               Case: 12-10979      Date Filed: 01/03/2013     Page: 1 of 10

                                                                   [DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                          FOR THE ELEVENTH CIRCUIT
                            ________________________

                                   No. 12-10979
                             ________________________

                      D.C. Docket No. 8:10-cv-01542-SCB-EAJ

GRANITE STATE INSURANCE COMPANY,
NEW HAMPSHIRE INSURANCE COMPANY,

                                           Plaintiffs - Counter Defendants - Appellees,

                                          versus

AMERICAN BUILDING MATERIALS, INC.,

                                                         Defendant - Counter Claimant,

KB HOME, INC.,
KB HOME TAMPA, LLC,

                                      Defendants - Counter Claimants - Appellants.
                             ________________________

                     Appeal from the United States District Court
                         for the Middle District of Florida
                           ________________________

                                    (January 3, 2013)

Before O’CONNOR, * Associate Justice Retired, and MARCUS and PRYOR,
Circuit Judges.

       *
       Honorable Sandra Day O’Connor, Associate Justice (Retired) of the United States
Supreme Court, sitting by designation.
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PRYOR, Circuit Judge:

      In this appeal based on diversity jurisdiction, we are asked to interpret six

insurance policies issued by Granite State Insurance Company and New

Hampshire Insurance Company to American Building Materials, KB Home, Inc.,

and KB Home Tampa, LLC, to determine whether the pollution exclusions in those

policies exclude coverage for damages associated with the supply and installation

of defective Chinese drywall. Because we conclude that the damages fall within

the scope of the pollution exclusions, we affirm the grant of summary judgment for

the insurers.

                                 I. BACKGROUND

      KB Home alleges that American Building supplied KB Home with defective

gypsum drywall manufactured in China for installation in residential homes in

Hillsborough County, Florida. After receiving complaints from homeowners, KB

Home hired a consultant who determined that the drywall was emitting unusual

amounts of sulfide gases. These gases cause eye irritation, sore throat and cough,

nausea, fatigue, shortness of breath, fluid in the lungs, and neurological harm.

Various state and federal agencies also conducted investigations of the Chinese

drywall and determined that the drywall emits sulfur-related chemical compounds

that corrode copper wiring in homes in which this drywall is used.




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      During the period from June 15, 2007, to June 15, 2010, American Building

carried insurance policies issued by Granite State Insurance Company and New

Hampshire Insurance Company. Under the Granite State policies, Granite State

promised to “pay those sums that the insured becomes legally obligated to pay as

damages because of ‘bodily injury’ or ‘property damage’” to which the policies

applied, and to “defend the insured against any ‘suit’ seeking those damages,”

subject to some terms and conditions. Under the New Hampshire Insurance

policies, New Hampshire Insurance promised to “pay on behalf of the Insured

those sums in excess of the Retained Limit that the Insured becomes legally

obligated to pay by reason of liability imposed by law or assumed by the Insured”

and to “defend any claim or suit seeking damages covered by the terms and

conditions” of the policies. KB Home Tampa, LLC, and KB Home, Inc., were also

insured under these policies.

      The insurance policies all contained pollution exclusions. The Granite State

policies excluded coverage for “‘[b]odily injury’ or ‘property damage’ which

would not have occurred in whole or in part but for the actual, alleged or

threatened discharge, dispersal, seepage, migration, release or escape of

‘pollutants’ at any time.” Those policies defined “pollutants” as “any solid, liquid,

gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes,

acids, alkalis, chemicals and waste.” The New Hampshire Insurance policies


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excluded coverage for “[b]odily [i]njury, [p]roperty [d]amage or [p]ersonal [i]njury

arising out of the actual or threatened discharge, dispersal, seepage, migration,

release or escape of pollutants anywhere in the world.” Those policies defined

“pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant,

including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste material.”

      The insurers filed an action in federal court alleging diversity jurisdiction

and sought a declaratory judgment that the insurers had no obligation to defend or

indemnify American Building or KB Home “with respect to claims related to

allegedly defective drywall supplied by ABM and installed by KB Home.” When

the action was filed, KB Home and American Building were named as defendants

in a number of class-action lawsuits that had been consolidated in the Eastern

District of Louisiana by the Judicial Panel on Multidistrict Litigation. See In re

Chinese Drywall Products Liability Litigation, No. 2:09-md-02047 (E.D. La.).

And KB Home had also filed suit against American Building in Florida state court

based upon the defective drywall.

      The district court entered a partial summary judgment for the insurers and

declared that the insurers had no duty to defend or indemnify KB Home and

American Building in the state court action. In the cross motions for summary

judgment filed by the parties, the parties disagreed about which body of

substantive law should apply to the insurance policies. The insurers asserted that


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Florida law applied, but KB Home argued that Massachusetts law applied. The

district court agreed with KB Home that the policies were governed by

Massachusetts law, but concluded that, even under Massachusetts law, the damage

from the drywall would be excluded from coverage under the pollution exclusion.

                         II. STANDARD OF REVIEW

      “We review a grant of summary judgment de novo, considering all evidence

and reasonable inferences drawn therefrom in the light most favorable to the non-

moving party. Legal conclusions are reviewed de novo.” OSI, Inc. v. United

States, 525 F.3d 1294, 1297 (11th Cir. 2008). Specifically, “[w]e review the

district court’s choice of law de novo.” Shaps v. Provident Life & Accident Ins.

Co., 317 F.3d 1326, 1329 (11th Cir. 2003). And “[t]he interpretation of a contract

is a question of law that the court reviews de novo.” Daewoo Motor Am., Inc. v.

Gen. Motors Corp., 459 F.3d 1249, 1256 (11th Cir. 2006).

                                III. DISCUSSION

      On appeal, the insurers challenge the conclusion of the district court that the

insurance policies are governed by the substantive law of the Commonwealth of

Massachusetts and assert that Florida law should govern the policies. KB Home

argues that Massachusetts law applies, but challenges the interpretation of the

substantive law of Massachusetts by the district court. Because we conclude that




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the damages would be excluded by the insurance policies under either Florida or

Massachusetts law, we decline to decide the choice-of-law question.

      Under Florida law, the damages from the Chinese drywall would be

excluded from coverage under the plain language of the pollution exclusion. See

Deni Assocs. of Fla., Inc. v. State Farm Fire & Cas. Ins. Co., 711 So. 2d 1135,

1137–38 (Fla. 1998). The Supreme Court of Florida has held that nearly identical

pollution exclusions were clear and unambiguous and should be enforced

according to their plain language. See id. at 1136–38. The plain language of the

pollution exclusions at issue in this appeal includes the damage from Chinese

drywall. The sulfide gas released by the Chinese drywall falls within the definition

of “pollutant” because it is a “gaseous . . . irritant or contaminant.” And the bodily

injury and property damage alleged “would not have occurred in whole or in part

but for the actual, alleged, or threatened discharge, dispersal, seepage, migration,

release or escape” of this pollutant. The Southern District of Florida has reached

the same conclusion in at least two cases. First Specialty Ins. Corp. v. Milton

Constr. Co., No. 12-20116-Civ., 2012 WL 2912713, at *3–*5 (S.D. Fla. July 16,

2012); Gen. Fid. Ins. Co. v. Foster, 808 F. Supp. 2d 1315, 1320–21 (S.D. Fla.

2011). And several Florida state courts have agreed that claims from defective

Chinese drywall “arise solely from damage or injury resulting from the release of




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sulfide and other noxious gases” and are “clearly excluded from coverage by the

Total Pollution Endorsements.”

      The Massachusetts courts have adopted a different method of interpretation

of these pollution exclusions. “When construing language in an insurance policy,

[Massachusetts courts] consider what an objectively reasonable insured, reading

the relevant policy language, would expect to be covered.” Western Alliance Ins.

Co. v. Gill, 426 Mass. 115, 117, 686 N.E. 2d 997, 998 (1997) (alteration and

internal quotation marks omitted). The Supreme Court of Massachusetts has

counseled that “the [pollution] exclusion has to be interpreted and applied in a

commonsense manner with due attention to the circumstances of the accident

giving rise a coverage claim” and has explained that the pollution exclusions have

generally not been applied to exclude coverage for “injuries resulting from

everyday activities gone slightly, but not surprisingly, awry.” Id. at 118, 119, 686

N.E. 2d at 999, 1000 (internal quotation marks omitted). This approach does not

“limit pollution exclusions to the improper handling of hazardous waste, or other

pollution occurring in an industrial setting”; instead it limits such exclusions to

harm “caused by the kind of release that an ordinary insured would understand as

pollution.” McGregor v. Allamerica Ins. Co., 449 Mass. 400, 404, 868 N.E. 2d

1225, 1228 (2007).




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      The damage caused by the defective Chinese drywall falls within the scope

of the pollution exclusion as interpreted by Massachusetts courts for two reasons.

First, the defective drywall cannot be considered an “everyday activit[y] gone

slightly, but not surprisingly, awry.” See Gill, 426 Mass. at 119, 686 N.E. 2d at

1000. Second, the unexpected emission of sulfuric gas is the kind of release that a

reasonable insured would understand as pollution. See McGregor, 449 Mass. at

404, 868 N.E. 2d at 1228.

      First, the defective Chinese drywall is different in kind from the examples

given by the Supreme Court of Massachusetts of everyday activities gone slightly

awry. All of the following examples given by the court involved a

disproportionate amount of harm from a kind of emission that one would expect to

encounter in the particular activity:

      [C]ourts have held that the exclusion, and similar limiting provisions,
      did not bar coverage for: injuries caused by the ingestion of lead paint,
      the death of a man who inhaled poisonous fumes when he applied
      adhesive to install a carpet on his boat; injuries caused by exposure to
      fumes from toxic cements and solvents and congestive dusts created
      by rubber fabricating processes; property damage caused by fumes
      released from muriatic acid used to etch a floor surface; injuries
      caused by the inhalation of chemical fumes from a carpet; injuries
      resulting when fumes emanated from cement used to install a plywood
      floor; injuries sustained from exposure to photographic chemical;
      injuries to individuals who ingested malathion during a municipal
      pesticide spraying operation; injuries incurred by a United States
      Department of Agriculture inspector when a gasket failed in a
      refrigeration system causing an ammonia leak; paint damage to
      vehicles which occurred during the spray painting of a bridge; and . . .


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      injuries suffered by persons exposed to an excessive accumulation of
      inadequately ventilated exhaled carbon dioxide in an office building.

Gill, 426 Mass. at 118–19, 686 N.E. 2d at 999–1000. One would expect the

ingestion of paint to cause health problems, but would not necessarily expect the

paint to contain lead that increases the harm caused by that ingestion. Similarly,

one would expect inhalation of fumes from the installation of carpeting, painting,

or flooring, but one would not expect the level of harm that resulted from those

fumes. It is the level of harm instead of the kind of release that was surprising in

those cases. By contrast, one would not expect drywall to emit a gaseous

substance at all, and certainly not after the drywall has been installed. The harm

from the defective drywall is different from the mishaps identified in Gill.

      Second, the gas released by the drywall is the kind of release that a

reasonable insured would understand as pollution. The toxic gas from the drywall

is emitted into the air by a passive object and it causes property damage and

personal injury to those exposed to it. An objectively reasonable insured would

view this release as pollution. For these reasons, Massachusetts state courts would

find the defect more analogous to an oil spill, see McGregor, 449 Mass. at 404, 868

N.E. 2d at 1228, than an unusually harmful emission of carbon monoxide from an

appliance, see Gill, 426 Mass. at 120, 686 N.E. 2d at 1000, and conclude that

coverage is excluded by the pollution exclusions.



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                             IV. CONCLUSION

      We AFFIRM the grant of partial summary judgment in favor of the

insurers.




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