Gulf Metals Industries Inc., Gulf Reduction Corporation, and Gulf Reduction Corporation as a Successor to Southern Zinc Company v. Chicago Insurance Company, Interstate Fire & Casualty Company, Delta Lloyds Insurance Company, First State Insurance Company, Insurance Company of North America, Continental Casualty Company, Transcontinental Insurance Company

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-98-00013-CV

Gulf Metals Industries, Inc., Gulf Reduction Corporation, and Gulf Reduction Corporation as a Successor to Southern Zinc Company, Appellants

Chicago Insurance Company, Interstate Fire & Casualty Company, Delta Lloyds Insurance Company, First State Insurance Company, Insurance Company of

North America, Continental Casualty Company, Transcontinental Insurance

Company, CNA Lloyds of Texas, Transportation Insurance Company,

Fidelity & Casualty Insurance Company of New York and

Glen Falls Insurance Company, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT

NO. 96-04673A, HONORABLE F. SCOTT McCOWN, JUDGE PRESIDING

DISSENTING OPINION

I agree that the majority's interpretation of the phrase "sudden and accidental" in the qualified pollution exclusion is eminently reasonable, perhaps more reasonable than the insured's definition. Indeed, I would have joined the majority had this opinion been handed down before the supreme court issued its decision in Balandran v. Safeco Insurance Co. of America, 972 S.W.2d 738 (Tex. 1998). Because I find that Balandran compels a finding that the insured's reading of "sudden and accidental" is also reasonable, I would hold that the trial court erred in granting summary judgment in favor of CIC.⁽¹⁾ I respectfully dissent.

Significance of Balandran

Balandran involved a simple issue: whether a standard homeowner's policy covered damage to a foundation caused by an underground plumbing leak. One year earlier, the Fifth Circuit had addressed the identical question and held that under its reading of Texas law the policy provision unambiguously excluded damage to a foundation caused by a plumbing leak. See Sharp v. State Farm Fire & Cas. Ins. Co., 115 F.3d 1258 (5th Cir. 1997). The court held that the insured's interpretation was not reasonable; therefore, the exclusion was unambiguous, and the insured was not entitled to the benefit of the ambiguity. See id. at 1262-63.

In Balandran the supreme court examined the same provision and reached a different result, essentially holding that the Fifth Circuit misapplied Texas law in Sharp. Furthermore, the court gave a generous reading of what can be considered a "reasonable interpretation" of a coverage exclusion by an insured. Courts "must adopt the construction . . . urged by the insured as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent." Balandran, 972 S.W.2d at 741 (quoting National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991) (emphasis added)). The policy at issue in Balandran excluded water damage to the dwelling; the insureds conceded that the damage to their foundation fell under this exclusion unless language in the personal property section created an exception to the exclusion when the structural damage resulted from a plumbing leak. The exclusion repeal that the insureds relied on covered personal property against accidental discharge or leakage or overflow of water or steam from within a plumbing system. This part of the policy further provided that "Exclusions 1.a through l.h under Section I Exclusions do not apply to loss caused by this peril." Exclusion 1.h excluded structural damage resulting from a plumbing leak. The Balandrans did not suffer any personal property loss, but relied on this sentence to argue that exclusion 1.h did not apply to the loss damage to their home caused by a plumbing leak. The insurer insisted, relying on the Fifth Circuit's earlier opinion in Sharp, that an exception found in the personal property coverage section of the policy could not be used to avoid the exclusion found in the dwelling coverage section. In that case, the circuit court had concluded:

We are sympathetic to the Sharps' situation, but we cannot agree that text specifically included in Coverage B, which applies only to personal property, may be imported into Coverage A, which applies to the dwelling or house, in order to create coverage for a loss that does not involve personal property damage. The Sharps' policy clearly and unambiguously divides dwelling losses and personal property losses into two separate 'coverages.' It therefore would appear to be nonsensical, and a rejection of the obvious structure of the policy, to reach into text that applies solely to [personal property losses] to determine the extent of coverage under [the dwelling section].

Sharp, 115 F.3d at 1262.

To find the insured's interpretation "reasonable" and the policy provision ambiguous, the supreme court in Balandran applied standard rules of contract construction: (1) insurance contracts are subject to the same rules of construction as other contracts, (2) the primary goal is to give effect to the written expression of the parties intent, and (3) the court will strive to give meaning to every sentence, clause and word to avoid rendering any portion inoperative. See Balandran, 972 S.W.2d at 741. The court went on to add: "While parol evidence of the parties' intent is not admissible to create an ambiguity, the contract may be read in light of the surrounding circumstances to determine whether an ambiguity exists." Id. (emphasis added, citations omitted). Furthermore, the court thought it proper to consider the circumstances surrounding the promulgation of the policy form in determining whether the Balandrans' interpretation was reasonable. Noting that insurers must use forms adopted by the State Board of Insurance, that an earlier version of the form contained exclusion-repeal language that unquestionably applied to dwelling coverage as well as personal property loss, and that the revision of the form was intended to simplify the policy language and not to restrict any coverage previously available, the court concluded that "the Balandrans' interpretation becomes even more reasonable when we consider the circumstances surrounding the promulgation of this policy form." Id.

Balandran recognizes that insurance is a regulated industry and that the regulatory entity that promulgates mandatory policy forms is a silent party to a contract that must be written on such forms. The surrounding circumstance evidence that the supreme court reviewed in Balandran went to the intent of this silent party in promulgating the form. While parol evidence of what an individual insured and an individual insurer intended is not admissible to create an ambiguity, Balandran held that evidence of what the Department of Insurance intended in revising the policy form could be considered in determining whether either party's interpretation of the policy was reasonable.

Gulf Metals asked the trial court to consider similar circumstances surrounding the promulgation of the form at issue in this dispute. Gulf Metals argues that prior to the inclusion of the qualified polluter's exclusion clause in liability insurance policies, these policies clearly covered the gradual but unintentional release of contamination. It sought to discover and have the court consider historical drafting and regulatory evidence concerning the adoption of the pollution exclusion clause at issue. Gulf Metals argued that the circumstances surrounding the promulgation of the pollution exclusion clause would reveal that the "sudden and accidental" language was not meant to restrict then-existing coverage of unintentional pollution. CIC responded that the State Board of Insurance, now the Department of Insurance, intended to ensure that occurrence-based policies would not be construed to cover claims such as those presented here. Without the benefit of Balandran, the trial court followed the mistaken view of the Fifth Circuit in Mustang Tractor & Equipment Co. v. Liberty Mutual Insurance Co., 76 F.3d 89 (5th Cir. 1996), and refused to consider surrounding circumstance evidence regarding the promulgation of the "sudden and accidental" exception to the pollution exclusion to determine whether the insured's interpretation was reasonable. Under Balandran, such evidence is admissible to determine ambiguity, which exists when both parties' interpretations are reasonable. I would hold that the trial court in the present case erred in granting summary judgment without considering this evidence of surrounding circumstances.

The majority points to footnote three as justification for ignoring this significant rule of construction set forth in Balandran, and instead reaches back to the earlier language in National Union Fire Insurance Co. v. CBI Industries, Inc., 907 S.W.2d 517 (Tex. 1995), stating that the parties' interpretation of a contract can be considered only after the court has found the contract to be ambiguous. Indeed, Balandran agrees that parol evidence of the parties' intent cannot be considered unless the policy is first found to be ambiguous. See Balandran, 972 S.W.2d at 741. However, Balandran specifically holds that surrounding circumstance evidence regarding promulgation of the policy form is not "extrinsic evidence" and may be considered in determining whether a party's interpretation of the policy is reasonable. As the dissent in Balandran points out, this rule is at odds with the Fifth Circuit's holding in Sharp that the insured "may not point to the revision process to create an ambiguity." See Balandran, 972 S.W.2d at 745 (Owen, J., dissenting) (quoting Sharp, 115 F.3d at 1262). In the present case, the majority follows the view expressed by Justice Owen in the Balandran dissent and by the Fifth Circuit in Sharp, that evidence of what the former policy form stated and the intent of those who revised its language is extrinsic evidence that may not be considered until the court determines that an ambiguity exists on the face of the policy. The apparent contradiction between footnote three and the holding that "the contract may be read in light of the surrounding circumstances to determine whether an ambiguity exists," 972 S.W.2d at 741, can be harmonized if we consider the regulated nature of insurance contracts. Can Gulf Metals rely on representations allegedly made by the insurance industry to the Department that the language "sudden and accidental" in the revised form would not restrict existing coverage of unintentional pollution? I think Balandran holds that it may.⁽²⁾ We don't know whether the surrounding circumstance evidence here will make Gulf Metals' interpretation of this pollution exclusion clause more reasonable or not because the trial court refused to consider it. I would reverse the summary judgment and remand for the trial court to read the present contract in light of such evidence.

"Sudden" Can Reasonably be Interpreted To Mean "Unexpected"

I disagree with the majority's claim that dictionaries "provide no significant help in determining whether a term has two reasonable meanings." It is true that courts must determine the meaning of words in a particular context; I also agree that dictionaries alone provide an inadequate test for ambiguity. However, dictionary definitions may provide guidance when the context does not. Nothing about the phrase "sudden and accidental" requires "sudden" to contain a temporal element. The context in which the phrase is used simply does not mandate such a construction.

When the majority asserts that "sudden" is never used in ordinary conversation without a temporal aspect, what it is really saying is that "sudden" can never mean only "unexpected." This notion is not supported by any dictionary usage, caselaw, or any other authority. I believe that it is reasonable to read "sudden" to mean "unexpected." As the Georgia Supreme Court observed:

[E]ven in its popular usage, "sudden" does not usually describe the duration of an event, but rather its unexpectedness: a sudden storm, a sudden turn in the road, sudden death. Even when used to describe the onset of an event, the word has an elastic temporal connotation that varies with expectations: Suddenly, it's spring.

Claussen v. Aetna Cas. & Sur. Co., 380 S.E.2d 686, 688 (Ga. 1989). Accordingly, leading dictionaries provide "unexpected" or "without previous notice" as primary definitions of "sudden."⁽³⁾

In arriving at the conclusion that "sudden and accidental" cannot mean "unexpected and unintended," the majority relies on the Fifth Circuit's opinion in Mustang Tractor & Equipment Co. v. Liberty Mutual Insurance Co., 76 F.3d 89 (5th Cir. 1996). As the majority observes, the Mustang Tractor court stated that "Texas courts agree that 'accidental' generally describes an unforeseen or unexpected event . . . ." Id. at 92. The Fifth Circuit reasoned that the insured's interpretation of "sudden" as meaning unexpected created a redundancy because "accidental" already conveyed unexpected. Therefore, it concluded, "[t]o define sudden as meaning only unexpected or unintended, and therefore a mere restatement of accidental, would render the suddenness requirement mere surplusage." Id.

The flaw in Mustang Tractor's reasoning is the court's assumption that "accidental" means unforeseen or unexpected under Texas law, for which proposition the court cited Republic National Life Insurance Co. v. Heyward, 536 S.W.2d 549, 554 (Tex. 1976). However, that case is inapposite.⁽⁴⁾ Texas courts generally interpret the word "accidental" to mean "unintended" in the insurance context,⁽⁵⁾ and cases from other jurisdictions support the view that "accidental" adds an element of intent that is missing from "sudden" or "unexpected." See, e.g., Queen City Farms, Inc. v. Central Nat'l Ins. Co., 882 P.2d 703, 721 (Wash. 1994) (citing New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1194 (3d Cir. 1991)). In addition, leading dictionaries primarily define "accidental" as unintended, without an element of foreseeability.⁽⁶⁾ While many also define "accident" as an unforeseeable occurrence, these definitions are often secondary.⁽⁷⁾ Finally, insurance policies often use words that have similar meanings, such as in the qualified pollution exclusion where the words "discharge, dispersal, release or escape" are all used to describe potentially polluting events. See New Castle County, 933 F.2d at 1194.

As Gulf Metals points out in its brief, it is not redundant to describe an event as both "unexpected" and "unintended," since the latter term describes subjective hopes or desires, while the former addresses the more objective concept of what is foreseeable or foreseen. Thus, winning a lottery jackpot could be described as unexpected but not unintended, while receiving a speeding ticket for driving far above the posted speed limit would be unintended but probably not unexpected. While the terms "sudden" and "accidental" can overlap to some degree, nothing about the present context makes Gulf Metals' interpretation unreasonable; this is particularly so in light of the well-settled rule that exceptions or limitations on liability are strictly construed against the insurer and in favor of the insured. See National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991); Ramsay v. Maryland Am. Gen. Ins. Co., 533 S.W.2d 344, 349 (Tex. 1976). Reading "sudden and accidental" to mean "unexpected and unintended" is reasonable. Because Mustang Tractor's contrary conclusion rests upon a flawed assumption, I believe the majority's reliance on that case to be misplaced.

The redundancy relied upon by the Mustang Tractor court is created only if one begins with the assumption that "accidental" necessarily connotes "unforeseen" in addition to its natural meaning of "unintended." As discussed above, this interpretation is largely unsupported by relevant Texas authority. Nor is "sudden" required to contain a temporal element by either Texas caselaw or authoritative dictionaries. Thus, reading "sudden and accidental" to mean unexpected and unintended is reasonable, and the ambiguous exception must be interpreted in favor of the insured.

In Balandran, the supreme court proclaimed that surrounding circumstances evidence is admissible to determine whether an ambiguity exists. Balandran also sets a new and generous standard as to what can be considered a "reasonable interpretation" of an exception to a policy exclusion. Without the benefit of the supreme court's decision, the trial court granted summary judgment against the insured, holding that Gulf Metals' interpretation of "sudden and accidental" is unreasonable. I would reverse the summary judgment and remand the cause to the trial court to allow further discovery of evidence that agents of the appellee insurance companies represented to state insurance boards that the "sudden and accidental" exception to the pollution exclusion would not eliminate coverage as long as the pollution was not expected or intended from the standpoint of the insured.

Bea Ann Smith, Justice

Before Justices Jones, B. A. Smith and Yeakel

Filed: May 13, 1999

Publish

1. Because Balandran had not been decided at the time of the summary judgment hearing, the trial court did not have the benefit of the supreme court's most recent analysis.

2. In this regard I think the majority got it backwards when it held that "the 'surrounding circumstances' that may be considered in determining ambiguity are those surrounding the making of the contract, not those present when a regulatory body promulgates the form of the contract."

3. See Webster's Third New International Dictionary 2284 (Philip B. Gove ed., 1986) (defining "sudden" as: "1a. happening without previous notice or with very brief notice; coming or occurring unexpectedly: not seen or prepared for [usage examples omitted]"; The American Heritage Dictionary of the English Language 1286 (William Morris ed., 1973) (defining "sudden" as: "1. Happening without warning; unforeseen."); Black's Law Dictionary 1432 (6th ed. 1990) (defining "sudden" as: "Happening without previous notice or with very brief notice; coming or occurring unexpectedly; unforeseen; unprepared for."). Even in the Random House definition quoted by the majority, a temporal element exists in only one of the three meanings provided. See Random House Dictionary of the English Language 1900 (Stuart B. Flexner ed., 1987) (defining "sudden" as "happening, coming, made, or done quickly, without warning, or unexpectedly") (emphasis added).

Heyward held that whether a killing is "accidental" within the terms of a life insurance policy is determined from the viewpoint of the insured, not the viewpoint of the one who does the killing; the test is whether the insured should have reasonably anticipated that his conduct would bring about his own death. See Heyward, 536 S.W.2d at 552-54. Heyward thus does not control the definition of "accidental" as that word is used in the "sudden and accidental" exception to the pollution exclusion.

See Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 827-28 (Tex. 1997) (insured's conduct not an "accident" for purposes of insurance policy because insured acted intentionally and purposefully in copying photographs of plaintiff and showing them to friends); Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1973) ("Where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident") (quoting Thomason v. United States Fidelity & Guar. Co., 248 F.2d 417 (5th Cir. 1957)); Wessinger v. Fire Ins. Exch., 949 S.W.2d 834, 837 (Tex. App.--Dallas 1997, no pet.) (if acts producing alleged injuries were committed involuntarily and unintentionally, results of acts are accidental); but see Mesa Operating Co. v. California Union Ins. Co., No. 5-96-986-CV, 1999 WL 42027 *5 (Tex. App.--Dallas Feb. 2, 1999, no pet. h.) ("The term "accidental" already encompasses the concepts of being unexpected and unintended.") (citing Mustang Tractor, 76 F.3d at 92).

See Webster's Third New International Dictionary 11 (Philip B. Gove ed., 1986) (defining "accidental" as: "2b. happening or ensuing without design, intent, or obvious motivation or through inattention or carelessness <~ collision> <~ shooting> <~ loss>."); A Dictionary of Modern Legal Usage 13 (Bryan A. Garner ed. 1995) ("In law, the usual distinction is that an accident occurs without the willful purpose of the person who causes it.") (contrasting "accident" with "mistake") (emphasis original).

See, e.g., The Random House Dictionary of the English Language 12 (Stuart B. Flexner ed., 1987) (defining "accident" as: 1. an undesirable or unfortunate happening that occurs unintentionally and usually results in harm, injury, damage, or loss; casualty; mishap; automobile accidents. 2. Law such a happening resulting in injury that is in no way the fault of the injured person for which compensation or indemnity is legally sought. 3. any event that happens unexpectedly, without a deliberate plan or cause.").

of the supreme court's most recent analysis.

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