Order Michigan Supreme Court
Lansing, Michigan
May 27, 2016 Robert P. Young, Jr.,
Chief Justice
151447 Stephen J. Markman
Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
CHARLIE B. HOBSON AND Joan L. Larsen,
MARY L. HOBSON, Justices
Plaintiffs-Appellees,
v
INDIAN HARBOR INSURANCE COMPANY, SC: 151447
XL INSURANCE AMERICA, INC., and XL COA: 316714
INSURANCE COMPANY OF NEW YORK, INC., Wayne CC: 12-008167-CK
Defendant-Appellants,
and
WILSON INVESTMENT SERVICE &
CONSTRUCTION, INC., WILSON INVESTMENT
SERVICE, CRESCENT HOUSE APARTMENTS,
CRESCENT HOUSE APARTMENTS, L.L.C., W-4
FAMILY LIMITED PARTNERSHIP, W-4 FAMILY
L.L.C., and JAMES P. WILSON,
Defendant-Appellees.
__________________________________________/
On May 4, 2016, the Court heard oral argument on the application for leave to
appeal the March 10, 2015 judgment of the Court of Appeals. On order of the Court, the
application is again considered, and it is DENIED, because we are not persuaded that the
question presented should be reviewed by this Court.
ZAHRA, J. (concurring).
Although the question whether the total pollution exclusion endorsement (the
Endorsement) of the underlying commercial general liability (CGL) policy precludes
coverage when applied to the facts presented in this case is an interesting one, I
nonetheless conclude the application of the defendant insurers 1 for leave to appeal should
be denied.
Defendant is correct that this Court has made it abundantly clear that Michigan
does not interpret insurance contracts under the rule of reasonable expectations or any
rule of construction comparable to it. Rory v Continental Ins Co, 473 Mich 457, 469-470
(2005); Wilkie v Auto-Owners Ins Co, 469 Mich 41, 63 (2003). Insurance contracts are
1
Although there were numerous defendants, only Indian Harbor Insurance Company, XL
Insurance America, Inc., and XL Insurance Company of New York, Inc., appealed. For
the sake of simplicity, I will refer to the appellants in the singular as “defendant”
throughout this statement.
2
interpreted according to their plain terms. “Well-settled principles of contract
interpretation require one to first look to a contract’s plain language. If the plain
language is clear, there can be only one reasonable interpretation of its meaning and,
therefore, only one meaning the parties could reasonably expect to apply.” Singer v
American States Ins, 245 Mich App 370, 381 n 8 (2001).
Under this rule of interpretation, defendant has presented a colorable argument
that the Endorsement, which altered “Exclusion f” and removed the “hostile fire”
exception from that exclusion, operates literally to exclude any damage from smoke. Yet
I also believe that under the same rule of contract interpretation, a reasonable argument
can be advanced that, notwithstanding the removal of the hostile fire exception, smoke
did not discharge, disperse, seep, migrate, release, or escape in relation to the insured
property. The CGL policy insures the entire apartment building in which the fire began.
Before the Endorsement, damage caused by smoke wholly within the apartment building
was excluded unless it was the result of a “hostile fire.”[2]
Exclusion f originally provided:
f. Pollution
(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. However,
this subparagraph does not apply to:
***
(iii) “Bodily injury” or “property damage” arising out of heat,
smoke or fumes from a “hostile fire”[.] [Emphasis added.]
The Endorsement at issue provides that Exclusion f “is replaced by the following”:
This insurance does not apply to:
f. Pollution
2
Under the CGL policy, “ ‘[h]ostile fire’ means one which becomes uncontrollable or
breaks out from where it was intended to be.”
3
(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.
Under the original Exclusion f, damage caused by “smoke” was excluded only
when it was discharged, was dispersed, seeped, migrated, was released, or escaped “[a]t
or from any premises . . . owned or occupied by . . . any insured.” (Emphasis added.)
The original provision went on to except from this exclusion damage caused by “heat,
smoke or fumes from a ‘hostile fire’[.]”
Defendant points out that the Endorsement removed the hostile-fire exception to
Exclusion f that otherwise would have allowed coverage in this case for smoke damage at
the insured property. But the Endorsement also removed the restriction that had initially
excluded smoke damage only if it had moved “at or from” the insured property.
Although the Endorsement still requires the discharge, dispersal, seepage, migration,
release, or escape of pollutants, the Endorsement no longer requires that the pollutants do
so at the insured property.
Had the smoke been discharged, been dispersed, seeped, migrated, been released,
or escaped from the apartment building or into the apartment building, the CGL policy
would very likely exclude the resulting damage. But because the CGL policy no longer
expressly excludes smoke damage if the smoke had moved “at” the insured property,
defendant’s argument that the “smoke from the fire that started in another unit had to
have dispersed, seeped, or migrated into the Plaintiffs [sic] unit, and had to have been
released or escaped from the unit where the building manager allegedly started the fire” is
questionable and without any support in the language of the policy. The CGL policy
does not differentiate between individual units within the apartment building. Under the
Endorsement, once smoke has been produced “at” the insured premises, it must still be
discharged, be dispersed, seep, migrate, be released, or escape from the insured premises.
Otherwise, the Endorsement would simply have been phrased to exclude “ ‘[b]odily
injury’ or ‘property damage’ which would not have occurred in whole or part but for
actual, alleged or threatened ‘pollutants’ at any time.”
4
As noted by defense counsel during oral argument, this particular aspect of the
insurance policy and its Endorsement were not developed by plaintiffs in the lower
courts. 3 Relying on its criticisms of the unpublished opinion of the Court of Appeals,4
defendant would have this Court limit its review of the policy and Endorsement to the
removal of the hostile-fire exception to Exclusion f and ignore the other changes to the
policy brought about by the Endorsement. I decline to accept defendant’s invitation.
Thus, while this case presents an interesting question of contract interpretation, because
the record is undeveloped with regard to what constitutes a discharge, dispersal, seepage,
migration, release, or escape under the Endorsement, I agree with my colleagues that
leave should be denied.
BERNSTEIN, J., not participating due to his prior relationship with The Sam
Bernstein Law Firm.
3
Not only was there no legal development of this particular aspect of the Endorsement,
there also was no factual development of the instant case because defendant insurer
denied its insured a defense to plaintiffs’ claims. Defendant denied its duty to defend its
insured because, it maintained, the underlying claim was based exclusively on damages
caused by smoke, which is defined as an excluded pollutant under the policy. Stated
more simply, defendant denied its duty to defend because it believed the underlying claim
in no way alleged damages resulting from fire. Defendant’s position is puzzling. While
the complaint does in large part allege smoke inhalation injuries, it also alleges damages
“due to fire.”
4
Hobson v Indian Harbor Ins Co, unpublished opinion per curiam of the Court of
Appeals, issued March 10, 2015 (Docket No. 316714).
I, Larry S. Royster, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
May 27, 2016
a0524
Clerk