Opinion
No. 1:07-CV-988.
January 8, 2009
Report and Recommendation Re Defendant's Motion for Summary Judgment
This case is assigned to United States district judge Thad Heartfield, and is referred to the undersigned United States magistrate judge by an order of reference entered on January 8, 2008. Pursuant to that order, the magistrate judge is authorized to hear and determine all pretrial matters before the court except certain motions listed in 28 U.S.C. § 636(b)(1)(A). As to those, the magistrate judge is designated to conduct hearings and submit proposed findings of fact and recommendations for disposition thereof. 28 U.S.C. § 636(b)(1)(B).
This report contains proposed findings and recommendations for disposition of the defendant GuideOne Mutual Insurance Company's motion for partial summary judgment.
I. Parties
Plaintiff is First Baptist Church of Mauriceville, Texas ("First Baptist Mauriceville"), a Texas domestic non-profit corporation, located in the city of Mauriceville, Orange County, Texas.Defendants are GuideOne Lloyd's Insurance Company ("GuideOne") and Paul E. Odom. GuideOne is an Iowa corporation with its principal office in Iowa, and for jurisdictional purposes, is a citizen of Iowa. Odom is an individual who resides and is domiciled in Texas.
GuideOne asserts that it has been incorrectly sued as GuideOne Mutual Insurance Company.
II. Background and Nature of Suit
First Baptist Mauriceville purchased from GuideOne a Texas commercial insurance policy (the "Policy") that insured First Baptist Mauriceville against direct physical loss of or damage to designated church buildings and property. The Policy was effective in September, 2005, when Hurricane Rita caused widespread damage in the Mauriceville area. First Baptist Mauriceville asserted a claim under the policy seeking reimbursement for roof, water, and wind damage caused by the hurricane.
GuideOne retained an adjuster, allegedly Odom, to evaluate First Baptist Mauriceville's claim. During the adjusting process, a dispute arose as to whether the Policy obligated GuideOne to reimburse First Baptist Mauriceville approximately $198,000.00 for paving two areas that allegedly were contaminated by sewage. These two areas were an "old playground" and a yard surrounding the "front office building." During and after Hurricane Rita, the American Red Cross used First Baptist Mauriceville's property as an emergency shelter. Such disaster-recovery use of the church property resulted in sewage backing up into and allegedly contaminating the front office building, its yard and a separate area formerly used as a children's playground. First Baptist Mauriceville maintained that these contaminated areas were no longer serviceable, should be paved over, and that GuideOne should reimburse its costs under the Policy.
GuideOne disputes that Odom was ever assigned to adjust this claim, and further asserts that Odom has no relationship or involvement with any relevant party or fact.
Dissatisfied, First Baptist Mauriceville concluded that GuideOne failed to fully compensate First Baptist Mauriceville for its losses. Consequently, it brought this action wherein it asserts a cause of action for breach of contract and numerous other extra-contractual claims.
III. Proceedings
First Baptist Mauriceville filed this lawsuit in the 128th Judicial District Court of Orange County, Texas, on September 14, 2007. GuideOne removed the action to this court on December 28, 2007, invoking federal jurisdiction on the basis of diversity of citizenship, and asserting that the non-diverse defendant, Odom, was improperly joined. First Baptist Mauriceville moved to remand, and the court denied that motion on September 29, 2008.See [Order Re Remand, Docket No. 20]. A final pretrial conference and trial scheduling is set for April 20, 2009.
On July 21, 2008, GuideOne filed the instant motion, seeking a partial summary judgment.
IV. GuideOne's Motion; First Baptist Mauriceville's Response
GuideOne's motion is limited and narrow. It seeks only a partial summary judgment. It does not seek summary judgment with respect to First Baptist Mauriceville's claims for damage to buildings, fencing or playground equipment, sewage contamination and other damage to the office building, expenses for relocating the playground, and expenses for installing a drainage system in the new playground. Rather, GuideOne seeks a summary judgment holding that it is not liable under the Policy only for damages to plaintiff's land, including any expenses to test, remediate, replace, or pave yards damaged by the sewage leak.In support, GuideOne argues that the Policy obligates it to reimburse First Baptist Mauriceville only for direct physical loss of or damage to "Covered Property," which includes "buildings" and "business personal property," but not "land." GuideOne asserts that the areas surrounding the front office building and the old play yard constitute "land," and, therefore, are not covered. GuideOne cites a litany of varying policy provisions which GuideOne interprets as unambiguously excluding the yard and playground from its coverage.
Those provisions state the following:
Coverage
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declaration caused by or resulting from any Covered Cause of Loss.
Covered Property
• Building
• Your Business Personal Property
Property Not Covered
Covered Property does not include:
• The cost of excavations, grading, backfilling or filling.
• Land (including land on which the property is located, water or growing crops; or lawns, except as provided in the Coverage Extension.
Ordinance or Law . . . [t]his additional coverage applies only to buildings to which the Replacement Cost coverage applies. . . . The terms of this Additional Coverage shall . . . [n]ot apply to any property or building that is not Covered Property.
Sewer, Drain or Sump Backup or Overflow
We will not pay for direct physical loss of or damage to Covered Property caused by or resulting from water that backs up or overflows from a sewer, drain or sump.
Trees, Shrubs, Plants and Lawns
You may extend the insurance provided by this Coverage Form to cover your trees, shrubs, plants and lawns at the described premises against loss by fire, lightening, explosion, riot, civil commotion, vehicle damage, aircraft and vandalism.
In response, First Baptist Mauriceville does not quarrel with GuideOne's interpretation of the policy's general coverages and exclusions. However, First Baptist Mauriceville argues that coverage is available under an entirely different and specific policy provision entitled "Pollutant Clean Up and Removal." That section provides:
Pollutant Clean Up and Removal
We will pay your expense to extract "pollutants" from land or water at the described premises if the discharge, dispersal, seepage, migration, release or escape of the "pollutants" is caused by or results from a Covered Cause of Loss that occurs during the policy period.
Pollutants means any 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.
First Baptist Mauriceville argues that the sewage contamination of the two areas in dispute is a pollutant, and that its claim for paving those areas is within the pollutant clean up and removal section of the policy. First Baptist Mauriceville further asserts that GuideOne has acknowledged its liability under this provision by paying policy limits for one of the contaminated premises. See infra Section VI.
GuideOne replies that has not conceded policy coverage on this aspect of First Baptist Mauriceville's claim. Rather, it only offered to pay part of the claim "[i]n the spirit of compromise" and "without waiving any rights or defenses under the policy."See [Reply Brief, Ex. A, Docket No. 17-3]. Thus, its previous offer to settle does not prevent it from disputing later claims for paving land.
V. Framework of Analysis
When deciding motions for summary judgment, courts apply both procedural and substantive legal standards. When a federal court's jurisdiction is premised on diversity of citizenship between the parties, as is the case here, the applicable procedural standards are those established under federal law.Brown v. Miller, 519 F.3d 231, 238 (5th Cir. 2008). Substantive standards are those established under the law of the forum state.Delta Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 399 (5th Cir. 2008).
A. Federal Procedural Standards
B. State Substantive Law
Summary judgment is appropriate when, viewing the evidence in the light most favorable to the non-moving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986); see also Fed.R.Civ.P. 56(c). An issue is genuine if the evidence is sufficient for a reasonable jury to return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-56 (1986). The admissibility of evidence is subject to the same standards and rules that govern the admissibility of evidence at trial. Donaghey v. Ocean Drilling Exploration Co., 974 F.2d 646, 650 n. 3 (5th Cir. 1992).
Summary judgment is proper after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 322.
"Insurance policies are contracts." Harken Exploration Co., 261 F.3d at 471 n. 3 (citing Amica Mut. Ins. Co. v. Moak, 55 F.3d 1093, 1095 (5th Cir. 1995)). In Texas, interpretation of insurance contracts is governed by the same standards that apply to the interpretation of other contracts. Bexar County Hosp. Dist. v. Factory Mut. Ins. Co., 475 F.3d 274, 276 (5th Cir. 2007); Simco Enter., Ltd. v. James River Ins. Co., 566 F. Supp.2d 555, 560 (E.D. Tex. 2008). The interpretation of an insurance policy is a question of law for the court. New York Life Ins. Co. v. Travelers Ins. Co., 92 F.3d 336, 338 (5th Cir. 1996); Simco, 566 F. Supp.2d at 560; National Am. Ins. Co. v. Breaux, 368 F. Supp.2d 604, 611 (E.D. Tex. 2005). "A federal court, sitting in diversity in Texas, applies Texas law in the interpretation of insurance policies." Simco, 566 F. Supp.2d at 560 (citing International Ins. Co. v. RSR Corp., 426 F.3d 281, 291 (5th Cir. 2005)); Harken Exploration, 261 F.3d at 471 n. 3 (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-79 (1938)).
Contract provisions should be construed by considering the policy as a whole, giving effect to each part. Simco, 566 F. Supp.2d at 560 (citing Valmont Energy Steel, Inc. v. Commercial Union Ins. Co., 359 F.3d 770, 773 (5th Cir. 2004)). Thus, courts should strive to give meaning to "every sentence, clause, and word to avoid rendering any portion inoperative." Balandran v. Safeco Ins. Co. of America, 972 S.W.2d 738, 741 (Tex. 1998). When construing an insurance policy, the contract terms must be given their "ordinary and generally accepted meaning unless the policy shows that the words were meant in a technical or different sense." International Ins. Co., 426 F.3d at 291.
"Specific provisions in the policy control over general statements of coverage." Simco, 566 F. Supp.2d at 560. Likewise, "[e]ndorsements control over conflicting general policy language." Id. (quoting Westchester Fire Ins. v. Heddington Ins. Ltd., 883 F. Supp. 158, 165 (S.D. Tex. 1995).
"Under Texas law, the maxims of contract interpretation regarding insurance policies 'operate squarely in favor of the insured.'" Lubbock County Hosp. Dist. v. National Union Fire Ins. Co., 143 F.3d 239, 242 (5th Cir. 1998) (quoting National Union Fire Ins. Co. v. Kasler Corp., 906 F.2d 196, 198 (5th Cir. 1990)). This is especially true when dealing with "exceptions and words of limitation." Id. (quoting Ramsay v. Maryland Am. Gen. Ins. Co., 533 S.W.2d 344, 349 (Tex. 1976)). Indeed, "'if multiple interpretations of [the policy] are reasonable, [the court] must construe the [policy] against the insurer.'" Harken Exploration, 261 F.3d at 475 (quoting St. Paul Fire Marine Ins. v. Green Tree Corp., 249 F.3d 389, 392 (5th Cir. 2001)). Further, an ambiguous insurance policy is construed in favor of the insured.Carrizales v. State Farm Lloyds, 518 F.3d 343, 346 (5th Cir. 2008).
VI. Application and Interpretation of the Policy
GuideOne correctly argues — and First Baptist Mauriceville apparently concedes — that land is excluded from the Policy's general definition of "covered property." Thus, GuideOne is entitled to a partial summary judgment unless the additional coverage specifically afforded under the "Pollutant Clean Up and Removal" section applies.
That section obligates GuideOne to pay expenses up to $10,000.00 for extraction of pollutants from land at all "described premises," provided that the presence of such pollutants was caused by or resulted from a covered cause of loss occurring during the policy period. The declarations page for the policy identifies two "described premises," one including the church, Sunday school building, gym, and education building ("Premises One") and the other including the front office building ("Premises Two"). Moreover, it is undisputed that Hurricane Rita was a covered cause of loss occurring during the policy period.
The issue turns, therefore, on whether the sewage that migrated onto the curtilage of the two described premises during the Red Cross's disaster relief operations constitutes a pollutant. Application of the contract-construction principles stated earlier requires the court to conclude that sewage qualifies as a pollutant, and that the policy affords a maximum of $10,000 coverage for the extraction thereof at each described premise.
As used in the policy, pollutants include any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Webster's II defines "waste" as that which is "excreted from the body as unusable." See Webster's II New Riverside University Dictionary (1984). Raw sewage seems to easily fit within the ordinary and generally accepted meaning of waste, but even if not, it is at least an ambiguous term. In either instance, the policy must be interpreted in favor of the insured. See Harken Exploration, 261 F.3d at 475. Further, there is no indication that the usage of the word "waste" is to be given a contrary meaning under the policy. See International, 426 F.3d at 291.
See, e.g., Minerva Enter., Inc. v. Bituminous Cas. Corp., 851 S.W.2d 403, 404 (Ark. 1993) (finding the pollution exclusion ambiguous with respect to whether sewage fits within the definition of "waste"); Incorporated Village of Cedarhurst v. Hanover Ins. Co., 223 A.D.2d 528, 529, 636 N.Y.S.2d 390, 391 (N.Y.App.Div. 1996) (finding it ambiguous as to whether raw sewage is encompassed within the definition of waste, and therefore declining to apply the exclusion); cf. Florida Farm Bureau Ins. Co. v. Birge, 659 So.2d 310, 311 (Fla.Dist.Ct.App. 1994) (finding that policy exclusions for damage resulting from "water" or "pollutants and contaminants" were ambiguous as to whether they applied to backup of raw sewage, thus warranting construction in favor of coverage).
Given these conclusions, the court is within its province to find that (a) the specific "Pollutant Clean Up and Removal" section of the policy — which expressly covers land — provides limited coverage for extraction of sewage pollutants from the two areas in dispute, and (b) such section is not mooted or rendered meaningless by the policy's general exclusion of "land" from "covered property" insured against direct physical loss or damage.
VII. Recommendation
GuideOne's motion for partial summary judgment should be denied to the extent that it seeks to avoid liability for expenses incurred in extracting pollutants from First Baptist Mauriceville's land up to $10,000.00 per described premises. GuideOne's motion for partial summary judgment should be granted in all other respects.
Whether First Baptist Mauriceville actually incurred or will incur expenses for extraction of pollutants is a separate issue to be determined at trial.
VIII. Objections
Objections must be: (1) specific, (2) in writing, and (3) served and filed within ten days after being served with a copy of this report. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 1(a), 6(b), 72(b).A party's failure to object bars that party from: (1) entitlement to de novo review by a district judge of proposed findings and recommendations, Rodriguez v. Bowen, 857 F.2d 275, 276-77 (5th Cir. 1988), and (2) appellate review, except on grounds of plain error, of unobjected-to factual findings and legal conclusions accepted by the district court, Douglass v. United Servs. Auto. Ass'n., 79 F.3d 1415, 1417 (5th Cir. 1996) (en banc).