Court Opinion

ID: 14872
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:39:42+00
Date Added: 2024-06-11T09:01:53.139552
License: Public Domain

REVISED, June 24, 1998

              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT

                      _____________________

                           No. 97-20730
                      _____________________

     GUARANTY NATIONAL INSURANCE COMPANY
     and LANDMARK AMERICAN INSURANCE COMPANY,

                                   Plaintiffs-Counter
                                   Defendants-Appellees,

                             versus

     VIC MANUFACTURING COMPANY,

                                   Defendant-Counter
                                   Claimant-Appellant.

     _______________________________________________________

         Appeal from the United States District Court for
                  the Southern District of Texas
     _______________________________________________________
                           June 5, 1998

Before REAVLEY, DeMOSS and PARKER, Circuit Judges.

REAVLEY, Circuit Judge:

     Guaranty National Insurance Company sued Vic Manufacturing

Company, seeking a declaratory judgment that it did not have a

duty to defend Vic under its product liability insurance policy.

The district court granted summary judgment in favor of Guaranty.

We affirm.

                           Background

     Vic manufactures dry cleaning equipment that uses

perchlorethylene (perc), a toxic chemical classified as a
“hazardous waste” by the Environmental Protection Agency.1

Pilgrim Enterprises, Inc., purchased the equipment from Vic for

use in its dry-cleaning business.      The equipment contaminated

Pilgrim’s property as well as adjoining properties.      Pilgrim sued

Vic, together with other manufacturers of dry cleaning equipment

and suppliers of perc, seeking to recover substantial cleanup

costs.   Harold and Georgina Agim, who live next door to a Pilgrim

facility, sought to intervene to recover for pollution on their

property.

     Guaranty issued several general liability and umbrella

policies to Vic that cover the relevant period.      The policies at

issue contain a “sudden and accidental” pollution exclusion which

states that the policy does not provide coverage for:

            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 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. (emphasis added)

The district court found that the Pilgrim suit did not allege

damages within the “sudden and accidental” exception to the

pollution exclusion, and, thus, that Guaranty had no duty to

defend Vic in the underlying suit.

     1
      40 C.F.R. § 261.32 (1997).

                                   2
                             Discussion

     We review a district court’s grant of summary judgment de

novo.2    Summary judgment is proper when “the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law.”3

     We review a district court’s determination of state law de

novo.4    The parties agree that Texas law governs this diversity

suit.    Texas law provides that insurance coverage is determined

under the “Eight Corners” or “Complaint Allegation” test.    The

court compares the four corners of the insurance policy with the

four corners of the plaintiff’s pleading to determine whether any

claim alleged by the pleading is potentially within the policy

coverage.5    The duty to defend is determined “without reference

to the truth or falsity of such allegations.”6

     The insured bears the initial burden of showing that there

is coverage, while the insurer bears the burden of proving the

     2
      New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336,
338 (5th Cir. 1996).
     3
        Fed. R. Civ. P. 56(c).
     4
        Salve Regina College v. Russell, 499 U.S. 225, 239 (1991).
     5
      See National Union Fire Ins. Co. v. Merchants Fast Motor
Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).
     6
      Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387
S.W.2d 22, 24 (Tex. 1965).

                                  3
applicability of any exclusions in the policy.7     Once the insurer

has proven that an exclusion applies, the burden shifts back to

the insured to show that the claim falls within an exception to

the exclusion.8     The perc contamination is clearly within the

pollution exclusion, so Vic has the burden to show, at this stage

to plead satisfactorily, that the pollution was “sudden and

accidental.”     Even so, all doubt is resolved in the insured’s

favor.9

     The Texas Supreme Court has not addressed the “sudden and

accidental” pollution exclusion clause.10    This court, reviewing

Texas appellate court decisions and Texas contractual

interpretation rules, has held that the clause contains a

temporal element in addition to the requirement of being

unforseen or unexpected.11

     The court held that the “sudden and accidental” requirement

unambiguously excluded coverage for all “pollution that is not

released quickly as well as unexpectedly and unintentionally.”12

     7
      Telepak v. United Servs. Auto. Ass’n, 887 S.W.2d 506, 507
(Tex. Civ. App.--San Antonio 1994, writ denied).
     8
      Id.
     9
      Heyden, 387 S.W.2d at 26.
     10
      Mustang Tractor & Equip. v. Liberty Mut. Ins. Co., 76 F.3d
89, 91 (5th Cir. 1996).
     11
          Id.
     12
          Id. at 93 (citations omitted).

                                   4
     The general rule is that the insurer’s duty to defend is

determined solely from the allegations in the petition.13     A

total of four petitions have been filed in the underlying case:

Pilgrim’s Original petition, First Amended Petition, Second

Amended Petition, and Agim’s Plea in Intervention.     An amended

pleading completely supersedes prior pleadings, such that the

duty to defend rests on the most recent pleading.14

     In the Seconded Amended Petition, Pilgrim brings claims for

negligence, gross negligence, strict products liability,

negligent misrepresentation, breach of warranties, and violations

of the Texas Deceptive Trade Practices Act.      The petition lists

37 dry-cleaning sites polluted with perc.     The petition alleges

that Vic and the other manufacturers “were aware of the use of

PERC in the dry cleaning process and in this equipment and

materials, but despite such knowledge, designed the equipment in

a manner that was inherently defective and which would result in

spills and/or discharges of PERC during Plaintiff’s operations.”

Additionally, Pilgrim alleges that Vic instructed Pilgrim to

drain perc into the sewage system knowing that perc would sink to

the bottom and remain a potentially hazardous material.     The Plea

in Intervention that the Agim family filed alleges that Vic was

“aware of the use of PERC in the dry cleaning process, but

despite such knowledge, designed the equipment in a manner that

     13
          Heyden, 387 S.W.2d 22.
     14
          Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir.
1983).

                                   5
was inherently defective and which would result in spills and/or

sudden and accidental discharges of PERC during Pilgrim’s

operations.”   Although the petitions append the words “sudden and

accidental,” they describe gradual pollution in the regular

course of the dry-cleaning business.15

     The court may look at evidence outside the pleadings under

certain circumstances.   A Texas court of appeals summarized the

rule on extrinsic evidence as follows:

          Where the insurance company refuses to defend
          its insured on the ground that the insured is
          not liable to the claimant, the allegations
          in the claimant’s petition control, and facts
          extrinsic to those alleged in the petition
          may not be used to controvert those
          allegations. But, where the basis for the
          refusal to defend is that the events giving
          rise to the suit are outside the coverage of
          the insurance policy, facts extrinsic to the
          claimant’s petition may be used to determine
          whether a duty to defend exists.16

This court held in Western Heritage Ins. Co. v. River

Entertainment that the court may look to evidence outside the

pleadings and policy “when the petition does not contain

     15
      The first two petitions are relevant in that Guaranty’s
duty to defend prior to the filing of the Second Amended Petition
is based on the earlier petitions.    However, those petitions do
not even try to obscure the gradual by amending with “sudden and
accidental” as in the later pleading.
     16
      Gonzales v. American States Ins. Co. of Tex., 628 S.W.2d
184, 187 (Tex. Civ. App.--Corpus Christi 1982, no writ) (emphasis
in original).

                                 6
sufficient facts to enable the court to determine if coverage

exists.”17.61 F.3d 389 (5th Cir. 1995).18

     To the extent that the Pilgrim pleadings are incomplete, the

extrinsic evidence shows that there is no duty to defend in this

case.     The interrogatories demonstrate that the perc pollution

was not the result of “sudden and accidental” events.     Pilgrim’s

answers list seventy-seven spills at nineteen of the facilities,

occurring over a period of approximately forty years.     Several of

the listed spills actually are multiple spills, so that the perc

pollution is the result of over a hundred separate events.

Listed events include multiple still boilovers, small spills of

perc upon removal and changing of filter cartridges, spills from

failed filter gaskets, and spills while cleaning the machines.

The amounts range from small spills of undetermined amounts to

one spill of almost sixty gallons.

     17
      998 F.2d 311, 313 (5th Cir. 1993) (citing State Farm Fire
& Cas. Co. v. Wade, 827 S.W.2d 448, 452-53 (Tex. Civ. App. --
Corpus Christi 1992, writ denied); see also John Deere Ins. Co.
v. Truckin’ U.S.A., 122 F.3d 270, 272 (5th Cir. 1997) (“If the
underlying complaint, however, does not allege facts, if taken as
true, sufficient to state a cause of action under the policy,
evidence adduced in a declaratory judgment action may also be
considered.” Vic tries to limit Western Heritage by pointing to
Lafarge Corp. v. Hartford Cas. Ins. Co.,

 61 F.3d 389 (5th Cir. 1995), which held that the exception set
out in Western Heritage is not a broad one. In that case,
however, the underlying petition clearly alleged damages which
were covered under the insurance policy. The question was
whether those damages occurred within the applicable coverage
period. Because the petition alleged damages from a continuous
event, the factual allegations were sufficient to trigger
coverage under the insurance policy in effect prior to the actual
date when the damages were discovered.

                                   7
     A single covered claim will suffice to require the insurer

to defend the entire case.19     In this case, the factual

allegations do not create a single covered cause of action.     Vic

cannot create a duty to defend by microanalyzing the case and

finding a single spill that may have been “sudden and

accidental.”     The pollution exclusion clause prevents coverage

“where the insured has engaged in the deliberate discharge of

contaminants in the routine course of business over many years.

The fact that the insured may have also experienced isolated

spills or minor accidents over the same period of time is

irrelevant.”20

     The Texas Supreme Court recently confirmed that “a court

must focus on the factual allegations rather than the legal

theories asserted in reviewing the underlying petition.”21    In

this case, regardless of the catch phrases used in the petition,

pollution is not “sudden and accidental” when it consists of

repeated, regular discharges over numerous years in the usual

course of business operation.

     A case out of the Seventh Circuit, Cincinnati Insurance

Company v. Flanders Electric Motor Service, Inc.,22 provides a

     19
          Rhodes, 719 F.2d at 119.
     20
      Snydergeneral Corp. v. Great American Ins. Co., 928 F.
Supp. 674, 680 (N.D. Tex. 1996) (citations omitted).
     21
      Farmers Tex. County Mut. Ins. Co. v. Griffin, 955 S.W.2d
81,82 (Tex. 1997)(citing National Union Fire Ins. Co., 939 S.W.2d
at 141.
     22
          40 F.3d 146 (7th Cir. 1994).

                                     8
similar scenario.       The insured company, Flanders, sent electric

transformers over a twenty year period to a service shop for

repairs.     Flanders was later held liable for part of the cost to

cleanup leaks of polychlorinated biphenyls (PCBs) from

transformers at the repair site.         The court held that the

insurer did not have a duty to defend or indemnify Flanders.

“Because these releases of PCBs were commonplace events which

occurred in the course of MEW’s regular business, they cannot be

considered sudden and accidental.        The fact that one or more of

these spills or leaks may have occurred suddenly and accidentally

does not alter our conclusion.”23        Several other circuits have

also held that numerous pollution discharges over the years are

not within the “sudden and accidental” exception to the coverage

exclusion.24.67 Cal. Rptr. 113 (Cal. Ct. App. 1997).25

     23
          Id. at 154.
     24
      See Quaker State Minit-Lube, Inc. v. Fireman’s Fund Ins.
Co., 52 F.3d 1522 (10th Cir. 1995) (Utah law); Smith v. Hughes
Aircraft Co., 22 F.3d 1432 (9th Cir. 1993) (California law);
Lumbermens Mut. Cas. Co. v. Belleville Indus., Inc., 938 F.2d
1423 (1st Cir. 1991); A. Johnson & Co., Inc. v. Aetna Cas. & Sur.
Co., Inc., 933 F.2d 66 (1st Cir. 1991) (Maine law); United States
Fidelity & Guar. Co. v. Star Fire Coals, Inc., 856 F.2d 31 (6th
Cir. 1988) (Kentucky law); Great Lakes Container Corp. v.
National Union Fire Ins. Co., 727 F.2d 30 (1st Cir. 1984) (New
Hampshire law); Cessna Aircraft Co. v. Hartford Accident & Indem.
Co., 900 F. Supp. 1489 (D. Kan. 1995). A California court has
reached an opposing result. In A-H Plating, Inc. v. American
Nat’l Fire Ins. Co.,

 67 Cal. Rptr. 2d 113 (Cal. Ct. App. 1997), a California appellate
court found that there was a duty to defend under very similar
circumstances. However, the case is distinguishable on the
grounds that the court placed the burden on the insurer to prove
that the “sudden and accidental” exception to the pollution
exclusion did not apply. Id. at 116, 118. Texas law places the
burden on the insurer to show that an exclusion applies, but once

                                     9
     The trial court dismissed the issue of Guaranty’s duty to

indemnify Vic.     Guaranty argues that the issue should be decided

at this time, based on the Texas Supreme Court’s recent decision

in Farmers Texas Mutual Insurance Company v. Griffin,26 in which

the Texas Supreme court held that the duty to indemnify is

justiciable in a liability lawsuit when the insurer has no duty

to defend.     However, Guaranty stipulated in the trial court that

the issue of a duty to indemnify should not be decided at that

point.     It was not decided by the district court and was not

brought forward in the appeal.     Therefore we do not reach the

issue of Guaranty’s duty to indemnify.

AFFIRMED.

it has done so, the insured bears the burden to show that an
exception to that exclusion applies. See
Snydergeneral, 928 F. Supp. at 680 n.5. Moreover, the court noted
that the evidence indicated only four or five spills, not of such
frequency that they could be considered expected. A-H Plating,
67 Cal. Rptr. 2d at 118-19.
     26
          955 S.W.2d 81 (Tex. 1997).

                                   10