In Dyno Nobel v. Steadfast Insurance Co., the Tenth Circuit Court of Appeals recently held that, under Utah law, where a specific state is listed in an endorsement heading, coverage under the endorsement is limited to claims that have a nexus with that state, so long as such a reading is consistent with the body of the endorsement and policy text.
Dyno Nobel is an explosives manufacturer with its principal place of business in Utah. It purchased a commercial general liability policy from Steadfast. Each of the coverage sections provided by the policy specifically excluded claims arising out of the release of pollutants. The policy also contained a “total pollution exclusion endorsement,” as well as three other pollution-related endorsements that referenced specific states in their titles: “Indiana Changes – Pollution Exclusion,” “Missouri Changes – Pollution Exclusion,” and “Vermont Changes – Pollution.” While the Indiana and Missouri endorsements expanded the pollution exclusions provided by the main body of the policy, the Vermont endorsement created a stand-alone coverage allowing for claims arising from some pollution-related damages.
The coverage provided by the Vermont endorsement extended to bodily injury or property damage caused by a pollution-related occurrence within the “coverage territory.” The “coverage territory” was defined elsewhere in the policy to include the entire United States. The Vermont endorsement did not include any reference to Vermont in the body of the endorsement. The only reference to Vermont was in the endorsement’s title.
Teddy and Melanie Scott sued Dyno Nobel in the Eastern District of Missouri asserting claims of strict liability and negligence for damages allegedly caused by a nitric oxide plume emitted from a Dyno Nobel facility in Missouri. Dyno Nobel tendered the claim to Steadfast, but Steadfast denied the claim and refused to defend.
Dyno Nobel filed suit in Utah seeking a declaratory judgment that Steadfast was obligated to defend and indemnify it against the Scott action, arguing that the Vermont endorsement created coverage for pollution-related liabilities. Dyno Nobel argued that the reference to Vermont in the endorsement title could not be read in harmony with the body of the endorsement text, which did not refer to Vermont but did refer to the “coverage territory,” which was defined to include the entire United States (i.e., to include Missouri). Due to this purported conflict, Dyno Nobel argued that the title could not be considered and coverage must be extended to claims arising anywhere in the United States.
The Tenth Circuit affirmed the district court’s ruling that disagreed with Dyno Nobel’s claim for coverage. Although the court found that the Utah Supreme Court had not ruled on the issue of whether and when headings are to be considered as part of the language of a contract, it also found 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.” The court found that the heading and the text of Vermont endorsement could be read in “complete harmony” and further that such a reading was required under Utah law because it gave meaning to all of the contract provisions, which a contrary reading would not do.
The court harmonized the definition of “coverage territory” as extending to the entire United States with the endorsement title by finding that the endorsement required the claim to have some “nexus” with Vermont. That is not to say that the claim must have arisen strictly from within Vermont. Rather, the court held the endorsement simply required Vermont to relate to the claim in some fashion. For example, the court noted that a policyholder “might have a release of a nitric oxide plume from its plant in Vermont that injures someone in New Hampshire. Under those circumstances, [the Vermont endorsement coverage] would apply because although the ‘occurrence’ was in New Hampshire, there is a nexus with Vermont.”
Dyno Nobel’s preferred interpretation, on the other hand, would have nullified several provisions of the policy, in part because it would “grant a form of coverage explicitly excluded by other unambiguous provisions in the Policy.” Dyno Nobel argued that there was nothing “unreasonable or implausible” about an insurance policy adding coverage via endorsement, “even coverage beyond the coverage provided for in the main body of the policy.” However, the court found that the mere existence of an endorsement did not eliminate the need to interpret the endorsement alongside other provisions of the contract so as to give effect to all provisions of the policy as a whole.
Furthermore, the court concluded that requiring any claim asserted under the Vermont endorsement’s coverage to have some nexus with Vermont comported with the understanding of an “ordinary purchaser of insurance,” stating that it was “highly implausible that any ordinary insurance purchaser would ignore the plain text’s announcement that the endorsement requires a nexus to Vermont.”
In support of its holding, the court cited a number of cases from around the country interpreting a “Louisiana endorsement” in the context of commercial property insurance claims related to the COVID-19 pandemic. The great weight of those cases held that the so-called Louisiana endorsement applies only to property in Louisiana. Several of those cases involved insurance policies that included a large number of such “state-specific endorsements.” Were those endorsements interpreted to be broadly applicable they would “untenably create conflicting amendments to various sections of the insurance contract.” One court interpreting such a policy found that “the only way to make sense of the entirety of the contract” was to read the Louisiana endorsement as applying only to property in Louisiana.
Based on its finding that the Vermont endorsement could be read in “complete harmony” with the body of the endorsement and the wider policy, and relying in part on the above-described authority interpreting another “state-specific endorsement” in the context of COVID-19-related claims, the Tenth Circuit held that the Steadfast policy unambiguously excluded coverage for the pollution-related claims raised in the Scott action, as the claim did not have any nexus with Vermont.