                      NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.




                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE


 STARR SURPLUS LINES INSURANCE COMPANY, Plaintiff/Appellant,

                                         v.

             STAR ROOFING, INC., et al., Defendants/Appellees.

                              No. 1 CA-CV 18-0641
                                  1 CA-CV 18-0642
                                  (Consolidated)
                                FILED 10-31-2019


            Appeal from the Superior Court in Maricopa County
                           No. CV2014-015362
               The Honorable Margaret R. Mahoney, Judge

                                   AFFIRMED


                                     COUNSEL

Lorona Mead, PLC, Phoenix
By Frank R. Mead
Co-Counsel for Plaintiff/Appellant

Phillips Law Corporation, Santa Ana, California
By Brent Randall Phillips
Co-Counsel for Plaintiff/Appellant
Gust Rosenfeld P.L.C., Phoenix
By Jay R. Graif
Co-Counsel for Defendant/Appellee Star Roofing, Inc.

Murphy Cordier PLC, Phoenix
By Michael A. Cordier
Co-Counsel for Defendant/Appellee Star Roofing, Inc.

Kutak Rock LLP, Scottsdale
By Michael W. Sillyman, London A. Burns
Counsel for Defendant/Appellee Transwestern Commercial
Services Arizona, LLC

Freeman Law PLLC, Scottsdale
By Shelton L. Freeman
Counsel for Amicus Curiae National Roofing Contractors Association and
Asphalt Roofing Manufacturers Association



                      MEMORANDUM DECISION

Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Jennifer B. Campbell and Judge Michael J. Brown joined.


W I N T H R O P, Judge:

¶1           In this consolidated appeal arising from a declaratory
judgment action, Starr Surplus Lines Insurance Company (“Starr Surplus”)
appeals separate summary judgments entered in favor of Star Roofing, Inc.
(“Star Roofing”) and Transwestern Commercial Services Arizona, LLC
(“Transwestern”). For the following reasons, we affirm.

                 FACTS AND PROCEDURAL HISTORY

¶2           This insurance coverage action arises out of an underlying
lawsuit filed by Maria Delarosa (“Delarosa”) against Star Roofing,
Transwestern, and Camelback Consulting, LLC (“Camelback”). The
primary dispute in this case is whether the insurer, Starr Surplus, may deny
coverage under the parties’ insurance policy.




                                      2
                 STARR SURPLUS v. TRANSWESTERN
                        Decision of the Court

¶3          In May and June 2012, Star Roofing performed roofing work
on a commercial building in Tempe. Delarosa was employed by US
Airways, which was a tenant in the building.

¶4            On July 2, 2012, Delarosa fractured her right forearm and
suffered other bodily injury when she allegedly passed out and fell in the
building’s parking lot as she was leaving work. In 2014, Delarosa sued Star
Roofing, Transwestern (the property manager), and Camelback (the
construction consultant), alleging she had suffered her injuries as a result
of being overcome by breathing the fumes released from Star Roofing’s
work while she was at work inside the US Airways’ building.

¶5           Before engaging in the roofing project, Star Roofing had
obtained a commercial general liability insurance policy issued by Starr
Surplus (“the Starr Policy”), which covered a period from September 30,
2011 to September 30, 2012. As the property manager of the building,
Transwestern was named as an additional insured on the Starr Policy.

¶6           Star Roofing tendered the defense of the underlying action to
Starr Surplus under the Starr Policy. Starr Surplus retained Claims Direct
Access (“CDA”) as a third-party claims adjudicator concerning the
Delarosa claim. In November 2014, Starr Surplus agreed to defend Star
Roofing, albeit subject to a reservation of rights based on a pollution
exclusion endorsement attached to the Starr Policy.

¶7             In addition to being named as an additional insured on the
Starr Policy, Transwestern was insured under a commercial general liability
insurance policy issued by Zurich American Insurance Company
(“Zurich”) and tendered its defense to Zurich.            Zurich accepted
Transwestern’s tender and appointed Don Skypeck to defend
Transwestern. Skypeck tendered Transwestern’s defense of the Delarosa
action to Star Roofing and Starr Surplus. John Belanger, counsel for Star
Roofing, initially rejected the tender, claiming a disparity of interests
existed between Transwestern and Star Roofing. Orin Allen was the CDA
claims administrator assigned to handle Transwestern’s tender, and was
the point of contact with Skypeck on behalf of Starr Surplus relative to that
tender of defense. In January 2015, Starr Surplus agreed to defend
Transwestern, although the parties disagree whether Starr Surplus
assumed Transwestern’s defense under a reservation of rights. Belanger
now believed a conflict between the interests of Star Roofing and




                                     3
                 STARR SURPLUS v. TRANSWESTERN
                        Decision of the Court

Transwestern could be avoided, and he undertook the defense of
Transwestern in conjunction with his defense of Star Roofing.1

¶8            Meanwhile, on December 31, 2014, Starr Surplus initiated the
declaratory judgment action out of which this appeal arises, naming Star
Roofing and Delarosa as defendants, and seeking a determination that the
subject pollution exclusion barred coverage for Delarosa’s personal injuries
claim in the underlying action. On July 15, 2015, approximately six months
after it had assumed Transwestern’s defense, Starr Surplus filed a First
Amended Complaint, naming Transwestern as an additional defendant in
its declaratory judgment action. In the First Amended Complaint, Starr
Surplus alleged—for the first time, according to Transwestern—that Starr
Surplus had assumed Transwestern’s defense subject to a reservation of
rights.

¶9             On August 21, 2015, Starr Surplus mailed a signed reservation
of rights letter dated January 13, 2015 to Skypeck—who was no longer
representing Transwestern—and Skypeck received the letter on August 24.
Transwestern, however, disputed having previously received that
reservation of rights letter, or any other timely reservation of rights
notification, from Starr Surplus. Transwestern argued that, by his own
deposition testimony, Allen admitted that while he had received a coverage
opinion and proposed reservation of rights letter from CDA coverage
counsel and obtained approval on January 14, 2015 to issue that reservation,
he had no documentation to reflect that the reservation of rights was
provided to Skypeck or any other Transwestern representative prior to
August 2015.

¶10          In June 2016, Transwestern moved for summary judgment on
the defenses of waiver, estoppel, and laches. Transwestern argued Starr
Surplus should be precluded from denying coverage because there had
been an unreasonable delay between the time Starr Surplus assumed
Transwestern’s defense in the Delarosa action and when Starr Surplus
communicated the reservation of rights to Transwestern. Transwestern
further argued it had been prejudiced, in part because Starr Surplus had
engaged Belanger to represent Transwestern at the same time Belanger was
already representing the contrary and conflicting interests of Star Roofing,
and Skypeck had only agreed to Belanger’s representation of Transwestern

1      Belanger believed he could represent both Star Roofing and
Transwestern subject to execution of waivers of a potential conflict of
interest, but conflict waivers were not obtained from either Star Roofing or
Transwestern.


                                     4
                 STARR SURPLUS v. TRANSWESTERN
                        Decision of the Court

because he had been led to believe there was no reservation of rights
asserted with respect to Transwestern and Transwestern was fully
protected. Further, Transwestern maintained Skypeck did not continue to
pursue Transwestern’s rights as against others—including US Airways,
Camelback, and Camelback’s insurer, American Casualty Insurance—after
Starr Surplus assumed Transwestern’s defense without a reservation of
rights.

¶11           Starr Surplus opposed the motion, submitting a controverting
affidavit from Allen that stated Allen had been “misled” during his
deposition2 and that he actually had reviewed the reservation of rights and
prepared the associated letter on January 13, 2015, and then after obtaining
approval from his supervisor, mailed the reservation of rights letter to
Skypeck on January 14, 2015. Transwestern replied, moved to strike that
portion of the Allen affidavit as a “sham affidavit,” and requested sanctions
for a declaration submitted in bad faith. After further responsive
memoranda by the parties and oral argument, the superior court took the
matters under advisement.

¶12           In January 2017, the superior court granted Transwestern’s
motion for summary judgment on the defenses of waiver, estoppel, and
laches, explaining as follows:

             The Court finds that [Starr Surplus] delayed notifying
      TransWestern of a reservation of rights and that there is/was
      prejudice to TransWestern. In addition, the Court finds [Starr
      Surplus’] attempt to overcome the evidence with a sham
      declaration falls short.

¶13           On February 1, 2017, Transwestern filed an application for
attorneys’ fees and costs as the prevailing party pursuant to Arizona
Revised Statutes (“A.R.S.”) sections 12-341.01 and 12-341. Transwestern
also filed a Notice of Lodging Proposed Form of Judgment pursuant to
Arizona Rule of Civil Procedure (“Rule”) 54(b). After the parties filed
responsive memoranda, the superior court found Transwestern’s fee
application “premature” and ordered that “[t]he issue of attorney’s fees
shall abide resolution of the matter,” effectively holding the application in




2       Following the deposition, Allen was provided with a certified
transcript of his testimony and the opportunity to make any changes to the
certified transcript, but Allen never returned any notice of errata.


                                     5
                 STARR SURPLUS v. TRANSWESTERN
                        Decision of the Court

abeyance and effectively continuing Transwestern’s presence in the
declaratory action.

¶14           In March 2017, Starr Surplus and Star Roofing filed cross-
motions for summary judgment to determine the application of the
pollution exclusion to the claims alleged in the Delarosa action. Over the
next several months, Starr Surplus and Star Roofing filed numerous
responsive memoranda and motions. Delarosa joined in Star Roofing’s
motion for summary judgment, but by October 2017, the underlying
Delarosa action was settled, and Delarosa was dismissed from the
declaratory judgment action, although the remaining parties continued to
seek a declaration as to their rights and responsibilities under the Starr
Policy.

¶15            In April 2018, the superior court held oral argument on Starr
Surplus’ and Star Roofing’s cross-motions for summary judgment. On
April 27, the court, after finding no disagreement between the parties as to
the established material facts, granted Star Roofing’s motion for summary
judgment and denied Starr Surplus’ motion. Relying primarily on Keggi v.
Northbrook Property & Casualty Insurance Co., 199 Ariz. 43 (App. 2000)
(review denied Oct. 3, 2001), the court concluded the pollution exclusion
attached to the Starr Policy did not apply to exclude coverage for the claims
alleged in the Delarosa action:

             The Court finds Keggi . . . to be directly relevant
      authority on the issue presented in the cross-motions,
      specifically, whether the pollution exclusion provision in the
      Policy encompasses the underlying occurrence so as to
      exclude it from coverage, absolving [Starr Surplus] of the
      responsibility to defend or indemnify [Star Roofing] for
      claims related to the underlying occurrence. Much of the
      parties’ analysis focused on whether the underlying
      occurrence was a “traditional environmental pollution”
      event. The Court has reviewed all the cases briefed and
      argued by the parties in support of their opposing positions.
      The Court recognizes that there is not a simple test to
      determine whether an event is a traditional environmental
      pollution event. However, the Court finds the underlying
      event in this matter is not a traditional environmental
      pollution event.

            [Starr Surplus’] view of what is encompassed within
      the definition of “pollutant” under the Policy is extremely


                                     6
           STARR SURPLUS v. TRANSWESTERN
                  Decision of the Court

expansive. The Court does not find persuasive the opinions
of [Starr Surplus’] expert Dr. Hope (Nadia) Moore. However,
even if the roofing materials used by [Star Roofing] fall under
the Policy definition of “pollutant[,”] the circumstances
presented do not constitute “traditional environmental
pollution[.”] The Court finds that the credible evidence
established convincingly that the roofing materials used by
[Star Roofing] were commercially available, used by [Star
Roofing] for the purposes and in the manner intended, and
not misused or abused by [Star Roofing], who simply
employed the materials in the normal, ordinary and
anticipated course of doing an otherwise unremarkable
roofing job. When [Starr Surplus] wrote the policy, [Starr
Surplus] knew what [Star Roofing’s] business was and what
processes [Star Roofing] employed. There was no spill, no
mishandling, and no improper use, disposal[,] or
containment of [Star Roofing’s] products; rather, the products
were used as all parties had foreseen them being used. There
was in fact no “event” identified with [Star Roofing’s]
products or processes, other than DeLaRosa’s claim that she
was injured by the fumes from the roofing materials used.

       The Court further finds that consideration of the Keggi
factors leads to the conclusion that this is not an instance of
“traditional environmental pollution.” The purpose of the
clause, public policy[,] and the transaction as a whole
demonstrate that the pollution exclusion provision should not
include the circumstances underlying the claims at issue in
this matter.

        In addition to the authority provided in Keggi, [Star
Roofing] cited as guidance and support for the analysis urged
by [Star Roofing], two recent and relevant decisions from the
U.S. District Court for the District of Arizona. See Nat’l Fire
Ins. Co. of Hartford v. James River Ins., 162 F. Supp. 3d 898 (D.
Ariz. 2016); Saba v. Occidental Fire & Casualty Co. of North
Carolina, 2014 WL 7176776 (D. Ariz. Dec. 16, 2014). The Court
agrees that both decisions offer instructive guidance in
analyzing the pending cross-motions for summary judgment
and support the conclusion that the pollution exclusion
provision should not be interpreted and applied as urged by
[Starr Surplus].



                               7
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

¶16           On May 10, 2018, Star Roofing filed a Notice of Lodging
(Proposed) Form of Judgment, and Transwestern filed a Notice of Lodging
Proposed Form of Judgment on May 11. On June 4, 2018, Star Roofing filed
an application for attorneys’ fees and costs under A.R.S. §§ 12-341.01 and
12-341, and Transwestern filed a second, updated application. Starr
Surplus moved to strike and otherwise objected to the applications. After
further briefing and additional motions, the superior court denied Starr
Surplus’ motions to strike and granted Star Roofing’s and Transwestern’s
applications, awarding each the full amount of their requested attorneys’
fees and costs.

¶17          In September 2018, the superior court entered separate
judgments pursuant to Rule 54(b) in favor of Star Roofing and
Transwestern. Starr Surplus timely appealed from each judgment, and this
court consolidated the appeals. We have jurisdiction of the consolidated
appeal pursuant to A.R.S. § 12-2101(A)(1).

                                ANALYSIS

       I.     The Superior Court’s Grants of Summary Judgment

¶18        Starr Surplus argues the superior court erred in granting
summary judgment in favor of Star Roofing and Transwestern.

              A. Standard of Review and Applicable Law

¶19           Summary judgment is appropriate if no genuine issues of
material fact exist and the moving party is entitled to judgment as a matter
of law. Ariz. R. Civ. P. 56(a). If there are material facts upon which
reasonable people could reach different conclusions, summary judgment is
not appropriate. Gulf Ins. Co. v. Grisham, 126 Ariz. 123, 124 (1980). In
deciding a motion for summary judgment, courts make no distinction
between direct and circumstantial evidence. Mobilisa, Inc. v. Doe, 217 Ariz.
103, 113, ¶ 34 (App. 2007).

¶20            We review de novo the grant of summary judgment, viewing
the facts and all reasonable inferences therefrom in the light most favorable
to the party against whom judgment was entered. Felipe v. Theme Tech Corp.,
235 Ariz. 520, 528, ¶ 31 (App. 2014) (citation omitted). “Summary judgment
should be granted ‘if the facts produced in support of the claim or defense
have so little probative value, given the quantum of evidence required, that
reasonable people could not agree with the conclusion advanced by the
proponent of the claim or defense.’” Aranki v. RKP Invs., Inc., 194 Ariz. 206,
208, ¶ 6 (App. 1999) (quoting Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990)).


                                      8
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

              B. Summary Judgment for Star Roofing

¶21           Starr Surplus argues the exclusionary endorsement attached
to the Starr Policy, commonly referred to as the “pollution exclusion,”
clearly and unambiguously excludes coverage for claims alleging injury
caused by a pollutant. Starr Surplus further argues that we should re-
examine Keggi, which Starr Surplus asserts represents the “minority”
position that application of the pollution exclusion is limited to excluding
coverage for traditional pollution occurrences,3 and overturn Keggi, limit its
holding, or otherwise seek to distinguish it.

¶22            Contrary to Starr Surplus’ suggestion on appeal, there is no
indication that the Keggi court failed to engage in a meaningful analysis in
finding the pollution exclusion in an insurance policy should be applied
narrowly and exclude only traditional environmental pollution events, see
199 Ariz. at 49, ¶ 23, such as improper disposal or containment of hazardous
waste. The Keggi court correctly concluded that applying the pollution
exclusion any more broadly could lead to “absurd results” and otherwise
eviscerate coverage reasonably expected by the insured under a
commercial general liability policy. Id. at 49-50, ¶ 27. Further, because Starr
Surplus offers, and we discern, no compelling reason to disagree with,
minimize, or distinguish Keggi, we decline to do so and instead follow an
analysis similar to that provided by the federal district court in Saba.

¶23            The interpretation of an insurance contract is a question of
law subject to de novo review. Liristis v. Am. Family Mut. Ins. Co., 204 Ariz.
140, 143, ¶ 13 (App. 2002). Provisions of an insurance policy must be
construed according to their plain and ordinary meaning, and the language
must be viewed from the standpoint of the average layperson who is
untrained in the law or the field of insurance. Id. When an insurance policy
is subject to different interpretations, we interpret the policy provisions by
examining their specific language, public policy considerations, and the
purpose of the transaction as a whole. State Farm Mut. Auto. Ins. Co. v.
Wilson, 162 Ariz. 251, 257 (1989). If any ambiguity in the insurance policy
remains, we construe the ambiguity against the insurer, particularly when
it involves an exclusionary clause. Teufel v. Am. Family Mut. Ins. Co., 244

3      Star Roofing argues to the contrary, that the majority of courts that
have considered this issue require an insurer to establish that a plaintiff’s
alleged injuries arise out of a “traditional environmental pollution event,”
e.g., an unintended toxic chemical spill or during a hazardous waste
remediation effort, before a pollution exclusion clause applies to exclude
coverage.


                                      9
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

Ariz. 383, 385, ¶ 10 (2018); Coconino Cty. v. Fund Adm’rs Ass’n, 149 Ariz. 427,
431 (App. 1986).

¶24           The Starr Policy provides in pertinent part as follows:

       a. We will pay those sums that the insured becomes legally
       obligated to pay as damages because of “bodily injury” or
       “property damage” to which this insurance applies. We will
       have the right and duty to defend the insured against any
       “suit” seeking those damages. . . .

       b. This insurance applies to “bodily injury” and “property
       damage” only if:

               (1) The “bodily injury” or “property damage” is caused
       by an “occurrence” that takes place in the “coverage
       territory”; [and]

             (2) The “bodily injury” or “property damage” occurs
       during the policy period . . . .

The relevant text of the “Total Pollution Exclusion With a Hostile Fire
Exception” in the Starr Policy further provides as follows:

       This insurance does not apply to:

       f. Pollution
               (1) “Bodily injury” or “property damage” which
       would not have occurred in whole or part but for the actual,
       alleged or threatened discharge, dispersal, seepage,
       migration, release or escape of “pollutants” at any time. . . .

              (2) Any loss, cost or expense arising out of any:

              (a) Request, demand, order or statutory or regulatory
                  requirement 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



                                      10
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

                 responding to, or assessing the effects of,
                 “pollutants”.

The Starr Policy defines “pollutants” as:

       [A]ny solid, liquid, gaseous, or thermal irritant or
       contaminant, including smoke, vapor, soot, fumes, acids,
       alkalis, radiation or radioactive contamination, dioxins,
       polychlorinated biphenols, pathogenic or poisonous
       biological or chemical materials and waste. Waste includes
       materials to be recycled, reconditioned or reclaimed.

¶25            In Keggi, this court narrowly interpreted pollution exclusion
clauses that were in all relevant respects indistinguishable from the
pollution exclusion clause presented here by Starr Surplus. See 199 Ariz. at
46-47, 51, ¶¶ 14, 32. Insurers had sought to apply pollution exclusions to a
plaintiff’s claims for injuries caused after she ingested “total and fecal
coliform bacteria” contained in contaminated water from supposedly
potable water taps. Id. at 44–45, ¶ 3. This court held that the plain language
of the policy definitions for pollution did not include “bacteria,” and thus
the asserted pollution exclusions did not apply. Id. at 50-51, ¶¶ 30, 33. But,
we went on to hold that, even if the policy language could be interpreted
broadly enough to include bacteria, “the purpose of the clause, public
policy, and the transaction as a whole, demonstrate[d] that the language [of
the pollution exclusion] nevertheless should not be interpreted to preclude
coverage for bacterial contamination absent any evidence that the actual
contamination arose from traditional environmental pollution.” Id.

¶26           Thus, we determined that the standard pollution exclusion
does not apply to exclude coverage for physical injury that arises in contexts
other than traditional environmental pollution or attempted remediation of
same. See id. at 49, ¶ 23. In so holding, we relied on (1) the language and
history of the pollution exclusion, (2) public policy, and (3) the transaction
as a whole. Id. at 47-50, ¶¶ 15-29.

¶27          We noted in Keggi that “the exclusion clause appears to
describe events, places, and activities normally associated with traditional
environmental pollution claims,” id. at 48, ¶ 22, and in relation to the
language of the exclusion, we stated,

       These provisions appear to be directed at industrial insureds
       who must handle, store, and treat “hazardous wastes” in
       conducting their daily operations. Similarly, . . . [provisions


                                     11
                      STARR SURPLUS v. TRANSWESTERN
                             Decision of the Court

       in the clause] appear to be intended to preclude coverage for
       clean-up operations ordered under RCRA [the Resource
       Conservation and Recovery Act], CERCLA [the
       Comprehensive Environmental Response, Compensation,
       and Liability Act], and other federal or state environmental
       laws. Thus, the exclusion’s context confirms that the drafters
       intended it to apply to traditional “environmental pollution”
       situations and substances.

Id. at 48–49, ¶ 22.

¶28            The language from the pollution exclusion clause in the Starr
Policy is not meaningfully distinct from that examined in Keggi. As in Keggi,
the pollution exclusion here applies to the “discharge, dispersal, seepage,
migration, release or escape of pollutants.” Id. at 46, ¶ 14. Many of these
terms are borrowed directly from environmental statutes. See, e.g., Nautilus
Ins. Co. v. Jabar, 188 F.3d 27, 30 (1st Cir. 1999) (“[T]he terms used in the
exclusion clause, such as ‘discharge,’ ‘dispersal,’ ‘release’ and ‘escape,’ are
terms of art in environmental law and are generally used to refer to damage
or injury resulting from environmental pollution.” (citations omitted)). Just
as in Keggi, the language in the pollution exclusion here “appear[s] to be
directed at industrial insureds who must handle, store, and treat
‘hazardous waste[.]’“ 199 Ariz. at 48, ¶ 22. For example, the subject
exclusion precludes liability from government agencies or from others for
“testing for, monitoring, cleaning up, removing, containing, treating,
detoxifying or neutralizing, or in any way responding to, or assessing the
effects of, ‘pollutants.’”

¶29           In Keggi, this court went on to explain the history behind
exclusion clauses supports the conclusion that they were “intended to
exclude coverage for causes of action arising from traditional
environmental pollution.” Id. at 49, ¶ 23. “Historically, the pollution
exclusion clauses arose in [commercial general liability] policies in the
1970’s, in response to ‘the insurance industry’s increased concern about
pollution claims attributable to environmental catastrophes that occurred
during the 1960s.’” Id. (brackets and citations omitted). In addition, other
courts “have restricted the [pollution] exclusion’s scope to only those
hazards traditionally associated with environmental pollution.” Nautilus,
188 F.3d at 31 (citations omitted); accord Keggi, 199 Ariz. at 49, ¶ 23 (citing
cases). Starr Surplus points to no persuasive authority suggesting the
exclusion clause in the Starr Policy has a history distinct from that of the
pollution exclusion clauses examined in Keggi.



                                      12
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

¶30           After reviewing this history, Keggi concluded that “public
policy supports an interpretation limiting the clause to its initial, intended
purpose of excluding coverage for traditional environmental pollution-
related claims.” 199 Ariz. at 49, ¶ 27.

¶31            Finally, in Keggi, we held that “the transaction as a whole
supports a finding that the exclusion does not apply.” Id. at 50, ¶ 29. We
considered the circumstances surrounding the transaction and found the
policy “contemplated the operation of golf clubs and restaurants, and even
the provision of water through its water company.” Id. We determined
that “[w]here the insured’s operations include distribution or serving of
water, an insured would reasonably expect to be covered for negligently
distributing or serving contaminated water which causes an illness or
disease.” Id. (citations omitted).

¶32           We do not disagree with Starr Surplus’ premise that the
component materials of the asphalt roof primer, permanent adhesive, and
pre-flashing cement used by Star Roofing may be classified as hazardous
substances under state and federal statutes and should not be handled
without the use of protective equipment due to their caustic nature. As
Starr Surplus further notes, inhalation of the chemicals can cause irritation
to the respiratory tract and mucous membranes, dizziness, blurred vision,
and headaches.

¶33           The fumes resulting from the roofing work are a gas—likely
more benign than total and fecal coliform bacteria—but as we noted in
Keggi, the phrases “irritant” and “contaminant” are hopelessly imprecise.
Id. at 47, ¶ 15 (citations omitted). Further, the fact that Starr Surplus
attempts to rely on the Moore Declaration to establish that the chemicals
used by Star Roofing qualify as pollutants under the Starr Policy undercuts
Starr Surplus’ position that the terms of the policy are not ambiguous. And
although Moore is an environmental toxicologist, nothing in the record
indicates she is an expert in insurance coverage or contract/policy
interpretation, or otherwise has any special knowledge concerning the
terms of the Starr Policy. The superior court therefore committed no error
in finding her opinion unpersuasive as to the ultimate issue in this case.

¶34            Moreover, because the policy language of the pollution
exclusion may be read so broadly as to effectively eviscerate coverage, its
ambiguous terms must be further examined through the lens of Keggi. And
although the pollution exclusion’s language may be less ambiguous as
applied to the roofing fumes than as applied to total and fecal coliform
bacteria, there is no basis on which Starr Surplus persuasively distinguishes


                                     13
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

the rest of Keggi’s analysis from the facts of this case. The history of the
pollution exclusion clause, the pertinent language, and the public policy are
all the same. The fumes that are the alleged basis for the Delarosa action
were not a pre-existing substance; they were produced by the standard
installation of the roof itself and did not result from any efforts at
environmental cleanup. This fact effectively takes the case out of
“traditional environmental pollution-related claims.” See Nat’l Fire, 162 F.
Supp. 3d at 913 (concluding that “[t]he artificial creation of noxious fumes
directly caused by standard plumbing installation ‘takes the case out of any
traditional environmental pollution-related claims’” (quoting Saba, 2014
WL 7176776 at *4 (concluding that a carbon monoxide leak was not a
“traditional environmental pollution-related” claim because it was the
product of a negligently installed water heater and not the result of
environmental clean-up efforts))). Also, Starr Surplus has presented no
evidence that any government entity required any clean-up efforts or
otherwise became involved in any meaningful way as a result of Delarosa’s
injuries; thus, Arizona public policy prevents us from giving the pollution
exclusion the interpretation proposed by Starr Surplus.

¶35           Further, the transaction as a whole—the insuring of a roofing
business—calls into question the advisability of a broader application of the
pollution exclusion than would arise in “traditional environmental
pollution-related claims.” In the present case, Starr Surplus’ own
underwriting activities made it fully aware of Star Roofing’s work, and the
risk inherent in the installation of a roof was contemplated by the Starr
Policy. This was the very risk complained about in the Delarosa action, and
the scope of interpretation requested by Starr Surplus would result in
illusory coverage for the ordinary commercial business activities of the
insured, a result not contemplated by either party to the insurance contract.

¶36           After considering the Arizona public policy limitations on
pollution exclusions as comprehensively analyzed in Keggi, pollution
exclusions are intended to cover traditional environmental pollution claims
and not the bodily injuries allegedly suffered by Delarosa as a result of Star
Roofing’s alleged negligence in the installation of the commercial building’s
roof. The superior court correctly applied Arizona law in finding that the
pollution exclusion in the Starr Policy only applies to a traditional pollution
event and correctly applied the facts of this case to the analysis set forth in
Keggi. Therefore, the superior court did not err in determining that the Starr
Policy’s pollution exclusion clause does not apply to bar coverage in this
case and in granting summary judgment in favor of Star Roofing.




                                      14
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

              C. Summary Judgment for Transwestern

¶37           Starr Surplus also argues the superior court erred by granting
Transwestern’s motion for summary judgment on Transwestern’s defenses
of waiver, estoppel, and laches, in part because questions of material fact
should preclude judgment as a matter of law.4

¶38           We need not decide this argument, however. Although Starr
Surplus correctly notes that Transwestern did not formally join Star
Roofing’s motion for summary judgment in the superior court on the
coverage issue, our resolution of the application of the pollution exclusion
in this appeal and issue preclusion render moot Starr Surplus’ arguments
regarding the grant of summary judgment in favor of Transwestern,
especially given that the superior court did not expressly address
Transwestern’s request for sanctions for a declaration submitted in bad
faith, see Ariz. R. Civ. P. 56(h), when it granted summary judgment in
Transwestern’s favor. See, e.g., Circle K Corp. v. Indus. Comm’n, 179 Ariz. 422,
425 (App. 1993) (explaining that “issue preclusion” precludes a party from
using a second proceeding to relitigate an issue that has already been
decided).

       II.    The Superior Court’s Awards of Attorneys’ Fees and Costs

¶39           Starr Surplus also challenges the superior court’s awards of
attorneys’ fees and costs to Star Roofing and Transwestern.

              A. Standard of Review and Applicable Law

¶40           Section 12–341.01(A) authorizes an award of attorneys’ fees to
the successful party in “any contested action arising out of a contract.” “The
application of A.R.S. § 12–341.01 is a question of statutory interpretation,


4      As a premise to its argument, Starr Surplus notes the superior court
never formally ruled on Transwestern’s motion to strike a portion of the
Allen affidavit, asserts the motion to strike was therefore denied by
operation of law, and further asserts the court never ruled that the Allen
affidavit was a sham declaration. However, the plain language of the
court’s minute entry granting summary judgment in favor of Transwestern
(“[T]he Court finds [Starr Surplus’] attempt to overcome the evidence with
a sham declaration falls short.”) belies this assertion. Because Starr Surplus
has not contested the superior court’s evidentiary ruling that the Allen
affidavit was a “sham affidavit,” Starr Surplus has waived the issue of the
affidavit on appeal. See Jones v. Burk, 164 Ariz. 595, 597 (App. 1990).


                                      15
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

which we review de novo.” US Bank, N.A. v. JPMorgan Chase Bank, N.A., 242
Ariz. 502, 507, ¶ 22 (App. 2017) (citation omitted).

¶41            We review for an abuse of discretion, however, the amount of
a fee award under § 12–341.01. Assyia v. State Farm Mut. Auto. Ins. Co., 229
Ariz. 216, 222, ¶ 25 (App. 2012). “[T]he touchstone under § 12–341.01 is the
reasonableness of the fees.” Id. at ¶ 22. In our review, we consider whether
“a judicial mind, in view of the law and circumstances, could have made
the ruling without exceeding the bounds of reason.” Id. at ¶ 25 (citing
Associated Indem. Corp. v. Warner, 143 Ariz. 567, 571 (1985)). Although a trial
court is required to set forth specific findings when awarding attorneys’
fees under A.R.S. §§ 12-341.01(C) and 12-349, see State v. Richey, 160 Ariz.
564, 565 (1989), no such requirement exists for an award of fees under § 12-
341.01(A), see Associated Indem., 143 Ariz. at 571.

              B. Star Roofing’s Application for Attorneys’ Fees and Costs

¶42            Starr Surplus argues the superior court erred in granting the
full amount of Star Roofing’s requested attorneys’ fees and costs because
the court failed to consider the reasonableness of those fees and costs.

¶43            In support of its argument, Starr Surplus notes that it retained
“one of the leading authorities in legal fee disputes,” who opined that
reasonable attorneys’ fees for Star Roofing in this case would be $95,536.28,
rather than the $211,966.80 in attorneys’ fees and $6,757.47 in taxable costs
requested and awarded by the court. Starr Surplus does not otherwise
provide argument regarding any specific attorney billing rates or time
entries, but simply posits that because the superior court specifically stated
in its ruling that it had “considered all of the factors set forth in Associated
Indemnity Corp. v. Warner, 143 Ariz. 567, 570 (1985), as well as the parties’
arguments regarding same,” the court must have failed to consider the
reasonableness of the requested costs and attorneys’ fees. Starr Surplus’
premise is belied, however, by the fact that the superior court’s minute
entry states the court was awarding Star Roofing its “reasonable” attorneys’
fees and taxable costs. Further, once a party establishes its entitlement to
attorneys’ fees and meets the minimum requirements in an application and
affidavit, as Star Roofing did here, the burden shifts to the party opposing
the award of attorneys’ fees to demonstrate the impropriety or
unreasonableness of the requested fees. See State ex rel. Corbin v. Tocco, 173
Ariz. 587, 594 (App. 1992). Given the extended litigation activities, Starr
Surplus’ generalized advocacy for a lesser award is unpersuasive, and we
conclude the superior court did not abuse its discretion in finding that
$211,966.80 constituted reasonable attorneys’ fees in this case.


                                      16
                 STARR SURPLUS v. TRANSWESTERN
                        Decision of the Court

             C. Transwestern’s Application for Attorneys’ Fees and Costs

¶44          Starr Surplus also argues the superior court erred by not
striking Transwestern’s application for attorneys’ fees and costs as
untimely and by granting Transwestern’s application. We disagree.

¶45           As previously noted, after Transwestern filed its updated
application for attorneys’ fees and costs, Starr Surplus moved to strike the
application. Starr Surplus argued the application was untimely because it
was not filed within twenty days of either the court’s April 27 order
granting Star Roofing’s summary judgment motion or within twenty days
of Transwestern’s May 11 filing of a Notice of Lodging Proposed Form of
Judgment. See Ariz. R. Civ. P. 54(g)(3)(A)(i)-(ii). In denying Starr Surplus’
motion to strike and granting Transwestern’s application for attorneys’ fees
and costs, the superior court ruled in pertinent part as follows:

             THE COURT FINDS the minimal delay of two Court
      days between 5/31/18 and 6/4/18 to have caused no
      prejudice to [Starr Surplus] and to be excusable and
      reasonable under the circumstances. Accordingly, the Court
      exercises its discretion to permit the 6/4/18 filings and orders
      denying the Motion to Strike, good cause not shown.

             THE COURT FURTHER FINDS that Judge Blomo was
      originally presented with an application for award of
      attorney’s fees and costs by Transwestern not long after he
      granted Transwestern’s Motion for Summary Judgment on
      1/12/17. Judge Blomo found the filing “premature” and
      ordered that the issue “would abide the resolution of this
      matter.” Although this Court never obtained clarification of
      Judge Blomo’s intent, the Court finds this matter is now
      resolved and therefore, the application for fees and costs is
      timely and proper to consider.

             The Court has considered all of the factors set forth in
      Associated Indemnity Corp. v. Warner, 143 Ariz. 567, 570
      (1985), as well as the parties’ arguments regarding same.

             THE COURT FINDS Defendant Transwestern is the
      prevailing party in this contested action arising out of
      contract, and is entitled to recover its reasonable attorney’s
      fees under A.R.S. § 12-341.01 and its taxable costs under
      A.R.S. § 12-341.



                                     17
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

              Accordingly,

              IT IS ORDERED awarding Defendant Transwestern its
       reasonable attorney’s fees of one hundred forty-nine
       thousand eight hundred nineteen dollars and forty-eight
       cents ($149,819.48) and its taxable costs of three thousand
       eight hundred seventy-four dollars and twenty-two cents
       ($3,874.22).

(Internal record citations omitted.)

                     1. Denial of the Motion to Strike

¶46            Starr Surplus argues the superior court erred by not striking
Transwestern’s application for fees and costs as untimely under Rule
54(g)(3)(A)(ii), Ariz. R. Civ. P.

¶47           We review de novo the interpretation of a rule of civil
procedure. King v. Titsworth, 221 Ariz. 597, 598, ¶ 8 (App. 2009). Rule
54(g)(3)(A) provides as follows:

       (A) Adjudicating All Claims and Liabilities of Any Party. If a
       decision adjudicates all claims and liabilities of any party:

         (i) If that party or another party moves for entry of
         judgment under Rule 54(b), or includes Rule 54(b)
         language in a proposed form of judgment, a motion for fees
         must be filed within 20 days after service of the motion or
         proposed form of judgment seeking Rule 54(b) treatment,
         or by such other date as the court may order.

         (ii) If the court declines to enter judgment under Rule 54(b),
         or no party seeks entry of judgment under Rule 54(b), a
         motion for fees must be filed no later than 20 days after any
         decision is filed that adjudicates all remaining claims in the
         action, or 20 days after the action’s dismissal, whichever
         occurs first.

¶48          Although the superior court (Judge Mahoney) did not
expressly say so, it clearly applied subsection (i) when denying Starr
Surplus’ motion to strike. Starr Surplus argues that subsection (ii) should
apply. We disagree. Rather than concluding a Rule 54(c) judgment was
more appropriate and expressly declining to enter judgment under Rule
54(b) when Transwestern first filed its fee application and lodged its


                                       18
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

proposed form of judgment in February 2017, Judge Blomo held the matter
in abeyance, effectively deferring consideration of Transwestern’s
application under Rule 54(g)(3)(A)(i) and judgment under Rule 54(b) until
conclusion of the action. See Ariz. R. Civ. P. 54(g) cmt. After the court ruled
on the cross-motions for summary judgment filed by Star Roofing and Starr
Surplus, both Star Roofing and Transwestern lodged separate proposed
forms of judgment pursuant to Rule 54(b), placing Star Roofing and keeping
Transwestern within the ambit of subsection (i) of Rule 54(g)(3)(A). The
subsequent superior court judge, Judge Mahoney, appears to have resolved
the question of Judge Blomo’s intent in this manner, and we find no error
in her ruling.

¶49           Rule 54(g)(3)(A)(i) expressly gives the superior court
discretion to extend the time for requesting attorneys’ fees. Further, Starr
Surplus fails to articulate, much less establish, any prejudice due to
Transwestern’s delay in filing its second, updated fee application. The
superior court has discretion to award attorneys’ fees and costs outside the
twenty-day period set forth under Rule 54(g)(3)(A)(i) when the opposing
party asserts no prejudice. Cf. Aztar Corp. v. U.S. Fire Ins. Co., 223 Ariz. 463,
479-80, ¶ 61 (App. 2010) (interpreting Rule 54(g)(2)); Nat’l Broker Assocs., Inc.
v. Marlyn Nutraceuticals, Inc., 211 Ariz. 210, 218, ¶ 38 (App. 2005)
(concluding the court had discretion to consider an untimely attorneys’ fee
application).

                      2. The Court’s Grant of Transwestern’s Fees Application

¶50            Starr Surplus raises several additional arguments in support
of its position that the superior court erred in awarding attorneys’ fees and
costs to Transwestern. We find each of these arguments unavailing.

¶51           First, Starr Surplus asserts Transwestern’s counsel falsely
represented that Transwestern had incurred the attorneys’ fees and costs
requested in the defense of the declaratory action,5 and argues the court
erred by permitting Transwestern to recover attorneys’ fees and costs it had
not paid or incurred a financial obligation to pay. The superior court retains
discretion, however, to award attorneys’ fees to a party whose fees have
been covered by its insurer. See Catalina Foothills Ass’n v. White, 132 Ariz.
427, 428 (App. 1982) (“We do not hold that the trial court cannot properly


5     This assertion by counsel for Starr Surplus that counsel for
Transwestern made a false representation is both unavailing and troubling,
as the record makes clear Transwestern has repeatedly acknowledged
Zurich has defended and indemnified Transwestern.


                                       19
                  STARR SURPLUS v. TRANSWESTERN
                         Decision of the Court

consider such fact, i.e., that someone else may be obligated to bear the
expense, but we find the weight to be accorded that fact to be wholly within
the trial court’s discretion.” (citations omitted)); see also Wilcox v. Waldman,
154 Ariz. 532, 538 (App. 1987) (“[T]he fact that fees may ultimately be borne
by third parties pursuant to an insurance or indemnity agreement does not
prevent the successful party from meeting the requirements of A.R.S. § 12-
341.01(B), entitling him to an award of attorney’s fees against the
unsuccessful party to the litigation.” (citing Catalina Foothills)).
Transwestern is entitled to recover its attorneys’ fees in this declaratory
judgment action, even if those fees are ultimately paid by Zurich.

¶52            Second, Starr Surplus argues the superior court erred by
failing to apply the voluntary payments doctrine to Transwestern’s
application to preclude recovery of attorneys’ fees and costs on behalf of
Zurich. The voluntary payments doctrine precludes an action by a third
party who has voluntarily paid fees to recover from a party who has
benefitted from such payment. See Moody v. Lloyd’s of London, 61 Ariz. 534,
540 (1944) (citing Merrill v. Gordon, 15 Ariz. 521 (1914)). Even if Zurich was
not contractually obligated to defend Transwestern as Starr Surplus
suggests, Starr Surplus fails to demonstrate that this doctrine directly
applies to the facts of this case. The superior court awarded attorneys’ fees
and costs to Transwestern, not Zurich, and we see no reason that the
voluntary payments doctrine should preclude recovery of attorneys’ fees
by Transwestern.

¶53            Third, Starr Surplus argues the superior court erred by failing
to consider the reasonableness of Transwestern’s requested attorneys’ fees
and taxable costs and awarding the full amount requested by Transwestern.
Similar to its reasonableness argument regarding Star Roofing, Starr
Surplus notes its expert opined that reasonable attorneys’ fees for
Transwestern in this case would be $67,463.23, rather than the $149,819.48
in attorneys’ fees and $3,874.22 in taxable costs requested and granted by
the court. Starr Surplus again does not provide argument regarding
specific attorney billing rates or time entries or otherwise refute that the
superior court’s award of fees and costs is supported by the record. Instead,
Starr Surplus argues the court must have failed to consider the
reasonableness of the requested costs and attorneys’ fees. However, as we
noted with respect to Starr Surplus’ challenge to Star Roofing’s fees award,
Starr Surplus’ argument is belied by the fact that the superior court’s minute
entry states the court was awarding Star Roofing its “reasonable” attorneys’
fees and taxable costs. Starr Surplus’ generalized advocacy for a lesser
award is again unpersuasive, and we conclude Starr Surplus has not
demonstrated the court’s award was unreasonable.


                                      20
                 STARR SURPLUS v. TRANSWESTERN
                        Decision of the Court

¶54            Fourth, Starr Surplus argues the superior court erred by
granting attorneys’ fees and costs incurred after the court ruled on
Transwestern’s motion for summary judgment. Because no final judgment
with Rule 54(b) language was entered immediately after the court granted
Transwestern’s motion, the issue of fees and costs was not yet decided, and
Transwestern had to continue to participate in the declaratory action
because of an interest in the applicability of the Starr Policy’s pollution
exclusion. Thus, Transwestern was forced to incur additional fees pending
final resolution of the declaratory action. Accordingly, we find no error in
the superior court’s award of attorneys’ fees and taxable costs to
Transwestern.

      III.   Costs and Attorneys’ Fees on Appeal

¶55           Starr Surplus, Star Roofing, and Transwestern request costs
and attorneys’ fees on appeal pursuant to A.R.S. § 12-341.01. Star Roofing
also requests attorneys’ fees as sanctions against Starr Surplus pursuant to
A.R.S. § 12-349 and Arizona Rule of Civil Appellate Procedure (“ARCAP”)
25.

¶56           Starr Surplus is not the prevailing party on appeal, and its
request is denied. Star Roofing and Transwestern are the prevailing parties
on appeal, and in the exercise of our discretion, we award both Star Roofing
and Transwestern taxable costs and attorneys’ fees pursuant to A.R.S. § 12-
341.01(A), in an amount to be determined upon compliance with ARCAP
21. We decline Star Roofing’s request to award attorneys’ fees as sanctions.

                              CONCLUSION

¶57         The superior court’s judgments in favor of Star Roofing and
Transwestern are affirmed.




                         AMY M. WOOD • Clerk of the Court
                         FILED: AA




                                       21
