“Special Hazards, Fluid Endorsement” Ambiguous – Total Pollution Exclusion Inapplicable

The United States Court of Appeals for the First Circuit, applying Massachusetts law, reversed the district court’s finding that the relevant excess policy provisions unambiguously excluded coverage and ordered entry of judgment in favor of Performance Trans., Inc. and Utica Mutual Insurance Company (collectively “PTI”) on its breach of contract claim against its excess insurer, General Star Indemnity Company (“General Star”).

PTI brought a breach of contract and unfair and deceptive insurance practices action against General Star for failing to provide coverage for cleanup costs stemming from a PTI tanker-truck overturning and spilling approximately 4,300 gallons of gasoline, diesel fuel, and dyed diesel fuel onto the roadway and into a nearby reservoir. The remediation work cost approximately $3,000,000 to date. At the time of the accident, PTI held approximately $1,000,000 in primary insurance coverage, which covered the incident, including the cleanup costs. The General Star excess policy includes an aggregate of $5,000,000 in coverage above the primary.  The General Star policy provides that it will indemnify the insured for ultimate net loss in excess of underlying that is covered by both the controlling underlying policy and the General Star policy.  And “[e]xcept for the express provisions of this policy, this policy will follow the provisions, conditions, exclusions and limitations of the controlling underlying policy.”  The General Star policy included twenty riders, fifteen labeled as exclusions, including a “Total Pollution” exclusion.  Additionally, the General Star policy includes an endorsement titled “Special Hazards and Fluids Limitation Endorsement.” General Star denied coverage citing the Total Pollution exclusion.  PTI requested that General Star reconsider its denial in consideration of the Special Hazards and Fluids Limitation Endorsement. The “Special Hazards and Fluids Limitation Endorsement” excludes coverage from any event arising out of, contributed by or relating to any “Special Hazard,” including “drilling fluids unloading hazard,” and resulting from the ownership, maintenance or use of any covered auto.  However, the exclusion contains an exception stating that it does not apply to an event arising out of the unloading of drilling fluids from an auto if the unloading of drilling fluids resulted directly from an overturn of such auto.  General Star again denied coverage citing the “Total Pollution” exclusion and stating that in any event, the fuel spill did not qualify as a “drilling fluids unloading hazard.” The parties cross-moved for summary judgment, and the district court granted summary judgment in favor of General Star. PTI appealed.

The First Circuit disagreed with the district court and found the plain language of the “Special Hazards and Fluids Limitation Endorsement” ambiguous. According to the First Circuit, “Both PTI’s and General Star’s interpretation of the Endorsement require an inferential step, and neither is ruled out by the text of the Endorsement.” Under Massachusetts law provisions of an insurance agreement should be read in light of the purpose of the overall agreement.  The First Circuit found that “[r]eading the agreement, as General Star does, to exclude a major risk in PTI’s line of business is inconsistent with the purpose of [the] insurance policy.” Additionally, no other policy provisions resolved the ambiguity. Because Massachusetts law is unequivocal that when faced with two plausible interpretations of the policy courts must construe all ambiguity in favor of the insured, the First Circuit held that coverage under the excess policy was available to PTI and reversed the district court’s ruling to the contrary. Performance Trans., Inc. v. Gen. Star Indem. Co., 983 F.3d 20 (1st Cir. Dec. 18, 2020).