West American Insurance Co. v. Baumgartner

Judge ROTHENBERG

dissenting.

I respectfully dissent.

At issue is whether plaintiff, West American Insurance Co. (insurer), is contractually obligated to defend and extend coverage to its insured, defendant F.W. Baumgart-ner in a federal lawsuit brought under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601, et seq. (1982) (CERCLA).

Colorado law places a heavy burden on insurers that seek to rely on policy exclusions to escape the duty to defend and cover their insureds. Thus, when insurers wish to exclude coverage, they must do so in clear and specific language. Ryder Truck Rental, Inc. v. Guaranty National Insurance Co., 770 P.2d 1380 (Colo.App.1989). Further, exclusions are strictly construed against insurers since they draft the policies, and, if there is ambiguity or uncertainty as to coverage, the policies will be construed to favor the insured. See Coxen v. Western Empire Life Insurance Co., 168 Colo. 444, 452 P.2d 16 (1969).

A provision in a policy is ambiguous when it is reasonably susceptible to more than one meaning. Northern Insurance Co. of New York v. Ekstrom, 784 P.2d 320 (Colo.1989).

Here, Baumgartner signed a comprehensive general liability policy with insurer which contains standard language covering all “occurrences.” The contract defines an “occurrence” as

“an accident or a happening or event or a continuous or repeated exposure to conditions which results ... in ... property damage neither expected nor intended from the standpoint of the insured.”

Baumgartner’s contract also contains a standard “pollution exclusion” clause which states that the policy does not apply to:

“property damage arising out of the discharge, dispersal, release or escape of ... acid ... but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental....”

“Sudden” is not defined.

Relying on American Motorists Insurance Co. v. General Host Corp., 667 F.Supp. 1423 (D.Kan.1987), and the cases cited therein, the trial court ruled that Baumgartner’s policy provided no coverage for two reasons: (1) since Baumgartner “expected” the property damage, there was no “occurrence”; and (2) the language of the pollution exclusion clause unambiguously barred coverage.

In American Motorists, the court, construing identical “occurrence” and “pollution exclusion” provisions in an insurance contract, concluded that the language in the two pertinent clauses was so clear and plain that “only a lawyer’s ingenuity could perceive ambiguity_” In fact, a respectable number of courts, scholars, and legal commentators throughout the country have not only perceived ambiguity, but have been confounded by the two clauses in issue here and have vehemently disagreed on their meaning. See Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., 218 N.J.Super. 516, 528 A.2d 76, 86 (App.Div.1987). (“Even when considered within the context of our litigious society ... the [pollution] exclusion has generated an extraordinary number of lawsuits.”); and Claussen v. Aetna Casualty & Surety Co., 888 F.2d 747, 749 (11th Cir.1989) (“What is the meaning of ... sudden?_ This seemingly simple question has spawned a profusion of litigation.”). See generally Rosenkranz, The Pollution Exclusion Clause Through The Looking Glass, 74 Geo. L.J. 1237 (1986); and An-not., 39 A.L.R. 4th 1047 (1985).

Some courts have found ambiguity because an “occurrence,” includes coverage for a “continuous or repeated exposure to conditions,” and conflicts with the pollution exclusion clause, which excludes coverage unless the dispersal is “sudden and accidental.” See, e.g., City of Northglenn v. Chevron U.S.A., Inc., 634 F.Supp. 217 (D.Colo.1986).

Other courts have found the pollution exclusion clause ambiguous for failing to define “sudden” and “accidental.” See, e.g., Buckeye Union Insurance Co. v. Liberty Solvents & Chemicals Co., 17 Ohio App.3d 127, 477 N.E.2d 1227 (1984). Also, *700in contrast to American Motorists, supra, the majority of courts throughout the country that have addressed the meaning of “sudden and accidental” have ultimately held that the phrase is ambiguous, see Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., supra, and have determined that it means “unexpected and unintended.” See Claussen v. Aetna Casualty & Surety Co., supra; Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 456 N.W.2d 570 (1990). Most have rejected the temporal requirement adopted here.

Still other courts have simply held the terms of the pollution exclusion clause inapplicable to the factual situation presented and, in that manner, have found that the insured was covered by the policy. See Molton, Allen & Williams, Inc. v. St. Paul Fire & Marine Insurance Co., 347 So.2d 95 (Ala.1977).

Many courts, after finding the pollution exclusion clause ambiguous, have gone on to examine the parties’ intent. In Just v. Land Reclamation, Ltd., supra, the Wisconsin Supreme Court discussed the background of the standard comprehensive general liability (CGL) policy:

“Most early CGL policies provided coverage for property damage or personal injury caused by accident.... In order to clarify the scope of coverage provided by the standard form CGL policy, and respond to policyholder demand for expanded coverage, the insurance industry ... revised the standard form CGL policy in 1966....
The new ... policy provided coverage for damage ... from an occurrence ... and ... the insurance companies that drafted the revised standard form CGL policy actively promoted this policy as providing new, broadened coverage for liabilities arising from gradual pollution.... [Cjommentary on the 1966 CGL policy indicates that there was no intent to avoid coverage for unexpected or unintended pollution.” (emphasis added)

The Just court also noted that the standard pollution exclusion clause was added in 1973 and:

“was designed to decrease claims for losses caused by expected or intended pollution by providing an incentive to industry to improve its manufacturing and disposal processes, and unintentional or unexpected damages would still be covered as an occurrence under the policy.” (emphasis added)

See also Broadwell Realty v. Fidelity & Casualty, supra; United States Fidelity & Guaranty Co. v. Specialty Coatings, Inc., 180 Ill.App.3d 378, 129 Ill.Dec. 306, 535 N.E.2d 1071 (1989).

In summary, the history of the pollution exclusion clause strongly suggests that it was intended to exclude only intentional polluters. See Just, supra; Molton, Allen, supra.

This is a unique case. Baumgartner was sued as a third party defendant for contribution by three mining companies that released hazardous substances into Colorado waters by active mining operations. See State of Colorado v. Idarado Mining Co., 707 F.Supp. 1227 (D.Colo.1989), modified in part, 735 F.Supp. 368 (1990).

It is undisputed that Baumgartner never engaged in mining operations or any other activity that caused the release of pollutants into the mountain streams on or near his property. Rather, a naturally occurring leaching process extracted acidic compounds from Baumgartner’s property by means of the natural runoff of rain and groundwater. This caused a naturally formed acidic metalliferous runoff which was neither intended nor avoidable, and which drained off Baumgartner’s property into Red Mountain Creek, a tributary to the Uncompahgre River.

I am unaware of any reported case in the country in which a standard pollution exclusion clause has been construed to deny coverage to a property owner, such as Baumgartner, for pollution damage arising entirely from natural causes and not from any volitional activity by the insured. Compare with FL Aerospace v. Aetna Casualty & Surety Co., 897 F.2d 214 (6th Cir.1990) (waste site); Avondale Industries, Inc. v. Travelers Indemnity Co., 894 F.2d 498 (2d Cir.1990) (dumping of hazard*701ous wastes); American Motorists Insurance Co. v. General Host Corp., supra (careless operation by salt plant polluted aquifer under neighbors’ property); Hicks v. American Resources Insurance Co., 544 So.2d 952 (Ala.1989) (pit dug for strip mining filled with water and contaminated water supply with acids and toxic chemicals).

In its brief in support of its motion for summary judgment the insurer candidly admitted that:

“The facts of this case set it apart from all others in which the pollution exclusion has been an issue. Other cases have dealt with man made pollution or pollutants either released, disposed of, or escaped due to human intervention, negligence or malfeasance....
There is no established Colorado law on the exception to the pollution exclusion clause in the factual setting as presented in this case.”

The trial court here also denied coverage because he concluded, as a matter of law, that Baumgartner “expected” damage to Red Mountain Creek and the Uncompahgre River. This conclusion was based on the fact that Baumgartner knew that water, in combination with the pyrite on his property, eventually creates an acidic runoff. Indeed, Baumgartner did know the geochemistry of the Red Mountain area. However, his awareness of the naturally occurring, prehistoric, phenomenon of metalliferous runoff, in my opinion, is not tantamount to evidence that Baumgartner “expected” environmental damage to occur.

The cases cited by insurer regarding “expected” damages are so factually distinguishable as to be inapposite. See New Castle County v. Hartford Accident & Indemnity Co., 685 F.Supp. 1321, 1330 (D.Del.1988) (there was substantial probability that county’s landfill was responsible for groundwater contamination); Headley v. St. Paul Fire & Marine Insurance Co., 712 F.Supp. 745, 749 (D.S.D.1989) (drainage from sewer disposal system leaked unto adjacent property; no coverage because landowner knew of sewer problem before policy became effective); Broome County v. Aetna Casualty & Surety Co., 146 A.D.2d 337, 540 N.Y.S.2d 620 (1989) (dumping of chemical and industrial waste at landfill contaminated soil and water); City of Carter Lake v. Aetna Casualty & Surety Co., 604 F.2d 1052 (8th Cir.1979) (negligence of city workers caused sewer backups into basements of residents).

In City of Carter Lake, supra, the court notes that the majority view is that “if the damage was not intentionally caused, it was caused by accident. Whether the damage was expected is not considered.” See also Du-Wel Products v. U.S. Fire Insurance Co., 236 N.J.Super. 349, 565 A.2d 1113 (App.Div.1989) (rejecting an argument similar to insurer’s here).

Finally, I find Baumgartner’s passive act of property ownership in sharp contrast to the activity involved in New Hampshire Insurance Co. v. Hecla Mining Co., 791 P.2d 1154, 1157 (Colo.App.1989) (cert, granted May 29, 1990). In Hecla, this court held that an active mine operator who disposed of waste materials “knew or should have known of a substantial probability that its mining activities would result in environmental damage.” Here, Baum-gartner engaged in no such activities.

The situation here is most analagous to that addressed in Molton, Allen & Williams, Inc. v. St. Paul Fire & Marine Insurance Co., supra. There, a land developer was sued by adjacent landowners for negligently causing sand and dirt to pass from developer’s subdivision onto landowner’s property. The developer sought indemnity from its insurer who, like Baumgartner’s insurer, claimed that the pollution exclusion clause barred coverage.

The Alabama Supreme Court, describing the case as one of first impression in Alabama and perhaps the country, ruled that the pollution exclusion clause did not apply to this factual situation and, also, that the clause was ambiguous. In my view the Alabama holding represents the proper disposition of the issues presented and I would follow it here.

“It is believed that the intent of the pollution exclusion clause was to eliminate coverage for damages arising out of pollution or contamination by in*702dustry-related activities. The use of specific industry-related irritants, contaminants and pollutants seem to indicate this was the reason for the exclusion. We judicially know that during the last decade, much emphasis has been placed upon protecting the environment. The pollution exclusion was no doubt designed to decrease the risk where an insured was putting smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into the environment. In any event, the clause here is ambiguous." Molton, Allen, supra at 99. (emphasis added)

In summary, since there is a definite split of authority on the issue presented, and since no Colorado case is dispositive, I would adopt the reasoning of the many jurisdictions holding that the policy language in question is ambiguous. See Just, supra. Further, since the insurance industry’s apparent purpose in drafting pollution exclusion clauses was to exclude coverage for intentional polluters, I would not permit an insurer to avoid obligations for which it received premiums unless the insured has engaged in intentional activities likely to cause environmental damage. Under that criteria the pollution exclusion clause is wholly inapplicable to Baumgartner. See Molton, Allen, supra. I would therefore reverse the trial court’s order granting summary judgment for the insurer since, in my view, insurer has a duty to defend Baumgartner and to provide coverage to him.