Nobel v. Steadfast Ins. Co.

85 F.4th 1018

Dyno NOBEL, Plaintiff-Appellant, v. STEADFAST INSURANCE COMPANY, Defendant-Appellee.

No. 23-4010

United States Court of Appeals, Tenth Circuit

FILED October 31, 2023

Appeal from the United States District Court for the District of Utah (D.C. No. 2:22-CV-00016-RJS)

Daniel J. Brown, Dorsey & Whitney LLP, Minneapolis, Minnesota (Milo Steven Marsden and Ashley M. Walker, Dorsey & Whitney LLP, Salt Lake City, Utah, with him on the briefs), for Plaintiff-Appellant.

Lauren S. Kuley, Squire Patton Boggs (US) LLP, Cincinnati, Ohio (Kathryn M. Brown, Squire Patton Boggs (US) LLP, Cincinnati, Ohio; Danica N. Cepernich and Richard A. Vazquez, Snow Christensen & Martineau, Salt Lake City, Utah, with her on the brief), for Defendant-Appellee.

Before HOLMES, Chief Judge, McHUGH, and CARSON, Circuit Judges.

McHUGH, Circuit Judge.

Dyno Nobel, an explosives manufacturer, tendered an action to its commercial general liability insurance policyholder, Steadfast Insurance Company ("Steadfast"), after being sued in Missouri for damages caused by the release of a nitric oxide plume from one of its Missouri plants. Steadfast denied the claim based on the insurance policy's clauses precluding indemnification and defense of pollution-related bodily injury actions. Dyno Nobel filed this suit in Utah state court seeking a declaratory judgment that Steadfast has a duty to indemnify and defend against this action under an endorsement titled "Vermont Changes — Pollution" ("Vermont Endorsement"). Contrary to Coverages A, B, and C in the insurance policy, the Vermont Endorsement would require Steadfast to defend and indemnify against pollution-related bodily injury claims up to an aggregate amount of $3 million.

Steadfast removed the action to federal court. After reviewing the dispositive motions filed by each party, the district court entered judgment for Steadfast, concluding the Vermont Endorsement applies only to claims with a nexus to Vermont. Dyno Nobel appeals.

Upon de novo review, we affirm the holding of the district court. The reference to Vermont in the heading of the relevant endorsement can be completely harmonized with the language of the endorsement, meaning we may consider the heading when interpreting the contract under Utah law. Furthermore, reading the Vermont Endorsement as limited to claims with a nexus to Vermont properly ensures that all provisions of the contract are given meaning, as required under Utah law. In sum, the plain language of the insurance contract does not cover Dyno Nobel's claim in the underlying action, and we affirm the district court.

I. BACKGROUND

A. Factual Background¹

Dyno Nobel is an explosives manufacturer incorporated in Delaware with its principal place of business in Utah. Dyno Nobel purchased a commercial general liability insurance policy from Steadfast for the terms October 1, 2014, to October 1, 2015, and October 1, 2015, to October 1, 2016 ("the Policy"). During this period, in September 2016, Teddy Scott and Melanie Scott filed suit against Dyno Nobel in the Eastern District of Missouri, asserting claims of strict liability and negligence against Dyno Nobel for damages allegedly caused by a nitric oxide plume emitted from a Dyno Nobel facility in Missouri ("Scott Action"). Dyno Nobel tendered the Scott Action to Steadfast, but Steadfast denied the claim and refused to defend.²

The Commercial General Liability Coverage Form comprises the core of the Policy and contains three coverage sections: Coverage A, concerning bodily injury and property damage liability; Coverage B, concerning personal and advertising injury; and Coverage C, concerning medical payments. Coverage A generally requires Steadfast to defend and indemnify Dyno Nobel against suits seeking damages due to bodily injury or property damage. However, Coverage A contains several exclusions, including a pollution exclusion. The pollution exclusion precludes payouts for damages resulting from "'[b]odily injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants.'"³ App. Vol. 1 at 25, 101. Coverage B separately excludes indemnification claims for damages on account of actual, alleged, or threatened discharge of pollutants. Coverage C cross-references and adopts all of Coverage A's exclusions. The Policy also contains a "Total Pollution Exclusion Endorsement," which expands the pollution exclusion by barring coverage under Coverages A and C for any claim for damages that would not have arisen but for a pollution-related event.⁴Id. at 82, 161.

Three pollution-related endorsements reference specific states in their titles: "Indiana Changes — Pollution Exclusion" ("Indiana Endorsement"), "Missouri Changes — Pollution Exclusion" ("Missouri Endorsement"), and "Vermont Changes—Pollution" ("Vermont Endorsement").⁵ Id. at 68-70, 146-48. The Indiana Endorsement and the Missouri Endorsement expand the pollution exclusions under Coverages A, B, and C to bar claims for damages caused by irritants and contaminates which have a function in the insured's business, operations, premises, site, or location. The body of the Vermont Endorsement, meanwhile, creates standalone coverage allowing for claims arising from some pollution-related damages: Coverage D.⁶

Coverage D provides a liability aggregate limit of $3 million for indemnification of damages claims concerning bodily injury or property damage caused by a "pollution liability hazard,"⁷ and creates "the right and duty to defend the insured against any 'suit' seeking those damages," but only if Coverage D applies to the underlying pollution-related event. Id. at 70, 148. Coverage D extends to bodily injury or property damage caused by a pollution-related "occurrence"⁸ within the coverage territory, which is defined elsewhere in the Policy to include the United States, its possessions and territories, Puerto Rico, and Canada.⁹ There is no reference to Vermont in the body of Coverage D. At the top of the Vermont Endorsement, before the body of Coverage D, it notes "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." Id. at 70, 148.

B. Procedural Background

Dyno Nobel filed this suit in Utah state court in November 2021, seeking a declaratory judgment that Steadfast is obligated to cover and defend the Scott Action.¹⁰ Steadfast timely removed the action to the District of Utah, pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. The parties subsequently stipulated to a stay of discovery pending the district court's adjudication of the plain meaning of the contract. Steadfast filed a Motion for Summary Judgment, while Dyno Nobel filed a Motion for Partial Judgment on the Pleadings.

Steadfast argued in its Motion for Summary Judgment that the Policy plainly and unambiguously precludes coverage for Dyno Nobel's claim pursuant to its pollution exclusion. Steadfast asserted that the Vermont Endorsement cannot be understood to extend coverage here when, under Utah law, each provision of the contract must be given effect, and limiting the Vermont Endorsement to Vermont-related claims is the only sensible interpretation of the contract. In contrast, Dyno Nobel argued in its Motion for Partial Judgment on the Pleadings that Coverage D plainly and unambiguously required Steadfast to indemnify Dyno Nobel for its liability in the Scott Action because it creates new coverage for pollution-related liabilities, and Steadfast's failure to do so was a breach of the insurance contract. Dyno Nobel also responded that to read an endorsement as creating a new form of coverage is not an unreasonable interpretation of the contract.

The district court, in an oral decision following a motion hearing, granted in part and denied in part Steadfast's Motion for Summary Judgment and denied Dyno Nobel's Motion for Partial Judgment on the Pleadings. The court reasoned it could not "disregard a clear geographic limitation on the scope of Coverage D [in the endorsement title]." App. Vol. 3 at 43. Acknowledging a lack of controlling Utah precedent on state-specific endorsement titles, the court reviewed cases from across the country and concluded that the general trend is to give some effect to a reference to a specific state in the title of an endorsement. Reviewing how intermediate state courts in Utah have weighed contract titles and headings, the court also determined that, in Utah, there is a general trend toward giving contract titles and headings some effect, so long as they are consistent with the body of the contract.

Turning to the text of the Vermont Endorsement, the court interpreted the reference to Vermont in the title as requiring a nexus with Vermont for the endorsement to take effect. It reasoned that the reference to the nationwide coverage territory in Coverage D can be reasonably understood to mean, so long as there is a connection with Vermont and the harm occurs in the defined coverage territory, the Policy will cover claims concerning bodily injury caused by pollution. Thus, the court concluded the reference to Vermont in the title was in harmony with the endorsement's text.

The district court also reasoned, given the other state-specific exclusions, reaching a contrary conclusion here "would defy both the structure of the policies and the plain meaning of state qualifications to regard these titles as arbitrary labels." Id. at 54. The court noted too that the Policy's default coverages and the other endorsements show that it is overwhelmingly structured to preclude coverage of pollution-related losses. It reasoned that Dyno Nobel's reading of the Vermont Endorsement would undermine that plain structure and nullify other provisions of the Policy.

Accordingly, the district court concluded neither Coverage D nor the Vermont Endorsement required Steadfast to indemnify or defend against the Scott Action because that action involves a pollution-related loss¹¹ and has no connection with Vermont....