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The Travelers Indemnity v. Mts Transport

September 7, 2012

THE TRAVELERS INDEMNITY COMPANY,
PLAINTIFF,
v.
MTS TRANSPORT, LLC, DEFENDANT/THIRD-PARTY PLAINTIFF
v.
HALLMARK SPECIALTY INSURANCE CO., THIRD-PARTY DEFENDANT



The opinion of the court was delivered by: Conti, District Judge.

MEMORANDUM OPINION

I. INTRODUCTION

Pending before the court are two motions for partial summary judgment, the first filed by third-party defendant Hallmark Specialty Insurance Company ("Hallmark") (Mot. of Third Party Def. Hallmark Specialty Ins. Co. for Summ. J. ("Hallmark's SJM")(ECF No. 88)) and the second filed by defendant/third-party plaintiff MTS Transport, LLC ("MTS") (MTS Transport's Mot. for Summ. J. ("MTS' SJM")(ECF No. 91)). The lawsuit arises from a petroleum asphalt spill on November 22, 2011. (Concise Statement of Material Facts in Supp. of Mot. for Summ. J. of Third-Party Def. Hallmark Specialty Ins. Co. (("Hallmark CSF")(ECF No. 133) ¶ 1.) Plaintiff Travelers Indemnity Company ("Travelers") filed an interpleader complaint*fn1 pursuant to 28 U.S.C. § 1335 against all defendant-claimants involved in the incident, one of which was MTS. (Compl. (ECF No. 1) ¶ 916.) MTS filed a third-party complaint against Hallmark. (Third Party Compl. (ECF No. 10).) MTS, in its third-party complaint, alleged that Hallmark owes a duty to defend MTS with respect to all claims asserted against it arising from the spill pursuant to an excess liability insurance policy issued by Hallmark to MTS. (Id. ¶ A.)

This court exercises diversity jurisdiction over Travelers' interpleader action pursuant to 28 U.S.C. § 1335 because at least two citizens of diverse states or nations claim to be entitled to at least $500 of the benefits arising by virtue of the policy issued by Travelers (Compl. (ECF No. 1) ¶ 1012) and Travelers paid the value of that policy into this court's registry (Receipt from Travelers Indem. Co. for Interpleader Funds (ECF No. 9)). This court exercises supplemental jurisdiction over MTS' third-party complaint filed against Hallmark pursuant to 28 U.S.C. § 1367.

MTS filed a motion to expedite a summary judgment schedule on December 23, 2011. (Mot. for Expedited Pleading and Summ. J. Schedule (ECF No. 16).) The motion was granted after a hearing held on January 25, 2012. Hallmark and MTS stipulated that discovery with respect to the third-party complaint would be stayed pending resolution of their cross-motions for summary judgment. (Stipulation (ECF No. 37).) Hallmark and MTS filed cross-motions for summary judgment on February 24, 2012. (Hallmark's SJM (ECF No. 88); MTS' SJM (ECF No. 91)). Hallmark argues that the pollution exclusion clause in its policy bars coverage for the claims asserted against MTS. (Hallmark's Br. (ECF No. 89) at 11.) Hallmark advocates for the application of Pennsylvania law in interpreting the insurance contract, but contends that, even if this court applies Maryland law, the petroleum asphalt spill falls within the scope of the pollution exclusion clause. (Id. at 17-19.)

MTS argues that Maryland law should apply to govern the interpretation of the insurance contract and its pollution exclusion clause. (MTS' Br. (ECF No. 92) at 3-5.) MTS points out that, under Maryland law, pollution exclusion clauses do not apply to cases outside of "traditional environmental pollution." (Id. at 8-9.) It contends that the petroleum asphalt spill is not a case of traditional environmental pollution, and, therefore, Hallmark owes a duty to indemnify MTS for the claims arising from the spill. (Id. at 5, 14.)

Because Maryland law applies and no reasonable jury would render a verdict in favor of Hallmark, MTS' motion for summary judgment (ECF No. 91) will be GRANTED. Hallmark's motion for summary judgment (ECF No. 88) will be denied.

II. FACTUAL BACKGROUND

This matter arises out of an incident which occurred on November 22, 2011. (Hallmark CSF (ECF No. 133) ¶ 1.) On that date, a tanker-truck leaked Marathon Petroleum Asphalt from milepost 10 to milepost 48 of the Pennsylvania Turnpike (the "turnpike'). (Hallmark CSF (ECF No. 133) ¶ 2; Compl. (ECF No. 1) ¶ 999.) This spill caused damage to the turnpike and the motor vehicles of more than 1,000 claimants travelling upon the turnpike at the time of the spill. (Hallmark CSF (ECF No. 133) ¶¶ 4,5; Amend. Compl. (ECF No. 168-1) ¶¶ 3-1095.) The tanker-truck was owned and operated by MTS, a hauler of asphalt. (Hallmark CSF (ECF No. 133) ¶ 3; Exs. in Support of Br. in Support of Mot. for Summ. J. of Third Party Def. Hallmark Specialty Ins. Co. ("Hallmark Exs.") (ECF 90) Ex. B. at 1.) MTS is located in the state of Maryland. (Compl. (ECF No. 1) ¶ 916; Third-Party Compl. (ECF No. 10) ¶ 1; MTS' CSF (ECF No. 131) ¶ 19; Hallmark's CSF (ECF No. 133) ¶ 29.)*fn2

At the time of the spill, MTS' trucking operations were covered by a $1,000,000 primary liability policy issued by Travelers-Policy No. Y-840-8742R763-IND-11 (Hallmark Exs. (ECF No. 90) Ex. D)-and a $4,000,000 excess liability policy issued by Hallmark-Policy No. 77HX1113E0 (Hallmark Exs. (ECF No. 90) Ex. B). Travelers is a Connecticut corporation with its principal place of business in Hartford, Connecticut. (Compl. (ECF No. 1) ¶ 1.) Hallmark is an Oklahoma corporation with its principal place of business in Fort Worth, Texas (Ans. with Affirmative Defs. of Third Party Def. Hallmark Specialty Ins. Co. to the Third Party Compl. Of Def./Third Party Pl. MTS Transport, LLC ("Hallmark's Ans.") (ECF No. 63) ¶ 2). The following addresses are listed on the policy: Hallmark Specialty Insurance Co., 777 Main St., Suite 1000, Fort Worth, TX 76102 and MTS Transport, LLC, 101 Log Canoe Circle, Ste 1, Stevensville, MD 21666. (Hallmark Exs. (ECF No. 90) Ex. B.) The policy states that it covers accidents across the United States and its territories and Canada. (Id., "Coverage Territory Limitation.") The policy also includes Endorsement HB 190 01 10 09 (10-09), entitled "Maryland Changes -- Cancellation, Non-renewal And State Required Conditions." (Id.)*fn3

On December 9, 2011, as a result of the accident, Travelers filed an interpleader action, seeking leave of the court to pay its $1,000,000 policy limits into the court's registry. (Hallmark CSF (ECF No. 133) ¶ 8.) Travelers acknowledged in its complaint that the damages for cleanup claimed by the Pennsylvania Turnpike Commission would exceed the policy limits. (Compl. (ECF No. 1) ¶ 1003.) Travelers sought to fulfill its obligations to MTS under the terms of its policy through this deposit. (Amended Compl. (ECF No. 168-1) ¶ 1115.)

Hallmark, whose excess liability policy will activate after Travelers' policy limits are exceeded, issued a reservation of rights letter advising MTS that this spill potentially fell under the pollution exclusion in the policy. (Hallmark Exs. (ECF No. 90) Ex. F.) If further investigation confirmed that this exclusion applied, Hallmark stated it would not be liable for any damages resulting from the spill. (Id. at 3-4.) MTS filed a third-party complaint against Hallmark, seeking a declaratory judgment. (Third-Party Compl. (ECF No. 10).) Hallmark, in response, issued a second reservation of rights letter. (Hallmark Exs. (ECF No. 90) Ex. G.) The relevant policy language referenced by these letters is as follows:

RELEVANT POLICY LANGUAGE

EXCESS LIABILITY POLICY

WE, the Company named in the Declarations, relying upon the statements shown on the Declarations page and in the Schedule of UNDERLYING INSURANCE attached to this policy and in return for the payment of the premium and subject to the terms, conditions, exclusions, and limits of insurance of this policy, agree with YOU as follows:

SECTION I

INSURING AGREEMENTS

A. Coverage

This insurance only applies to injury or damage covered by the UNDERLYING INSURANCE, and that takes place during OUR policy period. WE will pay on YOUR behalf the ULTIMATE NET LOSS in excess of the applicable limits of the UNDERLYING INSURANCE listed in the attached Schedule of UNDERLYING INSURANCE (whether such insurance is collectible or not). If the UNDERLYING INSURANCE does not pay a loss for reasons other than the exhaustion of an aggregate limit of insurance, then WE shall not pay such loss.

The Definitions, Terms, Conditions, Limitations, and Exclusions of the UNDERLYING INSURANCE, in effect at the inception date of this policy, apply to this coverage unless they are inconsistent with provisions of this policy, or relate to premium, subrogation, any obligation to defend, the payment of expenses, limits of insurance, cancellation or any renewal agreement. . . . .

SECTION II (EXCLUSIONS)

WHAT IS NOT COVERED BY THE POLICY

This insurance does not apply:

. . . . H. 1. To any injury, damage, expense, cost, loss, liability or legal obligation arising out of or in any way related to pollution, however caused.

To any loss, cost or expense arising out of any:

a. directive, 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. . . . .

Pollution includes the actual, alleged or potential presence in or introduction into the environment of any substance, including pollutants, if such substance has or is alleged to have the effect of making the environment impure, harmful, or dangerous. Environment includes any air, land, structure or the air therein, watercourse or water, including underground water.

Pollutants include any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed. (Hallmark Exs. (ECF No. 90) Ex. B.)

Marathon Petroleum Asphalt, according to the Material Safety Data Sheet ("MSDS") (Hallmark Exs. (ECF No. 90) Ex. C) provided by Marathon Petroleum Company LP, is "a solid carbon material produced from high temperature vacuum distillation of crude oil . . . [and] [c]an contain minor amounts of sulfur, nitrogen and oxygen compounds. . . . Composition [of petroleum asphalt] varies depending on source of crude. . . . Different asphalt grades may also contain an anti-stripping additive" (Id). The MSDS provides a number of warnings regarding inhalation and ingestion of and skin and eye contact with the asphalt, including warnings that: (a) thermal burns may result from contact with heated asphalt; (b) reddening, itching and inflammation of skin may occur on contact; and (c) eye irritation and sensitivity to light may result. (Id. at 2.) The asphalt can also contain trace amounts of hydrogen sulfide, which is highly toxic and may be fatal if inhaled. (Id.) The asphalt has been determined by the International Agency for Research on Cancer to be carcinogenic to animals. (Id.)

Among other claimants in this interpleader, the Pennsylvania Turnpike Commission has a claim for expenses with respect to the cleanup of the spilled asphalt. (Compl. (ECF No. 1) ¶ 1003; MTS' CSF (ECF No. 131) ¶ 8.) Outside of the highway cleanup, MTS asserts that, at this time, there have been no allegations or claims that the asphalt came into contact with any land or waterway, was leaked into a contained or unvented area, or was inhaled, ingested, or came into contact with the eyes or skin of any individual. (MTS' CSF (ECF No. 131) ¶¶ 9-11; Hallmark's CSF (ECF No. 133) ¶¶ 25-27.) Hallmark acknowledges that Travelers' complaint does not contain any such allegations, but denies the implication that there will be no such claims made in the future. Hallmark argues this implication is not supported by the record. (Id.) MTS asserts that there have been no environmental claims, citations, or actions made by the Environmental Protection Agency, the Pennsylvania Department of Environmental Protection, or any other government environmental agency. (MTS' CSF (ECF No. 131) ¶ 12; Hallmark's CSF (ECF No. 133) ¶ 28.) Hallmark disputes this assertion, arguing it is not supported by the record. (Id.) This court is unaware of any allegations, claims, or citations outside of those included in Travelers' complaint at this time.

III. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56 provides in ...


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