[00:00:00] Speaker 04:
This is 23-2133 Chisholm's Village Plaza versus Cincinnati Insurance Company with Council for Appellants.

[00:00:10] Speaker 04:
Please make your appearance and proceed.

[00:00:13] Speaker 04:
I understand two of you will be trying to argue today.

[00:00:17] Speaker 04:
You're gonna have to manage your own time, but we'll work with you, okay?

[00:00:21] Speaker 04:
So I think it's Mr. Litchfield is going to begin.

[00:00:24] Speaker 02:
Yes, your honor.

[00:00:27] Speaker 02:
May I please support?

[00:00:29] Speaker 02:
My name is Daniel Litchfield.

[00:00:30] Speaker 02:
I represent the appellant, the Cincinnati Insurance Company.

[00:00:34] Speaker 02:
The key to this case has always been and remains the absolute pollution exclusion that's in our policies.

[00:00:40] Speaker 02:
There's certainly an effort to avoid discussion of an analysis of that exclusion through this concept of legal ambiguity and potential for coverage.

[00:00:49] Speaker 02:
But the bottom line is that we're being asked to accept an outlier series of cases from one state, Indiana,

[00:00:56] Speaker 02:
that fly in the face of 79 decisions from 47 states that apply this exclusion or exclusions that are substantially similar to this exclusion to facts that are like the facts here or substantially similar to the facts here.

[00:01:10] Speaker 02:
Among those cases is the Headwaters case from this court.

[00:01:14] Speaker 02:
Now to be sure, Headwaters applies Utah law

[00:01:17] Speaker 02:
But we've established that the basic principles of insurance coverage, interpretation, and construction in Utah are just like those in New Mexico.

[00:01:27] Speaker 02:
Thus, there's no reason not to treat headwaters as essentially binding, because there'd be no difference in the analysis, there'd be no difference in the outcome, applying those same basic principles to similar facts and substantially the same pollution exclusion.

[00:01:43] Speaker 04:
Mr. Litchfield, let me ask you a question.

[00:01:45] Speaker 04:
Assuming we agree with you that we should not accept the Indiana per se ambiguity rule, do we have to determine whether the literal interpretation or the situational approach apply?

[00:02:04] Speaker 04:
I mean, if they both do not provide coverage, do we have to predict which one would be accepted here?

[00:02:13] Speaker 02:
I don't believe you do because of the reason that your honor gave that under either one of those approaches, there would be no coverage here.

[00:02:22] Speaker 02:
I have, in my experience, had a number of cases where in similar circumstances, courts have decided that they would not gratuitously reach an issue that was unnecessary to be reached.

[00:02:35] Speaker 02:
And that would probably be the situation here, since under either one of those lines of cases, the facts here would clearly supply a situation where there would be no coverage under the exclusion.

[00:02:47] Speaker 02:
Now Chisholm's uses this approach to the Indiana cases to buttress something that it calls legal ambiguity.

[00:02:56] Speaker 02:
And in that context, it says that the New Mexico Supreme Court would follow the Indiana cases, but the Indiana or the New Mexico Supreme Court has never followed Indiana coverage decisions that we could find.

[00:03:07] Speaker 02:
It's never followed an outlier coverage decision to this extent of an outlier that we could find, and nobody is pushing back on that from the Chisholm side.

[00:03:18] Speaker 02:
Another indication of what the New Mexico Supreme Court would and would not do is the Flores decision, which is discussed extensively in the briefing, and Flores reflects that this idea that the failure to specifically list PCE as a pollutant

[00:03:33] Speaker 02:
that that somehow creates an ambiguity.

[00:03:36] Speaker 02:
The exact same argument was made in a slightly different circumstance in Flores, and it didn't fly.

[00:03:42] Speaker 02:
Flores did involve a business services exclusion, but the argument was in effect you didn't list it specifically, and as a consequence, there's an ambiguity.

[00:03:51] Speaker 02:
Same thing we're hearing here.

[00:03:52] Speaker 02:
The fact of the matter is that the jurisprudence from the New Mexico Supreme Court shows that it takes a more balanced approach.

[00:03:59] Speaker 02:
to analyzing the authority from other states.

[00:04:01] Speaker 02:
We can see this in the Desert States decision, which analyzes national authority and then chooses to follow the majority rule nationally.

[00:04:09] Speaker 02:
We can see it in the GNG decision, which is a case that Chisholm's is a proponent of on this duty to investigate point, which it doesn't support anyway.

[00:04:17] Speaker 02:
But the point is GNG in the Supreme Court in that case didn't take the same approach that is predicted here either.

[00:04:24] Speaker 04:
Why wouldn't this enumeration approach

[00:04:28] Speaker 04:
be workable.

[00:04:30] Speaker 04:
In other words, why couldn't you just say incorporate the definition of hazardous substances that the EPA has and have that be consistent with the Indiana approach and a list and that would of course presumably include PCE.

[00:04:49] Speaker 04:
Why couldn't that be

[00:04:50] Speaker 04:
a system that would work.

[00:04:53] Speaker 04:
And therefore, why couldn't that be construed to be what a reasonable insured would expect?

[00:05:01] Speaker 02:
Judge Holmes, I think the operative word in your question is the word workable.

[00:05:05] Speaker 02:
I think to take that approach would be utterly unworkable.

[00:05:08] Speaker 02:
The record here reflects, first of all, that the US EPA has its own list of hazardous substances, which PCE, by the way, is one.

[00:05:16] Speaker 02:
Now that list itself is thousands upon thousands of substances.

[00:05:23] Speaker 02:
The idea is that even though that list

[00:05:27] Speaker 02:
exists, the argument here is, well, that's not even good enough.

[00:05:31] Speaker 02:
You have to specifically put the words PCE or a perk or some derivation of that into the exclusion for it to apply where PCE is the contaminant.

[00:05:45] Speaker 04:
Maybe that's what your opponent has said.

[00:05:47] Speaker 04:
I don't recall that being what their argument was.

[00:05:49] Speaker 04:
I mean,

[00:05:50] Speaker 04:
And you can correct me if I'm wrong, but it would seem to me that there are situations in contracts where you just incorporate by reference some standard or some principle.

[00:06:02] Speaker 04:
In other words, you wouldn't have to list the thousands and thousands of hazardous substances.

[00:06:06] Speaker 04:
And PCE is one of them.

[00:06:08] Speaker 04:
You would just by definition do it by cross-reference.

[00:06:12] Speaker 04:
What am I missing?

[00:06:15] Speaker 02:
I don't think you're missing anything, Your Honor.

[00:06:17] Speaker 02:
As a matter of fact, there is such an incorporation by reference in exclusion here, which is a reference to any substance that's been determined by the government to be a hazardous substance, words to that effect.

[00:06:31] Speaker 02:
But even that doesn't seem to be enough for our opponent.

[00:06:35] Speaker 02:
The argument over and over again is

[00:06:38] Speaker 02:
hearkens back to the Indiana cases, and the Indiana cases very clearly say you have to specifically use the actual word, period.

[00:06:48] Speaker 02:
And, you know, I'm not one to overdo Parade of Horrible's arguments, but I think that's just the fact of what the argument is here and what is asserted.

[00:06:59] Speaker 02:
And thus, it's not a good way to work through what the New Mexico Supreme Court would be predicted to do.

[00:07:06] Speaker 02:
I think also one should look to the United Nuclear case where the New Mexico Supreme Court had no problem treating radioactive waste as a pollutant.

[00:07:14] Speaker 02:
And one should look to the Mesa oil case where this court had no problem treating oil as a pollutant.

[00:07:21] Speaker 04:
So let me let me let me ask you, if I may, a question about United Nuclear.

[00:07:26] Speaker 04:
United Nuclear seemed to lay out a methodology

[00:07:31] Speaker 04:
to go about determining whether there was ambiguity.

[00:07:34] Speaker 04:
And what I mean by that is it enumerated like four things that it was going to look to, maybe I think it was four, four, maybe five, that it was going to look to, it would look to dictionaries, it would look to the language itself, it would look to ultimately if it ever got to it, industry documents, drafting history, that kind of thing.

[00:07:55] Speaker 04:
Is that, in light of the fact that we're talking about the New Mexico Supreme Court walking through a process of determining whether the term, I believe, was sudden, in that case was ambiguous, is that an approach that would make sense for us to apply here?

[00:08:14] Speaker 04:
And if the answer is yes, then what would be the outcome of doing that?

[00:08:21] Speaker 02:
Judge, let me give you a quick answer and then turn this over to Mr. McAllister.

[00:08:25] Speaker 02:
But I think the answer is yes, United Nuclear does those things, but nobody here, neither Chisholm's nor the underlying court is in any way harkening to those modes of analysis, which are the more traditional ways of analyzing an insurance policy in New Mexico.

[00:08:43] Speaker 04:
Oh, let me be clear on that answer.

[00:08:45] Speaker 04:
You're saying that nobody here is saying that we should do that.

[00:08:49] Speaker 04:
apply that methodology?

[00:08:51] Speaker 02:
Not that I've seen, Your Honor.

[00:08:53] Speaker 04:
All right.

[00:08:54] Speaker 01:
Your Honor, may it please the Court.

[00:08:57] Speaker 01:
Steve McAlister, I'd like to pick up with the Chief's question there about United Nuclear.

[00:09:03] Speaker 01:
In essence, to a great extent, we are suggesting an analysis consistent with United Nuclear, certainly on Fidelity's side.

[00:09:13] Speaker 01:
It's the plaintiff that is suggesting something different.

[00:09:17] Speaker 01:
If you look closely at United Nuclear, which I'm sure you have, you have a word there, sudden, that was the issue.

[00:09:25] Speaker 01:
There was no definition in the policy.

[00:09:28] Speaker 01:
Here, the word is pollutant.

[00:09:30] Speaker 01:
There is a precise definition in the policy.

[00:09:33] Speaker 01:
There, they looked at different dictionary definitions of the word.

[00:09:39] Speaker 01:
We've not really pushed that.

[00:09:41] Speaker 01:
But there is a lot of argument in the briefs about the significance of a split of authority.

[00:09:47] Speaker 01:
And I would point out in United Nuclear what you have.

[00:09:50] Speaker 01:
If you look at the footnotes, you had seven courts finding the term unambiguous and seven courts finding it ambiguous.

[00:09:59] Speaker 01:
You had an even split with a significant number of decisions.

[00:10:03] Speaker 01:
Here, you have one decision.

[00:10:06] Speaker 01:
opposite a huge majority going the other direction.

[00:10:11] Speaker 01:
So if you did apply United Nuclear,

[00:10:14] Speaker 01:
It would lead to the correct outcome here.

[00:10:17] Speaker 01:
Certainly.

[00:10:18] Speaker 04:
And if I may just interrupt one second.

[00:10:20] Speaker 04:
Yes.

[00:10:22] Speaker 04:
And I wasn't suggesting that it entirely maps on to this case.

[00:10:27] Speaker 04:
I was trying to understand whether to the extent that it is applicable and whether its methodology would be one that would make sense to apply here.

[00:10:38] Speaker 01:
And I believe it would.

[00:10:40] Speaker 01:
Chief Judge, I believe it would.

[00:10:42] Speaker 01:
And I'd also like to emphasize the point you started with.

[00:10:47] Speaker 01:
This case really boils down to just the question, would the New Mexico Supreme Court adopt the Indiana approach or not?

[00:10:55] Speaker 01:
That is all the court has to decide.

[00:10:58] Speaker 01:
It does not have to choose between the literal or situational approaches.

[00:11:03] Speaker 01:
That is why there's no reason to certify the question here to the New Mexico Supreme Court.

[00:11:09] Speaker 01:
It's not a hard question.

[00:11:10] Speaker 01:
The answer is clear.

[00:11:12] Speaker 01:
And because the answer is clear, that there is no coverage here.

[00:11:17] Speaker 01:
Excuse me.

[00:11:20] Speaker 01:
There's also no duty to defend.

[00:11:23] Speaker 01:
So plaintiffs argued somehow, if it can come up with any kind of argument, there ought to be a duty to defend.

[00:11:29] Speaker 01:
But that's not New Mexico law.

[00:11:31] Speaker 01:
New Mexico law says, look at the eight corners, the complaint and the policy.

[00:11:37] Speaker 01:
Is there any plausible basis for coverage?

[00:11:40] Speaker 01:
Here there is not, unless one adopts the Indiana approach.

[00:11:46] Speaker 01:
So there's no duty to defend.

[00:11:48] Speaker 04:
Mr. Macalester.

[00:11:50] Speaker 03:
Go ahead, Judge Matheson.

[00:11:52] Speaker 03:
Thank you.

[00:11:52] Speaker 03:
Can I just jump in and ask you about one part of the district court's opinion, where it talks about the fact that the circular complaint alleged unnamed hazardous substances, and then said that the insurance company should have investigated

[00:12:20] Speaker 03:
to identify what those substances are.

[00:12:25] Speaker 03:
And it seems as if the district court was stating that as an alternative ground.

[00:12:33] Speaker 03:
You may want to speak to that.

[00:12:34] Speaker 03:
But was the general reference to hazardous substances, does it trigger any kind of duty to investigate?

[00:12:44] Speaker 01:
Judge Matheson, not in this context, because given the plaintiff here, the underlying facts were that there had been dry cleaning operation on this site.

[00:12:58] Speaker 01:
PCE is the common solvent used in dry cleaning operations.

[00:13:02] Speaker 01:
It was evident from the complaints and its numerous references to PCEs.

[00:13:08] Speaker 01:
that at this site that was the contaminant or irritant the pollutant that had been released and that excluded coverage under the policy and therefore there was no duty to defend or to investigate further in this situation.

[00:13:24] Speaker 01:
I mean Fidelity fulfilled its obligations in terms of a duty to investigate.

[00:13:31] Speaker 01:
So, and I'd also like to just address briefly Chief Judge Holmes' question about incorporating by reference.

[00:13:40] Speaker 01:
I mean, certainly that's possible, but it seems rather strange in this context if you can put in a link to an EPA website that shows you over 80,000 hazardous substances

[00:13:55] Speaker 01:
I mean, realistically, what insured is going to read all of that.

[00:14:00] Speaker 01:
And so you're still going to end up with litigation saying, I had no idea that was on the list.

[00:14:05] Speaker 01:
It was unreasonable for the insurance company to expect me to review 80,000 substances on a list.

[00:14:12] Speaker 01:
I just don't think that's workable as well as I agree with my colleague, Mr. Litchfield.

[00:14:17] Speaker 01:
about that's not really what Indiana is seeking to require here.

[00:14:22] Speaker 01:
So with the court's permission, I'd like to reserve the remaining time for rebuttal.

[00:14:28] Speaker 04:
That's fine.

[00:14:33] Speaker 04:
We'll hear now from Appalooe, please.

[00:14:37] Speaker 00:
May it please the court?

[00:14:39] Speaker 00:
Good morning, Your Honors.

[00:14:40] Speaker 00:
My name is Tom Nasco.

[00:14:41] Speaker 00:
I represent the Appellee, Chisholm's Village Plaza in this case.

[00:14:45] Speaker 00:
Your Honors, this case on appeal bears little to no resemblance to the case that was actually tried before Judge Browning and submitted to oral argument to him.

[00:14:55] Speaker 00:
The issues have morphed substantially because we had different out-of-state counsel in the trial court than we have today.

[00:15:02] Speaker 00:
There is no suggestion, there was no suggestion to the district court that the court should adopt

[00:15:08] Speaker 00:
one interpretation of the pollution exclusion over the other.

[00:15:12] Speaker 00:
It was not a coverage case.

[00:15:13] Speaker 00:
Coverage and indemnity benefits were never at issue.

[00:15:17] Speaker 00:
The argument presented to the district court was that there was sufficient uncertainty on a couple of levels.

[00:15:24] Speaker 00:
One of which was which version of the interpretation of the pollution exclusion would the New Mexico Supreme Court adopt?

[00:15:32] Speaker 00:
Would it be the literal, the situational, or the ambiguous per se approach?

[00:15:37] Speaker 00:
We did not know.

[00:15:38] Speaker 00:
We knew that there was indications, A, that they would never adopt the literal approach and likely not adopt the situational approach because of the Montano case, where the court doesn't tolerate case-by-case analysis of ambiguity.

[00:15:52] Speaker 00:
And there is support in the United Nuclear and other cases for adopting the ambiguous per se approach.

[00:15:57] Speaker 00:
But we did not suggest to the court

[00:16:00] Speaker 00:
we did not presume to know that the New Mexico Supreme Court would adopt one over the other.

[00:16:06] Speaker 00:
Additionally, my primary arguments to judge Browning were that under the three prongs of the pollution exclusion, it wouldn't matter what approach the New Mexico Supreme Court adopted because there was sufficient uncertainty as to the application of each of those three prongs.

[00:16:23] Speaker 00:
And I'm going to discuss that further in my presentation, Your Honors.

[00:16:26] Speaker 00:
In New Mexico, however, the duty to defend law is very well developed, extremely well developed, and the court has to make no eerie prediction.

[00:16:35] Speaker 00:
Under the Knowles case, the Supreme Court has announced it's much broader than the duty to indemnify.

[00:16:40] Speaker 00:
It's distinct from it.

[00:16:42] Speaker 00:
It's a separate agreement contained within the insurance policy.

[00:16:47] Speaker 00:
It's triggered if there is the potential for coverage.

[00:16:51] Speaker 00:
The state farm versus price case is also instructive.

[00:16:54] Speaker 00:
The Supreme Court said, look, we don't look at whether there is actual coverage, which is what these insurers want this court to do.

[00:17:02] Speaker 00:
We look as if there as if

[00:17:04] Speaker 00:
to determine whether there is a potential for coverage.

[00:17:08] Speaker 00:
And if there is, if there is a potential, the proper reports under New Mexico law, and this is uncontroverted, is you defend the case.

[00:17:17] Speaker 00:
And if you think your interpretation is right, Mr. McAlister and Mr. Litchfield think that their interpretations of the pollution exclusion is right.

[00:17:24] Speaker 00:
They defend and they file the declaratory judgment action to find out.

[00:17:28] Speaker 04:
Well, what I heard them saying, however, was that ultimately we don't need to decide whether they're right.

[00:17:36] Speaker 04:
We just need to decide whether under any viable scenario there is coverage.

[00:17:41] Speaker 04:
And if the answer to that is definitively no,

[00:17:44] Speaker 04:
then your position is undercut.

[00:17:48] Speaker 04:
I mean, in other words, that's why I asked the question.

[00:17:51] Speaker 04:
Ultimately, this does not become a debate over the literal or the situational approach.

[00:17:56] Speaker 04:
The question is whether what the district court did as it related to the Indiana approach applies.

[00:18:02] Speaker 04:
And if the answer is no, then the question is, is there any basis for coverage under the literal or situational approach?

[00:18:10] Speaker 04:
Either one, right?

[00:18:11] Speaker 00:
Your honor, I respectfully would push back on that a bit because there is no definitively no answer to that question.

[00:18:19] Speaker 00:
There are indications from the New Mexico Supreme Court.

[00:18:22] Speaker 00:
Well, let's start at the beginning.

[00:18:23] Speaker 00:
I think it's fairly obvious the New Mexico Supreme Court would never adopt the literal interpretation because the one spilled hot sauce on the ground, which has components of hazardous substances, any personal injury from a slip and fall would be excluded.

[00:18:35] Speaker 00:
There is an indication from the New Mexico Supreme Court in the Montano decision, which Judge Browning cites at length.

[00:18:41] Speaker 04:
That's the car insurance case, right?

[00:18:44] Speaker 00:
Absolutely, Your Honor.

[00:18:45] Speaker 04:
That's an entirely different context, is it not?

[00:18:47] Speaker 04:
I mean, with different policy objectives.

[00:18:50] Speaker 00:
Your Honor, it is a different, it is a stacking provision, an uninsured motorist case that is true, but it's still an indication from the Supreme Court that the court does not like case-by-case analysis of ambiguities, particularly in exclusions.

[00:19:07] Speaker 00:
When one superimposes upon the Montano case, the United Nuclear case, where the court indicated that exclusions are narrowly construed, narrowly construed.

[00:19:17] Speaker 00:
and any ambiguities are resolved in the insurance favor.

[00:19:20] Speaker 00:
So yes, there are certain, there are indications that the Supreme Court could adopt the ambiguous per se approach because of the United Nuclear Case, the court does not like ambiguities and exclusions.

[00:19:35] Speaker 00:
And Judge Browning went through that, I think, in excruciating detail.

[00:19:38] Speaker 03:
Now- Well, counsel, could I just ask you, the district court did make an eerie guess

[00:19:47] Speaker 03:
in that it discussed Erie at some length.

[00:19:51] Speaker 03:
And then the guess was that the Indiana approach would apply.

[00:19:56] Speaker 03:
And I don't hear you defending that decision.

[00:20:01] Speaker 03:
Is your argument at this point one for an alternative ground to affirm

[00:20:09] Speaker 00:
Your honor, thank you, Judge Matheson.

[00:20:11] Speaker 00:
No, I fully defend the Judge Brown's determination that the ambiguous per se approach would have likely supported New Mexico, but there are alternative grounds in the decision.

[00:20:23] Speaker 00:
Now, it's a very erudite decision of Judge Browning.

[00:20:26] Speaker 00:
However, because of Judge Bursiaga's decision in Paracletes,

[00:20:30] Speaker 00:
showing that when there is a legal ambiguity, it's treated just the same as a factual ambiguity.

[00:20:35] Speaker 00:
I believe that the entire case could have been resolved based on the last five pages of Judge Browning's decision, pages 105 to 110, where the court determined that, well, even if the court would adopt a different approach, there's sufficient legal ambiguity to invoke the absolute duty to defend, which is very well developed in New Mexico.

[00:20:56] Speaker 00:
But under any any approach, the absence of investigation here, your honors, to determine whether these whether these pollutants were even subject to the clause.

[00:21:08] Speaker 00:
Would invoke the duty to defend, we don't know, because Mr. McAlister said, yes, there were there were allegations of PCE releases there were, but there were also allegations of other unknown hazardous substances.

[00:21:21] Speaker 00:
And we know from the jurisprudence that unknown hazardous substances often don't qualify as pollutants under the absolute pollution exclusion.

[00:21:29] Speaker 00:
For instance, carbon monoxide, things of that nature, we don't know.

[00:21:33] Speaker 00:
There was no investigation to find out.

[00:21:35] Speaker 00:
So that in and of itself created a sufficient ambiguity to impose the duties of effect.

[00:21:41] Speaker 03:
Council, you pick up on a question that I asked Mr. McAllister and I'm interested in your response to it as well.

[00:21:48] Speaker 03:
You mentioned investigation.

[00:21:50] Speaker 03:
What does the case law tell us, the New Mexico case law, the density case law, tell us about any kind of duty to investigate and who has that duty in the first instance, if there is one?

[00:22:05] Speaker 00:
There is a duty to investigate, Your Honor.

[00:22:07] Speaker 00:
There's a duty to investigate under New Mexico law when the determination of coverage is unknown.

[00:22:15] Speaker 00:
And the way that occurs under New Mexico law, under the Price case and others, is you defend the complaint, then you conduct your investigation.

[00:22:23] Speaker 00:
And that is why insurers often issue reservation of rights letters.

[00:22:28] Speaker 00:
So they will defend, then investigate.

[00:22:31] Speaker 00:
If facts arise indicating through the investigation

[00:22:36] Speaker 00:
that certain releases did not qualify as pollutants under the absolute pollution exclusion, they continue with the defense or they bring a declaratory judgment action to get that determination.

[00:22:48] Speaker 00:
And this, Your Honor, falls into another section of the argument, which I think is extremely important that I argued primarily to Judge Browning that under any interpretation,

[00:22:57] Speaker 00:
Of the absolute pollution exclusion, there was sufficient uncertainty to invoke the duty to defend the first clause precluded coverage for any pollutants that were released from property owned and occupied by the insured.

[00:23:09] Speaker 00:
Well, the complaint alleged that the insured was liable for releases from properties it didn't own or occupy.

[00:23:16] Speaker 00:
So Judge Browning dismissed that.

[00:23:18] Speaker 00:
Fidelity made that argument in the district court.

[00:23:20] Speaker 00:
They abandoned it on appeal.

[00:23:21] Speaker 00:
That was the first leg of the pollution exclusion.

[00:23:25] Speaker 00:
The second, which is actually the third that Judge Browning discussed, excluded losses, costs, or expenses arising out of any claim by a government agency.

[00:23:36] Speaker 00:
While there were many, many losses, costs, and expenses arising out of claims by the EPA, we acknowledge that.

[00:23:41] Speaker 00:
But there was also a claim by the city and county for costs, quote, apart from, end quote, those types of costs.

[00:23:50] Speaker 00:
Judge Browning, at the record of 1021, determined that those costs had to arise from something else.

[00:23:55] Speaker 00:
Again, no investigation, so there was a duty to defend.

[00:24:00] Speaker 00:
Interestingly, Your Honor, this segues nicely into Judge Matheson's question of supporting

[00:24:05] Speaker 00:
the Indiana approach to this.

[00:24:07] Speaker 00:
The second clause was costs incurred as a result of an order or demand from a government agency.

[00:24:14] Speaker 00:
And certainly there were those costs.

[00:24:16] Speaker 00:
However, in our summary judgment filings, we made a prima facie showing that the first demand from the US EPA occurred in 2009 through an administrative order.

[00:24:26] Speaker 00:
Yet there was an RIFS, a remedial investigation and feasibility study performed seven years earlier in 2002 with no indication that there had been a demand to do so by anyone.

[00:24:40] Speaker 00:
Judge Browning acknowledged that in 1024 of the record and said, well, if that an investigation by Cincinnati and Fidelity had revealed

[00:24:50] Speaker 00:
that those costs were incurred prior to the demand, then Fidelity would have a duty to defend.

[00:24:56] Speaker 00:
But he said, I'm not going to decide that because I think New Mexico would likely adopt the Indiana-Perse rule.

[00:25:02] Speaker 00:
And Your Honors, before I get into the support for that, I'd like to point out that I'm not entirely sure why Cincinnati is here.

[00:25:08] Speaker 00:
on this appeal.

[00:25:09] Speaker 00:
I have no idea why, because they have an alternative liability provision in their policy, which makes the second and third legs of the pollution exclusion clause inapplicable if the insured would be subjected to liability under any other laws that were not alleged in the complaint.

[00:25:29] Speaker 00:
Judge Brown determined that they would have been.

[00:25:32] Speaker 00:
Now, Cincinnati never responded to that argument.

[00:25:35] Speaker 00:
in the district court.

[00:25:36] Speaker 00:
They never made the argument in the briefs in response to our papers.

[00:25:40] Speaker 00:
They never made the argument at the oral presentation before Judge Browning.

[00:25:45] Speaker 00:
They waived that right.

[00:25:46] Speaker 00:
It's completely gone.

[00:25:47] Speaker 00:
So we have the first clause of the pollution exclusion, the owned and occupied, out.

[00:25:53] Speaker 00:
The fidelity agrees with that.

[00:25:55] Speaker 00:
The second and third clauses are out.

[00:25:58] Speaker 00:
with respect to Cincinnati because they waived the right to even contest them.

[00:26:02] Speaker 00:
We don't hear about it in the docketing statements.

[00:26:04] Speaker 00:
We don't hear about it in the primary briefs.

[00:26:07] Speaker 00:
We don't hear about the legal ambiguity arguments in the primary briefs when all this case is about is about the duty to defend.

[00:26:15] Speaker 03:
So then in the district court address the alternative liability provision.

[00:26:22] Speaker 03:
In other words, whether Cincinnati argued it or not, district court passed upon

[00:26:28] Speaker 03:
the issue, and under those circumstances, why shouldn't Cincinnati be able to address it on appeal?

[00:26:38] Speaker 00:
Well, Your Honor, under those circumstances, Cincinnati should have put the issue in its docketing statement and alerted this court that it was going to address it, and it should have put the issue in its principal brief, which it did not.

[00:26:48] Speaker 00:
The issue only appears in its reply brief, because they have never, Judge Browning ruled on two alternative bases.

[00:26:56] Speaker 00:
One,

[00:26:57] Speaker 00:
They didn't respond to the issue and they waived it.

[00:26:59] Speaker 00:
And two, he went to the merits of it, looked at the clause and determined, yes, indeed, it did apply.

[00:27:05] Speaker 03:
Now, Cincinnati- I guess that's my point.

[00:27:08] Speaker 03:
I guess that's my point.

[00:27:10] Speaker 03:
The court nonetheless addressed him and addressed it in a way that Cincinnati now wants to challenge.

[00:27:19] Speaker 03:
But you're saying even under those circumstances, they can't challenge that ruling?

[00:27:25] Speaker 00:
That's correct, Your Honor, because they didn't do so in their primary briefs.

[00:27:28] Speaker 00:
How do we not raise the issue in our answer briefs?

[00:27:31] Speaker 00:
The court would never have been apprised of that issue at all.

[00:27:34] Speaker 00:
But Judge Browning, as is his practice,

[00:27:38] Speaker 00:
and I'm certain this court is well aware of his practice is to analyze everything, every which way he can.

[00:27:43] Speaker 00:
And so he did analyze it that you're correct, Your Honor, Judge Matheson that he did in fact analyze the merits of the clause.

[00:27:51] Speaker 00:
And let me address that if I may for a moment, because the merits of the clause, since he had replies and said, well, no one made a claim against him for trespass or nuisance or anything else like that.

[00:28:01] Speaker 00:
And so therefore it doesn't apply.

[00:28:02] Speaker 00:
Well, this is a restorative of clause.

[00:28:05] Speaker 00:
It's not an exclusionary clause.

[00:28:07] Speaker 00:
It's a restorative clause.

[00:28:08] Speaker 00:
So it actually restores the original grant of coverage.

[00:28:11] Speaker 00:
And New Mexico laws also well developed on that in United Nuclear, that exclusionary clauses are very narrowly construed.

[00:28:18] Speaker 00:
But when you restore the coverage, it's broadly construed.

[00:28:21] Speaker 00:
So Judge Brown is absolutely correct that under that broad construction that the the the the mere likelihood that there was an additional claim out there would remove those two clauses from the pollution exclusion.

[00:28:35] Speaker 00:
So, Your Honor, it's no matter how we analyze the case, you can you can analyze it.

[00:28:40] Speaker 00:
Is there sufficient uncertainty as to which interpretation of the pollution exclusion the New Mexico Supreme Court would apply?

[00:28:46] Speaker 00:
That's all the court has to determine.

[00:28:47] Speaker 00:
Is there uncertainty?

[00:28:49] Speaker 00:
I think the answer is undeniable, yes.

[00:28:51] Speaker 00:
Or secondly, is there sufficient uncertainty under the application of the three clauses?

[00:28:55] Speaker 00:
Without any investigation, should there have been a defense obligation?

[00:29:00] Speaker 00:
And under the Horton case, the New Mexico Court of Appeals has cautioned that you do so at your peril if you don't defend.

[00:29:07] Speaker 00:
As a matter of fact, it's a very severe consequence.

[00:29:09] Speaker 00:
You lose the right to challenge.

[00:29:11] Speaker 00:
coverage in a later action.

[00:29:13] Speaker 00:
So we know there's also sufficient support for the ambiguous per se.

[00:29:17] Speaker 00:
We know that from United Nuclear.

[00:29:19] Speaker 00:
Judge Browning was correct.

[00:29:20] Speaker 04:
And is your first ground of uncertainty, legal uncertainty, related to whether the ambiguous per se or the literal or situational applies?

[00:29:31] Speaker 04:
Is that what you deem to be the uncertainty?

[00:29:34] Speaker 00:
Your honor, there are two uncertainties.

[00:29:35] Speaker 00:
One of that, you've hit one issue that is absolutely correct.

[00:29:39] Speaker 00:
The second issue, I see my time is up.

[00:29:40] Speaker 00:
May I briefly answer the question?

[00:29:41] Speaker 04:
Please finish.

[00:29:42] Speaker 00:
And your honor, the second one is the application of the three clauses, which no one talks about under any interpretation of the pollution exclusion.

[00:29:52] Speaker 00:
showed sufficient uncertainty to invoke the duty to defend, which is well-developed in New Mexico law.

[00:29:58] Speaker 00:
We don't have to determine actual coverage.

[00:30:00] Speaker 00:
I urge this court not to go down that route.

[00:30:03] Speaker 00:
The court only needs to determine whether there was sufficient uncertainty to invoke the duty to defend either A, under the choice of the interpretation of the exclusion, New Mexico might or might not adopt, and two, under any approach,

[00:30:19] Speaker 00:
Did the three prongs arguably not apply?

[00:30:22] Speaker 00:
Because there was no investigation to determine if they did or did not.

[00:30:26] Speaker 00:
And with that, Your Honor, I urge the court to affirm Judge Browning.

[00:30:29] Speaker 00:
There's a multitude of reasons that he gives the court.

[00:30:32] Speaker 00:
The last place the court needs to venture is into making an eerie guess as to how New Mexico would make this determination.

[00:30:39] Speaker 00:
It's only necessary for the court to say, yes, there was sufficient uncertainty to invoke the duty to defend.

[00:30:46] Speaker 00:
Thank you very much, Your Honors.

[00:30:49] Speaker 04:
Council for Appellant.

[00:30:52] Speaker 01:
Thank you.

[00:30:53] Speaker 01:
May it please the court.

[00:30:55] Speaker 01:
I'd just like to make a couple of quick points in rebuttal.

[00:30:58] Speaker 01:
One, it's clear from this court's cases, constring New Mexico law and New Mexico cases, the eight corners rule is the way to determine both the duty to defend and a duty to indemnify.

[00:31:12] Speaker 01:
I urge the court to look at the New Mexico Physicians versus Lemure case, New Mexico, 1993.

[00:31:19] Speaker 01:
where the court clearly said no coverage means no indemnity and no duty to defend.

[00:31:28] Speaker 01:
And the general principle there the court applied said interpret unambiguous language in the quote, usual and ordinary sense.

[00:31:38] Speaker 01:
And in that case, the court found no duty to defend because there was no coverage under the policy.

[00:31:45] Speaker 01:
And that's all I have, Your Honors.

[00:31:46] Speaker 01:
Thank you.

[00:31:48] Speaker 02:
Anything else?

[00:31:50] Speaker 02:
Yes, your honor, if I may very quickly with regard to investigation, I would urge the court to take a good look, as I know it has the GNG case, which is all about whether there are extra facts not alleged in the underlying complaint that put something into coverage.

[00:32:06] Speaker 02:
That was the basis of the ruling there.

[00:32:08] Speaker 02:
Nobody's asserting such extra facts here.

[00:32:11] Speaker 02:
With regard to the allegation of hazardous substances in the underlying complaint here, that was in the context of CERCLA, which defines hazardous substances in a fairly particular manner, and we went through that in some detail in the briefing.

[00:32:25] Speaker 02:
With regard to the abandonment of arguments about the various clauses,

[00:32:29] Speaker 02:
I think both appellants here had extensive discussion of each of the subparts of the exclusion and how those subparts apply to the underlying complaints.

[00:32:40] Speaker 02:
There's no abandonment in that behavior.

[00:32:43] Speaker 02:
Okay.

[00:32:43] Speaker 04:
All right.

[00:32:44] Speaker 04:
You're going to have to wrap it up, Mr. Litchfield.

[00:32:46] Speaker 02:
The only thing I was going to say at the end, Judge, is as to things morphing, the record is here.

[00:32:52] Speaker 02:
We've relied on the record.

[00:32:53] Speaker 02:
The briefs are before the court.

[00:32:55] Speaker 02:
We've relied on the briefing, including what our opponents have said.

[00:32:59] Speaker 02:
It's not a morphing situation at all.

[00:33:01] Speaker 02:
It's a normal appeal from that perspective.

[00:33:03] Speaker 04:
All right.

[00:33:04] Speaker 04:
Very good arguments, counsel, on both sides.

[00:33:06] Speaker 02:
We appreciate it.

[00:33:07] Speaker 02:
Case is submitted.

[00:33:08] Speaker 04:
Thank you.