MOTORISTS MUTUAL INSURANCE COMPANY v. HONORABLE JULIA HYLTON ADAMS, JUDGE RSJ, INC., d/b/a REGENCY ONE HOUR CLEANERS; CENTURY PENSION INCOME FUND XXIII; FOX PARTNERS V, ITS GENERAL PARTNER
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RENDERED: June 21, 1996; 2:00 p.m.
TO BE PUBLISHED
MODIFIED: July 19, 1996; 2:00 p.m.
MODIFIED: August 2, 1996; 2:00 p.m.
NO. 95-CA-0367-MR
MOTORISTS MUTUAL INSURANCE COMPANY
v.
APPELLANT
APPEAL FROM MADISON CIRCUIT COURT
HONORABLE JULIA HYLTON ADAMS, JUDGE
ACTION NO. 93-CI-0409
RSJ, INC., d/b/a REGENCY ONE
HOUR CLEANERS; CENTURY PENSION
INCOME FUND XXIII; FOX PARTNERS
V, ITS GENERAL PARTNER
APPELLEES
OPINION
AFFIRMING
* * * * * * *
BEFORE:
GARDNER, JOHNSON, and JOHNSTONE, Judges.
JOHNSTONE, JUDGE.
At issue is the proper construction to be
given a "pollution exclusion" contained in a commercial general
liability policy issued by appellant.
In a declaratory judgment
proceeding, the trial judge rejected the insurer's attempt to
escape liability for damages stemming from exposure to carbon
monoxide fumes due to a leak in the vent stack of the insured's
boiler.
The trial judge based her refusal to give effect to the
exclusion upon a finding that the policy language is ambiguous,
citing the rationale utilized by a North Carolina court
construing an identical exclusion under comparable circumstances.
Finding no error in the decision of the trial judge, we affirm.
The facts are not in dispute.
Appellee, RSJ, Inc.,
operates a dry cleaning business in a strip shopping center in
Lexington, Kentucky.
a common attic.
The various businesses in the center share
A vent pipe from a boiler used in the dry
cleaning business passes through the attic space.
Immediately
adjacent to the dry cleaning business is an entity known as All
Alterations, operated by Ferdos and Maher Madhat.
In an action
lodged in the Fayette Circuit Court, the Madhats alleged that
they sustained bodily injury due to the release of carbon
monoxide from a leak in the vent stack of a boiler utilized by
the dry cleaner.
The appellant insurer had issued to RSJ a commercial
general liability policy which contained a standard exclusionary
clause, commonly referred to as a "pollution exclusion."
The
insurer denied coverage for the injuries sustained by the Madhats
on the basis of the exclusionary provision.
RSJ thereafter
instituted this action in the Madison Circuit Court seeking a
declaration that coverage should be afforded under the policy.
The trial judge entered summary judgment requiring the insurer to
defend RSJ in the suit arising from the inadvertent release of
carbon monoxide during the course of RSJ's normal business
activities and later awarded attorney's fees incurred to date in
defending the Fayette County action.
(As Modified: August 2, 1996)
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The insurer argues in this appeal that because the
language of the Madhats' complaint mirrors the exclusionary
language in the policy, the trial judge erred in failing to give
effect to the provision.
It also attempts to distinguish the
case relied on by the trial judge, West American Insurance
Company v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. App.
1991), and cites several recent opinions supporting its position.
The insurer also complains that the trial judge failed to define
in what way the provision is ambiguous.
We preface our examination of this issue with a
recognition of the basic principles of construction articulated
by the Kentucky Supreme Court in St. Paul Fire & Marine Insurance
Company v. Powell-Walton-Milward, Inc., Ky., 870 S.W.2d 223
(1994):
Where an exclusion is susceptible to two
reasonable interpretations, the
interpretation favorable to the insured
is adopted. Foster v. Allstate Ins.
Co., Ky.App., 637 S.W.2d 655 (1981).
The rule of strict construction
against an insurance company certainly
does not mean that every doubt must be
resolved against it and does not
interfere with the rule that the policy
must receive a reasonable interpretation
consistent with the parties' object and
intent or narrowly expressed in the
plain meaning and/or language of the
contract. Neither should a nonexistent
ambiguity be utilized to resolve a
policy against the company. We consider
that courts should not rewrite an
insurance contract to enlarge the risk
to the insurer. U.S. Fidelity & Guar.
Co. v. Star Fire Coals, Inc., 856 F.2d
31 (6th Cir.1988).
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An ambiguity may either appear on
the face of the policy or, in this case,
when a provision is applied to a
particular claim.
St. Paul Insurance, 870 S.W.2d 226-7 (emphasis added).
The provision at the core of the controversy is what
has become known as an "absolute pollution exclusion," which the
policy sets out in the following terms:
Section I - Coverages
Coverage A. Bodily injury and property
damage liability.
2. Exclusions
This insurance does not apply to:
. . . .
f. (1)
"Bodily injury" or "property
damage" arising out of the
actual, alleged or threatened
discharge, dispersal, seepage,
migration, release or escape
of pollutants:
(a) At or from any premises,
site or location which is or
was at any time owned or
occupied by, or rented or
loaned to any insured;
. . . .
Pollutants means any solid,
liquid, gaseous or thermal
irritant or contaminant,
including smoke, vapor, soot,
fumes, acids, alkalis,
chemicals and waste. Waste
includes materials to be
recycled, reconditioned or
reclaimed.
Because there is nothing inherently ambiguous in the
language employed, any ambiguity necessarily arises in the
application of the provision to the specifics of a particular
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claim.
St. Paul Insurance, supra.
We agree with the trial judge
that the "pollution exclusion" in this policy proves ambiguous
when applied to the incident giving rise to this appeal.
In construing a question of first impression in this
Commonwealth, we find instructive the experience of other
jurisdictions which have grappled with the issue.
Consider, for
example, the reasoning advanced by the Maryland Court of Appeals
in Sullins v. Allstate Insurance Company, 340 Md. 503, 667 A.2d
617, 624 (1995), in rejecting on the basis of ambiguity
application of an identical pollution exclusion for damages
incurred through exposure to lead paint:
Some courts hold that the existence of
conflicting judicial interpretations of
insurance policy terms is evidence of
ambiguity, while others hold such
conflict is not conclusive. (Citations
omitted).
. . . .
We hold that conflicting
interpretations of policy language in
judicial opinions is not determinative
of, but is a factor to be considered in
determining the existence of ambiguity.
In interpreting an insurance policy, we
must follow the rules of contract
construction set out in part II of this
opinion. However, if other judges have
held alternative interpretations of the
same language to be reasonable, that
certainly lends some credence to the
proposition that the language is
ambiguous and must be resolved against
the drafter.
That such diversity exists throughout the country is
borne out not only in the authority cited in this appeal, but in
"Construction and Application of Pollution Exclusion Clause in
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Liability Insurance Policy," 39 A.L.R. 4th 1047.
Like the court
in Sullins, however, we perceive the split in authority to be but
one factor to be evaluated in passing on the ambiguity of the
exclusion.
A second factor relevant to our inquiry is the basic
premise that terms used in insurance contracts "should be given
their ordinary meaning as persons with the ordinary and usual
understanding would construe them."
City of Louisville v.
McDonald, Ky. App., 819 S.W.2d 319, 320 (1991).
The drafters'
utilization of environmental law terms of art ("discharge,"
"dispersal," "seepage," "migration," "release," or "escape" of
pollutants) reflects the exclusion's historical objective avoidance of liability for environmental catastrophes related to
intentional industrial pollution.
The New Jersey Supreme Court
in Morton International, Inc. v. General Accident Insurance
Company, 134 N.J. 1, 629 A.2d 831 (1993), makes the following
observations:
Foreseeing an impending increase in
claims for environmentally-related
losses, and cognizant of the broadened
coverage for pollution damage provided
by the occurrence-based, CGL policy, the
insurance industry drafting
organizations began in 1970 the process
of drafting and securing regulatory
approval for the standard pollutionexclusion clause. "The insurer's
primary concern was that the occurrencebased policies, drafted before large
scale industrial pollution attracted
wide public attention, seemed tailormade to extend coverage to most
pollution situations." Rosenkranz,
supra, 74 Geo. L.J. at 1251.
Commentators attribute the insurance
industry's increased concern about
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pollution claims to environmental
catastrophes that occurred during the
1960s. "Pollution claims burst on the
insurance scene following the Torrey
Canyon disaster and the Santa Barbara
off-shore drilling oil spills in 1969."
Hourihan, Insurance Coverage for
Environmental Damage Claims, 15 Forum
551, 533 (1980). Other commentators
observe that the insurance industry,
concerned about public reaction to
environmental pollution, desired to
clarify and publicize its position that
CGL policies did not indemnify knowing
polluters. Reiter et al., supra, 59 U.
Cin. L. Rev. at 1195-56. Consistent
with that objective, the President of
INA announced his company's intention to
adopt the pollution-exclusion
endorsement with these comments:
INA will continue to cover
pollution which results from an
accidental discharge of effluents-the sort of thing that can occur
when equipment breaks down.
We will no longer insure the
company which knowingly dumps its
wastes.
. . . .
The end-product of the IRB's
drafting effort was the standard
pollution-exclusion clause, which became
known as exclusion "f" of the standard
form CGL policy. According to one
member of the drafting committee, the
pollution-exclusion clause allowed the
underwriters "to perform their
traditional function as insurers of the
unexpected event or happening and yet
. . . [did] not allow an insured to seek
protection from his liability insurers
if he knowingly pollute[d]."
Morton International, Inc., 629 A.2d at 849-51.
A similar
perspective of the "pollution exclusion" was advanced by the
court in United Pacific Insurance v. Van's Westlake Union, 34
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Wash. App. 708, 664 P.2d 1262 (1983), in holding that the
provision was meant solely to deprive coverage to active
polluters and did not apply where the damage caused was neither
expected nor intended.
Given this historical perspective and the continued use
of environmental law terminology, we are convinced that an
ordinary business person would not apprehend the provision as
excluding coverage for the type of damage incurred through an
unexpected leak in a vent pipe.
Thus, the trial judge did not
err in declaring the provision to be ambiguous as applied to the
facts of this case.
Finally, we adopt the reasoning set out in Sullins,
supra, as to the absurd consequences that would result from a
blind application of the literal terms of the pollution
exclusion:
The terms "irritant" and
"contaminant," when viewed in isolation,
are virtually boundless, for "there is
virtually no substance or chemical in
existence that would not irritate or
damage some person or property."
Without some limiting principle, the
pollution exclusion clause would extend
far beyond its intended scope, and lead
to some absurd results. Take but two
simple examples, reading the clause
broadly would bar coverage for bodily
injuries suffered by one who slips and
falls on the spilled contents of a
bottle of Drano, and for bodily injury
caused by an allergic reaction to
chlorine in a public pool. Although
Drano and chlorine are both irritants
and contaminants that cause, under
certain conditions, bodily injury or
property damage, one would not
ordinarily characterize these events as
pollution. . . .
-8-
Therefore, just as a reasonably prudent
layperson might not consider Drano to be
a "pollutant" or "contaminant," so might
a reasonably prudent layperson not
consider lead paint to be a "pollutant"
or "contaminant."
Sullins, 667 A.2d at 621-22.
The decision to follow the rationale of case law such
as Sullins, which narrowly construes the "pollution exclusion,"
implicitly refutes the insurer's contention with respect to the
trial court's reliance on West American, supra.
While that case
obviously contains factors that are distinguishable from the
instant case, the portion of the opinion cited by the trial judge
clearly reflects what we perceive to be the better-reasoned view.
In sum, our review of the authority cited by appellant
has simply failed to persuade us to adopt its view of the
exclusion.
The cases relied upon are either distinguishable
because they deal with environmental pollution (e.g.,
Constitution State Insurance Company v. Iso-Tex, Inc., 61 F.3d
405 (5th Cir. 1995); Northbrook Indemnity Insurance Company v.
Water District Management Company, 892 F. Supp. 170 (1995)) or
simply adhere to a position we deem inappropriate for adoption as
the rule in this Commonwealth (e.g., Bernhardt v. Hartford Fire
Insurance Company, 102 Md. App. 45, 648 A.2d 1047 (1994)).
The judgment of the Madison Circuit Court is affirmed.
ALL CONCUR.
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BRIEFS FOR APPELLANT:
BRIEF AND ORAL ARGUMENT FOR
APPELLEE RSJ, INC.:
James D. Ishmael, Jr.
Kerry T. Cauthen
WYATT, TARRANT & COMBS
Lexington, KY
James T. Gilbert
COY, GILBERT & GILBERT
Richmond, KY
ORAL ARGUMENT FOR APPELLANT:
BRIEF FOR APPELLEES CENTURY
PENSION INCOME FUND XXIII and
FOX PARTNERS V, ITS GENERAL
PARTNER:
James D. Ishmael, Jr.
WYATT, TARRANT & COMBS
Lexington, KY
Perry M. Bentley
Todd S. Page
STOLL, KEENON & PARK
Lexington, KY
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