The opinion
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-10908
_____________________
LUBBOCK COUNTY HOSPITAL DISTRICT,
doing business as University
Medical Center,
Plaintiff-Appellee,
versus
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA;
AIG AVIATION INSURANCE SERVICES;
CALEDONIAN INSURANCE GROUP, INC.,
Defendants,
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA;
AIG AVIATION INSURANCE SERVICES,
Defendants-Appellants.
_________________________________________________________________
Appeal from the United States District Court for the
Northern District of Texas
_________________________________________________________________
June 24, 1998
Before JOLLY, WIENER, and STEWART, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
In this appeal, we consider whether any of three endorsements
to an aircraft liability insurance policy provides coverage for
environmental damages resulting from a 1000-gallon fuel spill that
would otherwise be excluded from coverage under the policy’s
pollution exclusion clauses. The district court granted summary
judgment for the insured, finding coverage under two of the three
endorsements. The insurer appealed. We ultimately find ourselves
in disagreement with the district court’s interpretation of the
endorsements and, therefore, we must reverse.
I
In 1989, Carelink, an association formed between the appellee,
University Medical Center (“UMC”), and Lubbock Methodist Hospital,
entered into an agreement with Rocky Mountain Helicopters, Inc.
(“Rocky Mountain”) for emergency transport services. The agreement
required Rocky Mountain to obtain aircraft hull insurance for the
value of the helicopters to be used in providing those services and
aircraft liability insurance for injuries to passengers or third
parties and damage to property. Rocky Mountain obtained its
aircraft liability insurance from the appellants, National Union
Fire Insurance Company of Pittsburgh, Pennsylvania, and AIG
Aviation Insurance Services (collectively, “National Union”).
Rocky Mountain provided the emergency transport services
through use of a helipad operated by UMC. UMC leased the property
on which the helipad was located from Texas Tech University Health
Sciences Center. During the term of the lease (including all times
relevant to this case), UMC had sole responsibility to Texas Tech
for operations and control of activities on the leased premises.
2
The leased premises included a refueling facility for helicopters
operating out of the helipad.
On June 21, 1990, approximately 1000 gallons of fuel escaped
from the fueling system at UMC’s helipad. Thereafter, UMC sued
Rocky Mountain to recover the costs of cleanup and monitoring.
Rocky Mountain in turn referred the claim to National Union, which
denied the claim but provided a defense, reserving the right to
assert its policy defenses later. UMC obtained a jury verdict in
state court against Rocky Mountain. The final judgment of nearly
$500,000 was affirmed on appeal.
UMC then brought the instant action in Texas state court
against National Union, seeking a declaration that the insurance
policy it issued to Rocky Mountain covered the damages for the fuel
spill. National Union removed the case to federal district court
on the basis of diversity. It contested coverage on the basis of
pollution exclusion clauses in the base policy. UMC argued that
coverage was nonetheless available under three endorsements to the
policy. Both parties filed motions for summary judgment. On
June 12, 1997, the district court granted summary judgment for UMC,
finding coverage under two endorsements to the policy. This appeal
followed.
II
A
3
We review a grant of summary judgment de novo, applying the
same standard used by the district court. Nautilus Ins. Co. v.
Zamora, 114 F.3d 536, 538 (5th Cir. 1997). In deciding a motion
for summary judgment, the court must determine whether any genuine
issues of material fact exist and, if not, whether the moving party
is entitled to judgment as a matter of law. Knight v. Sharif, 875
F.2d 516, 522 (5th Cir. 1989). The district court’s interpretation
of an insurance contract and its exclusions is a question of law
and, thus, subject to de novo review. Zamora, 114 F.3d at 538.
B
Neither party disputes that Texas law governs interpretation
of the insurance policy at issue here. Under Texas law, the maxims
of contract interpretation regarding insurance policies operate
squarely in favor of the insured, National Union Fire Ins. Co. of
Pittsburgh, Pennsylvania v. Kasler Corp., 906 F.2d 196, 198 (5th
Cir. 1990), “and especially so when dealing with exceptions and
words of limitation,” Ramsay v. Maryland Am. Gen. Ins. Co., 533
S.W.2d 344, 349 (Tex. 1976). If a policy provision is ambiguous,
the court must adopt the insured’s construction of the provision,
“as long as that construction is not unreasonable, even if the
construction urged by the insurer appears more reasonable or a more
accurate reflection of the parties’ intent.” National Union Fire
Ins. Co. of Pittsburgh, Pennsylvania v. Hudson Energy Co., 811
4
S.W.2d 552, 555 (Tex. 1991). If, however, the policy provision is
susceptible of only one reasonable interpretation, the court must
enforce the provision as written. Id.
III
National Union contends that pollution claim advanced by UMC
is excluded from coverage under the policy based on its pollution
exclusion clauses. National Union argues that, under the base
policy, potential coverage for UMC’s claim would have to be found
within “Coverage C” (covering liability for injury to persons or
property arising out of the ownership, use, operation, or
maintenance of Rocky Mountain’s aircraft) or “Coverage E” (covering
liability for injury to persons or property arising out of Rocky
Mountain’s operations).1 However, because the claim is based on
1
Generally, the base policy created seven areas of coverage,
Coverages A-G. An endorsement to the policy, Endorsement # 11,
created two additional areas of coverage, Coverages Y and Z. The
coverage areas at issue in this appeal, Coverages C and E, provide
coverage, in relevant part, as follows:
Coverage C - Aircraft Liability
To pay on behalf of the Insured all sums which
the Insured shall become legally obligated to
pay as damages . . . because of injury to
property caused by an occurrence and arising
out of the ownership, hire, lease, use,
operation or maintenance of the aircraft
specified in the Schedule of Insured Aircraft.
* * *
Coverage E - Premises and General Liability
5
pollution not “caused by or resulting in a crash, fire, explosion
or collision or a recorded in flight emergency causing abnormal
aircraft operation,” coverage under Coverage C is excluded under
the policy. Similarly, because the claim is based on an escape of
pollutants from a site on which Rocky Mountain was operating,
coverage under Coverage E is excluded under the policy. UMC seems
to accept that, for these reasons, it cannot successfully claim
coverage under Coverage C or Coverage E.
UMC nevertheless claims coverage under three endorsements to
the base policy. The district court agreed with UMC in part,
finding coverage under two of the three endorsements--Endorsement
# 10 and Endorsement # 11.2 On appeal, National Union contends
that neither of these endorsements cover UMC’s claim. We consider
each in turn.
A
To pay on behalf of the Insured all sums which
the Insured shall become legally obligated to
pay as damages . . . because of injury to
property, caused by an occurrence and arising
out of premises or operations of the Named
Insured at such premises, and including
activities incidental thereto.
2
Although UMC renews its argument that coverage exists under
the third endorsement, Endorsement # 8, we agree with the district
court that this claim has no merit warranting further discussion
here.
6
We begin with Endorsement # 10. Endorsement # 10 provides
coverage for damages “resulting from [Rocky Mountain’s] negligent
operation, maintenance, or use of aircraft in ‘air transportation,’
as that term is defined in the Federal Aviation Act of 1958.” The
language upon which we focus our analysis is the phrase “aircraft
in ‘air transportation.’” The Federal Aviation Act defines air
transportation to include “interstate air transportation.” 49
U.S.C. § 40102(5). The Act then further defines “interstate air
transportation” as “the transportation of passengers or property by
aircraft as a common carrier for compensation, or the
transportation of mail by aircraft” between two or more states
“when any part of the transportation is by aircraft.” 49 U.S.C.
§ 40102(25). Thus, it would appear that coverage under Endorsement
# 10 requires both (1) negligent operation, maintenance, or use of
an aircraft and (2) that such operation, maintenance, or use be in
interstate air transportation.
(1)
National Union argues that coverage under Endorsement # 10 is
unavailable because UMC’s claim does not involve interstate air
transportation. First, National Union asserts that the claim is
based on maintenance3 performed in preparation for a flight
3
Under Texas law, the term “maintenance” in insurance policies
includes the act of refueling a vehicle or aircraft. See, e.g.,
Nationwide Property & Cas. Ins. Co v. McFarland, 887 S.W.2d 487,
7
involving transportation of neither mail nor passengers or property
for compensation. Second, National Union points out that the
flight in question did not, at any time, cross state lines, nor was
it intended to. We note that UMC has not challenged the district
court’s determination that the flight was not for compensation.
Whether the flight could qualify as an interstate flight as opposed
to an intrastate flight is, therefore, irrelevant. Because UMC’s
claim does not concern a flight for compensation or the transport
of mail, it does not involve an aircraft in “air transportation” as
that term is defined by the Federal Aviation Act.
UMC insists, however, that the coverage provision of
Endorsement # 10 is ambiguous as to whether the “maintenance” of an
aircraft must involve air transportation.4 UMC suggests that the
provision can reasonably be interpreted to require air
transportation only in connection with the “use” of an aircraft.
Under this interpretation, the provision would cover (1) operation
of aircraft, (2) maintenance of aircraft, and (3) use of aircraft
in air transportation. Thus, UMC argues, the fact that the flight
492-94 (Tex. App. 1994, writ denied).
4
Maintenance, of course, rarely occurs in the actual course of
air transportation. National Union concedes, however, that if a
loss occurs during air transportation as a result of prior
maintenance, the loss would be covered under Endorsement # 10,
regardless of when or where the maintenance was performed.
8
in question did not involve air transportation is immaterial to
coverage.
This interpretation, UMC further contends, is consistent with
“Exclusion (k)” to Endorsement # 10. Exclusion (k) excludes from
coverage “[a]ny loss arising from operations other than the
carriage by aircraft of persons or property as a common carrier for
compensation or hire, or the carriage of mail by aircraft, in
interstate, overseas, or foreign air transportation.” If “air
transportation” is interpreted to modify and thus apply to
operations, maintenance, and use in the coverage provision,
Exclusion (k) would be rendered superfluous because the
“operations” covered by the endorsement would already be restricted
to those involving air transportation. UMC argues that, under its
interpretation, the exclusion serves a meaningful purpose, namely,
exempting from coverage operations not involving air
transportation. When the coverage provision is read together with
Exclusion (k), Endorsement # 10 would apply to: (1) operations of
aircraft in air transportation, (2) maintenance of aircraft, and
(3) use of aircraft in air transportation.
The district court apparently agreed with UMC and adopted this
interpretation of Endorsement # 10. Having found that UMC’s claim
did not involve interstate air transportation, the court
nevertheless granted summary judgment because National Union had
9
failed to present sufficient evidence that UMC’s claim did not
involve “maintenance” of an aircraft under the endorsement.5 The
court’s ruling in this respect indicates that it found coverage
extending to maintenance of aircraft not in “air transportation.”
(2)
We believe the district court erred in finding coverage under
Endorsement # 10. Although UMC’s interpretation adds meaning to
the otherwise superfluous Exclusion (k), it does so only through an
unreasonable reading of the coverage provision. Again, the
coverage provision applies to the “operation, maintenance, or use
of an aircraft in air transportation.” UMC reads “in air
transportation” to modify only the use of an aircraft, but reads
“of an aircraft” to modify operation and maintenance as well as
use.6 Yet we fail to see how the phrase “of an aircraft” can be
read to modify operation, maintenance, and use, while “in air
transportation” be read to modify only use. The phrase “in air
transportation” clearly modifies “of an aircraft” and, therefore,
if the latter modifies each of the terms operation, maintenance,
and use, it must do so together with the former. Inasmuch as UMC’s
5
See supra note 3.
6
Of course, it must do so to avoid the patently unreasonable
result that Endorsement # 10 covers operations and maintenance
generally, that is, of any such activity without regard for the
subject or nature of the activity.
10
interpretation impermissibly separates these phrases, it amounts to
nothing less than a rewriting of otherwise unambiguous policy
language.
Grammatical deficiencies aside, UMC’s interpretation of the
endorsement would result in coverage for all maintenance-related
losses involving an aircraft, regardless whether the aircraft ever
left the ground. It is improbable that Endorsement # 10, a
standard, government-printed endorsement required by the Department
of Transportation for all federally regulated air taxi operators,
was intended to extend so far. Cf. Ridgeway v. Gulf Life Ins. Co.,
578 F.2d 1026, 1031-32 (5th Cir. 1978) (refusing to give broad
reading to standard endorsement required by state law). Indeed,
UMC’s interpretation makes a non-bargained-for, federally-mandated
endorsement into a comprehensive general liability policy that
effectively guts much of the base policy agreed upon by the
parties. Although certainly a “possible” result, we refuse to
torture the plain terms of the endorsement’s coverage provision to
reach what seems a more dubious result. Our task here is to
determine the true intent of the parties as expressed in the terms
of the policy, see National Union Fire Ins. Co. of Pittsburgh,
Pennsylvania v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995),
not simply to seek out and credit any possible meaning those terms
might bear.
11
In short, because we find UMC’s interpretation of Endorsement
# 10 unreasonable, we reject it.7 We think that the endorsement
unambiguously covers claims based on the negligent maintenance of
aircraft only if they involve aircraft in “air transportation.”
UMC’s claim does not involve air transportation and, therefore, is
not covered by Endorsement # 10.
B
We next consider Endorsement # 11. Endorsement # 11 adds
coverage for, among other things, property damage resulting from
the operations of any contractor designated by Rocky Mountain under
the endorsement. Specifically, it creates “Coverage Z,” which
provides coverage for:
all sums which [Rocky Mountain] shall become legally
obligated to pay as damages because of . . . property
damage . . . caused by an occurrence and arising out of
(1) operations performed for [Rocky Mountain] by the
contractor designated in the Declarations . . . or (2)
acts or omissions of [Rocky Mountain] in connection with
[its] general supervision of such operations.
Coverage Z admittedly does not apply to UMC’s claim. However, the
endorsement also contains exclusions. With respect to pollution-
7
We recognize that by rejecting UMC’s interpretation and
adopting National Union’s, we must accept that Exclusion (k) merely
restates in exclusionary terms what the coverage provision states
in inclusionary terms. Although not a preferred result, it surely
is not an uncommon one. Contracts do sometimes implement several
provisions to restate in different ways a certain point--perhaps
for emphasis. In the absence of a reasonable alternative
interpretation, we read the coverage provision and Exclusion (k) to
perform this function.
12
related claims, the exclusions state that “[t]his policy does not
apply . . . to . . . property damage arising out of
the . . . escape of . . . pollutants into or upon land, . . . but
this exclusion does not apply if such . . . escape is sudden and
accidental.” (Emphasis added.) UMC produced sufficient summary
judgment evidence to establish that its claim was based on a sudden
and accidental escape of pollutants.
The district court found coverage based on its determination
that Endorsement # 11's exclusions applied to the entire “policy”
as opposed to merely the endorsement itself. To the extent this
seemingly clear language could be construed as ambiguous, the court
interpreted it against the insurer, National Union. The court
recognized that Endorsement # 11 did not apply to this case because
it covered only operations involving Rocky Mountain’s contractor.
The court concluded, however, that the base policy ultimately
covered UMC’s claim because the pollution exclusion contained in
Endorsement # 11 amended the pollution exclusions in the base
policy such that a sudden and accidental escape of pollutants was
no longer excluded.
Although we agree in part with the district court’s reasoning,
we must ultimately reject it as applied to the endorsement language
at issue here. The district court is correct that, under Texas
law, broad endorsements may be construed to substantially alter the
13
terms of a base policy. See, e.g., INA of Texas v. R.D. Leonard,
714 S.W.2d 414, 416-17 (Tex. App. 1986, writ refused n.r.e.). And
it is true that the exclusions to Endorsement # 11 purport to apply
to the “policy,” not simply the endorsement. In deciphering the
meaning of endorsements, however, we must be “particularly wary of
isolating individual words, phrases, or clauses and reading them
out of the context of the [policy] as a whole.” Mustang Tractor &
Equip. Co. v. Liberty Mut. Ins. Co., 76 F.3d 89, 91 (5th Cir. 1996)
(citing State Farm Life Ins. Co v. Beaston, 907 S.W.2d 430, 433
(Tex. 1995)). Specific provisions in the endorsement must be read
in context with not only the base policy, but also the other
provisions of the endorsement.
Examining the exclusions of Endorsement # 11 as a whole, it is
clear to us that use of the phrase “[t]his policy” should not be
construed as an attempt to have these exclusions apply to, and
override the other provisions of, the base policy. The phrase
precedes each of the exclusions in the endorsement. If, as UMC
argues, the phrase extends the pollution exclusion contained in
Endorsement # 11 to the coverage provisions of the base policy and
not just to those of the endorsement itself, then so too must it
extend the endorsement’s other exclusions to the entire policy.
Thus, Exclusion (c) to Endorsement # 11, which excludes coverage
for “property damage arising out of any act or omission by [Rocky
14
Mountain],” would apply to the base policy. So would Exclusion
(f), which excludes coverage for “damage to . . . property used by
[Rocky Mountain].”
We do not find this construction of Endorsement # 11
reasonable. Not only would it render nearly the entire base policy
a nullity, but also would ultimately result in UMC’s claim being
excluded from coverage, despite falling within the exception of the
endorsement’s pollution exclusion. It is simply implausible to
think that the parties intended the exclusions contained in the
endorsement to eliminate most of the coverage provided under the
base policy. Instead, we agree with National Union that the
endorsement’s exclusions apply only to the coverages provided by
the endorsement. If the claim does not fall within the coverage
provisions of the endorsement, its exclusions are irrelevant.
Here, UMC’s claim does not involve the operations of Rocky
Mountain’s contractors and, therefore, is not covered by
Endorsement # 11. The endorsement’s exclusions never come into
play.
IV
In sum, UMC’s claim is excluded from coverage under the
pollution exclusion clauses of the base policy issued by National
Union. Endorsements # 8, # 10, and # 11 cannot reasonably be
15
interpreted to cover the claim. Accordingly, the judgment of the
district court is
R E V E R S E D.
16