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National Union Fire Insurance Co. of Pittsburgh v. CBI Industries, Inc.

Texas Supreme Court
39 Tex. Sup. Ct. J. 7, 41 ERC (BNA) 1279, 907 S.W.2d 517 (1995)
ELI5:

Sections

Rule of Law:

Insurance policies containing absolute pollution exclusions are unambiguous when applied to the accidental release of toxic pollutants, and extrinsic evidence regarding industry intent is inadmissible to create a latent ambiguity when the policy language is clear on its face.


Facts:

  • CBI Industries, acting as a contractor, was supervising a 'turnaround' (maintenance and cleaning) at a Marathon Petroleum refinery.
  • During the operation, a crane supervised by CBI accidentally dropped a heavy convection section of a heater unit.
  • The dropped load struck a pipe connected to a storage tank containing hydrofluoric acid, a toxic waste substance.
  • The impact caused the release of a large cloud of hydrofluoric acid over Texas City.
  • Residents of the city claimed injuries resulting from the acid cloud.
  • CBI held insurance policies with National Union, Anglo American, and Rome, all of which contained 'absolute pollution exclusions' denying coverage for damage arising from the discharge or dispersal of pollutants.

Procedural Posture:

  • Residents of Texas City sued CBI for damages resulting from the acid release.
  • CBI tendered the claims to its insurers, who denied coverage.
  • CBI sued the insurers in the trial court for damages and a declaration of coverage.
  • The insurers moved for summary judgment based on the absolute pollution exclusions.
  • The trial court granted summary judgment in favor of the insurers before discovery was completed.
  • CBI appealed to the Court of Appeals.
  • The Court of Appeals reversed the summary judgment and remanded the case, holding that CBI should have been allowed discovery to potentially prove a 'latent ambiguity' regarding industry intent.
  • The insurers petitioned the Supreme Court of Texas for review.

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Issue:

Do absolute pollution exclusions in comprehensive general liability insurance policies unambiguously exclude coverage for damages resulting from an accidental explosion that releases a toxic chemical cloud, thereby precluding the insured from introducing extrinsic evidence to prove the parties intended otherwise?


Opinions:

Majority - Per Curiam

Yes, the absolute pollution exclusions unambiguously exclude coverage for the accidental release of the toxic chemical cloud. The Court reasoned that insurance policies are controlled by general rules of contract construction, where the primary concern is ascertaining the true intent of the parties as expressed in the instrument. If a contract is worded so that it has a certain legal meaning, it is not ambiguous, and parol (extrinsic) evidence is inadmissible to create an ambiguity where none exists. Ambiguity can be patent (evident on the face) or latent (arising when applying the contract to the facts). Here, the Court found the policies were not patently ambiguous because the language clearly excluded coverage for pollutants. Furthermore, no latent ambiguity existed because applying the policy language to the specific facts—a cloud of hydrofluoric acid—led to only one reasonable conclusion: the substance was a pollutant and coverage was excluded. The Court rejected the lower court's decision to allow discovery regarding industry-wide intent, holding that extrinsic evidence is only admissible after a contract is found to be ambiguous, not to create the ambiguity.



Analysis:

This decision represents a significant reinforcement of the 'four corners' rule or 'plain meaning' rule in Texas contract law, particularly regarding insurance disputes. By strictly limiting the doctrine of 'latent ambiguity,' the Court prevented insured parties from using evidence of industry custom, trade usage, or prior negotiations to alter the meaning of clear policy text. The ruling aligns Texas with the majority of jurisdictions that interpret 'absolute pollution exclusions' literally, rejecting arguments that such exclusions were only intended for intentional environmental dumping rather than industrial accidents. Practically, this makes it extremely difficult for policyholders to overcome specific exclusions by claiming the 'spirit' of the agreement differed from the text.

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