Threat of Pollution Insufficient for Coverage under Pollution Policy
Threat of Pollution Insufficient for Coverage under Pollution Policy
Guam Industrial Services, Inc. v. Zurich American Insurance Co.
2015 U.S. App. LEXIS 9045, No. 13-17005. (9th Cir. June 1, 2015)
By: Emily Hall
Edited by: Brooke E. Michiels
This case arises out of the sinking of a dry dock, loaded with barrels of oil, during a Typhoon in Guam. Guam Industrial Services, Inc. (“Guam Industrial” herein) owned the dry dock, which was undergoing repairs when it sank. At the time the dock sank, Guam Industrial had two insurance policies with Zurich American Insurance Co. (“Zurich” herein). One policy covered liability for property damage caused by pollutants, and the other covered damage to the dock. As a condition of the coverage, the second policy required Guam Industrial to obtain and maintain Navy Certification warranty for the dry dock (“Navy Certification” herein). Guam Industrial had obtained a commercial certification from Heger Dry Dock, Inc., but Heger Dry Dock refused to renew the certification until certain repairs were made to the dry dock. It never obtained a Navy Certification. The issues in question pertain to whether either of the two insurance policies covered costs of damage to the dock and cleanup, which was accomplished before any of the oil leaked out of the containers into the Pacific Ocean.The district court granted summary judgment for the insurers, finding the first policy was voidable because Guam Industrial had failed to maintain the warranty on the dock, and that the coverage under the second policy was never triggered because no pollutants were ever released.The Ninth Circuit affirmed the district court’s judgment, stating that Guam Industrial breached the warranty as it was never Navy Certified. Under both state and federal law, marine insurance warranties are to be strictly construed. Guam Industrial argued that the insurers waived their right to demand strict compliance with the Navy Certification warranty because they had accepted the commercial certification. Under Guam law, conduct that is inconsistent with the intent to demand strict compliance may constitute a waiver. The court dismissed this argument, stating that even if the insurers had waived their right to demand strict compliance, the dry dock was not commercially certified when it sank. The insurers never waived their right to insist on, at least, commercial certification.In regard to the pollutant policy, the court stated that it was undisputed that no oil leaked from the containers into the water in the harbor. The court had no occasion to consider whether disposing containers holding contaminants into the environment can constitute a discharge of pollutants, even if no contaminants leaked into the environment. Further, the court stated that the policy only covered damages caused by a discharge or dispersal of oil or other pollutants. Here, only barrels or containers were dispersed, not “smoke, vapors, soot, fumes, alkalis, toxic chemicals, liquids or gases, waste materials, oil or other petroleum substance or derivative.” There is no ambiguity in the meaning of the pollutant policy, and containers do not fall within the catchall terms of “or other irritants, contaminants or pollutants.”The dissent disagrees, stating that “if you slap a sill suit on a monkey, you still won’t want to take it to the prom. And if you pour crude oil into a barrel, you still won’t want it in your hot tub.” It also disagrees with the majority’s interpretation of a Seventh Circuit case, Patz v. St. Paul Fire & Marine Ins. Co., 15 F.3d 699 (7th Cir. 1994). The dissent construes that case to interpret the policy contract in favor of the insured party when there was an ambiguity. The dissent states that there is an ambiguity when each party defines “pollutant” differently, and that the cost of fishing out submerged oil barrels at the command of the Coast Guard is the kind of risk for which dry dock owners would seek coverage when buying insurance.
