Constitution State Insurance v. Iso-Tex Inc. , 61 F.3d 405 ( 1995 )

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.