12-4063-cv
Colonial Oil Indus. v. Indian Harbor Ins. Co.


                                    UNITED STATES COURT OF APPEALS
                                       FOR THE SECOND CIRCUIT

                                            SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or
after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and
this Court’s Local Rule 32.1.1. When citing a summary order in a document filed with this Court, a
party must cite either the Federal Appendix or an electronic database (with the notation “summary
order”). A party citing a summary order must serve a copy of it on any party not represented by
counsel.

        At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 25th
day of June, two thousand thirteen.

PRESENT:
                    GUIDO CALABRESI,
                    JOSÉ A. CABRANES,
                    BARRINGTON D. PARKER,
                                 Circuit Judges.

_____________________________________

COLONIAL OIL INDUSTRIES INC.,

                    Plaintiff-Appellant,

                               v.                                   No. 12-4063-cv

INDIAN HARBOR INSURANCE CO.,

            Defendant-Appellee.
_____________________________________

FOR PLAINTIFF-APPELLANT:                             JOHN W. SCHRYBER (Andrew N. Bourne, on
                                                     the brief) Dickstein Shapiro LLP, Washington,
                                                     DC for Appellant Colonial Oil Inc.
FOR DEFENDANT-APPELLEE:                                RICHARD J. PRATT, Troutman Sanders,
                                                       Washington, DC for Appellee Indian Harbor
                                                       Insurance Co.

      Appeal from the United States District Court for the Southern District of New York
(Deborah A. Batts, Judge).

        UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the September 11, 2012 judgment of the District Court
granting judgment on the pleadings for the defendant-appellee is AFFIRMED.

         Plaintiff-appellant Colonial Oil Industries Inc. (“Colonial” or “plaintiff”), the insured,
appeals from the District Court’s entry of judgment on the pleadings, pursuant to Fed. R. Civ. P.
12(c), in favor of its insurer, defendant-appellee Indian Harbor Insurance Co. (“defendant” or
“Indian Harbor”). Colonial commenced this suit for breach of an insurance contract and seeks
damages for Indian Harbor’s refusal to defend and indemnify Colonial with respect to the costs
incurred from the transfer of contaminated fuel oil. We assume the parties’ familiarity with the
underlying facts, the procedural history, and the issues presented for review, to which we refer only
as necessary to explain our decision to affirm.

                                         BACKGROUND

         The events giving rise to this action are undisputed. Colonial is a corporation whose
business involves the transportation, storage, and sale of fuel oil. In the normal course of this
business, Colonial received a delivery of twenty-five truckloads of oil during two weeks in
September 2009 from a third-party seller, P&W, which were unloaded into one of Colonial’s
Aboveground Storage Tanks (“Tank 127”) for storage; at the time the oil from P&W was unloaded,
Tank 127 was already partially filled with oil. Following these deliveries, a portion of the fuel from
Tank 127 was also delivered to one of Colonial’s customers, International Paper (“IP”). Subsequent
to this latter delivery, it was discovered that the fuel oil delivered by P&W was contaminated with
polychlorinated biphenyl (“PCB”), a pollutant, which resulted in harm to both Colonial and IP in
the form of lost oil and decontamination and remediation costs.

        Plaintiff sought coverage for these costs from Indian Harbor under its “Pollution and
Remediation Legal Liability Policy” (“Policy”). The Policy provides that Indian Harbor will pay for
costs “resulting from any POLLUTION CONDITION on, at, under or migrating from any
COVERED LOCATION.” (Policy, § I, ¶ A.) The phrase “pollution condition” is defined as “[t]he
discharge, dispersal, release, seepage, migration, or escape of POLLUTANTS into or upon land, or
structures thereupon, the atmosphere, or any watercourse or body of water . . .” (Id. § II, ¶ R.)


                                                  2
Indian Harbor denied coverage and plaintiff commenced this action before the District Court for
breach of contract.

        The parties agreed before the District Court that New York law governed the Policy, but see
note 2 and accompanying text, post, and that, under the Policy, the oil contaminated with PCB was a
pollutant. See Colonial Oil Indus., Inc. v. Indian Harbor Ins. Co., No. 11 Civ. 5018 (DAB), 

, at *2 (S.D.N.Y. Sept. 10, 2012). In considering plaintiff’s claims, the District Court noted
that “[p]laintiff’s entire argument . . . turns on whether oil which is transferred from a tanker truck
into another containment vessel (or from a containment vessel into a tanker truck) is ‘discharged’ as
that term is used in the Policy even if no spill, leak, or other accidental release occurs.” Id. at 3. The
District Court went on to hold that

                read together in the context of the other terms with which it is placed
                in the Policy (e.g., “seepage”, “migration”, and “escape”), it is evident
                that a “discharge” only creates a Pollution Condition when the
                pollutant discharged is in some way released from its confinement.
                To hold otherwise would invite the absurd conclusion that a
                Pollution Condition exists any time any pollutant exists in any
                container of any kind, since—absent spontaneous generation—the
                pollutant must at some previous time have been unloaded from
                another vessel or poured forth into that container from elsewhere.
                Thus, the only plausible reading of the Policy is that it provides
                coverage in the event that a pollutant is discharged from containment
                into land, structures, the atmosphere, or water, but not when, as here, the
                pollutant remains contained in vessels where it is intended to be kept and which
                were created for the very purpose of holding the pollutant until it is intentionally
                removed into a different container.

Id. at *4 (emphasis supplied). Accordingly, the District Court entered judgment in favor of
defendant on September 12, 2012. This timely appeal followed.

                                                DISCUSSION

         “We review a judgment under Federal Rule of Civil Procedure 12(c) de novo, accepting the
complaint’s factual allegations as true and drawing all reasonable inferences in the plaintiff’s favor.”
Kirkendall v. Halliburton, Inc., 

, 178 (2d Cir. 2013). “To survive a Rule 12(c) motion, the
complaint must contain sufficient factual matter to ‘state a claim to relief that is plausible on its
face.’” Graziano v. Pataki, 

, 114 (2d Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 

, 570 (2007)). “Because interpretation of an insurance agreement is a question of law, we
review the district court’s construction of the Policy de novo.” VAM Check Cashing Corp. v. Fed. Ins.
Co., 

, 729 (2d Cir. 2012).


                                                         3
        The gravamen of plaintiff’s argument on appeal, as before the District Court, is simply that
the act of unloading the contaminated fuel oil for P&W’s truck into Tank 127 created a “pollution
condition” within the terms of the Policy by discharging a pollutant, PCB, into a structure (Tank
127). 1

        As a threshold matter, we note that the construction and enforcement of the Policy, by its
express terms, is governed by New York law.2 (Policy, § IX, ¶ L.) “When a dispute arises involving
the terms of an insurance contract, New York insurance law provides that an insurance contract is
interpreted to give effect to the intent of the parties as expressed in the clear language of the
contract.” Parks Real Estate Purchasing Grp. v. St. Paul Fire & Marine Ins. Co., 

, 42 (2d Cir.
2006) (internal quotation marks omitted). “When the provisions are unambiguous and
understandable, courts are to enforce them as written.” Id. However, “[p]art of this threshold
interpretation is the question of whether the terms of the insurance contract are ambiguous. An
ambiguity exists where the terms of an insurance contract could suggest more than one meaning
when viewed objectively by a reasonably intelligent person . . . who is cognizant of the customs,
practices, usages and terminology as generally understood in the particular trade or business.”
Morgan Stanley Grp. Inc. v. New England Ins. Co., 

, 275 (2d Cir. 2000) (internal citations
and quotation marks omitted).

         Under New York law, insurance policies are read “in light of common speech and the
reasonable expectations of a businessperson.” Belt Painting Corp. v. TIG Ins. Co., 

,
383 (2003) (internal quotation marks omitted). For instance, “New York courts, in construing terms
in [the related context of] pollution exclusions, favor a commonsense approach over a literal
approach.” Parks Real Estate Purchasing Grp., 472 F.3d at 47 (quoting Pepsico, Inc. v. Winterthur Int’l
Am. Ins. Co., 

, 144 (2d Dep’t. 2004)). While the exact contractual language before

          1 Although not entirely clear, plaintiff on appeal seems to claim that the Policy was generally intended as a

supplement to a more general commercial liability policy and that its terms should be therefore be interpreted by
reference to pollution exclusion clauses in the latter type of document; working from this premise, plaintiff also notes a
supposed split of authority in the views of different states in interpreting pollution exclusions, which it claims is relevant
to interpreting the Policy at issue here. We find no merit to these arguments. Plaintiff has presented no evidence of a
specific general commercial liability policy in this case. At oral argument, plaintiff insisted that it did have such a policy,
but conceded that its general policy was not with the defendant. Moreover, as noted above, New York law governs the
interpretation of the Policy, see note 2, post, making reference to the contract law of any other state immaterial.

          Plaintiff also argues on appeal that the District Court “actually and necessarily relied” on “how a (presumptive)
[commercial general liability] policy would apply” in construing the Policy at issue. Appellant’s Br. 4-5. We disagree. As
made clear in its opinion, the District Court’s opinion was based on its view of “the only plausible reading of the Policy,”
Colonial Oil Indus., Inc., 

, at *4, with a limited discussion of commercial general liability serving as a
secondary justification for its reasoning.

          2 On appeal, plaintiff seems to imply, without elaboration, that the dispute might be governed by Georgia law

simply because Colonial is domiciled in Georgia. The Policy’s choice of law provision, however, is clear that New York
law governs its construction and enforcement, (Policy, § IX, ¶ L), as was the District Court’s recognition that parties
stipulated to that fact. See Colonial Oil Indus., Inc., 

, at *1.
                                                               4
us has not been addressed by New York courts, the Court of Appeals has said, in the context of
pollution exclusions, that “‘discharge’ and ‘dispersal’—are terms of art in environmental law used
with reference to damage or injury caused by disposal or containment of hazardous waste.”
Continental Cas. Co. v. Rapid-American Corp., 

, 654 (1993); cf. id. (“[T]he three places for
discharge contemplated by the policy exclusion—into or upon land, the atmosphere, or any water
course or body of water—read together support the conclusion that the clause was meant to deal
with broadly dispersed environmental pollution.”); see also Herald Square Loft Corp. v. Merrimack Mut.
Fire Ins. Co., 

, 920 (S.D.N.Y. 2004) (“[D]amage from the discharge, dispersal,
seepage, migration, release or escape are terms of art in environmental law, generally used to
describe the improper disposal or containment of hazardous waste.” (internal quotation marks
omitted)); Sphere Drake Ins. Co. v. Y.L. Realty Co., 

, 243 (S.D.N.Y. 1997) (same).

         These cases make clear that the “reasonable expectations of a businessperson” viewing the
contested Policy language would be that it is intended to provide coverage for environmental harm
resulting from the disposal or containment of hazardous waste. This case—which merely involves
the unwitting introduction and transfer of polluted oil into containers otherwise meant to hold that
oil–does not fall within those parameters. Accordingly, we conclude that the events giving rise to
this action did not create a “pollution condition” under the Policy and affirm the judgment of the
District Court.

       We have reviewed all of plaintiff’s arguments on appeal and find them to be without merit.
Accordingly, we AFFIRM the September 11, 2012 judgment of the District Court.


                                                         FOR THE COURT:
                                                         Catherine O’Hagan Wolfe, Clerk




                                                    5