Technical Coating v. U.S. Fidelity

157 F.3d 843

• Court: Court of Appeals for the Eleventh Circuit
• Decided: October 9, 1998
• Docket: 97-2448
• Status: Published

Opinion

PUBLISH

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

_______________

No. 97-2448 _______________ FILED U.S. COURT OF APPEALS D. C. Docket No. 5:96CV221-RH ELEVENTH CIRCUIT 10/09/98 TECHNICAL COATING APPLICATORS, INC., THOMAS K. KAHN CLERK Plaintiff-Appellee,

versus

UNITED STATES FIDELITY AND GUARANTY COMPANY,

Defendant-Appellant.

______________________________

Appeal from the United States District Court for the Northern District of Florida ______________________________ (October 9, 1998)

Before BIRCH, Circuit Judge, HILL and KRAVITCH, Senior Circuit Judges. BIRCH, Circuit Judge:

In this insurance contract case, United States Fidelity and

Guaranty Company ("USF&G") appeals the district court's

conclusion that, under Florida law, an "absolute pollution

exclusion" is ambiguous when applied to the emission of vapors

from products used in their normal manner. For the reasons that

follow, we conclude that the district court erred in holding that the

absolute pollution exclusion is ambiguous under these

circumstances. We therefore vacate the district court's order

awarding partial summary judgment against USF&G.

I. BACKGROUND

Plaintiff-Appellee Technical Coating Applicators ("TCA") is a

roofing contractor incorporated and located in Florida. Defendant-

Appellant USF&G is an insurance company incorporated in

Maryland. Prior to the events underlying this lawsuit, TCA

purchased two general liability insurance policies from USF&G.

2 In 1992, the Okaloosa County, Florida, School District hired

TCA to perform repairs on the roof at the Baker School. As part

of the repairs process, TCA applied polyurethane foam and

several layers of elastomeric protective coatings to the roof of the

school. Several months after TCA completed its repair work,

school employees and students began reporting respiratory

problems. Ultimately, approximately thirty employees and

students filed suit against TCA, alleging that TCA negligently

applied the foam and elastomeric coatings and exposed the

employees and students to vapors emitted by these products.

TCA demanded that USF&G defend the lawsuits filed by the

employees and students pursuant to the two general liability

insurance policies issued by USF&G. Both insurance contracts

contain a clause known as an "absolute pollution exclusion,"

which excludes from coverage:

[any] "bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

3 . . . (d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations:

(i) if the pollutants are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor.

R2-20 Ex. A at 9; Ex. B at 6. "Pollutants" are defined in the

policies as "any solid, liquid, gaseous or thermal irritant or

contaminant, including smoke, vapor, soot, fumes, acids, alkalis,

chemicals, and waste." Id. Stating that the vapors emitted by

TCA's roofing products fell within the definition of a pollutant in the

absolute pollution exclusion, USF&G denied coverage and

refused to defend the lawsuits. TCA then commenced this action

against USF&G.

USF&G moved for summary judgment, arguing that the

absolute pollution exclusion permitted USF&G to deny coverage

for claims arising from the emission of vapors from the roofing

products. The district judge denied USF&G's motion, reasoning

4 that, because Florida law governing the construction of insurance

contracts resembled Georgia law in all relevant respects, the court

was obliged to follow Bituminous Casualty Corporation v.

Advanced Adhesive Technology, Incorporated, 73 F.3d 335 (11th

Cir. 1996). In Bituminous, we found an identically-worded

pollution exclusion clause to be ambiguous under Georgia law.

73 F.3d at 338. Consistent with Bituminous, the district court

awarded partial summary judgment in favor of TCA with respect to

USF&G's duty to defend the lawsuits against TCA. Finally, the

district judge certified his ruling for interlocutory appeal pursuant

to 28 U.S.C. § 1292(b). We agreed to review the district judge's

determination that the absolute pollution exclusion is ambiguous

under Florida law.

II. ANALYSIS

The district judge's resolution of the parties' motions for

summary judgment involved the construction of an insurance

5 contract, which is a question of law and is subject to de novo

review. Elan Pharm. Research Corp. v. Employers Ins. of

Wausau, 144 F.3d 1372, 1374-75 (11th Cir. 1998). Our review of

a district court's grant or denial of summary judgment is plenary

and we apply the same legal standards as those employed by the

district court. Id. Summary judgment is appropriate when no

genuine issue of material fact exists and the moving party is

entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c).

In a contract action, a federal court sitting in diversity

jurisdiction applies the substantive law of the forum state unless

federal constitutional or statutory law compels a contrary result.

See Insurance Co. of N. Am. v. Lexow, 937 F.2d 569, 571 (11th

Cir. 1991). In particular, the federal court must follow the

decisions of the state's highest court when that court has

addressed the relevant issue. See Brown v. Nichols, 8 F.3d 770,

773 (11th Cir. 1993). Here, the Florida Supreme Court has

published an opinion that squarely addresses the issues raised by

6 this appeal, Deni Associates of Florida, Incorporated v. State

Farm Fire & Casualty Insurance Company, 711 So.2d 1135 (Fla.

1998). Although the publication of Deni occurred after the district

judge issued his orders awarding summary judgment in favor of

TCA, "the law is settled that a federal appellate court sitting in a

diversity case must apply the state law as it exists at the time of

the appeal and not at the time of the district court judgment."

Kramer v. Piper Aircraft Corp., 868 F.2d 1538, 1541 (11th Cir.

1989). Intervening state decisions must be given full effect as if

the decisions existed during the pendency of the case in district

court. Id. Consequently, we apply the Florida Supreme Court's

holding in Deni to this case, despite the fact that this decision was

not available to the district judge.

In Deni, the Florida Supreme Court considered an absolute

pollution exclusion that contained language identical to that used

in the policies issued by USF&G. 711 So.2d at 1137. The court

concluded that the language is "clear and unambiguous" and

7 therefore must be enforced by courts interpreting such exclusions.

Id. at 1138. Consequently, the companies that issued the policies

in Deni had no duty to defend the policyholders in lawsuits after

the policyholders (a) spilled ammonia inside a building, releasing

ammonia vapors that allegedly caused damages to people inside

the building, and (b) "oversprayed" insecticide on two men

standing outside the property scheduled to be sprayed. Id. at

1137-38, 1140.

Relying upon the Florida Court of Appeal's decision in Deni,

the district judge reasoned that the facts of this case are

distinguishable from those of Deni, thus permitting the

consultation of authority from other states. Specifically, the district

judge noted that the vapors underlying the lawsuits against TCA

were emitted pursuant to the normal, proper application of TCA's

roofing products, while Deni and other Florida decisions involved

vapors or other pollutants discharged as a result of accidents or

improper usage of products. The Florida Supreme Court opinion,

8 however, eliminated this distinction, extending its holding to

encompass even those discharges that result from the proper,

everyday use of otherwise benign products and materials. Using

examples such as paint and glue, the court observed that,

although these products normally do not inflict injury, the products'

ability to produce an irritating effect places the products within the

policies' definition of an "irritant." Deni, 711 So.2d at 1139

(quoting American States Ins. Co. v. Nethery, 79 F.3d 473, 476

(5th Cir. 1996)).1 Consequently, a product that causes no harm

when used properly still may be classified as a pollutant under the

exclusion: "It can obviously cause harm when it is not used

properly. Thus, the pollution exclusion . . . precludes coverage. . .

." Id. at 1141.2

1 Nethery, which is quoted with approval by the Deni court, contains facts that are similar to those presented in this case. In Nethery, a painting company used paint and glue inside of a home, thus using those products in their proper, everyday manner. 79 F.3d at 474. The homeowner later sued the painting company for injuries allegedly sustained from fumes released by the paint and glue. Id. Interpreting Mississippi law, the Fifth Circuit held that an absolute pollution exclusion identical to the clauses at issue in this case abrogated the insurer's duty to defend the lawsuit. Id. at 478. 2 The Florida Court of Appeal interpreted the absolute pollution exclusion in a similarly broad manner:

9 After the Florida Supreme Court published Deni, we issued

West American Insurance Company v. Band & Desenberg, 138

F.3d 1428 (11th Cir. 1998), which adds further support to our

decision in this case. In West American, we held that an absolute

pollution exclusion identical to the exclusion at issue in this case

abrogated the insurer's duty to defend claims that the insured's air

conditioning system transported air-borne contaminants into the

insured's office building. 138 F.3d at 1428; see also West Am Ins.

Co. v. Band & Desenberg, 925 F. Supp. 758, 761 (M.D. Fla. 1996)

("[T]he language of the exclusion is clear and unambiguous. . . .

The language requires only that the pollution occur at a premises

owned or occupied by an insured.").

To repeat ourselves, the express language of this exclusion is to exclude all pollution bodily injury claims from coverage. The definition of pollution drafted by these underwriters in these cases was obviously intended to be both broad and comprehensive.... [T]he obvious meaning of the words in these categorical exclusions is that no pollution claims will be covered."

State Farm Fire & Cas. Ins. Co. v. Deni Assoc. of Florida, Inc., 678 So.2d 397, 403 (Fla. Dist. Ct. App. 1996) (emphasis added).

10 Consistent with these decisions, we conclude that, under

Florida law, the absolute pollution exclusions contained in the

policies issued by USF&G unambiguously excluded coverage for

bodily injuries sustained by breathing vapors emitted from TCA's

roofing products, regardless of whether TCA used the products

properly or negligently. Contrary to arguments posed by TCA, our

construction of the absolute pollution exclusion does not nullify the

essential coverage provided by the policies; rather, the policies

continue to provide coverage for a wide variety of accidents and

mishaps--such as injuries from falling equipment--that may occur

during the roof repair process.

TCA argues that, even if we conclude that the absolute

pollution exception is unambiguous and enforceable, we

nonetheless should affirm the district judge's ruling because the

absolute pollution exception applies only if the discharge of

pollutants occurs while the insured is "performing operations."

The district judge, however, did not consider this argument

11 because his conclusion regarding the ambiguity of the absolute

pollution exclusion eliminated the need to decide whether the

discharge occurred while TCA was performing operations. We

therefore decline to consider this argument on appeal, so that the

district judge may have an opportunity to address the argument in

the first instance. Citro Florida, Inc. v. Citrovale, S.A., 760 F.2d

1231, 1232 (11th Cir. 1985) ("We . . . decline to reach the merits

of an issue on which the district court has not ruled.") (citation and

internal quotation omitted).3

III. CONCLUSION

For the foregoing reasons, we conclude that the absolute

pollution exclusion is not ambiguous under the circumstances of

this case. We therefore VACATE the district judge's entry of

3 In a supplemental brief, TCA also argues that the district judge's ruling should be affirmed because USF&G failed to provide TCA with adequate notice of amendments to the absolute pollution exclusions. Because this contention is raised for the first time on appeal, we decline to consider this argument as well.

12 summary judgment in TCA's favor and REMAND the case to the

district court.