James River Cas. Co. v. UniControl, Inc.

• Court: Court of Appeals for the Sixth Circuit
• Decided: July 14, 2023
• Docket: 22-3721
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 23a0323n.06

Case No. 22-3721

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

FILED JAMES RIVER CASUALTY COMPANY, ) Jul 14, 2023 DEBORAH S. HUNT, Clerk ) Plaintiff - Appellee, ) ) ON APPEAL FROM THE v. ) UNITED STATES DISTRICT ) COURT FOR THE NORTHERN UNICONTROL, INC., ) DISTRICT OF OHIO Defendant - Appellant. ) ) OPINION

Before: BOGGS, GIBBONS, and McKEAGUE, Circuit Judges.

McKEAGUE, Circuit Judge. Plaintiff James River Casualty Company insured

Defendant UniControl from 2015 to 2020. In 2020, UniControl was sued based on allegations that

UniControl’s predecessors caused property damage to soil and groundwater surrounding a

company facility in Michigan City, Indiana. UniControl asked James River to defend it in that

lawsuit. But James River denied that it had a duty to defend or indemnify UniControl and sought

a declaratory judgment stating the same. UniControl counterclaimed, arguing that James River’s

denial of coverage constituted a breach of contract. The district court granted summary judgment

in James River’s favor, finding coverage for the underlying lawsuit “expressly and unambiguously

excluded.” We agree and affirm. No. 22-3721, James River Cas. Co. v. UniControl

I. BACKGROUND

A. Factual Background

UniControl purchased a general commercial liability insurance policy from James River

that commenced coverage in June 2015. The policy was reissued four times (collectively, the

“Policies”), with the last coverage period ending in June 2020.

The Policies each contain an identical “Insuring Agreement Provision,” which states:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply.

R. 1-1, PageID #25. This provision can be found in a section labeled “Coverage A Bodily Injury

and Property Damage Liability” (“Coverage Part A”). Id.

The Policies also contain a “Claims in Progress Exclusion,” which modifies Coverage Part

A. This exclusion states:

a. This Coverage Part does not apply to “bodily injury”, “property damage”, or “personal and advertising injury” which begins or takes place before the inception date of coverage, whether such “bodily injury”, “property damage”, or “personal and advertising injury” is known to an “insured”, even though the nature and extent of such damage or injury may change and even though the damage may be continuous, progressive, cumulative, changing or evolving, and even though the “occurrence” causing such “bodily injury”, “property damage” or “personal and advertising injury” may be or may involve a continuous or repeated exposure to substantially the same general harm. b. All “property damage” to units of or within a single project or development, and arising from the same general type of harm, shall be deemed to occur at the time of damage to the first such unit, even though the existence, nature and extent of such damage or injury may change and even though the “occurrence” causing such “property damage” may be or involve a continuous or repeated exposure to substantially the same general harm which also continues or takes place (in the case of repeated exposure to substantially the same general harm) during the policy term.

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Id. at PageID #103 (emphasis added). The Policies define “property damage,” in relevant part, as

“[p]hysical injury to tangible property, including all resulting loss of use of that property. All such

loss of use shall be deemed to occur at the time of the physical injury that caused it.” Id. at PageID

#39. The Policies also contain a pollution exclusion, which states that “[p]ollution/environmental

impairment/contamination is not covered under this policy.” Id. at PageID #100.

In February 2020, Michigan City, Indiana, along with the Michigan City Redevelopment

Commission (the “Underlying Plaintiffs”), filed suit in Indiana against UniControl and

UniControl’s alleged predecessors in interest, alleging that the predecessors in interest operated a

manufacturing facility on a parcel of land in Michigan City (the “Property”) between 1918 and

1971 that contaminated the surrounding soil and groundwater. The Underlying Plaintiffs allegedly

attempted to remediate the contamination beginning in 2010. They allege that contamination

remained present in the surrounding soil and groundwater as of the time of filing (February 28,

2020)—thus, damage is alleged to have begun no later than 1971 and to have continued until at

least February 28, 2020. The Underlying Plaintiffs argue that UniControl is liable for this

contamination as a successor in interest to the original facility operators.

Following the commencement of the underlying lawsuit, UniControl submitted a coverage

claim to James River, asking James River to defend UniControl in the lawsuit. On or about April

28, 2020, James River sent an Acknowledgment of Claim and Denial of Coverage letter to

UniControl, denying the request and stating that the lawsuit was excluded from coverage under

the Policies.

B. Procedural Background

James River then initiated this action against UniControl on January 22, 2021, in the United

States District Court for the Northern District of Ohio. James River sought only a declaratory

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judgment that it does not have a duty under the Policies to defend or indemnify UniControl in the

underlying lawsuit. UniControl counterclaimed for breach of contract. Both parties subsequently

filed a motion for summary judgment on the other’s claims and filed a joint stipulation of fact.

The district court requested and received supplemental briefing from the parties on the issue of

whether subsection (b) of the Claims in Progress Exclusion exempts James River from

indemnifying and defending UniControl in the underlying lawsuit.

The district court granted James River’s motion for summary judgment and denied

UniControl’s motion for summary judgment. James River Cas. Co. v. Unicontrol, Inc., No. 1:21-

cv-185, 2022 U.S. Dist. LEXIS 131857, at *22 (N.D. Ohio 2022). The court found that subsection

(a) of the Claims in Progress Exclusion unambiguously excluded coverage for the underlying

lawsuit, because the alleged property damage began prior to the effective coverage date of the first

policy. The court rejected UniControl’s argument that James River had a duty to defend

UniControl in the underlying lawsuit even if James River did not have a duty to indemnify, stating

that subsection (a) limits Coverage Part A, which explicitly includes the duty to defend. The court

noted that the parties agreed that subsection (b) did not affect the meaning of subsection (a), and

declined to determine whether subsection (b) would also independently exclude the underlying

lawsuit from coverage. The court declined to address the applicability of the pollution exclusion,

finding it unnecessary to decide the issue. UniControl timely appealed.

II. ANALYSIS

A. Interpretation of the Contract

We review de novo a district court’s summary judgment decision on a breach-of-contract

claim. Pedicini v. Life Ins. Co. of Ala., 682 F.3d 522, 526 (6th Cir. 2012). “In a diversity action

involving an insurance contract, a federal court applies the substantive law of the forum state.”

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Talley v. State Farm Fire & Cas. Co., 223 F.3d 323, 326 (6th Cir. 2000) (citing Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 68 (1938)); Equitable Life Assurance Soc. of U.S. v. Poe, 143 F.3d 1013,

1016 (6th Cir. 1998)). Here, the parties agree that either Ohio or Indiana law governs the contract,

which lacks a choice-of-law provision. The relevant law in both states leads to the same result, so

we need not resolve which state’s law governs here. See In re Dow Corning Corp., 778 F.3d 545,

555 (6th Cir. 2015) (Sutton, J., dissenting) (“The first imperative of a conflict-of-laws problem is:

a conflict. When all roads lead to the same result, there is no conflict to resolve.” (citing CenTra,

Inc. v. Estrin, 538 F.3d 402, 409 (6th Cir. 2008))).

“The interpretation and construction of insurance policies is a matter of law to be

determined by the court using rules of construction and interpretation applicable to contracts

generally.” Equity Diamond Brokers, Inc. v. Transnat’l Ins. Co., 785 N.E.2d 816, 819 (Ohio Ct.

App. 2003) (citation omitted); State Farm Mut. Auto. Ins. Co. v. Jakubowicz, 56 N.E.3d 617, 619

(Ind. 2016). As such, when the “policy language is clear and unambiguous . . . it should be given

its plain and ordinary meaning.” Meridian Mut. Ins. Co. v. Auto-Owners Ins. Co., 698 N.E.2d 770,

773 (Ind. 1998) (citation omitted); see also Equity Diamond Brokers, 785 N.E.2d at 819. Policies

are ambiguous only if they are “susceptible to more than one reasonable interpretation”; ambiguity

cannot “arise from mere disagreement over a policy term’s meaning—that is, where ‘one party

asserts an interpretation contrary to that asserted by the opposing party.’” Erie Indem. Co. v. Estate

of Harris, 99 N.E.3d 625, 630 (Ind. 2018) (emphasis omitted) (quoting Wagner v. Yates, 912

N.E.2d 805, 810 (Ind. 2009)); see also Sauer v. Crews, 18 N.E.3d 410, 413 (Ohio 2014). Whether

the contract is ambiguous is the critical question, because, in both states, “[a]mbiguous provisions

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in insurance policies are construed in favor of the insured.” Meridian Mut. Ins. Co., 698 N.E.2d

at 773; King v. Nationwide Ins. Co., 519 N.E.2d 1380, 1384 (Ohio 1988).

James River asserts that subsection (a)’s limitation on coverage is clear: any property

damage that began prior to the commencement of the coverage period is excluded from coverage.

UniControl argues that subsection (a)’s meaning is not clear, and asserts that its own

interpretation—that subsection (a) “limit[s] indemnity coverage to the portion of the long-tail

property damage that takes place during the James River policy periods”—is reasonable and thus

must be accepted. Appellant’s Br. at 4, 13. The district court agreed with James River, finding

that “Subsection (a)’s text is clear: James River does not have to indemnify or defend UniControl

in lawsuits related to property damage that began to occur before 2015, even if damage continues

into the Policies’ coverage periods.” James River, 2022 U.S. Dist. LEXIS 131857, at *14.

Subsection (a) explicitly states that coverage does not extend to property damage that

“begins or takes place before the inception date of coverage.” R. 1-1, PageID #103 (emphasis

added). It goes on to state that such property damage is excluded “even though the nature and

extent of such damage or injury may change and even though the damage may be continuous,

progressive, cumulative, changing or evolving.” Id. The ordinary meaning of this language is that

any property damage which takes place before or begins before the inception date of coverage is

excluded. UniControl admits that the alleged property damage in question is continuous and began

long before the coverage period commenced. See Appellant’s Br. at 10 (“The contamination (that

is, the property damage) at issue in the underlying suit allegedly began between 1918 and 1976,

and was ongoing at least through the filing of the underlying suit in February 2020.” (emphases

added)). The property damage, and the underlying lawsuit, is thus clearly excluded under

subsection (a). See Atl. Cas. Ins. Co. v. Garcia, 878 F.3d 566, 568 (7th Cir. 2017) (finding the

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exclusion of coverage for a claim for property damage that (a) first occurred before the policy’s

inception date, or (b) is or is alleged to be in the process of occurring as of the policy’s inception

date unambiguously barred coverage when damages began before the policy’s inception); cf. Kirk

v. Provident Life & Accident Ins. Co., 942 F.2d 504, 505–06 (8th Cir. 1991) (finding that an

insurance provision stating “[n]o benefits [were] payable for expenses due to any Injury or Illness

beginning before the effective date of the coverage” excluded coverage for medical condition

which began prior to the effective date (alterations in original)). Because “reasonably intelligent

policyholders could not legitimately disagree as to what the policy language means, we deem the

term unambiguous and apply its plain ordinary meaning.” Erie Indem. Co., 99 N.E.3d at 630; see

also Cadle v. D’Amico, 66 N.E.3d 1184, 1188 (Ohio Ct. App. 2016) (explaining that a contract is

ambiguous if “reasonable minds could disagree as to its meaning” (citation omitted)).

UniControl’s contrary interpretation—that subsection (a) limits coverage to the portion of

the property damage that takes place during the policy periods and does not limit coverage for any

portions of damage that occur during the coverage period, even if that damage began before the

period—is unreasonable: it fails to account for the “begins” clause in subsection (a). UniControl

treats “begins or takes place” as a single descriptor with only one combined meaning, despite there

being two descriptors connected by an “or.” See Pizza v. Sunset Fireworks Co., 494 N.E.2d 1115,

1118 (Ohio 1986) (defining the word “or” as “a function word indicating an alternative between

different or unlike things”); Gencorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 821 (6th Cir.

1999) (citing Ohio law for the proposition that “‘or’ is generally considered a ‘disjunctive’ term

which provides alternatives”); Bourbon Mini-Mart, Inc. v. Comm’r, Ind. Dep’t of Env’t Mgmt., 806

N.E.2d 14, 20 (Ind. Ct. App. 2004) (“‘Or’ is defined as ‘a function word to indicate an alternative,

the equivalent or substitutive character of two words or phrases, or approximation or uncertainty.’”

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(quoting Or, Merriam-Webster Online, https://www.merriam-webster.com/dictionary/or));

Antonin Scalia & Bryan A. Garner, Reading Law § 12 (2012) (“Under the conjunctive/disjunctive

canon, and combines items while or creates alternatives. Competent users of the language rarely

hesitate over their meaning.”). UniControl’s interpretation of the language renders the “begins”

clause entirely meaningless. If subsection (a) excludes only property damage which takes place

before the coverage date, it need only say that. But it explicitly excludes damage which begins

before the coverage date. UniControl has provided no interpretation of subsection (a) that gives

meaning to the “begins” clause separate from the “takes place” clause. The fact that UniControl’s

interpretation renders a clause meaningless further weakens UniControl’s position that its

interpretation is reasonable. See Ryan v. TCI Architects/ Eng’rs/ Contractors, Inc., 72 N.E.3d 908,

914 (Ind. 2017) (“A contract should be construed so as to not render any words, phrases, or terms

ineffective or meaningless.”); Wohl v. Swinney, 888 N.E.2d 1062, 1066 (Ohio 2008) (“When

interpreting a contract, we will presume that words are used for a specific purpose and will avoid

interpretations that render portions meaningless or unnecessary.”).

Where a contract is unambiguous, “a court cannot create ambiguity.” Lager v. Miller-

Gonzalez, 896 N.E.2d 666, 669 (Ohio 2008); see also Erie Indem. Co, 99 N.E.3d at 630 (“[P]arties

to an insurance contract may not invite judicial construction by creating ambiguity.”). The Policies

unambiguously preclude coverage in this case.

B. Duty to Defend

UniControl also argues that James River has a duty to defend UniControl in the underlying

lawsuit even if its indemnity obligations are limited (or nonexistent). Coverage Part A explicitly

creates the duty to defend, but also states that James River “will have no duty to defend the insured

against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance

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does not apply.” R. 1-1, PageID #25. Subsection (a) explicitly limits the coverage in Coverage

Part A. Any limitation on coverage within subsection (a) therefore extends to the duty to defend

along with the duty to indemnify. Cf. Acuity v. Masters Pharm., Inc., 205 N.E.3d 460, 465 (Ohio

2022) (“[A]n insurer need not defend an action when all the claims are clearly and indisputably

outside the policy coverage.”); City of Gary v. Auto-Owners Ins. Co., 116 N.E.3d 1116, 1121 (Ind.

Ct. App. 2018) (finding no duty to defend “if there is no possible factual or legal basis on which

the insurer might be obligated to indemnify” (citation omitted)).

As the Policies unambiguously exclude coverage for the underlying lawsuit, James River

has no duty to defend UniControl in the underlying lawsuit.

C. The District Court’s Alleged Error

Finally, UniControl argues that the district court erred in stating: “This case hinges on

whether the terms of insurance policies that UniControl purchased from James River—the first

period of coverage commencing in June 2015—require James River to defend and indemnify

UniControl for property damage that occurred between 1918 and 1971.” Appellant’s Br. at 52

(quoting James River, 2022 U.S. Dist. LEXIS 131857, at *2). UniControl argues that this

statement is factually incorrect as the property damage is alleged to have continued at least until

the date the underlying lawsuit was filed (February 28, 2020). UniControl goes on to state that

“the possibility that [this error] might have influenced the district court’s decision further

undermines the district court’s order.” Id. at 53.

Beyond the cited introductory sentence, the district court never explicitly found that no

property damage occurred after 1971. More importantly, the allegedly incorrect statement played

no role in the district court’s overall conclusions. The court did not base its decision on a factual

finding that the damage stopped before the coverage period began; rather, the court specifically

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found that “James River does not have to indemnify or defend UniControl in lawsuits related to

property damage that began to occur before 2015, even if damage continues into the Policies’

coverage periods.” James River, 2022 U.S. Dist. LEXIS 131857, at *14 (emphasis added). And

UniControl makes no argument of prejudice—indeed, UniControl admits that “it is difficult to

ascertain the extent, if any, that this factual error had on the district court’s application of the

exclusion to the facts at issue.” Appellant’s Br. at 53. Any error was harmless. Cf. Kitchen v.

BASF, 952 F.3d 247, 255 (5th Cir. 2020) (noting that even if certain evidence should not have been

admitted, it would be harmless error as the district court did not rely on the evidence in dismissing

the case).

III. CONCLUSION

Because the Policies unambiguously exclude coverage for the underlying suit, we AFFIRM

the judgment of the district court.

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