Court Opinion

ID: 9951780
Source: CourtListenerOpinion
Date Created: 2024-03-19 00:02:13.189988+00
Date Added: 2024-06-11T14:42:32.910430
License: Public Domain

Case: 23-60087        Document: 73-1      Page: 1     Date Filed: 03/18/2024

         United States Court of Appeals
              for the Fifth Circuit                           United States Court of Appeals
                                                                       Fifth Circuit

                              ____________                           FILED
                                                               March 18, 2024
                               No. 23-60087                     Lyle W. Cayce
                              ____________                           Clerk

Gold Coast Commodities, Incorporated,

                                                          Plaintiff—Appellant,

                                    versus

Travelers Casualty and Surety Company of America,

                                          Defendant—Appellee.
                ______________________________

                Appeal from the United States District Court
                  for the Southern District of Mississippi
                          USDC No. 3:22-CV-207
                ______________________________

Before Smith, Elrod, and Graves, Circuit Judges.
James E. Graves, Jr., Circuit Judges:
       In the world of business, corporations obtain commercial insurance to
protect their assets, and commercial insurers customarily include exclusion
provisions in their policies. Exclusion provisions dispel the notion that insur-
ance coverage is without limits and place the insured on notice about actions
or omissions that will trigger an insurer’s denial of coverage. Insurance poli-
cies that include pollution exclusion provisions accomplish even more.
       An insurance policy’s pollution exclusion deters deliberate or negli-
gent behavior that leads to environmental harm. When we hold that a
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                                 No. 23-60087

pollution exclusion excludes the insured from coverage, we protect the in-
surer’s right to disincentivize corporations from engaging in bad faith actions
with a known environmental impact. This case arises from claims asserted
against an insured and, due to a pollution exclusion, those claims fall outside
the insurance policy’s reach. Accordingly, we AFFIRM.
                             BACKGROUND
       Gold Coast Commodities, Inc. (“Gold Coast”) is a business
corporation located in Rankin County, Mississippi. Gold Coast converts used
cooking oil and vegetable by-products into animal feed ingredients. On June
25, 2016, Gold Coast became insured under Travelers Casualty and Surety
Company of America (“Travelers”), Policy No. 087-LB-106545829. The
Policy period was renewed through June 25, 2019. The co-owners and
principals of Gold Coast, Thomas Douglas and Robert Douglas, were insured
under the Policy.
       In July 2018, the City of Brandon filed suit in the Circuit Court of
Rankin County against Gold Coast and its principals alleging that Gold Coast
dumped “significant amounts of high-temperature, corrosive, low-pH
wastewater into the City’s sewer system.” These actions or omissions are
alleged to have occurred during the Policy period. The City of Brandon seeks
to recover for damages from negligence resulting from the “discharge” or
“release” of “pollutants” as the term “pollutants” is defined in the Policy.
       In June 2021, the City of Jackson filed suit in the Circuit Court of
Hinds County against Gold Coast and its principals alleging that Gold Coast
dumped “high temperature and corrosive” industrial waste into the City’s
sewer system. Likewise, these actions or omissions are alleged to have
occurred during the policy period. The City of Jackson seeks to recover for
damages from negligence resulting from the “discharge” or “release” . . . of
“pollutants” as the term “pollutants” is defined in the Policy.

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       In letters dated July 19, 2018, and June 25, 2021, Travelers denied
coverage against the City of Brandon and the City of Jackson, respectively.
Travelers cited the Policy’s pollution exclusion as the basis for its denial of
coverage.
       The Policy’s pollution exclusion, Exclusion A.3, reads:
       “[Travelers] will not be liable for Loss for any Claim based
       upon or arising out of the actual, alleged or threatened
       discharge, dispersal, seepage, migration, release or escape of
       any Pollutant.”
The Policy defines “Pollutant” as:
       “[A]ny 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.”
       On April 20, 2022, Travelers removed the case. Travelers filed a
Motion for Partial Summary Judgment arguing that it had no duty to defend
Gold Coast and its principals in the respective lawsuits on September 30,
2022. On October 3, 2022, Gold Coast filed a Motion for Partial Judgment
on the Pleadings arguing that: (1)Travelers has the duty to defend Gold Coast
and its principals in the respective lawsuits; and (2) Travelers has a duty to
reimburse Gold Coast and its principals for their defense costs.
       The district court found that the claims asserted against Gold Coast
were excluded from coverage under the pollution exclusion. Thus, Travelers
had no duty to defend or indemnify Gold Coast and its principals in relation
to the lawsuits brought against them by the City of Brandon and the City of
Jackson. Therefore, the district court denied Gold Coast’s Motions for
Partial Judgment on the Pleadings and granted Travelers’ Motion for Partial
Summary. This appeal followed.
                        STANDARD OF REVIEW

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         The district court’s grant of a motion for judgment on the pleadings
and summary judgment is reviewed de novo. Guerra v. Castillo, 82 F.4th 278,
284 (5th Cir. 2023) (standard of review for Rule 12(c) motions); Davidson v.
Fairchild Controls Corp., 882 F.3d 180, 184 (5th Cir. 2023) (standard of review
for summary judgment). Additionally, a district court’s determination of
state law and interpretation of an insurance policy are reviewed de novo. Am.
Intern. Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th Cir.
2023).
                                DISCUSSION
         “[T]he interpretation of insurance policies issued in [Mississippi]” is
governed by Mississippi substantive law. Id. (citing Erie R.R. Co. v. Tompkins,
304 U.S. 64 (1938)). “In order to determine state law, federal courts look to
final decisions of the highest court of the state.” Transcon. Gas Pipe Line Corp.
v. Transp. Ins. Co., 953 F.2d 985, 988 (5th Cir. 1992). To interpret an
insurance policy, the Mississippi Supreme Court “look[s] at the policy as a
whole, consider[s] all relevant portions together and, whenever possible,
give[s] operative effect to every provision in order to reach a reasonable
overall result.” Corban v. United Servs. Auto. Ass’n, 20 So.3d 601, 610 (Miss.
2009) (citing J & W Foods Corp. v. State Farm Mut. Auto. Ins. Co., 723 So.2d
550, 552 (Miss. 1998)). “An insurance company’s duty to defend its insured
is triggered when it becomes aware that a complaint has been filed which
contains reasonable, plausible allegations of conduct covered by the policy.”
Baker Donelson Bearman & Caldwell, P.C. v. Muirhead, 920 So.2d 440, 451
(Miss. 2006). “[N]o duty to defend arises when the claims fall outside the
policy’s coverage.” Id. If a “policy can logically be interpreted in more than
one way, the policy is ambiguous.” Crum v. Johnson, 809 So.2d 663, 666
(Miss. 2002). “If a contract contains ambiguous or unclear language, then
ambiguities must be resolved in favor of the non-drafting party.” United
States Fidelity and Guar. Co. of Mississippi v. Martin, 998 So.2d 956, 963

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(Miss. 2008). Exclusionary clauses are strictly interpreted and the language
within them must be “clear and unmistakable.” S. Healthcare Servs. v.
Lloyd’s of London, 110 So.3d 735, 744 (Miss. 2013).
                                 DISCUSSION
       The question before us is whether the allegations in the underlying
complaints against Gold Coast stated claims that triggered Travelers’ duty
to defend. The district court concluded that all the claims in the complaints
were clearly and unambiguously excluded from coverage based on the
Policy’s pollution exclusion. We agree.
       The pollution exclusion of Traveler’s policy, Exclusion A.3, reads:
       “The Company will not be liable for Loss for any Claim based
       upon or arising out of the actual, alleged or threatened
       discharge, dispersal, seepage, migration, release or escape of
       any Pollutant.”
The Policy defines “Pollutant” as:
       “[A]ny 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.”
       That language unambiguously excludes Gold Coast’s actions. Indeed,
despite the Mississippi Supreme Court ruling that a pollution exclusion with
the same language was ambiguous in Omega Protein, here the distinct factual
circumstances require a different outcome.
       In Omega Protein, an explosion occurred at the Omega Protein plant
while third-party contractors were working on a “large metal tank that was
used for the temporary storage of stickwater.” Id. at 130. Stickwater is
composed of water, fish oil, and fish solids. Id. The explosion killed one of
the contractors, Jerry Lee Taylor, II, who was welding on the metal tank.

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Taylor’s estate then sued Omega, who tendered defense of the lawsuit to
Colony Insurance Company, its primary insurer, and Evanston Insurance
Company, its excess insurer. Id. But Evanston Insurance Company did not
contribute to the settlement and, instead, denied coverage based on its
pollution exclusion. Id. A special master appointed to the case recommended
that the trial court find that the pollution exclusion in Evanston’s policy
barred coverage. Id. The trial court adopted the special master’s findings. Id.
       On appeal, the Mississippi Supreme Court held that the trial court
erred by finding that the pollution exclusion barred coverage. The Evanston
pollution exclusion read:
       “This policy shall not apply to ultimate net loss arising out of
       or contributed to in any way by the actual, alleged or threatened
       discharge, dispersal, release, migration, escape or seepage of
       pollutants . . . As used in this exclusion, pollutants means any
       solid, liquid, gaseous, or thermal irritant or contaminant
       including smoke, vapor, soot, fumes, acids, alkalis, chemicals,
       and waste. Waste includes material, to be recycled,
       recondition, reclaimed or disposed of.” Id. at 131 (emphasis
       added).
The Mississippi Supreme Court did not find a definition of “irritant or
contaminant” in the policy exclusion. Id. Omega argued that the gasses
emitted from stickwater—methanethiol, hydrogen sulfide, and methane—
were not irritants or contaminants because they: (a) are found in nature; and
(b) were contained within the tank and “not contacting, contaminating, or
irritating anything.” Id. Evanston disagreed and argued that the gasses fit
squarely within the pollution exclusion. Id.
       “The words ‘irritant’ and ‘contaminant’”, wrote the Mississippi
Supreme Court, “are subject to more than one meaning under the pollution
exclusion.” Id. at 132. The court reasoned that there were two ways a
substance can be an irritant or contaminant: at its core or through contact.

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First, a substance is an irritant or contaminant at its core when “no matter
where it is, how it is contained, or whether it is in contact with something . .
.” it is an irritant or contaminant. Id. Second, a substance can become an
irritant or contaminant when it “comes into contact with something and is
actively irritating or contaminating it.” Id. The court reasoned that crude oil,
for example, can be understood two-fold under this interpretive paradigm.
On one hand, if contained, crude oil is not a contaminant. Id. Crude oil, thus,
is not an irritant or contaminant at its core. On the other hand, if crude oil
comes into contact with water, it becomes a contaminant. Id. Because
Evanston did not clarify the meaning of irritant or contaminant, the pollution
exclusion was “susceptible to more than one reasonable interpretation” and,
therefore, ambiguous.” Id. Because an ambiguous provision is construed in
favor of coverage under Mississippi law, the Mississippi Supreme Court held
that the trial judge erred. Id.
        In the case at bar, Gold Coast argues that the district court failed to
apply the ruling of Omega Protein. Gold Coast disagrees with the district
court’s analysis that Omega Protein had “unique facts” that made the
definition of pollutant ambiguous. Gold Coast contends, instead, that the
legal ambiguity in Omega Protein was based on “facts (i.e., crude oil) not in
that case.” We agree with the district court. The holding in Omega Protein
turns on the facts, and the facts in Omega Protein are distinguishable from this
case.
        This Court has held that “[a] policy may be unambiguous, as applied
to one set of facts, but may take on characteristics of ambiguity in connection
with other facts.” Burton v. State Farm Fire & Cas. Co., 533 F.2d 177, 179 (5th
Cir. 1976); see also In re Katrina Canal Breaches Litigation, 495 F.3d 191, 210
(5th Cir. 2007)(“When the words of a policy provision are clear and
unambiguous in the context of the facts . . .”). In Omega Protein, the Mississippi
Supreme Court determined that the irritant or contaminant language in the

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                                 No. 23-60087

pollution exclusion was ambiguous as applied to the facts in that case. As the
district court aptly reasoned, “the underlying lawsuits against the insured [in
Omega Protein] sought damages for injuries that were not caused by contact
with methanethiol, hydrogen sulfide, or methane but rather by the
explosion.” There, the stickwater produced gases—methanethiol, hydrogen
sulfide, and methane—which, while contained, were not irritant or
contaminants. But once the gases were ignited, presumably by the welding
and grinding of the contractors, they were irritants or contaminants. Omega
Protein, 336 So. 3d at 132. Thus, whether the gases were irritants or
contaminants could be logically interpreted in more than one way.
       The allegations in both the City of Brandon’s and the City of
Jackson’s complaints present facts that are paradigmatic for the application
of the Policy pollution exclusion. Again, the Policy defines “Pollutant” as:
       “[A]ny 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.”
As the district court explained, the deliberate discharge of toxic industrial
waste “is precisely the type of activity to which [Traveler’s Policy pollution
exclusion] was intended to apply.” The pollution exclusion as applied here
differs significantly from the pollution exclusion applied to the facts in Omega
Protein. There is not a reasonable interpretation of the wastewater’s form or
qualities that would conclude that it was not an irritant or contaminant.
Therefore, the Policy is not ambiguous. Because the Policy is not ambiguous,
the claims are excluded from coverage. It, therefore, follows that Gold Coast
did not sufficiently plead facts that trigger Traveler’s duty to defend.
       We AFFIRM.

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