Aloha Petroleum, Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh

690 F.Supp.3d 1168

ALOHA PETROLEUM, LTD., Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,and American Home Assurance Company, Defendants.

CIV. NO. 22-00372 JAO-WRP

United States District Court, D. Hawai'i

Signed September 5, 2023

Hudson M. Stoner, Pro Hac Vice, John M. Sylvester, Pro Hac Vice, K&L Gates LLP, Pittsburgh, PA, Michi Momose, C. Michael Heihre, Cades Schutte LLP, Honolulu, HI, for Plaintiff.

Amy Collins Cassidy, Pro Hac Vice, Emily R. Steinberg, Pro Hac Vice, Matthew J. Fink, Pro Hac Vice, Nicolaides Fink Thorpe Michaelides Sullivan LLP, Chicago, IL, Christopher St. Jeanos, Pro Hac Vice, Willkie Farr & Gallagher LLP, New York, NY, Elizabeth Jean Bower, Pro Hac Vice, Willkie Farr & Gallagher LLP, Washington, D.C., DC, Kari Keiko Noborikawa, Starn O'Toole Marcus & Fisher, Honolulu, HI, for Defendant National Union Fire Insurance Company of Pittsburgh, PA.

Kari Keiko Noborikawa, Starn O'Toole Marcus & Fisher, Honolulu, HI, for Defendant American Home Assurance Company.

ORDER CERTIFYING QUESTIONS TO THE HAWAI'I SUPREME COURT

Jill A. Otake, United States District Judge

In this insurance coverage case, Plaintiff Aloha Petroleum, Ltd. ("Aloha") asserts that Defendants National Union Fire Insurance Company of Pittsburgh, PA, and American Home Assurance Company (collectively, "AIG"¹) have a duty to defend Aloha against a pair of underlying lawsuits in Hawai'i state courts. ECF No. 1. Aloha and AIG filed cross-motions for partial summary judgment on the purely legal issue of duty to defend. ECF Nos. 54, 56.² The Court has concluded that the parties' dispute hinges on whether recklessness can amount to an "accident," as that term has been defined by the Hawai'i Supreme Court, and if so, whether greenhouse gas emissions constitute the release or escape of "pollutants," i.e., "gaseous" "irritant[s] or contaminant[s]," under the Hawai'i Supreme Court's precedents. Because these questions of Hawai'i law are determinative here, and because there is no clear controlling precedent in Hawai'i judicial decisions, this Court respectfully certifies these questions to the Hawai'i Supreme Court:

1) For an insurance policy defining a covered "occurrence" in part as an "accident," can an "accident" include recklessness?

2) For an "occurrence" insurance policy excluding coverage of "pollution" damages, are greenhouse gases "pollutants," i.e., "gaseous" "irritant[s] or contaminant[s], including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste"?

I. BACKGROUND

As background, the Court briefly describes the prior proceedings in this case and the relevant facts. See Haw. R. App. P. 13(b). Aloha claims that the AIG insurers breached their insurance contracts by failing to defend Aloha against two climate change lawsuits: County of Maui v. Sunoco LP, No. CV-20-0000283, Dkt. No. 1 (Haw. 2d Cir. filed Oct. 12, 2020) (the "Maui complaint," available at ECF No. 55-17), and City and County of Honolulu v. Sunoco LP, No. CV-20-0000380, Dkt. No. 1 (Haw. 1st Cir. filed Mar. 22, 2021) (the "Honolulu complaint," available at ECF No. 55-16) (collectively, the "underlying lawsuits"). Aloha requests a declaratory judgment that the AIG insurers have a duty to defend the underlying lawsuits. See ECF No. 47 at 2, 25.

The underlying lawsuits are significantly similar in scope. They assert the same legal claims against twenty corporate members of the fossil fuel industry—including Aloha—in complaints that span over 100 pages. The underlying defendants allegedly "kn[ew] for nearly half a century that unrestricted production and use of [their] fossil fuel products create[d] greenhouse gas pollution that warms the planet and changes our climate." Maui complaint at ¶ 1; Honolulu complaint at ¶ 1; see also Maui complaint at ¶ 172 (describing the gradual nature of climate change, where there is a "lag time between emissions and sea level rise"); Honolulu complaint at ¶ 150.b (same). The complaints further allege that, despite that knowledge, the defendants "continued to wrongfully market and promote heavy fossil fuel use [in the counties] and mounted a campaign to obscure the connection between their fossil fuel products and the climate crisis." Maui complaint at ¶ 140; Honolulu complaint at ¶ 128.

Importantly, the complaints aver that the "impacts of [the defendants'] fossil fuel products on the Earth's climate and associated harms to people and communities"—including tangible property harms to the counties—were "foreseeable" to the defendants. Maui complaint at ¶ 103; Honolulu complaint at 94; see also Maui complaint at ¶ 148 (alleging the defendants' "knowledge of the foreseeable harms associated with the consumption of [their] fossil fuel products"); Honolulu complaint at ¶ 136 (same). Thus, the crux of the underlying lawsuits is that Aloha disregarded known risks of harm to the counties when selling its fuel products that would inevitably combust and produce greenhouse gases, particularly carbon dioxide, thereby changing the climate and causing harm to the counties.

In their cross-motions, the parties dispute whether AIG has a duty to defend Aloha against the underlying lawsuits under certain AIG insurance policies. See ECF No. 54-1 at 7; ECF No. 56-1 at 10-11.³ The policies cover "occurrences" causing property damage during the policy period. An "occurrence" is defined—as in many other commercial general liability policies—to mean an "accident," in relevant part. But an "accident" is not further defined. Also, most of the policies exclude coverage for the "release or escape of pollutants" causing property damage, wherein a "pollutant" is "any . . . gaseous . . . irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." The parties agree on that much. See ECF No. 55 at ¶¶ 13, 18, 19, 23-25 (Aloha's Separate and Concise Statement of Facts); see also ECF No. 65 (AIG admitting to the relevant portions of the cited paragraphs). They also agree that Hawai'i law controls the meaning of "accident" and the interpretation of "gaseous . . . irritant or contaminant." See ECF No. 56-1 at 11 n.5 ("The AIG Insurers do not challenge application of Hawaii law in this case.").

1) Recklessness and "Accident"

The Court heard arguments on the cross-motions on August 24, 2023. ECF No. 68. When arguing that the term "accident" includes recklessness—and thus in favor of AIG having a duty to defend the underlying lawsuits—Aloha focused on the following language from the Hawai'i Supreme Court's opinion in Tri-S Corp. v. Western World Insurance Co., 110 Hawai'i 473, 135 P.3d 82 (2006): There is a duty to defend "because the possibility exists that [the insured] could be found liable for recklessness, which does not involve intent or expectation of injury and is thus a covered occurrence under the policy." Id. at 494, 135 P.3d at 103 (emphases added). So, according to Aloha, Tri-S holds that recklessness can be covered under an "occurrence," i.e., "accident," policy.

AIG disagreed, arguing that Tri-S is inapplicable to the parties' dispute over a duty to defend. According to AIG, Tri-S merely holds that recklessness does not satisfy—i.e., is a lower mental state than—the "expected or intended" exclusion clause disputed in that case. What Tri-S does not address, according to AIG, is whether recklessness can satisfy the threshold condition of an "accident," which has been defined in multiple Hawai'i Supreme Court decisions to require injuries that are neither the "expected [n]or reasonably foreseeable result of the insured's own intentional acts or omissions," e.g., AIG Haw. Ins. Co. v. Est. of Caraang, 74 Haw. 620, 636, 851 P.2d 321, 329 (1993). AIG thus reasoned that recklessness cannot be an "accident" under Caraang's definition, because recklessness traditionally requires a risk of foreseeable harm (that is consciously disregarded by the tortfeasor).

2) The Pollution Exclusion and Greenhouse Gases

When arguing against the pollution exclusion, Aloha drew a distinction between combustion-produced greenhouse gases and "traditional environmental pollution," e.g., a widget factory discharging lead into the ambient air. According to Aloha, "traditional environmental pollution" is paradigmatic pollution to be excluded, while greenhouse gases are well beyond the paradigm, both figuratively and literally, as the greenhouse effect occurs miles up in the atmosphere. Aloha ultimately stressed that, under Hawai'i law, it is an unsettled question whether pollution exclusions extend beyond traditional environmental pollution to cover micro contamination, such as a plumber pouring noxious chemicals down a drain, or to cover gradual-effects models, such as the greenhouse effects alleged in the underlying lawsuits. Such unsettled questions, Aloha argued, must be decided in favor of a duty to defend because of the "legal uncertainty" principle embodied by Sentinel Insurance Co. v. First Insurance Co. of Hawai'i, 76 Hawai'i 277, 295, 875 P.2d 894, 912 (1994).

AIG counterargued that the "greenhouse gas pollution" alleged in the underlying lawsuits is not as far from "traditional environmental pollution" as Aloha contends. The average person on the street would certainly believe that greenhouse gases are polluting the environment, according to AIG. And to the extent greenhouse gases are beyond the pale of "traditional environmental pollution," that is no barrier to the exclusion clause, AIG argued, because multiple decisions from this District have embraced definitions of "pollutants" extending beyond traditional environmental pollution. AIG specifically cited Apana v. TIG Insurance Co., 504 F. Supp. 2d 998 (D. Haw. 2007), a case in which District Judge Seabright applied a pollution exclusion to injuries caused by inhaling the fumes of an extremely strong drain cleaner that was negligently poured down a drain. See id. at 1006 (finding no indemnification based on exclusion). AIG also cited Allen v. Scottsdale Insurance Co.,...