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Mesa Oil, Inc. v. Insurance Co. of N. Am.

ELR Citation: 27 ELR 21481
Nos. 96-4034, 123 F.3d 1333/(10th Cir., 08/20/1997)

The court affirms a district court decision that clauses excluding pollution from comprehensive general liability (CGL) insurance policies relieve defendant-appellee insurer of its duty to defend and reimburse plaintiff-appellant insured for its liability arising from oil contamination of soil and groundwater. The insured was identified by the U.S. Environmental Protection Agency (EPA) as a potentially responsible party (PRP) at a Superfund site. The insured entered a settlement with the EPA as a de minimis responsible party, and was later sued by other PRPs for a greater contribution to the cleanup costs. Subsequently, the insured filed an action against the insurer seeking coverage for the EPA settlement and a defense to the PRP suit.

The court first rejects the insured's argument that because oil was its primary product, liability arising from its selling of oil cannot be considered pollution under the pollution exclusion. The pollution exclusion does not eliminate all coverage arising out of the insured's selling of oil, but only coverage for pollution that is not sudden and accidental. The used oil dumped into the ground at the Superfund facility is clearly a pollutant. The court next holds that the pollution at issue does not fall within the "sudden and accidental" exemption. The word "sudden" clearly expresses a meaning of quickness or abruptness, particularly in light of the fact that it would be entirely redundant when paired with the word "accidental" if it merely meant "unexpected." The court rejects the insured's argument that "sudden and accidental" should be viewed from the standpoint of the insured rather than that of the polluter. The plain language of the pollution exclusion is inconsistent with reading the exclusion from the standpoint of the insured. When the policies were intended to evaluate facts from the perspective of the insured, they said so explicitly. In addition, the insured has not pointed to any extrinsic evidence that is sufficient to overcome the plain meaning interpretation of the pollution exclusion.

The court next holds that the insured waived its opportunity to argue that the specific oil exclusion clause, which only deals with the discharge of oil into various bodies of water, negatively implies that the discharge of oil into soil or groundwater is covered under the policies. The court also holds that, under New Mexico law, no duty to defend arises when the claim "clearly falls" outside the coverage provided by the policy. Because the court concluded that the plain meaning of the insurance contract does not provide coverage in this situation, the insured's claim "clearly falls" outside the coverage provided by the policies and the insurer had no duty to defend the insured's claims.

Counsel for Plaintiff
Christopher Harris
Harris, Johnson & Stonecipher
1439 W. Babcock, Bozeman MT 59715
(406) 586-9714

Counsel for Defendant
Scott R. Hoyt
Gibson, Dunn & Crutcher
1717 Main St., Ste. 5400, Dallas TX 75201
(214) 698-3100

Before Holloway and Murphy, JJ.