Environmental Law/Toxic Torts

Transcription

1 Environmental Law/Toxic Torts By: Frederic C. Goodwill, II and Kevin J. Greenwood Johnson & Bell, Ltd., Chicago High Court Narrows Scope of Pollution Exclusion Clause If any principle can be derived from this ruling, it is that words have no meaning. These were the words of Justice James D. Heiple in his stinging dissent to the Illinois Supreme Court s majority opinion in American States Insurance Company v. Harvey Koloms, (No , Ill.Sup.Ct., October 17, 1997). Justice Mary Ann McMorrow wrote the majority opinion for the Court, which held that an absolute pollution exclusion contained in a standard form Comprehensive General Liability ( CGL ) insurance policy does not operate to bar coverage for claims of carbon monoxide poisoning caused by an allegedly defective furnace. Instead of applying the exclusion as written, the Court concluded the historical purpose of the exclusion supported a finding that the exclusion applies only to those injuries caused by traditional environmental pollution. The majority opinion, together with Judge Heiple s dissent, brings to light the tension between certain rules of construction Illinois courts are bound to follow when interpreting insurance contracts. 1 The claim arose when several employees of Sales Consultants of Lincolnshire, one of the tenants in a two-story commercial building located in Lincolnshire, Illinois, allegedly suffered injuries by inhaling carbon monoxide and other noxious fumes and gases emitted from a faulty furnace in the building. Six of those employees joined and filed a personal injury suit against the beneficial owners of the property, Harvey and Nina Koloms ( Koloms ). Koloms sought coverage under a CGL policy issued by American States Insurance Company ( ASI ). ASI defended Koloms, but reserved the right to decline coverage under the policy s absolute pollution exclusion. The standard form exclusion, which is present in most CGL policies issued after 1985, reads in pertinent part: This insurance does not apply to: f. (1) Bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, release or escape of pollutants: (a) At or from premises you own rent or occupy; * * * * Pollutants mean 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. Relying upon the pollution exclusion provision in its policy, ASI instituted a declaratory judgment action asserting that it had no duty to defend or indemnify Koloms. ASI and Koloms then filed crossmotions for summary judgment. ASI argued that the plain and ordinary meaning of the pollution exclusion clause unambiguously barred coverage for injuries arising out of the escape of carbon monoxide fumes. ASI also contended the exclusion clearly and unambiguously barred coverage for all incidents of pollution, and not just for incidents of industrial pollution. Koloms argued that carbon monoxide leaking into the building from a faulty furnace is not an irritant or contaminant within the plain and ordinary meaning of those terms as used in the policy. Thus, while Koloms argued the terms of the exclusion should be Page 1 of 5

2 interpreted in the context in which they were written; that is, for a CGL policy covering a commercial building, ASI argued the terms should be given their plain, ordinary and popular meaning. The trial court granted Koloms motion, finding that the malfunctioning heater clearly was not intended by the Koloms as owners of commercial real estate, to be excluded by the provision. Slip op. at 3. The Appellate Court upheld the trial court s finding of a duty to defend but, because the underlying action was still pending, reversed the trial court s finding of a duty to indemnify as premature. 666 N.E.2d at 704. The Supreme Court s decision highlights the strain between two important concepts of insurance policy construction. On the one hand, undefined terms in an insurance policy must be given their plain, ordinary and popular meaning. Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill.2d 90, 115, 607 N.E.2d 1204 (1992). The plain ordinary and popular meaning was referred by Outboard Marine as: that meaning which the particular language conveys to the popular mind, to most people, to the average, ordinary, normal [person], to a reasonable [person], to persons with usual and ordinary understanding, to a business[person], or to a lay[person]. If, after ascribing the term its plain meaning, the provisions of the insurance policy are clear and unambiguous, there is no need for construction, and the provisions will be applied as written, unless it contravenes public policy. United States Fire v. Schnackenberg, 88 Ill.2d 1, 4, 429 N.E.2d 1203 (1981). In interpreting the terms of the policy, the court cannot read an ambiguity into a policy just to find in favor of the insured. Lapham-Hickey Steel Corp. v. Protection Mutual Ins. Co., 166 Ill.2d 520, 655 N.E.2d 842 (1995). Judge Heiple likely had these rules in mind when writing his dissent. The majority had another rule of construction in mind, and perhaps, as Justice Heiple suggested, another agenda. Generally, to ascertain the meaning of the policy s words (i.e, determine whether an ambiguity exists), the court is required to construe the contract as a whole, with due regard to the risk undertaken, the subject matter that is insured, and the purposes of the entire contract. Outboard Marine, 606 N.E.2d at This process requires a determination of the subjective intent of the parties to the contract - i.e, what the parties intended particular terms or provisions to mean within the context in which they were written. Once a term is found to be ambiguous, the rules of construction apply, and the provision is strictly construed against the insurer as the drafter of the policy. Outboard Marine at The Appellate Court agreed that the literal reading of the absolute pollution exclusion clause supported the interpretation favored by ASI. Nevertheless, instead of stopping there and applying the clause as written, the Appellate Court felt its first task was to determine if the clause was ambiguous. Instead of focusing on the plain meaning of the clause, the Court undertook its task by interpreting the terms of the exclusion with due regard to the factual setting surrounding the issuance of the insurance policy. Thus, the Court focused not on whether the clause was ambiguous as written, but on whether the clause was ambiguous as applied. Indeed, the Court believed the terms irritant and contaminant could not be given their plain meaning because the terms were virtually boundless. (citing, Regional Bank v. St. Paul Fire & Marine Ins. Co., 35 F.3d 494 (10th Cir. 1994)). The Court considered the language of the clause, the wide scope of risks insured by [ASI] in the policy, the nature of the building and the reasoning of other courts that have interpreted this very clause, and found that the clause is ambiguous as it can reasonably be interpreted as applying only to environmental pollution. 666 N.E.2d at 703. The Supreme Court expanded upon the Appellate Court s approach. Instead of interpreting the phrase according to its plain meaning, or with due regard to the factual setting surrounding the issuance of the insurance policy, the Court focused on the events leading up to the insurance Page 2 of 5

3 industry s adoption of the pollution exclusion, to support its decision that the exclusion is properly restricted to those hazards traditionally associated with environmental pollution. Slip op. at The Court was persuaded by Koloms argument that the terms irritant and contaminant should have judicially imposed parameters. Otherwise, argued Koloms, the terms would be absurdly broad, in that they could be applied to such everyday elements as water or air. Slip op. at 8-9. For this reason, Koloms insisted the exclusion must be limited, in accordance with its historical purpose, to incidents of environmental pollution. Id. The Supreme Court examined the terms irritant and contaminant without reference to the terms common usage. In doing so, the Court rejected the approach taken by numerous Illinois courts that have frequently turned to Webster s and other dictionaries to determine the plain meaning, or comon usage, of terms used in an insurance policy. Webster s defines contaminant as something that contaminates. Webster s Third International Dictionary 491 (1986). Contaminate means to soil, stain, corrupt or infect by contact or association... and implies intrusion of or contact with dirt or foulness from an outside source, and is synonymous with pollute. Id. The term irritant means causing irritation... tending to produce physical irritation. Id. at Irritation is defined as a condition of irritability, soreness, roughness, or inflammation of a bodily part. Id. See also, Webster s Collegiate Dictionary, Tenth Ed. 620 (1993). The plain meaning of the terms would appear to encompass carbon monoxide fumes. 2 The Court s failure to examine the dictionary for the common usages of the terms irritant and contaminant to determine ambiguity contradicts the approach taken by the Court in two of its earlier landmark environmental coverage opinions. In Outboard Marine, the Court turned to Webster s in an effort to determine the plain meaning of the term damages. Thereafter, the court held: To the popular mind, to most people, to ordinary laypersons, damages connotes money one must expend to remedy an injury for which he or she is responsible, irrespective of whether that expenditure is compelled by a court of law in the form of compensatory damages or by a court of equity in the form of compliance with mandatory injunctions. Outboard Marine, 607 N.E.2d at In the same opinion, the Court examined the conflicting definitions of the term sudden in Webster s, American Heritage, and Black s Dictionaries. Based upon those definitions, and other courts conflicting interpretations of the term sudden, the Court concluded the term had more than one reasonable interpretation, and was, therefore, ambiguous. Id. at In Lapham-Hickey, the Supreme Court examined the conflicting case law and various dictionary definitions of the term suit. The Court held the term was not ambiguous because in its common usage, suit refers to a proceeding in a court of law, and is used in general conversations to connote an attempt to gain resolution of an issue within the court system. Lapham-Hickey, 655 N.E.2d at 847. In Koloms, the Supreme Court first found the bare language of the exclusion was not dispositive. The Court was especially troubled by an overbreadth in the language of the exclusion as well as the manifestation of an ambiguity which results when the exclusion is applied to cases which have nothing to do with pollution in the conventional, or ordinary sense of the word. Slip op. at With the support of case law from other jurisdictions, the Court found the exclusion was ambiguous as applied, or in other words latently ambiguous. 5 he Court then examined the drafting history of the T pollution exclusion. This history, stated the Court, revealed the insurance industry s clear intent Page 3 of 5

4 not to extend the exclusion beyond traditional environmental pollution. Id. at 16. The Court rejected ASI s argument that the industry intended to broaden the exclusion to cover all incidents of pollution. According to ASI, this intent was manifest in the 1985 version of the exclusion which no longer contained the requirement that the discharge be into or upon land, the atmosphere, or any watercourse or body of water. In rejecting ASI s argument, the Supreme Court found support in West American Ins. Co. v. Tufco Flooring East, Inc., 104 N.C. App. 312, 409 S.E. 2d 692 (1991), which rejected a similar argument. The Court concluded that, rather than broaden the provision s scope beyond its original purpose of excluding coverage for environment pollution, the 1985 revisions were undertaken for the sole purpose of removing the sudden and accidental exception. Justice Heiple took exception to the majority s analysis as thimblerigging pure and simple. Slip op. at 18. In essence, Justice Heiple was accusing the majority of playing the Shell Game with the clear language of the policy in order to justify a finding of coverage. Justice Heiple reasoned that the exclusion should be applied as written, because the language in the exclusion clearly and unambiguously excluded coverage for injury from the escape of pollutants. Conclusion The Koloms decision will play a significant role in future litigation aimed at seeking an interpretation of the absolute pollution exclusion. Counsel for insurance companies will likely seek to limit the ruling to its particular facts. Policyholder counsel will likely attempt to expand the ruling to justify judicially imposed parameters on other policy language that limits the scope of coverage. As the battles between insurance company and policyholder are waged, it will be interesting to see how the various trial and Appellate Courts of Illinois will apply Koloms. 6 Endnotes 1 The court affirmed an opinion issued by the First District Appellate Court of Illinois last May, which was written by Judge Thomas Hoffman for a panel consisting of Judge Robert Cahill and Judge Sheila M. O Brien. (281 Ill.App.3d 725, 666 N.E.2d 699). The Appellate Court affirmed a ruling by then Cook County Circuit Court Judge John J. Hourihane, who is now a sitting Justice in the First District Appellate Court. 2 Inexplicably, the majority did not analyze the term fumes, which is used in the exclusion to explain the terms irritant or contaminant, even though carbon monoxide is commonly referred to as a fume. Thus, the exclusion would appear on its face to bar coverage for injuries arising from the release of carbon monoxide fumes. 3 In a partial dissent, Justice Benjamin K. Miller, joined by Justice Heiple, believed the term sudden must be interpreted with its companion term accidental. Taken together as they are in the exclusion, Justice Miller found the terms sudden and accidental suggest a temporal meaning. Id. at Given its reluctance to adopt the plain meaning of the terms irritant and contaminant, it is ironic that the court relied upon the conventional meaning of the term pollution to justify a finding of ambiguity. 5 A patent ambiguity is that which appears on the face of the instrument, and arises from the defective, obscure or insensible language used. Black s Law Dictionary 73 (5th ed. 1979). A latent ambiguity is a defect which does not appear on the face of language used or an instrument being considered. It arises when language is clear and intelligible and suggests but a single meaning, but some extrinsic fact or some extraneous evidence creates a necessity for interpretation or a choice between two or more possible meanings.... Parol evidence is admissable to prove the intention of the party drawing the instrument. Id. at The First District recently held that lead-based paint is not a pollutant within the meaning of the absolute pollution exclusion. Insurance Company of Illinois v. Stringfield, 1997 WL (Ill.App. 1st Dist. 1997). The court focused on the term contaminant, and held that the term is susceptible to more than one interpretation and thus ambiguous with respect to whether it encompasses lead paint. The First District Court also relied upon its earlier decision in Koloms to hold that the absolute pollution exclusion is limited to environmental contamination. The Second and Third Districts have also rendered opinions on the scope of the absolute pollution exclusion. The Second District has held that gasoline is a pollutant within the meaning of an absolute pollution exclusion. Thus, the clause operated to exclude coverage for bodily injury and property damage resulting from a release of gasoline from an underground storage tank. However, the court refused to extend the exclusion to deny coverage for personal injuries (i.e., trespass) caused by the pollution. Millers Mutual Ins. Co. v. Graham Oil Co., 282 Ill.App.3d 129,668 N.E.2d 223 Page 4 of 5

5 (2nd Dist. 1996). The Third District has interpreted the clause as written to be absolute and broad enough to exclude coverage for property damage and bodily injuries sustained when a container of mercury brought into a house accidentally spilled. Economy Preferred Ins. Co. v. Grandadam, 275 Ill.App.3d 866, 656 N.E.2d 787 (3rd Dist. 1995). However, the court noted the case may have been viewed differently had the mercury been released from a broken thermostat or thermometer. Id. About the Authors Frederic C. Goodwill, II is an associate at Johnson & Bell, Ltd. in Chicago where he practices insurance coverage law for insurance companies and an occasional policyholder. He is a 1992 graduate of New England School of Law in Boston, and has a Master of Studies in Environmental Law, cum laude from Vermont Law School. He is licensed to practice in both Massachusetts and Illinois. Kevin J. Greenwood is a senior associate at Johnson & Bell, Ltd. in Chicago whose practice concentrates on mass tort litigation and environmental litigation. Mr. Greenwood is a frequent contributor to the IDC Quarterly. Page 5 of 5