Court Opinion

ID: 4197423
Source: CourtListenerOpinion
Date Created: 2017-08-19 00:01:27.680714+00
Date Added: 2024-06-11T07:47:30.363263
License: Public Domain

Case: 15-41625      Document: 00514121738         Page: 1    Date Filed: 08/18/2017

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                            United States Court of Appeals
                                                                                     Fifth Circuit

                                                                                   FILED
                                      No. 15-41625                           August 18, 2017
                                                                              Lyle W. Cayce
LONGHORN GASKET AND SUPPLY COMPANY; ET AL,                                         Clerk

              Plaintiffs

TRINITY LLOYD’S INSURANCE COMPANY; TRINITY UNIVERSAL
INSURANCE COMPANY,

              Intervenor Plaintiffs - Appellees Cross-Appellants

v.

UNITED STATES FIRE INSURANCE COMPANY,

              Defendant - Appellant Cross-Appellee

                  Appeals from the United States District Court
                        for the Eastern District of Texas
                             USDC No. 2:07-CV-399

Before REAVLEY, ELROD, and GRAVES, Circuit Judges.
PER CURIAM:*
       This case involves two insurance companies debating coverage for
various asbestos-related claims. Because we conclude that the pollution
exclusion contained within the defendant’s excess policies applies, we VACATE

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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the district court’s judgement. We REMAND to the district court for a
determination of the applicability of the “sudden and accidental” exception to
the pollution exclusion.
                                         I.
        Longhorn Gasket and Supply Company, et al. (“LGS”) manufactured and
sold gaskets throughout the 1980s and 1990s, some of which contained
asbestos. As a result, LGS has been the defendant in numerous asbestos and
mixed dust cases in Texas regarding damage that occurred over many years—
including years in which intervenors Trinity Lloyd’s Insurance Company and
Trinity    Universal    Insurance    Company       (“Trinity”)     provided    primary
comprehensive general liability insurance policies. This case concerns LGS’s
primary and excess policy coverage, as provided by Trinity and United States
Fire Insurance Company (“U.S. Fire”), between May 21, 1983 and February 1,
1986.
        Trinity’s primary policies and U.S. Fire’s excess policies overlapped from
May 21, 1983 through February 1, 1986. Trinity’s primary insurance policies
were effective May 21, 1983 through May 21, 1988, and each had an annual
limit of $500,000 per occurrence and in the aggregate. U.S. Fire’s excess
policies at issue were effective February 1, 1983 through February 1, 1986, and
had policy limits of $5 million.
        On September 12, 2007, LGS sued U.S. Fire, alleging breach of contract
and insurance code violations for U.S. Fire’s alleged refusal to acknowledge the
applicability of coverage, to provide settlement authority, to negotiate, and to
eliminate LGS’s exposure in the outstanding asbestos lawsuits. Dkt. No. 1 at
4. LGS also sought a declaratory judgment that U.S. Fire’s excess policies were
activated, enforceable, and applicable to the claims being made against LGS in
the asbestos lawsuits. Id.

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      Trinity filed an unopposed motion to intervene in November 2008,
alleging that its policies from 1983–1988 were exhausted and that as a result,
U.S. Fire was obligated to indemnify and defend the claims against LGS during
the time when U.S. Fire provided excess policies. Trinity contends it has paid
a total of $2,432,556.44 in indemnity payments to asbestos claimants on LGS’s
behalf, and that it has expended another $3,171,028.61 defending LGS against
asbestos claims. Trinity sought reimbursement for all of the defense and
indemnity payments it made on behalf of LGS under the theory that, once its
1980–1983 policies 1 were exhausted, U.S. Fire was obligated to defend and
indemnify LGS from the claims that Trinity defended and settled.
      All parties moved for summary judgment, and these motions were
granted in part and denied in part in an initial order and an order on a Motion
for Clarification and Reconsideration in May 2011. In June 2011, LGS filed its
second and Trinity filed its second and third motions for partial summary
judgment. U.S. Fire filed a motion for summary judgment based on the policies’
pollution exclusion. The district court denied U.S. Fire’s motion in March 2012,
saying first that asbestos was not a pollutant, and therefore the pollution
exclusion did not apply to the underlying claims. In the alternative, the district
court held that a fact issue existed regarding the sudden and accidental
exception, making summary judgment improper.
      The case was immediately stayed and administratively closed for an
interlocutory appeal, which this court denied in May 2012. After this denial,
LGS’s second motion for partial summary judgment was reinstated upon
motion in September 2013. Trinity’s second and third motions for summary
judgment were reinstated upon motion in April 2014.

      1   These policies were technically provided by ACE, an earlier iteration of Trinity.
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      In October 2014, the district court appointed a special master, who
prepared a report and recommendation on these motions for partial summary
judgment in March 2015. After this report, Trinity filed its fourth motion for
partial summary judgment, and U.S. Fire filed a cross-motion for partial
summary judgment. In June 2015, LGS and U.S. Fire settled, LGS dismissed
its claims with prejudice, and was removed from the lawsuit altogether.
      The district court ordered the special master to file a second report and
recommendation, which was filed in August 2015 and adopted in October 2015.
Before the court were Trinity’s fourth motion for partial summary judgment
and U.S. Fire’s cross-motion, U.S. Fire’s motion for partial summary judgment
on subrogation, and responses and objections to each. The special master
recommended granting in part and denying in part Trinity’s motion and U.S.
Fire’s cross-motion for partial summary judgment, denying U.S. Fire’s motion
on subrogation, and overruling certain objections.
      The special master’s report and recommendation reiterated the
following: the cause of the injuries in the underlying claims was exposure to
LGS’s gaskets with asbestos, LGS did not have to horizontally exhaust its
primary coverage, and U.S. Fire’s excess policies were triggered upon
exhaustion of any of the underlying primary policies for the same policy period,
that exposure to asbestos constituted injury-in-fact (thus triggering coverage
under Texas law), and that all claimants exposed “at the same time and
location” constituted one “occurrence.” The report addressed the parties’
arguments regarding settlement payments, defense costs, and equitable
subrogation. As a result, the district court determined that Trinity was entitled
to $903,638.52 in settlement payments and $1,564,334.47 in defense costs from
U.S. Fire.
      The district court denied U.S. Fire’s motion for reconsideration and U.S.
Fire appealed. The district court then entered a final judgment, adopting the
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report and recommendation, after which U.S. Fire timely amended its notice
of appeal. On April 5, 2016, the district court granted Trinity’s Bill of Costs
and ordered that U.S. Fire pay all taxable costs, which U.S. Fire has also
appealed.
      U.S. Fire now appeals the final judgment as well as several of the district
court’s rulings. On appeal, U.S. Fire has presented many arguments as to why
its excess policies are not triggered and why it should not have to pay anything.
It argues that: (1) horizontal, rather than vertical, exhaustion of the primary
policies must occur before U.S. Fire’s excess policies are triggered; (2) in the
alternative, even under vertical exhaustion, U.S. Fire is entitled to subrogation
from Trinity; (3) the policies were never triggered because injury-in-fact cannot
be determined; (4) the policies were never triggered because there is
insufficient proof that the claimants were exposed to asbestos during the
relevant time; (5) the district court should not have awarded Trinity costs; (6)
the excess policies’ pollution exclusion bars asbestos claims; or (7) in the
alternative, Trinity has failed to demonstrate a fact issue as to the applicability
of the “sudden and accidental” exception to the pollution exclusion.
      Trinity, for its part, argues the opposite in favor of its position that U.S.
Fire must provide indemnification for the underlying asbestos claims. It argues
that: (1) the district court properly applied vertical exhaustion, exhausting
policy coverage by year rather than by type, which would implicate U.S. Fire’s
excess policies; (2) U.S. Fire is not entitled to subrogation; (3) the district court
correctly determined that the injury-in-fact trigger was “exposure” to asbestos,
thereby triggering U.S. Fire’s excess policies; (4) there was sufficient evidence
that claimants were exposed to asbestos during the relevant time; (5) the
district court properly awarded Trinity costs; (6) the district court properly
concluded that the pollution exclusion did not apply; or (7) in the alternative,
the pollution exclusion does not apply to product liability claims; or (8) as a
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second alternative, the district court properly concluded Trinity had raised a
genuine issue of material fact on the applicability of the “sudden and
accidental” exception.
      Although the parties both start with the exhaustion theory as the
threshold inquiry as to whether U.S. Fire’s excess policies are triggered, we
start with the pollution exclusion clause. If the district court is mistaken and
the pollution exclusion does apply, then by its own policy terms, U.S. Fire’s
excess policy would not cover the underlying claims. If, however, the “sudden
and accidental” exception to the pollution exclusion applies, the policy may be
implicated according to horizontal or vertical exhaustion—or one of the other
theories.
                                       II.

      “We review a district court’s grant of summary judgment de novo,
applying the same legal standards that the district court applied,” viewing the
evidence in the light most favorable to the nonmoving party. Gilbane Bldg. Co.
v. Admiral Ins. Co., 664 F.3d 589, 593 (5th Cir. 2011). We affirm “only if there
is no genuine issue of material fact and one party is entitled to prevail as a
matter of law.” Cedyco Corp. v. PetroQuest Energy, LLC, 497 F.3d 485, 488 (5th
Cir. 2007).
      “In this diversity action, we must apply Texas law as interpreted by
Texas state courts.” Gilbane, 664 F.3d at 593 (quoting Mid–Continent Cas. Co.
v. Swift Energy Co., 206 F.3d 487, 491 (5th Cir. 2000)). We “are bound by our
own precedent interpreting Texas law unless there has been an intervening
change in authority.” Id. at 594 (quoting Lee v. Frozen Food Express, Inc., 592
F.2d 271, 272 (5th Cir. 1979)). Under Texas law, an insurer may have two
separate and distinct responsibilities relating to coverage: the duty to defend
and the duty to indemnify. Id.; see also D.R. Horton–Tex., Ltd. v. Markel Int’l
Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009). An insurer’s duty to defend is
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governed by the “eight-corners rule,” which limits a court’s review to the
insurance policy and the third-party plaintiff’s pleadings in the underlying
litigation. Gilbane, 664 F.3d at 594. Texas courts construe the language
according to “the ordinary, everyday meaning of the words to the general
public.” U.S. Fid. & Guar. Co. v. Goudeau, 272 S.W.3d 603, 607 (Tex. 2008).
      The duty to indemnify, however, depends “on the facts and
circumstances of the alleged injury-causing event,” and parties may “introduce
evidence during coverage litigation to establish or refute the duty to
indemnify.” D.R. Horton–Tex., 300 S.W.3d at 741. The factual allegations, not
the legal theories, control. See id. at 744. The pleadings are construed liberally,
with any doubts construed in favor of the insured. Nat’l Union Fire Ins. Co. v.
Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). However, the
“facts actually established in the underlying suit control the duty to
indemnify.” D.R. Horton-Tex., 300 S.W.3d at 744. Thus, the “duty to indemnify
depends on the facts proven and whether the damages caused by the actions
or omissions proven are covered by the terms of the policy.” Id.
      If the insured meets his burden and proves coverage, the insurer is liable
unless he can prove the loss is within an exclusion. Gilbert Tex. Const., L.P. v.
Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010). If the insurer
proves that an exclusion applies, the burden shifts back to the insured to show
that an exception to the exclusion can bring the claim back within coverage.
Id. “If an insurance contract uses unambiguous language, [a court] must
enforce it as written.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267
S.W.3d 20, 23 (Tex. 2008). If, however, a contract is susceptible to more than
one reasonable interpretation, a court will resolve any ambiguity in favor of
coverage. Id. “Policy terms are given their ordinary and commonly understood
meaning unless the policy itself shows the parties intended a different,
technical meaning.” Id. “No one phrase, sentence, or section of the policy should
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be isolated from its setting and considered apart from the other provisions.” Id.
In addition, a court “must give the policy’s words their plain meaning, without
inserting additional provisions into the contract.” Id.
                                        III.
      The district court determined that the pollution exclusion did not apply
for two reasons. First, it “decline[d] to find that asbestos is a pollutant subject
to the pollution exclusion” because U.S. Fire “has not cited and the [district
c]ourt has not found any cases where asbestos is considered a ‘pollutant’ and
subject to the pollution exclusion in an umbrella policy.” Alternatively, the
district court determined that “even if asbestos is a pollutant and the pollution
exclusion applies to the [u]nderlying [c]laims, there still remains a question of
material fact with respect to the ‘sudden and accidental’ exception to the
pollution exclusion,” which would make a grant of summary judgment to U.S.
Fire improper.
                                         A.
      In relevant part, the U.S. Fire excess policies each contain the following
pollution exclusion:
      The Policy shall not apply:
      ...
      under [coverage for bodily injury liability or property damage
      liability] to liability 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 . . . .
      According to the plain language of U.S. Fire’s excess policy, the pollution
exclusion bars claims for the following: (1) a bodily injury or property damage
liability claim; (2) arising out of the discharge, dispersal, release, or escape into
or upon the land, the atmosphere or any water course or body of water; (3) of
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smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases,
waste materials or other irritants, contaminants or pollutants. The order of
burden shifting is as follows: if Trinity pleaded facts showing coverage, then
the burden shifts to U.S. Fire to show that the pollution exclusion applied to
the underlying claims. Gilbert, 327 S.W.3d at 124. If U.S. Fire shows the
pollution exclusion applied to the underlying claims, then the burden shifts to
Trinity to prove that an exception to the exclusion covers the claims. Id.
       The parties’ arguments focus on the third prong: whether asbestos is a
pollutant. 2 U.S. Fire emphasizes that asbestos is a pollutant, specifically one
that must first be released into the air to cause the injuries alleged in the
underlying claims. 3 Trinity replies that asbestos is not a pollutant. We address
each argument in turn.
       Neither this court nor the Texas Supreme Court has ever determined
whether asbestos is a pollutant. Thus, we start with the plain language of the

       2  After oral argument, Trinity raised a new argument that the asbestos was not
released into the “atmosphere,” and thus fell outside the pollution exclusion. Trinity raised
this issue for the first time in its supplemental letter brief. The “failure to raise specific issues
or arguments . . . operates as a waiver of those issues or arguments for appeal.” United States
v. Scroggins, 599 F.3d 433, 448 (5th Cir. 2010). Further, Trinity’s cited case does not limit
“atmosphere” to an outdoor context, but instead distinguishes the terms “workplace” and
“environment.” See Cooper Indus., LLC v. Precision Castparts Corp., No. H-15-0576, 2016 WL
4939565, at *8 (S.D. Tex. Sept. 14, 2016) (unpublished). Indeed, the clause at issue in that
case, as U.S. Fire noted, did not even contain the word “atmosphere,” let alone conclusively
define it. Id. at *13.
        3 Trinity risks pleading itself out of its main claims on this point. Trinity argues that

U.S. Fire cannot refer to the underlying claims because they are outside of the “eight corners”
rule and that there “is no allegation of or evidence that the movement of asbestos fibers from
LGS’s product constituted ‘discharge, dispersal, release, or escape of . . . irritants,
contaminants, or pollutants into or upon the land, the atmosphere or any water course or
body of water,’ required by U.S. Fire’s policy.” (emphasis added). U.S. Fire points out that in
attempting to avoid the pollution exclusion, Trinity has undermined its exposure argument—
in other words, if there is no allegation or evidence that asbestos from LGS products
constituted discharge of pollutants into the atmosphere, then there is no proof that any
plaintiff was exposed to or injured by any LGS product at any time. U.S. Fire also notes that
Trinity itself asked the court to accept its characterization of the underlying claims rather
than relying on those claims’ pleadings.
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policy. U.S. Fire argues that asbestos falls within the plain meaning of the
policy terms because it is an “irritant,” “contaminant” or “pollutant.”
Specifically, U.S. Fire argues that asbestos irritates the lungs and
contaminates the atmosphere and body. We interpret this policy language
according to “the ordinary, everyday meaning of the words to the general
public,” Goudeau, 272 S.W.3d at 607. We agree with U.S. Fire that asbestos is
both an irritant and a pollutant.
       An “irritant” is anything “causing irritation; esp. physical irritation.”
Irritant, The American Heritage Dictionary, 2d. College Ed. 4 A “contaminant”
is “[s]omething that contaminates;” to contaminate is “to make impure or
corrupt by contact or mixture.” Conaminant, Contaminate, The American
Heritage Dictionary, 2d. College Ed. Similarly, a “pollutant” is “[s]omething
that pollutes, esp. a waste material that contaminates air, soil, or water.”
Pollutant, The American Heritage Dictionary, 2d. College Ed.
       The caselaw is varied on this issue, but seems to slightly favor treating
asbestos as a pollutant, particularly when the pollution exclusion lists
“irritant, contaminant, or pollutant.” See 3 Allan D. Windt, Insurance Claims
& Disputes § 11:11 (6th ed.) (noting the “inconsistent manner in which courts
have handled the question of whether even asbestos is a pollutant for the
purpose of a pollution exclusion” and noting five cases in which courts have
found asbestos to be a pollutant and four in which it was not). Many
jurisdictions have classified asbestos as a pollutant under a pollution
exclusion. See, e.g., Great N. Ins. Co. v. Benjamin Franklin Fed. Sav. & Loan
Ass’n, 953 F.2d 1387, 1992 WL 16749, at *1 (9th Cir. 1992) (unpublished)

       4  Indeed, we have previously used a similar definition of “irritant” to interpret
“plain language” in an insurance policy. See Nautilus Ins. Co. v. Country Oaks Apartments
Ltd., 566 F.3d 452, 455–56 & n.3 (5th Cir. 2009) (defining “irritant” as “an agent by which
irritation is produced (a chemical)” (quoting Webster’s Third New Int’l Dict. Unabridged 1197
(1981))).
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(“[A]sbestos is a pollutant as defined by the policy because it is a solid
irritant.”); Bd. of Regents v. Royal Ins. Co. of Am., 517 N.W.2d 888, 893–94
(Minn. 1994) (“[T]he policy exclusion in the excess policies includes—and
therefore excludes from policy coverage—the contamination or pollution by
asbestos fibers of air within a building.”); Am. States Ins. Co. v. Zippro Constr.
Co., 455 S.E.2d 133, 135 (Ga. Ct. App. 1995) (“There is little question that
asbestos constitutes a pollutant as unambiguously defined in the exclusion.”);
see also 29 C.F.R. §§ 1910.1000, 1001 (defining asbestos in many forms as an
air contaminant).
      Some jurisdictions, however, when interpreting New York law, have
determined that asbestos is not a pollutant—often combining this conclusion
with an analysis of terms “atmosphere” or “environment.” The Southern
District of New York determined that a “special limit endorsement, negotiated
by the parties, [that] is unique to the[ir] policies and no case has interpreted”
was “ambiguous at least with regard to asbestos” and “nothing in the provision
suggests that asbestos falls within its terms” because one “would not usually
associate asbestos with the substances listed in the exclusion, namely, smoke,
fumes, or waste.” See Maryland Casualty Co. v. W.R. Grace & Co., 794 F. Supp.
1206, 1229 (S.D.N.Y. 1991), rev’d on other grounds, 23 F.3d 617 (2d Cir. 1993)
(“Whatever the applicability of the usual pollution clause, we cannot find, as a
matter of law, that the special limits provision applies to asbestos.” (emphasis
added)). Relying on New York state and federal cases, the Ohio Court of
Common Pleas determined that asbestos is not associated with substances like
“smoke, fumes, or waste,” and determined that the pollution exclusion was
“aimed at the release of toxic waste causing environmental damage.” Owens-
Corning Fiberglas Corp. v. Allstate Ins. Co., 660 N.E.2d 746, 751–52 (Ohio
Misc. 1993).

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       The Ohio Court of Appeals, however, has held the opposite, determining
in an unpublished opinion that asbestos released during the sanding of a vinyl
kitchen floor was an “irritant or contaminant” and therefore a pollutant
because it was classified as a “hazardous substance,” “toxic pollutant,” or
“hazardous air pollutant” under federal law, and was properly characterized
as waste. See Selm v. Am. States Ins. Co., No. C-010057, 2001 WL 1103509, at
*3 (Ohio Ct. App. 1st Dist. Hamilton Cty. 2001).
       The pollution exclusion in U.S. Fire’s excess policies is broad, and applies
generally to “irritants, contaminants, and pollutants.” Though the case law is
mixed, we conclude, under the plain language of the policy exclusion, that
asbestos constitutes a pollutant and an irritant. 5 Accordingly, the underlying
claims fall under the pollution exclusion because they: (1) were for bodily
injury; (2) arose out of the discharge, dispersal, release, or escape, into the
atmosphere; (3) and originated with an irritant and pollutant—namely,
asbestos.
                                             B.
       We have concluded that the pollution exclusion applies, and so the
burden shifts to Trinity to attempt to apply an exception to the exclusion. U.S.
Fire’s pollution exclusion states that it “does not apply if such discharge,
dispersal, release or escape is sudden and accidental.” Trinity argues that the
“sudden and accidental” exception applies, thus negating any effect the
pollution exclusion would have on coverage.
       We do not reach this issue here. Rather, because we have concluded that
asbestos is encompassed within the pollution exclusion in U.S. Fire’s excess

       5 Trinity also argues that the underlying claims are barred because they relate to
products liability, which is not covered by pollution exclusions. As U.S. Fire notes, however,
there is no “products liability” language in the exclusion, nor does the exclusion single out
“environmental” damages as separate from “products” damages.
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policies, we will remand for the district court to determine in the first instance
the applicability of the sudden and accidental exception to the pollution
exclusion.
                                            IV.
       Accordingly, we VACATE the district court’s judgment and REMAND
for a determination as to the applicability of the sudden and accidental
exception. 6

       6 Because we are remanding for a decision on the applicability of the sudden and
accidental exception, we do not address the remaining issues asserted on appeal. The appeal
from the district court’s award of costs is moot. The remaining issues are not dispositive on
this record.
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