storing, and disposing of radioactive medical waste.                         Iso-Tex

disposes of   the    radioactive       medical     waste    by    storage    on   its

premises in Friendswood, Texas.             Iso-Tex held three commercial

general liability policies from Constitution State.                   The parties

agree that two of those policies do not apply, and coverage is

sought only under Policy No. CP 119455 ("the policy").

      Iso-Tex was sued in a Texas state district court by plaintiffs

alleging wrongful death, personal injuries and "survivor" claims

"resulting from Iso-Tex's alleged deposit of "enormous quantities

of hazardous radioactive materials ... in close proximity to the

plaintiff's [sic] residences without the knowledge or warning to

the plaintiffs.' "     Stipulated Facts, ¶ 3.              Judgment was entered

against Iso-Tex for $7,000,000. Constitution State denied coverage

for the claims in that lawsuit, spawning this case.

      The policy contained a "Nuclear Energy Liability Exclusion

Endorsement (Broad Form)" and an "Absolute Pollution Exclusion."

While the district court ruled that the "Nuclear Energy Liability

Exclusion Endorsement" did not exclude coverage for the claim in

the   underlying    lawsuit,    she    also    decided     that    the   "Absolute

Pollution Exclusion" did bar coverage, and granted the insurer's

motion for summary judgment.

                               II. Discussion

       The interpretation of an insurance contract, including the

question   whether     the     contract       is   ambiguous,       is   a    legal

determination,     which,    like     the   court's   summary       judgment,     is

reviewed de novo on appeal.         National Union Fire Ins. Co. v. Kasler

Corp., 906 F.2d 196, 198 (5th Cir.1990).                   In Texas, insurance
contracts are interpreted by the same rules as are other contracts.

Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994).          If

an insurance policy is worded so that it can be given only one

reasonable construction, it will be enforced as written.              State

Farm Fire & Cas. Co. v. Reed, 873 S.W.2d 698, 699 (Tex.1993).         Only

where a contract of insurance is susceptible to more than one

reasonable   interpretation   must   there   be   resort   to   the   rule

requiring adoption of the interpretation most favorable to the

insured.   Id.

     The "Absolute Pollution Exclusion"1 contained in the policy

reads as follows:

                 EXCLUSION—ALL POLLUTION (ABSOLUTE)2

     This insurance does not apply to:

     (1) "Bodily injury" or "property damage" arising out of the
     permanent or transient contamination of the environment by
     pollutants.

     (2) Any loss, cost, or expense arising out of any governmental
     direction or request that you test for, monitor, clean up,
     remove, contain, treat, detoxify or neutralize pollutants.

     1
      The District Court's wording of the provision in its Order
of March 3, 1994 was incorrect, but not materially so.

          Iso-Tex argues that the "Absolute Pollution Exclusion"
     was not contained in the "Stipulated Facts" and was
     therefore improperly considered by the district court.
     However, the exclusion appeared in the policy, which was an
     exhibit to the stipulated facts. No more was necessary to
     put the policy into the record. The district court
     specifically found that the insurer had appropriately
     preserved this argument by raising it in its original
     complaint.

     District Court's Order of November 16, 1993, p. 1-2.
     2
      The insurer added the following words in bold, capital
letters at the top of the page: "THIS ENDORSEMENT CHANGES THE
POLICY. READ IT CAREFULLY."
      Pollutants means any solid, liquid, gaseous, or thermal
      irritant or contaminant, including smoke, vapor, soot, fumes,
      acids, alkalis, chemical and waste. Waste includes materials
      to be recycled, reconditioned or reclaimed.

       Iso-Tex argues that the policy exclusion does not cover

biomedical nuclear waste as a matter of law, or alternatively that

the clause is ambiguous.          Iso-Tex first avers that "nuclear waste

as   handled   by     Iso-Tex   has     not    been       shown   to    be     pollution."

However, the definition of pollution in the above clause includes

"any ... contaminant, including ... waste."                        The parties have

stipulated     that     Iso-Tex    is    "in        the    business       of     handling,

transporting, storing, and disposing of medical waste."

       Iso-Tex next contends that if its biomedical nuclear waste

were considered "pollution," then there would have been no need for

the separate "Nuclear Energy Liability Exclusion Endorsement (Broad

Form)" found in the policy in question.                     This argument holds no

water; the nuclear exclusion only applies to "nuclear material" at

a "nuclear facility" or to injuries for which the insured is also

insured by "a nuclear energy liability policy issued by the Nuclear

Energy Liability Insurance Association."                    Stipulated Facts, ¶ 9.

This exclusion does not apply to Iso-Tex, whose activities, as

found by the district court, do not involve "nuclear material" of

that type, and whose operations do not fall within the definition

of a "nuclear facility."              Further, Iso-Tex's nuclear liability

carrier   denied       coverage       under     a     separate         nuclear     policy.

Accordingly, it is perfectly logical that Constitution State would

include both a nuclear liability exclusion for certain nuclear

operations that might be covered by separate insurance, and an

"Absolute Pollution Exclusion."               The two clauses exclude separate,
but potentially overlapping types of conduct.                The existence of a

nuclear exclusion does not prove that Iso-Tex's nuclear waste is

not pollution.

         Iso-Tex    further   observes     that    its   prior   policies      from

Constitution State contained "Absolute Nuclear Exclusion" clauses

applying to any "injury or damage to or arising out of any nuclear

device, radioactive material, isotope, ... or any other chemical

element having an atomic number above 83 or any other material

having    similar    properties     of    radioactivity."         Because      this

provision, which, Iso-Tex contends, would have excluded liability

for the underlying claims, was dropped from the subject policy, "it

would seen [sic] plausible that both parties understood the risk to

be insured to be the nuclear risk and that the "Absolute Pollution'

Exclusion would not apply to that risk."             Iso-Tex seeks, in other

words, to    manufacture      an   ambiguity      from   a   comparison   of    the

previous and present policies.           Iso-Tex supported this argument in

the district court with reference to industry custom and the

clauses' regulatory history before the Texas Insurance Board.

     The problem with this argument is that it has been squarely

rejected by the Texas Supreme Court in interpreting a policy

containing a similar "absolute pollution exclusion":

          If a written contract is so worded that it can be given
     a definite or certain legal meaning, then it is not ambiguous.
     Parol evidence is not admissible for the purpose of creating
     an ambiguity.

          If, however, the contract is reasonably susceptible to
     more than one meaning, it is ambiguous. Whether a contract is
     ambiguous is a question of law for the court. Only where a
     contract is first determined to be ambiguous may the courts
     consider the parties' interpretations, and admit extraneous
     evidence to determine the true meaning of the instrument.
          When the language of the policy or contract is
     susceptible to more than one reasonable construction, it is
     patently ambiguous. A patent ambiguity is evident on the face
     of the contract. A latent ambiguity arises when a contract
     which is unambiguous on its face is applied to the subject
     matter with which it deals and an ambiguity appears by reason
     of some collateral matter. The circumstances surrounding and
     underlying the contract are first applied to the subject
     matter of the agreement. If a latent ambiguity arises from
     this application, parol evidence of the parties' true
     intentions is admissible....

          The ambiguity must become evident when the contract is
     applied to the surrounding circumstances, not after parol
     evidence is admitted to create an ambiguity.

National Union Fire Ins. Co. v. CBI Indus., Inc., --- S.W.2d ----,

----, 38 Tex.Sup.Ct.J. 332, 1995 WL 92215, *2 (Tex. March 2, 1995)

(citations and footnotes omitted, emphasis added).     In National

Union, the Texas Supreme Court reversed an intermediate court

decision that had remanded for further discovery to examine a

potential latent ambiguity in certain absolute pollution exclusion

clauses. The intermediate court based its opinion on precisely the

same "industry custom" and regulatory history discussion offered by

Iso-Tex in this case.   Construing exclusions substantially similar

to that in the policy sub judice3, the Texas Supreme Court held:

     Courts usually strive for uniformity in construing insurance
     provisions, especially where, as here, the contract provisions
     are identical across jurisdictions. Most courts which have
     examined the same or substantially similar absolute pollution

     3
      The National Union policy before the State Supreme Court
stated:

          This policy does not apply to ... any Personal [*3]
          Injury or Property Damage arising out of the actual or
          threatened discharge, dispersal, release or escape of
          pollutants, anywhere in the world; ... "Pollutants"
          means any solid, liquid, gaseous or thermal irritant or
          contaminant, including smoke, vapor, soot, fumes,
          acids, alkalis, chemicals and waste material. Waste
          materials include materials which are intended to be or
          have been recycled, reconditioned or reclaimed.
     exclusions have concluded that they are clear and unambiguous.
     "This pollution exclusion is just what it purports to
     be—absolute ... Alcolac[, Inc. v. California Union Ins. Co.],
     716 F.Supp. 1546, 1549 (D.Md.1989). We agree. The language
     in this pollution exclusion is clear and susceptible of only
     one possible interpretation in this case.

Id. at *3, at ---- (emphasis added).        Iso-Tex relied heavily on the

reasoning of the intermediate court in its briefs to this court;

the reversal of that court's decision is fatal here.

     Certainly, there is no "patent ambiguity" as that term is

defined by National Union, supra.         See also, Tri County Svc. Co. v.

Nationwide Mut. Ins. Co., 873 S.W.2d 719, 721 (Tex.App.—San Antonio

1993, writ denied) ("On the basis of the plain language of the

exclusion in question, virtually all courts in other jurisdictions

which   have     considered   such   an   exclusion      have   found    that    it

precludes all coverage of any liability arising out of the release

of pollutants." (emphasis in original)). Iso-Tex argues, however,

that the pollution exclusion is patently ambiguous when the "waste"

in question is nuclear waste, in part because nuclear operations

are covered by a separate exclusion in this and other similar

policies.        Iso-Tex   cites   no   authority    or    rationale     for    the

distinction.       Given the strict rules of construction against a

drafter,    an    insurance   provider    would     be    motivated     to   draft

overlapping and redundant clauses which exclude coverage for the

same conduct.      The existence of various "nuclear exclusions" in a

policy does not make them less comprehensive nor require that the

words "pollution" or "waste" be given other than their ordinary

meanings.

     Iso-Tex makes a related argument that ambiguity exists in the

meaning of the word "waste" in the policy.               Specifically, Iso-Tex
contends that "[a] reasonable interpretation of waste would be that

it   is   material   that   is   to    be    "recycled,   reconditioned,         or

reclaimed' and a pollutant including any solid, liquid, gaseous or

thermal irritant or contaminant, such as "smoke, vapor, soot,

fumes, acids, alkalis, chemicals' and not nuclear." This contrived

attempt at a definition of waste is based on Iso-Tex's earlier

argument that the existence of other exclusions dealing with

nuclear   material   necessitates       the    interpretation       of    the   term

"pollutants" to exclude all things nuclear.               The cases cited by

Iso-Tex are inapposite.       The court in In Re Hub Recycling, Inc.,

106 B.R. 372, 374 (D.N.J.1989) found coverage for a claim of

trespass from dumping of construction debris because for waste to

be pollutant, it must be an irritant or contaminant. Similarly, in

West Bend Mutual Ins. Co. v. Iowa Iron Works, Inc., 503 N.W.2d 596,

600 (Iowa 1993), the court found coverage for a claim arising out

of the dumping of clean sand.         The Iowa Supreme Court found "waste"

had a narrower meaning in the "Absolute Pollution Exclusion" than

it did in Iowa's anti-dumping statute, and thus a claim arising

from improper disposal of waste (under Iowa law) was covered where

the dumped waste was not an "irritant or contaminant."                   In Minerva

Enterp. Inc. v. Bituminous Cas. Corp., 312 Ark. 128, 851 S.W.2d

403, 406 (1993), the Arkansas Supreme Court found coverage for a

claim of damage to a mobile home flooded as a result of negligent

maintenance of a septic system because the exclusion did not apply

to   "common   household    waste"     but    instead   only   to    "industrial

pollutants."    None of these holdings benefits Iso-Tex, because its

radioactive waste was clearly a contaminant and Iso-Tex cannot deny
that it is an "industrial polluter."

         Neither do we find this to be a case of "latent ambiguity" in

the application of the policy to the surrounding circumstances. As

in National Union, the stipulated surrounding circumstances appear

to be fully developed and unproblematic.        The underlying claim for

bodily injury arose out of Iso-Tex's alleged contamination of

residences with "waste."

         Iso-Tex has failed to produce any evidence of a patent or

latent ambiguity. In light of the Texas Supreme Court's holding in

National    Union,   the   district   court   correctly   interpreted   the

"Absolute Pollution Exclusion" and found that Constitution State

owes no coverage or indemnity for the claims for bodily injury

arising out of contamination by nuclear waste.4

     Additionally, Iso-Tex claims summary judgment was improper

because Constitution State "misrepresented the type of policy Iso-

Tex was purchasing and should be estopped from denying coverage."

As the record does not indicate that this contention was presented

to the district court or that any evidence was adduced to support

it, the argument is deemed waived.

                             III. CONCLUSION

     4
      Iso-Tex also argued for coverage on the grounds of its
"reasonable expectations." This court needs not address Iso-
Tex's "reasonable expectations" argument in light of the absence
of ambiguity. National Union, supra. However, the argument
lacks merit as Texas law does not recognize coverage because of
"reasonable expectation" of the insured. Forbau v. Aetna Life
Ins. Co., 876 S.W.2d 132, 134 (Tex.1994) ("[N]either conflicting
expectations nor disputation is sufficient to create an
ambiguity.") (on rehearing, vacating its prior opinion). Justice
Doggett, writing in dissent, would have considered "reasonable
expectations." Id. at 140 & n. 8 (Doggett, J., dissenting and
dissenting from rehearing). This is of little help to Iso-Tex.
     Summary   declaratory   judgment   for   the   insurer   was   proper

because the policy expressly and absolutely excluded coverage for

the nuclear waste pollution which gave rise to the underlying

claim.

     For the foregoing reasons, the decision of the district court

is AFFIRMED.