March 2024

AXA XL Ins. Co UK Ltd. v. Exel Inc.

United States District Court, D. New Jersey.

AXA XL INSURANCE COMPANY UK LIMITED, Plaintiff,

EXEL INC., EXEL FREIGHT CONNECT INC. d/b/a DHL TRANSPORT BROKERAGE, VILSAINT ENTERPRISES LLC d/b/a LG XPRESS LINE, Defendants.

Civ. No. 2:23-cv-21874 (WJM)

Filed 02/15/2024

OPINION

WILLIAM J. MARTINI, U.S.D.J.

*1 This is a subrogation action by Plaintiff AXA XL Insurance Company UK Limited (“Plaintiff”) for monetary damages stemming from the alleged failed transportation of cargo. Defendants Exel Inc. d/b/a DHL Supply Chain USA (“DHL Supply Chain”) and Exel Freight Connect Inc. d/b/a DHL Transport Brokerage (“DHL Transport”) (jointly “DHL Defendants”) move to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6) due to federal preemption, Fed. R. Civ. P. 8(a) for improper group pleading, and Fed. R. Civ. P. 12(b)(3) for improper venue. ECF No. 7. The Court decides the matter without oral argument. Fed. R. Civ. P. 78(b). For the reasons stated below, DHL Defendants’ motion to dismiss is denied in part and granted in part.

I. BACKGROUND

On or about November 1, 2021, the DHL Defendants (or acting on behalf of Defendant Vilsaint Enterprises LLC d/b/a LG Xpress Line (“LG Xpress”)), received three separate cargos of champagne at Western Carriers in North Bergen, New Jersey. Compl. ¶ 14. The bills of lading and/or receipts¹ describe the three cases of champagne and identify both “DHL” and LG Xpress as the carrier. Id.; see Bills of Lading, ECF No. 7-3. The cargo was to be transported on behalf of insured shipper Moet Hennessy USA Inc. (“Moet”) to consignee Southern Wine & Spirits in Lakeland, Florida. Id.

While en route, on November 3, 2021, the LG Xpress truck and trailer carrying the cargo of champagne rolled over resulting in a fatal highway accident in South Carolina. Id. at ¶ 15. Moet eventually arranged to have the DHL Defendants return the sorted and salvaged bottles of champagne to Western Carriers in New Jersey. Id. at ¶¶ 16-17. Upon inspection, the salvaged cargo, having sustained damage and bottle breakage, was deemed unfit for consumption. Id. at ¶ 19. Plaintiff, as assignee of the claim, seeks damages of $937,442.00. Id. at ¶ 28.

Plaintiff contends that DHL Supply Chain is an authorized broker and carrier, id. at ¶ 6, that DHL Transport is a broker and “de facto carrier,” id. at ¶¶ 7-8, (under “The Parties”),² and that the DHL Defendants “took responsibility for the transportation of the subject cargo,” id. at ¶ 13. Count One alleges all Defendants are liable as carriers under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706, Id. at ¶¶ 26-27. In the second Count, Plaintiff asserts that DHL Transport is liable as a broker for breach of contract for failing to transport the cargo in good order and to “adhere to industry guidelines and applicable law.” Id. at ¶¶ 22, 30-31. Specifically, Plaintiff alleges Defendants did not have on hand New Jersey alcohol permits prior to transport of alcoholic beverages. Id. at ¶ 20.

II. DISCUSSION

A. Rule 12(b)(6) Motion to Dismiss

*2 Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief can be granted. The moving party bears the burden of showing that no claim has been stated, Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005), and dismissal is appropriate only if, accepting all of the facts alleged in the complaint as true, the plaintiff has failed to plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir, 2008). This assumption of truth is inapplicable, however, to legal conclusions couched as factual allegations or to “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 662 (2009). That is, although a complaint need not contain detailed factual allegations, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Thus, the factual allegations must be sufficient to raise a plaintiff’s right to relief above a speculative level, see id. at 570, such that the court may “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard is not akin to a probability requirement’ … it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

1. The Carmack Amendment

The Carmack Amendment, 49 U.S.C. § 14706(a)(1), states that a “carrier providing transportation or service … or any other carrier that delivers the property [is] liable to the person entitled to recover under the receipt or bill of lading” for “the actual loss or injury to the property.” It preempts all state regulation or common law remedies, including breach of contract claims, but provides a shipper recourse for damages “only against carriers.” AMG Res. Corp. v. Wooster Motor Ways, Inc., 796 Fed. App’x 96, 100 (3d Cir. 2020); Certain Underwriters at Interest at Lloyds of London v. United Parcel Serv. of Am., Inc., 762 F.3d 332, 336 (3d Cir. 2014). A “carrier” is defined as a “motor carrier, a water carrier, and a freight forwarder.” 49 U.S.C. § 13102(3). In contrast, the Carmack Amendment does not hold liable “a broker—someone who merely arranges for transportation.” Tryg Ins. v. C.H. Robinson Worldwide, Inc., 767 Fed. App’x 284, 285 (3d Cir. 2019); AMG Resources Corp., 796 Fed. App’x. at 99. A “broker” is a “person, other than a motor carrier” that “sells, offers for sale, negotiates for, or holds itself out … as selling, providing, or arranging for, transportation by motor carrier for compensation.” 49 U.S.C. § 13102(2). The Third Circuit has expounded on the difference between carriers and brokers:

If an entity accepts responsibility for ensuring the delivery of goods, then that entity qualifies as a carrier regardless of whether it conducted the physical transportation. Conversely, if an entity merely agrees to locate and hire a third party to transport the goods, then it is acting as a broker. …[M]otor carriers are not brokers just because they “arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.”

Tryg Ins. v. C.H. Robinson Worldwide, Inc., 767 F. App’x 284, 286–87 (3d Cir. 2019) (footnotes omitted) (citing 49 C.F.R. § 371.2(a)). Apart from this “crucial question” of “whether the party has legally bound itself to transport goods by accepting responsibility for ensuring the delivery of the goods,” courts have also considered how the party held itself out, id. at 287, “as well as the understanding among the parties.” United Granite & Quartz, Inc. v. Emuro Transp., LLC, No. 23-01673, 2023 WL 8868780, at *5 (D.N.J. Dec. 22, 2023) (citing Louis M. Marson Jr., Inc. v. Alliance Shippers, Inc., 438 F. Supp. 3d 326, 331-32 (E.D. Pa. 2020)); Freight Connections, Inc. v. Express Hound, LLC, No. 22-1668, 2022 WL 16362467, at *4 (D.N.J. Oct. 27, 2022) (listing factors).

Here, accepting as true Plaintiff’s allegation that the DHL Defendants are carriers that took responsibility for the transportation of the cargo, Plaintiff sufficiently states a claim for relief under the Carmack Amendment. See Compl., ¶¶ 8, 12, 13.

2. Breach of Contract (Count Two)

*3 Routine breach of contract claims against brokers are not preempted by federal law. See AMG Res. Corp. v. Wooster Motor Ways, Inc., No. 15-3716, 2019 WL 192900, at *4, n.7 (D.N.J. Jan. 14, 2019) (noting Federal Aviation Administration Authorization Act (“FAAAA”) preempts state-based common law tort claims but not breach of contract claims),³ aff’d, 796 F. App’x 96 (3d Cir. 2020); Hartford Fire Ins. Co., 2017 WL 3868702, at *3 (citing and agreeing with cases that hold FAAAA does not preempt routine breach of contract claims against brokers); see Bunis v. Masha Mobile Moving & Storage, LCC, No, 23-1237, 2023 WL 3689984, at *4 (E.D. Pa. May 26, 2023) (noting Carmack Amendment does not “ ‘preclude suit against non-carrier entities to the extent that they are liable under other law.’ ” (footnote and internal citation omitted)). Thus, in the event DHL Transport acted as a broker, Plaintiff’s breach of contract claim is not preempted.

Nonetheless, Defendants move to dismiss Count Two arguing that it is inconsistent for Plaintiff to claim that DHL Transport acted as a broker while also alleging in Count One that DHL Transport acted as a carrier; however, the Federal Rules expressly permit inconsistent and alternative claims. See Fed. R. Civ. P. 8(d)(2) and (3); see e.g., Covenant Imaging, LLC v. Viking Rigging & Logistics, Inc., No. 20-00593, 2021 WL 973385, at *4 (D. Conn. Mar. 16, 2021) (noting Rule 8 specifically allows plaintiff to plead in the alternative that (1) Eagle acted as a carrier and Pioneer acted as a broker or (2) Eagle and Pioneer both acted as carriers). Moreover, whether a party is a carrier or broker is a fact intensive inquiry that is more appropriately decided at the summary judgment stage. See e.g., Beecher’s Handmade Cheese, LLC v. New Sound Transportation LLC, No. 21-12809, 2022 WL 3681258, at *3 (D.N.J. Aug. 25, 2022) (denying motion to dismiss as “question of whether a party has accepted such responsibility is ultimately one of fact”); Hartford Fire Ins. Co. v. Dynamic Worldwide Logistics, Inc., No. 17-553, 2017 WL 3868702, at *2 (D.N.J. Sept. 5, 2017) (concluding it was inappropriate to make factual determination whether defendant was broker rather than carrier).

Although Plaintiff may proceed on its alternate breach of contract theory, the Court finds it appropriate to dismiss Plaintiff’s allegation that DHL Transport failed to comply with “industry guidelines and applicable law.” Compl., ¶ 31. Undefined guidelines and law cannot be the basis of a breach of contract claim because “privately ordered obligations” are by nature distinct from “state-imposed obligations.” American Airlines, Inc. v. Wolens, 513 U.S. 219, 228-29 (1995) (holding ADA⁴ bar on state regulation does not preempt breach of contract claims due to distinction between private and state-imposed obligations). In addition, even if parties could contract around “industry guidelines and applicable law,” the Complaint does not allege that the purported failure to purchase state permits caused any damages. Thus, the motion to dismiss under Rule 12(b)(6) is granted as to the allegation that noncompliance with state-imposed obligations constitutes a breach of contract.

B. Rule 8(a) Group Pleading

*4 Defendants contend that the Complaint improperly lumps the allegations against all Defendants in violation of Fed. R. Civ. P. 8(a)(2), which requires that pleadings contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” The Court does not agree. Plaintiff avers that DHL Defendants acted as carriers that took responsibility for the transportation of the cargo pursuant to specific bills of lading and alternatively, that DHL Transport acted as a broker that failed to properly arrange the safe transport of the cargo. Plaintiff further explains it presently cannot discern one DHL Defendant from the other because both appear to operate under the “DHL” banner. These allegations are sufficient to put the DHL Defendants on notice of the claims against them as carriers or brokers. DHL Defendants’ motion to dismiss under Rule 8(a) is denied.

C. Rule 12(b)(3) Improper Venue

On a Rule 12(b)(3) motion, the defendant has the burden to show that venue is improper under 28 U.S.C. § 1391(b). Bockman v. First Am. Mktg. Corp., 459 Fed. App’x 157, 160 (3d Cir. 2012) (citing Myers v. Am. Dental. Ass’n, 695 F.2d 716, 724–25 (3d Cir. 1982)). Where applicable, special venue provisions, such as the Carmack Amendment, 49 U.S.C.A. § 14706(d), prevail over general federal venue provisions. See Fourco Glass Co, v. Transmirra Corp., 353 U.S. 222, 228–229 (1957) (citations omitted). If the special venue provision is restrictive, which is rare, “the action may only be brought in a district permitted by the special venue statute.” In re Lizza Equip. Leasing, LLC, 614 B.R. 653, 661–62 (D.N.J. 2020) (citation omitted). In contrast, where “the special venue provisions are merely permissive, the general statutes are often read as supplementing the special statute.” Id. at 661 (citing Pure Oil Co. v. Suarez, 384 U.S. 202, 205 (1966)).

The special venue provision applicable to motor carriers, 49 U.S.C.A. § 14706(d)(2), states that a civil action “may be brought against the carrier alleged to have caused the loss or damage, in the judicial district in which such loss or damage is alleged to have occurred.” (emphasis added). As evidenced by use of “may,” subsection (d)(2) is permissive rather than restrictive. See e.g., Starr Indem. & Liab. Co., 2017 WL 2466505, at *3-4. In comparison, the special venue provision applicable to rail carriers, 49 U.S.C. § 11706(d)(2)(A), is restrictive as it provides suit “may only be brought” in certain designated venues. See id; see also In re Lizza Equipment Leasing, LLC, 614 B.R. at 662 (concluding that “may only be brought” language in 49 U.S.C. § 11706(d)(2)(A) is restrictive); Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit. Corp., 561 U.S. 89, 98 (2010) (noting § 11706(d) can preempt “the parties’ ability to choose the venue of their suit”).⁵

Because 49 U.S.C.A. § 14706(d) is permissive, venue is proper not only in South Carolina where the accident occurred. First, under subsection (1) of the general venue statute, 28 U.S.C. § 1391(b), venue is also proper in a judicial district “in which any defendant resides, if all defendants are residents of the State in which the district is located,” Where the defendant is an entity, it resides “in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” 28 U.S.C.A. § 1391(c)(2). Because each defendant conducts business in New Jersey, see Compl., ¶¶ 2-4, and is subject to personal jurisdiction in this state, under § 1391(b)(1), suit may be brought in New Jersey. Second, under subsection (2), venue is also proper where “a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated.” 28 U.S.C. § 1391(b)(2). In this case, the cargo was shipped from and returned to New Jersey where the damaged cargo was unpacked and inspected. See e.g., Shore Slurry Seal, Inc. v. CMI Corp., 964 F. Supp. 152, 154 (D.N.J. 1997) (holding venue proper in New Jersey where sales agreement was signed in New Jersey and defendant shipped equipment to New Jersey where it remained). Because a substantial part of the events occurred in New Jersey, Defendants’ motion to dismiss for improper venue is denied.

III. CONCLUSION

*5 For the reasons noted above, Defendants’ motion to dismiss is denied in part and granted in part. DHL Defendants’ 12(b)(6) motion to dismiss the breach of contract claim is granted only as to ¶ 31 of the Complaint. Defendants’ motion to dismiss for improper pleading under Rule 8(a) and for improper venue pursuant to Rule 12(b)(3) is denied.

All Citations

Slip Copy, 2024 WL 639327

Footnotes

Although the bills of lading and receipts not attached to the Complaint, they are referenced and are central to Plaintiff’s claims. See Compl., ¶ 14. Moreover, the parties do not dispute the authenticity of the documents, which are attached as an exhibit to Defendants’ motion to dismiss. ECF No. 7-3. Thus, the Court will consider them in deciding the pending motion. See Pryor v. Nat’l Collegiate Athletic Ass’n, 288 F.3d 548, 560 (3d Cir. 2002).
The Complaint contains two paragraphs that are numbered 8, one under “The Parties” and another under “Jurisdiction and Venue.”
The FAAAA bars States from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any … broker … with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).
The language in the Airline Deregulation Act (“ADA”), 49 U.S.C. § 41713(b)(1) is identical to the language in the FAAAA. See Rowe v. New Hampshire Motor Transport Ass’n, 552 U.S. 364, 368 (2008).
Defendants’ reliance on United Granite & Quartz, Inc., 2023 WL 8868780, at *4 is misplaced. There, in noting that Carmack Amendment’s special venue statute is restrictive, the court cites the railway carrier provision, 49 U.S.C. § 11706(d)(1) and cases pertaining thereto – In re Lizza Equipment Leasing, LLC, 614 B.R. at 661-62, and Kawasaki Kisen Kaisha Ltd., 561 U.S. at 98.

End of Document

Brad Hall & Assocs., Inc. v. RSUI Indem. Co.

United States District Court, D. Nevada.

BRAD HALL & ASSOCIATES, INC., et al., Plaintiffs

RSUI INDEMNITY COMPANY, Defendant

Case No. 2:23-cv-00213-APG-DJA

Signed January 26, 2024

Attorneys and Law Firms

Joe Ramirez, Shawn Anthony Eady, Sydney Gambee, Holland & Hart LLP, Denver, CO, Las Vegas, NV, for Plaintiff.

Gena L. Sluga, Tyler J. Watson, Christian, Kravitz, Dichter, Johnson & Sluga, LLC, Las Vegas, NV, Nancy Joy Brown, Musick, Peeler & Garrett LLP, for Defendant.

Order Granting in Part and Denying in Part Motions for Summary Judgment

ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

*1 This is an insurance coverage dispute between the plaintiffs (collectively, Teton) and their excess insurer, defendant RSUI Indemnity Company (RSUI). The parties filed summary judgment motions seeking a ruling on how to interpret the language in RSUI’s excess policy. I held a hearing on the motions on January 25, 2024. For the reasons explained at the hearing and in this order, I grant in part both sides’ motions.

I. BACKGROUND

On February 7, 2021, Teton’s driver was driving a tractor hauling two trailers containing fuel when he caused an accident that resulted in property damage, bodily injuries, and two separate fuel spills. One fuel spill came from the tractor on one side of the highway, while the spill on the other side of the highway came from the trailers. When the accident occurred, the Nevada Department of Transportation dispatched Clean Harbors, an emergency response contractor, to perform emergency pollution mitigation work. ECF No. 24-1 at 9.

On February 9, the Nevada Division of Environmental Protection (NDEP) sent Teton a letter requesting an evaluation of the spill under various sections of the Nevada Administrative Code. ECF No. 24-4. That letter advised Teton that it “may be required per [the Nevada Administrative Code] to perform cleanup activities related to the Release.” Id. at 2. The letter told Teton that it “should make every effort to assess the site and conduct cleanup as quickly as possible.” Id. at 3.

According to Teton’s executive vice president of legal affairs and general counsel, Teton engaged environmental contractors on February 7 to provide emergency response and cleanup services before it heard from NDEP. ECF No. 29-3 at 3. He states that the trucking company took action to clean up and remediate the fuel spills because of the accident, not because of any communication it received from NDEP. Id.

Teton hired Environmental Technology, Inc. (EN TECH) to perform mitigation measures from March 8 to 12. ECF No. 24-1 at 12. EN TECH also engaged in cleanup and remediation activities from August to November 2021, and conducted groundwater monitoring for several months thereafter. Id. at 16; ECF No. 24-5 at 5. In November 2022, NDEP sent a letter to Teton indicating that no further action was needed at the site. ECF No. 24-6. Total cleanup and remediation costs exceeded $4 million. ECF No. 26-3 at 3.

Teton had three insurance policies relevant to the accident. First, it had a policy with Crum & Forster that provided coverage for pollution. ECF No. 24-2. Second, it had a policy with Zurich for business automobile coverage. ECF No. 26-2. Finally, it had an excess policy with RSUI. ECF No. 26-1. The RSUI policy is excess to the Zurich policy only. Id. at 4. I therefore do not discuss the Crum & Forster policy further.

Zurich accepted and paid coverage for property damage to the tractor and trailers, personal injuries to the other driver, and remediation costs for the fuel spilled from the tractor, but not for the fuel spilled from the trailers. ECF Nos. 26-4 at 3; 26-9 at 6. The Zurich policy limit was exhausted upon paying out these claims. ECF No. 26-4 at 3.

*2 RSUI accepted coverage as the excess insurer for personal injuries to the other driver and property damage to the tractor and trailers. ECF No. 26-5 at 14. But it declined to accept coverage for any remediation. Id. at 16. As to the fuel spill from the trailers, RSUI asserted that its policy followed form with Zurich’s, and Zurich provided no coverage for the spill from the trailers. Id. at 3, 14. Additionally, it asserted that although Zurich covered the remediation costs for the fuel spilled from the tractor, RSUI would not because its policy has a pollution exclusion. Id. at 15.

Teton thereafter sued RSUI, asserting claims for breach of contract, declaratory judgment, bad faith, and unfair claims practices. ECF No. 1. The parties agreed that rather than engage in discovery, they would file early summary judgment motions on the issue of the excess policy’s coverage, because that is a question of law for the court. ECF No. 20. Those summary judgment motions are now before me.

II. ANALYSIS

Summary judgment is appropriate if the movant shows “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the non-moving party to set forth specific facts demonstrating there is a genuine issue of material fact for trial. Sonner v. Schwabe N. Am., Inc., 911 F.3d 989, 992 (9th Cir. 2018) (“To defeat summary judgment, the nonmoving party must produce evidence of a genuine dispute of material fact that could satisfy its burden at trial.”). I view the evidence and reasonable inferences in the light most favorable to the non-moving party. Zetwick v. Cnty. of Yolo, 850 F.3d 436, 440-41 (9th Cir. 2017).

The parties agree I should apply Nevada law regarding the interpretation of an insurance contract. Under Nevada law, the interpretation of an insurance policy is a question of law for the court. Starr Surplus Lines Ins. Co. v. Eighth Jud. Dist. Ct. in & for Cnty. of Clark, 535 P.3d 254, 260 (Nev. 2023) (en banc). “The purpose of contract interpretation is to determine the parties’ intent when they entered into the contract.” Century Sur. Co. v. Casino West, Inc., 329 P.3d 614, 616 (Nev. 2014) (en banc). I interpret the policy language “from the perspective of one not trained in law or in insurance, with the terms of the contract viewed in their plain, ordinary and popular sense.” Id. (quotation omitted). I view “the policy as a whole to give reasonable and harmonious meaning to the entire policy.” Id. (quotation omitted). An interpretation “should not lead to an absurd or unreasonable result.” Id.

If the policy’s language is unambiguous, I “interpret it according to the plain meaning of its terms.” Id. A policy is considered ambiguous if “it creates [multiple] reasonable expectations of coverage as drafted.” Id. (quotation omitted). Ambiguities are construed against RSUI as the drafter. Id. If “an insurance policy has any ambiguous terms,” then I must “interpret the policy to effectuate the insured’s reasonable expectations.” Id.

*3 I interpret clauses providing coverage broadly “to afford the greatest possible coverage to the insured, [and] clauses excluding coverage are interpreted narrowly against the insurer.” Id. (quotation omitted). Exclusions must be “narrowly tailored” to “clearly and distinctly communicate[ ] to the insured the nature of the limitation, and specifically delineate[ ] what is and is not covered.” Id. (quotation omitted). “To preclude coverage under an insurance policy’s exclusion provision, an insurer must (1) draft the exclusion in obvious and unambiguous language, (2) demonstrate that the interpretation excluding coverage is the only reasonable interpretation of the exclusionary provision, and (3) establish that the exclusion plainly applies to the particular case before the court.” Id. (quotation omitted).

I begin with the excess policy’s language. The insuring clause states that RSUI “will pay those sums in excess of [Zurich’s policy] that [the insured] become[s] legally obligated to pay as damages because of injury to which this insurance applies, providing that [Zurich’s policy] also applies, or would apply but for the exhaustion of its applicable Limits of Insurance.” ECF No. 26-1 at 19. The excess policy is “subject to the same terms, conditions, agreements, exclusions and definitions” as the Zurich policy, except “[w]ith respect to any provisions to the contrary” in the excess policy. Id. In other words, the Zurich policy defines the coverage, exclusions, and exceptions to the exclusions, unless something contrary appears in the excess policy, in which case the excess policy’s language controls.

Turning to Zurich’s policy, the coverage provision states that Zurich “will pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’.” ECF No. 26-2 at 54. There is no dispute that the tractor is a covered auto.

The insuring clause also states that Zurich will “pay all sums an ‘insured’ legally must pay as a ‘covered pollution cost or expense’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of covered ‘autos’.” Id. It defines a “covered pollution cost or expense” to mean “any cost or expense arising out of … [a]ny request, demand, order or statutory or regulatory requirement that any ‘insured’ or others” test, monitor, or clean up pollutants; or a claim or suit by a governmental authority “for damages because of” testing, monitoring, or cleaning up a pollutant. Id. at 62. The parties do not dispute that the fuels spilled from the tractor and the trailers qualify as pollutants.

The Zurich policy has numerous exclusions from coverage. As relevant here, exclusion 11.a states that Zurich will not pay for bodily injury or property damage arising out of the seepage or release of pollutants:

a. That are, or that are contained in any property that is:

(1) Being transported or towed by, handled or handled for movement into, onto or from the covered “auto”;

(2) Otherwise in the course of transit by or on behalf of the “insured”; or

(3) Being stored, disposed of, treated or processed in or upon the covered “auto”.

Id. at 54. Paragraph 11.a thus excludes coverage for the fuel spilled from the trailers because the covered auto was towing the trailers. Zurich denied coverage for the fuel spilled from the trailers on this basis. ECF No. 26-9 at 4-6. And because the excess policy adopts this exclusion, coverage for the fuel spilled from the trailers is also excluded under RSUI’s excess policy unless something in the excess policy provides for coverage.

As for the fuel spilled from the tractor, Zurich accepted coverage under the exception to the exclusion in paragraph 11.a, which provides that paragraph 11.a does not exclude fuels “that are needed for or result from the normal electrical, hydraulic or mechanical functioning of the covered ‘auto’ or its parts” if the pollutants are released “directly from an ‘auto’ part designed by its manufacturer to hold … such ‘pollutants.’ ” ECF No. 26-2 at 54. The fuel spilled from the tractor’s gas tank falls under this exception, so Zurich covered it. ECF No. 26-9 at 6. Because the RSUI excess policy has the same coverage, exclusions, and exceptions as the Zurich policy, it therefore covers the fuel spilled from the tractor unless something in the excess policy excludes it.

*4 The heart of the parties’ dispute revolves around an exclusion in RSUI’s policy. The excess policy has an endorsement entitled “Total Pollution Exclusion-With Collision/Upset Exception.” ECF No. 26-1 at 14. The Total Pollution Exclusion states:

This insurance shall not apply to:

1. Any liability which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.

2. Any loss, cost or expense arising out of any:

a. Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “pollutants”; or

b. Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of “pollutants.”

However, insofar as coverage is afforded by the [Zurich policy], for the full limits shown therein, paragraph 1. of this exclusion does not apply to any liability arising out of the collision or upset of a motor vehicle.

Id.

Teton argues that the “however” paragraph creates coverage under the excess policy that is broader than Zurich’s policy because that paragraph states that the pollution exclusion does not apply to “any liability” arising out of the upset of a vehicle, and that is what happened here. I reject that reading of the policy as contrary to its plain and unambiguous language. The endorsement is an exclusion, and the “however” paragraph is an exception to that exclusion. It is not a coverage provision. The language in the “however” paragraph merely states that the exclusion in paragraph 1 does not apply when liability arises out of the upset of a vehicle. In other words, it eliminates exclusion 1 from the policy. But it does not write in coverage for any liability arising out of the upset of a vehicle. No reasonable reading of the language would support a finding that this exception to an exclusion is actually a coverage clause creating broader coverage than that provided under the Zurich policy. So, the fuel spilled by the trailers is not covered by the excess policy because it was not covered by the Zurich policy and the elimination of paragraph 1 of the pollution exclusion in the excess policy does not create coverage that did not exist under the Zurich policy.

That leaves the fuel spilled from the tractor. RSUI contends that even if paragraph 1 is read out of the policy, paragraph 2 to this endorsement still applies and excludes coverage. Teton argues that paragraph 2 does not apply because Teton’s liability was not triggered by a governmental demand that it clean up the fuel. Rather, it contends that the circumstances of the accident required it to clean up the fuel. Teton contends that regardless of a government request or order, it would have had to clean up the spill. And it contends that this is shown by the fact that it contacted contractors to remediate the spill before it heard from NDEP. RSUI responds that paragraph 2.a does not require that the request come from a governmental authority. Rather, anyone requesting or demanding Teton to clean up the fuel would trigger the exclusion. RSUI also notes that NDEP made a request within two days of the accident, so the costs were incurred arising out of a request or demand to clean up the spill.

*5 The Zurich policy provided coverage for the tractor fuel spill as a “covered pollution cost or expense,” which the policy defined as a cost arising out of “[a]ny request, demand, order or statutory or regulatory requirement” that the insured clean up a pollutant. The excess policy’s pollution exclusion excluded costs arising from a request, demand, or order to clean up a pollutant. But it did not exclude costs arising from a statutory or regulatory requirement to clean up. RSUI mirrored this section of the Zurich policy almost verbatim, with the lone difference being that it struck the phrase “statutory or regulatory requirement” that was in the Zurich policy. I must take the policies by their plain language, construe any ambiguities against RSUI, and read any exclusion narrowly. So, comparing the language of the excess policy’s total pollution exclusion to the Zurich policy’s definition of a covered pollution expense, RSUI excluded costs arising from a request, demand, or order, but not costs arising from a statutory or regulatory obligation. If RSUI meant to also exclude costs arising from a statutory or regulatory requirement, it could and should have clearly and distinctly communicated that in the policy. RSUI’s interpretation excluding all coverage is not the only reasonable interpretation of paragraph 2 because paragraph 2 does not clearly and unambiguously exclude costs arising from a statutory or regulatory requirement. Therefore, the excess policy covers the fuel spilled from the tractor if the costs to clean up the tractor’s fuel arose from a statutory or regulatory obligation but not if the costs arose from a request, demand, or order to clean up.

III. CONCLUSION

I THEREFORE ORDER that the defendant’s motion for summary judgment (ECF No. 23) is GRANTED in part as described above.

I FURTHER ORDER that the plaintiffs’ motion for summary judgment (ECF No. 25) is GRANTED in part as described above.

All Citations

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