Dyno Nobel v. Steadfast Insurance CompanyDyno Nobel v. Steadfast Insurance Company
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
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.
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
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’
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
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.
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
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. The district court entered judgment for Steadfast,12 and Dyno Nobel timely appealed.
II. DISCUSSION
On appeal, Dyno Nobel argues the district court erred by improperly reading the term Vermont into the language of Coverage D, when the only reference to Vermont is in the Vermont Endorsement heading. Specifically, Dyno Nobel contends that, under Utah law, the reference to Vermont in the title “Vermont Changes—Pollution” cannot be read in harmony with the language in the body of Coverage D referring to “coverage territory,” and therefore, the title cannot be considered when interpreting the plain language of the contract. For the reasons we now explain, we disagree.
Before considering the proper interpretation of the Vermont Endorsement, we pause to discuss the applicable standard of review. Ultimately, considering the issue de
A. Standards of Review
“We review summary judgment de novo, applying the same legal standard as the district court.” Gutierrez v. Cobos, 841 F.3d 895, 900 (10th Cir. 2016). Under
We review a district court’s ruling on a
B. Insurance Contract Interpretation
Our task on appeal is to determine the proper meaning of the insurance contract. To place that discussion in context, we first decide what law controls our analysis. Concluding the contract is governed by Utah law, we next set forth the substance of Utah law regarding insurance contract interpretation. Finally, we apply that law to interpret the terms of the Policy here de novo.
1. Applicable Law
“[W]hen, as here, a federal court is exercising diversity jurisdiction, it must apply the substantive law of the forum state.” Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1188 (10th Cir. 2000). Dyno Nobel brought the lawsuit in Utah and the parties do not dispute the applicability of Utah law. Thus, like the district court, we interpret the insurance contract under Utah law.
“When the federal courts are called upon to interpret state law, the federal court must look to rulings of the highest state court, and, if no such rulings exist, must endeavor to predict how that high court would rule.” Amparan v. Lake Powell Car Rental Cos., 882 F.3d 943, 947 (10th Cir. 2018) (quotation marks omitted). When predicting
2. Contract Interpretation Under Utah Law
a. General principles
Under Utah law, insurance contracts are to be interpreted using the same rules applied to interpreting ordinary contracts. Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272, 1274 (Utah 1993). “Courts interpret words in insurance policies according to their usually accepted meanings and in light of the insurance policy as a whole.” Utah Farm Bureau Ins. Co. v. Crook, 980 P.2d 685, 686 (Utah 1999). “[I]t is axiomatic that a contract should be interpreted so as to harmonize all of its provisions and all of its terms, which terms should be given effect if it is possible to do so.” Brigham Young Univ. v. Lumbermens Mut. Cas. Co., 965 F.2d 830, 835 (10th Cir. 1992) (alteration in original) (quoting LDS Hosp. v. Capitol Life Ins. Co., 765 P.2d 857, 858 (Utah 1988)).
Utah courts also “construe insurance contracts by considering their meaning ‘to a person of ordinary intelligence and understanding.’” Doctors’ Co. v. Drezga, 218 P.3d 598, 603 (Utah 2009) (quoting LDS Hosp., 765 P.2d at 858); see, e.g., Lopez v. United Auto. Ins. Co., 274 P.3d 897, 901 (Utah 2012) (“An ordinary person reading the phrase ‘reasonable explanation’ would understand it to mean the provision of a
“If the language within the four corners of the contract is unambiguous, the parties’ intentions are determined from the plain meaning of the contractual language, and the contract may be interpreted as a matter of law.” Green River Canal Co. v. Thayn, 84 P.3d 1134, 1141 (Utah 2003) (quoting WebBank v. Am. Gen. Annuity Svc. Corp., 54 P.3d 1139, 1145 (Utah 2002)). If there is an ambiguity in a contract, the ambiguities are to be “construed against the drafter—the insurance company—and in favor of coverage.” Crook, 980 P.2d at 687. Under Utah law, a contract is ambiguous if it is unclear, omits terms, or relies on terms that may be understood to have two or more plausible meanings. Alf, 850 P.2d at 1274. “[I]f an insurance contract has inconsistent provisions, one which can be construed against coverage and one which can be construed in favor of coverage, the contract should be construed in favor of coverage.” Sandt, 854 P.2d at 523. “In general, a court may not rewrite an insurance contract for the parties if the language is clear and unambiguous.” Alf, 850 P.2d at 1275.
The Utah Supreme Court has yet to determine definitively whether and when headings are to be considered as part of the language of a contract. Accordingly, the district court and the parties looked to three cases from the Utah Court of Appeals for guidance: McEwan v. Mountain Land Support Corp., 116 P.3d 955 (Utah Ct. App. 2005); Vanderwood v. Woodward, 449 P.3d 983 (Utah Ct. App. 2019); and Bear v. LifeMap Assurance Co., 503 P.3d 507 (Utah Ct. App. 2021). See Amparan, 82 F.3d at 947 (“[I]f no [rulings of the highest state court] exist, [the court] must endeavor to predict how that high court would rule.”). From these cases, we learn that the Utah Court of Appeals has been willing to consider headings as part of the insurance contract when such headings are in complete harmony with the text below the heading. See Bear, 503 P.3d at 515.
For example, in McEwan, the Utah Court of Appeals addressed whether tenants were required to obtain property insurance for the property they were leasing when the heading of a section in the lease was titled “Property Insurance,” but the text of the provision discussed only a requirement to buy casualty insurance. 116 P.3d at 959–60. The court held that since a contract heading is not a part of the contract itself and the body of the contract did not require the tenant to purchase property insurance, the tenant was under no obligation to purchase property insurance based on the heading. Id. at 959–60.
Fourteen years later, in Vanderwood, the Utah Court of Appeals reasoned in a footnote that a heading could be given some weight in analyzing the meaning of the underlying provision because it was “completely in harmony” with the provision’s text.
Then, in 2021, the Utah Court of Appeals decided Bear, a life insurance dispute, relying heavily on the reasoning in McEwan. 503 P.3d at 514–15. In Bear, the plaintiff asserted that an ambiguity in the life insurance contract was created when a heading of a provision stated “WHEN WE MAY REQUIRE EVIDENCE OF INSURABILITY” but the body of the provision stated that the insurer will require evidence of insurability. Id. at 515. The court held there is no ambiguity when there is a discrepancy between the body of a given contract provision and its heading, because the heading simply may not be considered as part of the contract in that instance. Id. The court also limited the interpretive rule outlined in Vanderwood to cases where the heading is completely in harmony with the text of the relevant provision. Id.
3. Interpreting the Vermont Endorsement
The Vermont Endorsement states, in relevant part:
App. Vol. 1 at 70; see also App. Vol. 1 at 148 (the Vermont Endorsement language as repeated in the 2015–16 Policy).
a. Interpretation under Utah law
Giving meaning to the use of Vermont in the heading of the Vermont Endorsement is in complete harmony with the provisions of Coverage D. It is true that the only reference to Vermont in the endorsement is in the heading, while the only other geographic reference in the body of that endorsement is a reference to “the coverage territory,” which includes the entire United States and its possessions and territories, Canada, and Puerto Rico. App. Vol. 1 at 70, 148. But those references are not in conflict. As the district court and Steadfast noted, the policyholder might have a release of a nitric oxide plume from its plant in Vermont that injures someone in New Hampshire. Under those circumstances, Coverage D would apply because although the “occurrence” was in New Hampshire, there is a nexus with Vermont. And under this interpretation, both the reference to Vermont in the heading and the reference to “coverage territory” in the body of the Vermont Endorsement have meaning. In contrast, an occurrence with no nexus to Vermont, whether or not in the coverage territory, would not trigger Coverage D.
Dyno Nobel argues that, where the heading refers to “Vermont” and the body of the provision refers to a nationwide coverage territory, “the heading and the provision apply in contradictory ways, which contradiction is sufficient to render the heading organizational only.” Appellant Br. at 26–27. However, Dyno Nobel overlooks a key
Dyno Nobel’s preferred interpretation of the contract would improperly nullify several provisions in the contract in contravention of Utah law requiring that courts give meaning to every provision of the contract when possible. See Brigham Young Univ., 965 F.2d at 835. Here, the insurance contract is structured against coverage of damages caused by pollutants. Coverages A, B, and C—the three primary coverages in the Policy—each clearly exclude damages resulting from pollution. There are also three endorsements that expand the pollution exclusions contained within the main coverages. Two of those endorsements are state specific: the Indiana Endorsement and the Missouri Endorsement. Aside from the “Total Pollution Exclusion with a Hostile Fire Exception” Endorsement, which makes a small carveout for losses arising from “hostile fire,” or an uncontrolled fire, see App. Vol. 1 at 36, 83, 112, 162, the Vermont Endorsement is the only aspect of the Policy which extends coverage for pollution-related claims. Adopting Dyno Nobel’s reading of this one endorsement would nullify several key provisions of
Dyno Nobel contends the underlying coverage “is expressly additive, extends its own coverage, contains no applicable exclusions, and defines its own geographical scope—unbounded by Vermont in any fashion.” Appellant Br. at 23. Furthermore, Dyno Nobel argues the inclusion of the Vermont Endorsement as a comprehensive additional form of coverage applicable to the entire coverage territory would not render other state-specific endorsements inoperable, because the Indiana and Missouri Endorsements explicitly modify Coverages A and B rather than creating new coverages, and the Utah endorsements are merely procedural. But these arguments still overlook how these endorsements and the other Coverages’ pollution exclusions would be essentially eliminated from the Policy by broadly reading the Vermont Endorsement into the Policy. See Brigham Young Univ., 965 F.2d at 835.
Dyno Nobel relatedly argues that, if the pollution-related coverages conflict, the provisions extending coverage should be applied under Utah law. This argument not only fails to consider Utah case law requiring that we give meaning to as many provisions of the contract as possible and defer to the plain language when it is indeed plain, see Crook, 980 P.2d at 687; Brigham Young Univ., 965 F.2d at 835, but also relies on case law concerning the resolution of ambiguities within an insurance contract, see Mellor v. Wasatch Crest Mut. Ins. Co., 201 P.3d 1004, 1008–09 (Utah 2009) (finding there is an
Dyno Nobel claims “[t]here is nothing unreasonable or implausible about an insurance policy that adds coverage via endorsement—even coverage beyond the coverage provided for in the main body of the policy.” Appellant Br. at 24. But the mere existence of an endorsement does not eliminate the need for the court to interpret and construe the Vermont Endorsement alongside other provisions of the contract. See St. Paul Fire & Marine Ins. v. Com. Union Assur., 606 P.2d 1206, 1208 (Utah 1980); cf. Meadow Valley Contractors, Inc. v. Transcon. Ins. Co., 27 P.3d 594, 596 n.2 (Utah Ct. App. 2001) (“[W]e collectively refer to the insurance policy and the additional insured endorsement as ‘the policy.’”). Nor does Dyno Nobel point us to any statements of Utah law requiring us to give weight to an endorsement such that it eliminates key provisions of the main body of an insurance contract. While the Utah Supreme Court has not spoken on the issue, Utah’s intermediate appeals court has suggested we may consider the title of the Vermont Endorsement where it is in harmony with the body of the Endorsement. And doing so here also comports with general principles of Utah law favoring harmony among as many contract provisions as possible.
Having concluded that the title to the Vermont Endorsement is properly considered under Utah law, we now address the meaning of the Vermont Endorsement.
To be sure, an ordinary purchaser of insurance could be confused as to the extent and nature of the nexus to Vermont required. But here, Dyno Nobel makes no contention that the Scott Action has any nexus with Vermont. Thus, we conclude that an ordinary insurer in Dyno Nobel’s position would understand that the plain language of the Vermont Endorsement excludes coverage of the Scott Action because it has no connection with Vermont.
Persuasive authority from outside of Utah also supports our interpretation of the contract.13 Steadfast points us to several cases concerning state-specific provisions in commercial property insurance policies in the context of the COVID-19 pandemic. Specifically, this precedent addresses whether, in a commercial property insurance policy containing thirty-one state-specific endorsements, the “Louisiana Endorsement” applies outside Louisiana when its only reference to Louisiana is in the heading. Most courts addressing this issue outside of Louisiana have held that the Louisiana Endorsement applies only to property in Louisiana.14 In reaching that conclusion, these courts rely on
Several of the Louisiana Endorsement cases are particularly persuasive given the depth of their analysis and use of principles also applicable in Utah. See Amparan, 882 F.3d at 948. For instance, the Eighth Circuit recently held that the Louisiana Endorsement is geographically limited, reasoning that “no lay person—no reasonable insured—could look at the policy as a whole and fail to appreciate that the state-specific endorsements are intended to apply in the respective states.” Lindenwood Female Coll., 61 F.4th at 575 (“The references to Louisiana and other states are not mere titles; they serve to establish the structure of the policy as a whole.”). The Ninth Circuit similarly reasoned, in holding that the Louisiana Endorsement does not apply outside of Louisiana, “[n]o reasonable reader of the policy could fail to recognize
The Appellate Division of the New Jersey Superior Court concluded that the Louisiana Endorsement did not apply to the New Jersey property at issue after reviewing the contract as a whole. AC Ocean Walk, LLC v. Am. Guar. & Liab. Ins. Co., No. A-1824-21, 2022 WL 2254864, at *15–16 (N.J. Super. Ct. App. Div. June 23, 2022). The court noted that, as here, the endorsements would untenably create conflicting amendments to various sections of the insurance contract if each endorsement were broadly applicable. Id. at 16. Meanwhile, in Carilion Clinic v. American Guarantee and Liability Insurance Co., the Western District of Virginia held the only way to make sense of the entirety of the contract is to read the Louisiana Endorsement as applying only to property in Louisiana. 583 F. Supp. 3d 715, 735–36 (W.D. Va. 2022) (also noting that the
Dyno Nobel argues that Steadfast’s reliance on rulings from across the country concerning the applicability of property policies to COVID-19-related business closures (and, by extension, our reliance) is inapposite here. First, Dyno Nobel notes that several of these cases discussed the inapplicability of state-specific endorsements only in dicta. Manhattan Partners, LLC v. Am. Guar. & Liab. Ins. Co., No. 20-14342, 2021 WL 1016113 (D.N.J. March 17, 2021); Boscov’s Dep’t Store, Inc. v. Am. Guar. & Liab. Ins. Co., 546 F. Supp. 3d 354 (E.D. Pa. 2021); Lindenwood Female Coll. v. Zurich Am. Ins. Co., 569 F. Supp. 3d 970 (E.D. Mo. 2021).
Second, Dyno Nobel contends that because the insurance contracts at issue in the COVID-19 cases are property-specific contracts, the same reasoning cannot be applied to this contract which covers losses irrespective of whether they occurred on a specific property. Dyno Nobel does not explain why this distinction would result in distinct interpretations of the state-specific endorsements, and we cannot determine any distinguishing element.
Considering the Policy as a whole, including the title to the Vermont Endorsement, it plainly and unambiguously excludes indemnification and defense of the Scott Action.
We AFFIRM the district court’s grant of summary judgment in favor of Steadfast and the denial of Dyno Nobel’s
Notes
a. Premises you own, rent or occupy; or
b. Any site or location on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations.
App. Vol. 1 at 73, 151.
a. The United States of America (including its territories and possessions), Puerto Rico and Canada;
b. International waters or airspace, but only if the injury or damage occurs in the course of travel or transportation between any places included in Paragraph a. above; or
c. All other parts of the world if the injury or damage arises out of:
(1) Goods or products made or sold by you in the territory described in Paragraph a. above;
(2) The activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business; or
(3) “Personal and advertising injury” offenses that take place through the Internet or similar electronic means of communication.
App. Vol. 1 at 36, 112.