Peace Ex Rel. Lerner v. Northwestern National Insurance

N. PATRICK CROOKS, J.

¶ 96. (dissenting). The result of the majority opinion is to deprive young Kevin Peace, and, in many instances, other child victims of lead poisoning, of an effective remedy for their harm. By stripping landlords who may have been negligent concerning lead-based paint of insurance coverage, the majority guarantees that, frequently, no damages will ever be collected for such children. In reaching its conclusion, the majority fails to apply the proper method for analyzing whether an insurer has a duty to defend, disregards this court's two-year-old decision in Donald*152son v. Urban Land Interests, Inc., 211 Wis. 2d 224, 564 N.W.2d 728 (1997), and ignores the well-established principle that insurance policies are to be interpreted from the perspective of the reasonable insured with any ambiguities construed in the insured's favor.

¶ 97. Somewhere in the course of its lengthy discussion, the majority loses sight of the issue in front of this court: whether summary judgment was appropriately granted to Northwestern on the issue of Northwestern's duty to defend its insured in this action. There is no analysis whatsoever of the duty to defend in the majority opinion. This court has recently and often explained the method to be employed by courts when analyzing whether an insurer has a duty to defend.1 The question in such an analysis is not whether the claim is actually covered under the insurance policy. See General Cas. Co. v. Hills, 209 Wis. 2d 167, 176 & n.11, 561 N.W.2d 718 (1997). See also School Dist. of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347, 364, 488 N.W.2d 82 (1992). "The duty to defend is broader than the duty to indemnify, because the duty to defend is triggered by arguable, as opposed to actual, coverage." General Cas., 209 Wis. 2d at 176 n.11.

¶ 98. In determining whether there is a duty to defend, a court must compare the allegations in the complaint to the relevant insurance policy. See id.; Shorewood, 170 Wis. 2d at 364-65. An insurer has a *153duty to defend whenever the allegations in the complaint would, if proved, result in a "possibility of recovery that falls under the terms and conditions of the insurance policy." General Cas., 209 Wis. 2d at 176 (quoting Shorewood, 170 Wis. 2d at 364). See Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 593 N.W.2d 445, 459 (1999). "Any doubt as to the existence of the duty to defend must be resolved in favor of the insured." Wausau Tile, 593 N.W.2d at .459. See General Cas., 209 Wis. 2d at 176; Shorewood, 170 Wis. 2d at 364.

¶ 99. In the instant case, the circuit court granted summary judgment to Northwestern, reasoning that Northwestern had no duty to defend because the allegations in Peace's complaint fell within the pollution exclusion clause of the insurance policy. If there is any possibility that Peace's claims, if proved, would result in liability under the terms of the policy, the above principles require this court to hold that Northwestern has a duty to defend, and thus, that the summary judgment was improper. Our task, then, is to examine the pollution exclusion clause to determine whether there is any possibility that Peace's claims might be covered.

¶ 100. In Donaldson, this court interpreted a pollution exclusion clause identical in all relevant aspects to the clause in this case. See Donaldson, 211 Wis. 2d at 228. We held that in order for this pollution exclusion clause to apply to a particular set of facts, two conditions must be satisfied: (1) the alleged pollutant must fit "unambiguously within the pollution exclusion clause's definition of 'pollutant'and (2) the alleged pollutant must have been "discharge[d], disperse[d], etc., under the terms of the polic[y]." Id. at 229.

*154¶ 101. I begin by examining whether lead in paint unambiguously falls within the insurance policy's definition of "pollutant." It is well established that terms in an insurance policy are ambiguous if they are fairly susceptible to more than one reasonable interpretation when read in context. Id. at 230-31. See Kremers-Urban Co. v. American Employers Ins., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984). Equally well established is the rule that terms in an insurance policy must be interpreted from the perspective of the "reasonable insured." See Donaldson, 211 Wis. 2d at 230 (citing General Cas., 209 Wis. 2d at 175); Kremers-Urban, 119 Wis. 2d at 735. The words in the policy must be given the common, everyday meanings which would be attributed to them by a lay person. Kremers-Urban, 119 Wis. 2d at 735.

¶ 102. At first glance, the terms in the policy definition of "pollutant" might seem broad enough to include lead in paint.2 The majority determines that "pollutant" unambiguously includes lead in paint, focusing almost exclusively on the words "contaminant" and "irritant" in the policy definition. See majority op. at 125-26.

¶ 103. However, the majority's approach directly contravenes this court's recent decision in Donaldson. The majority concludes that the pollution exclusion clause is unambiguous, despite our conclusion only two *155years ago that the very same clause is ambiguous. See majority op. at 136-37; Donaldson, 211 Wis. 2d at 233. In Donaldson, we were concerned that the words "irritant" and "contaminant" in the clause, "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." Id. at 232 (quoting Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037 (7th Cir. 1992)). We held that "[t]he reach of the pollution exclusion clause must be circumscribed by reasonableness, lest the contractual promise of coverage be reduced to a dead letter." Id. at 233.

¶ 104. Based on our determination that the scope of the pollution exclusion clause is restricted to reasonable applications, we did not focus in Donaldson on the broad terms of the pollution exclusion clause, such as "irritant," "contaminant," and "chemicals." Instead, in considering whether carbon dioxide was unambiguously included within the clause, we carefully evaluated the expectations of the reasonable insured. See id. at 232-34. We stressed the "common sense" approach taken by courts in determining when the pollution exclusion clause is applicable. Id. at 233 (quoting Pipefitters, 976 F.2d at 1043-44). Because a reasonable insured would not necessarily understand carbon dioxide to be a "pollutant," we determined that the carbon dioxide was not unambiguously included within the definition of "pollutant" in the pollution exclusion clause. Id. at 232-34.

¶ 105. Donaldson, therefore, precludes a finding that an alleged pollutant is covered by the pollution exclusion clause simply because it is capable of fitting within the broad classifications of "contaminant" or "irritant." The majority's expansive reading of the pol*156lution exclusion clause effectively nullifies this court's decision in Donaldson that the scope of the clause "must be circumscribed by reasonableness."3 Donaldson, 211 Wis. 2d at 233.

¶ 106. The majority attempts to justify the blatant inconsistency between its conclusion and this court's holding in Donaldson by stating that unlike the carbon dioxide involved in Donaldson, "[t]he toxic effects of lead have been recognized for centuries." Majority op. at 137-38.

¶ 107. The majority misses the point of Donaldson and ignores its plain applicability in this case. It is clear from our decision in the wake of Donaldson to vacate the court of appeals' original opinion in this case *157that we felt that our holding in Donaldson affected the outcome of this case,4 yet the majority today reaches the very same conclusion as that reached by the court of appeals in the opinion we vacated!

¶ 108. Further, in Donaldson, we concluded that a reasonable insured would not necessarily understand carbon dioxide to be a "pollutant" because carbon dioxide build-up and inhalation is an "everyday activity 'gone slightly, but not surprisingly, awry.'" Donaldson, 211 Wis. 2d at 233 (quoting Pipefitters, 976 F.2d at *1581043-44). The language from Pipefitters which we chose to quote specifically listed peeling paint as an example of an "everyday activit[y] gone slightly, but not surprisingly awry." Id. at 233 (quoting Pipefitters, 976 F.2d at 1043-44).

¶ 109. Through its sparse discussion and dismissive treatment of Donaldson, the majority fails to acknowledge important and clearly applicable precedent from this court.5 Contrary to the majority, I conclude that Donaldson mandates a thorough, common-sense analysis of whether a reasonable insured would interpret lead as unambiguously fitting within the definition of a "pollutant."

¶ 110. "Pollutant" is a term which generally conjures up images of industrial smokestacks and heavy machinery in the mind of a reasonable lay person. Dirty lakes, chemical-laden streams, and thick layers of smog typify the items which immediately occur to a person upon hearing the word "pollution." The pollution exclusion clause does not refer to "lead," "paint," or any other comparable term which might give a hint to a reasonable insured that common materials which are benign in normal circumstances could qualify as "pollutants."

¶ 111. Dictionary definitions likewise do not indicate that the term "pollutant" might encompass lead in paint. "Pollutant" is defined in the American Heritage Dictionary as, "Something that pollutes, especially a waste material that contaminates air, soil, or water." American Heritage Dictionary 1402 (3d ed. 1992). The relevant definitions of "pollute" are: "1. To *159make unfit for or harmful to living things, especially by the addition of waste matter. . . .2. To make less suitable for an activity, especially by the introduction of unwanted factors: The stadium lights polluted the sky around the observatory. 3. To render impure or morally harmful; corrupt." American Heritage Dictionary 1402 (3d ed. 1992).

¶ 112. The lead in paint does not fit within these common definitions. Lead was not "waste matter" added to the paint in this case, and it was not an "unwanted factor" in the paint. On the contrary, lead was intentionally included as one of the desired ingredients in the paint at the time of the paint's original manufacture. For this reason, a reasonable lay person would not necessarily view the lead in paint as a "pollutant." As one court explained:

A common understanding of a pollutant is a substance that "pollutes" or renders impure a previously unpolluted object, as when chemical wastes leach into a clean water supply. Here the lead did not pollute the paint: it was purposefully incorporated into the paint from the start. The paint was intentionally applied to the premises. At the time, the paint was legal. It was considered neither impure nor unwanted.

Insurance Co. of Ill. v. Stringfield, 685 N.E.2d 980, 983-84 (Ill. App. Ct. 1997). See also West Am. Ins. Co. v. Tufco Flooring East, Inc., 409 S.E.2d 692, 698 (N.C. Ct. App. 1991) (holding that vapors from flooring resin were not a "pollutant" because flooring resin was not an unwanted "contaminant" at the time it was intentionally brought onto the premises). It follows that the lead in paint is unlike the fabric softener which became attached to ice cream cones stored in the same ware*160house in United States Fire Insurance Co. v. Ace Baking Co., 164 Wis. 2d 499, 476 N.W.2d 280 (Ct. App. 1991). Further, lead, like the carbon dioxide in. Donaldson, is a common substance which is present as a harmless ingredient in ordinary items such as lead crystal.6

¶ 113. Cases from other jurisdictions are all over the board on the issue of whether lead in paint unambiguously fits the pollution exclusion clause's definition of "pollutant." While some courts agree with the major*161ity that lead is universally considered to be a pollutant,7 cases from other courts (including several state supreme courts) reach the opposite conclusion.8 Moreover, some of the cases cited by the majority in support of its position must be discarded by this court as contrary to our holding in Donaldson that the scope of the clause, despite its broad wording, must be "circumscribed by reasonableness." Donaldson, 211 Wis. 2d at 233. See Shalimar Contractors, Inc. v. American States Ins. Co., 975 F. Supp. 1450, 1457 (M.D. Ala. 1997); St. Leger v. American Fire and Cas. Ins. Co., 870 F. Supp. 641, 643 (E.D. Pa. 1994). In any event, "the range and variety of judicial opinions bolsters the conclusion that the pollution exclusion here is ambiguous." Lefrak Org., Inc. v. Chubb Custom Ins. Co., 942 F. Supp. 949, 957 (S.D.N.Y. 1996). See also Sullins v. Allstate Ins. Co., 667 A.2d 617, 624 (Md. 1995).

¶ 114. It must also be kept in mind that a reasonable insured would expect coverage that is consistent *162with the purpose of the insurance policy provided. See General Cas., 209 Wis. 2d at 183. This case involves a comprehensive general liability (CGL) policy. "The CGL policy was designed to protect an insured against liability for negligent acts resulting in damage to third parties." Id. at 183-84 (quoting Arnold P. Anderson, Wisconsin Insurance Law § 5.14, at 136 (3d ed. 1990 & Supp. 1997)). In accordance with this purpose, a reasonable landlord would expect coverage for his or her negligent failure to remove lead paint if the lead later resulted in injury to other persons, such as Kevin Peace.

¶ 115. The majority also provides a lengthy recitation of the history of the pollution exclusion clause, concluding that it does not support the conclusion that the terms "discharge," "dispersal," "release," and "escape" in the clause are terms of art in environmental law. See majority op. at 139-44. Because I find that the first condition required for the pollution exclusion clause to apply is not met in this case, I need not discuss the second condition (whether there was a "discharge, dispersal, etc." under the terms of the policy). See Donaldson, 211 Wis. 2d at 233 n.6. It is significant, however, that several courts have concluded that the pollution exclusion clause is aimed at dealing with industrial and environmental pollution.9 *163See, e.g., Sphere Drake Ins. Co. v. Y.L. Realty Co., 990 F. Supp. 240, 244 (S.D.N.Y. 1997); Sullins, 667 A.2d at 622-23; Generali-U.S. Branch v. Caribe Realty Corp., 612 N.Y.S.2d 296, 298-99 (N.Y. Sup. Ct. 1994); West Am. Ins. Co., 409 S.E.2d at 699. Pointing out that no language has ever been added to the clause to specifically address lead or lead-based paint, these courts have concluded that amendments to the clause have failed to include lead or lead-based paint unambiguously in the definition of "pollutant," and thus, have not altered the historical purpose of the clause to exclude environmental and industrial pollution. See Sphere Drake, 990 F.2d at 243-44; Generali, 612 N.Y.S.2d at 299; West Am. Ins. Co., 409 S.E.2d at 699.

¶ 116. For these reasons, and consistent with Donaldson, I agree with the many courts which hold that while the broad language of the policy might suggest that lead in paint is a "pollutant," a reasonable insured could understand "pollutant" as not including lead in paint. Consequently, I agree with the many courts which hold that lead in paint is not unambiguously included within the definition of "pollutant" in the pollution exclusion clause.

¶ 117. A cardinal rule of insurance policy interpretation is that "ambiguities in a policy's terms are to be resolved in favor of coverage, while coverage exclusion clauses are narrowly construed against the insurer." See Donaldson, 211 Wis. 2d at 230 (citing Smith v. Atlantic Mut. Ins. Co., 155 Wis. 2d 808, 811, 456 N.W.2d 597 (1990)). Because I conclude that the pollution exclusion clause is ambiguous as to whether lead in paint is a "pollutant," these principles require that I construe the clause in this case against North*164western.10 Consequently, I must conclude that lead in paint is not a "pollutant" under the policy, such that the pollution exclusion clause does not preclude coverage for Peace's injuries.

¶ 118. As I have already explained, this case arises in the context of the duty to defend. Therefore, if there is any possibility that Peace's claims would, if proved, result in liability under the terms of the policy, this court is required to hold that Northwestern has a duty to defend the suit. Based on the ambiguity of the pollution exclusion clause, I conclude that such a possibility exists. Summary judgment to Northwestern on the duty to defend issue was improper in this case.

¶ 119. In conclusion, I point out that the position of the majority denies an effective remedy, in many instances, to children like Kevin Peace who have suffered injuries as a result of lead in paint. The majority cites numerous articles and statistics regarding the vulnerability of children to lead poisoning and the tragic consequences which can result. See majority op. at 111 n.2, 123-24 n.12, 123-25, 125 n.13, 137-38 nn. 18-19, 144-45. The majority's parade of horribles underscores the importance of the availability of insurance coverage for collection of damages by children *165injured in lead paint-related incidents. The logic inherent in the majority's decision to deny insurance coverage to landlords alleged to be negligent in such circumstances is difficult to understand in light of the majority's recognition of the seriousness of the problem.

¶ 120. I cannot join the majority's apparent assault on child victims of lead poisoning. In short, I find the majority's decision to be inconsistent with the rules for analyzing whether an insurer has a duty to defend, inconsistent with this court's two-year-old decision in Donaldson, and inconsistent with the well-settled principle that insurance policies are to be interpreted from the perspective of the reasonable insured. I would affirm the court of appeals' decision, and therefore, I respectfully dissent.

¶ 121. I am authorized to state that Justice WILLIAM A. BABLITCH joins this dissent.

See, e.g., Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 593 N.W.2d 445, 459 (1999); Doyle v. Engelke, 219 Wis. 2d 277, 284-85, 580 N.W.2d 245 (1998); General Cas. Co. v. Hills, 209 Wis. 2d 167, 176 & n.11, 561 N.W.2d 718 (1997); Newhouse ex rel. Skow v. Citizens Sec. Mut. Ins. Co., 176 Wis. 2d 824, 834-35, 501 N.W.2d 1 (1993); School Dist. of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347, 364, 488 N.W.2d 82 (1992).

Perhaps Northwestern even intended the words "contaminant" or "irritant" in the clause to include lead in paint. Even if this were the case, however, it would not answer the question of whether the definition of "pollutant" unambiguously includes lead. In Donaldson v. Urban Land Interests, Inc., 211 Wis. 2d 224, 231-32, 564 N.W.2d 728 (1997), we found that the insurer's intention that the pollution exclusion clause be interpreted broadly did not control our interpretation of the clause.

The majority's overly broad reading of the pollution exclusion clause could have wide-ranging effects, as evidenced by the following examples discussed in Donaldson:

[Rleading 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 or contaminants that cause, under certain conditions, bodily injury or property damage, one would not ordinarily characterize these events as pollution.

Donaldson, 211 Wis. 2d at 233 (quoting Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1043-44 (7th Cir. 1992)).

Similarly, it has been argued that a broad reading of the pollution exclusion clause as covering all "contaminants" or "irritants" would render the policy's coverage illusory, because "scalding water from a faucet can irritate, spoiled food can poison, or trash (i.e., waste paper) on a stairway can cause a fall." Oates by Oates v. New York, 597 N.Y.S.2d 550, 553 (N.Y. Ct. Cl. 1993). The Oates court described this argument as "well taken," even though the court ultimately found that lead was a "pollutant." Id. at 553-54.

The procedural history of this case evinces this court's obvious opinion that our holding in Donaldson would have a significant effect on the analysis of this case, which involves the very same pollution exclusion clause. Prior to Donaldson, the court of appeals determined in this case that the pollution exclusion clause precluded coverage for Peace's alleged injuries. See Peace v. Northwestern Nat'l Ins. Co., No. 96-0328, unpublished slip op. at 5 (Wis. Ct. App. Feb. 4, 1997) (per curiam). Following Donaldson, we vacated the court of appeals' decision and remanded the matter for another decision in light of Donaldson. See Peace v. Northwestern Nat'l Ins. Co., 211 Wis. 2d 529, 568 N.W.2d 297 (1997). We also vacated the case upon which the court of appeals primarily relied, Vance v. Sukup, 207 Wis. 2d 578, 558 N.W.2d 683 (Ct. App. 19.96). See Vance v. Sukup, 211 Wis. 2d 529, 568 N.W.2d 297 (1997).

In its second decision in this case, the court of appeals determined, in light of Donaldson, that the clause did not preclude coverage for Peace's injuries. See Peace v. Northwestern Nat'l Ins. Co., 215 Wis. 2d 165, 167, 573 N.W.2d 197 (Ct. App. 1997). Curiously, the majority of our court today reverses the court of appeals' second decision and reaches the same conclusion as that reached by the court of appeals in its initial decision, which we vacated after Donaldson. It is unclear how citizens of this state are to derive guidance from decisions of this court when we set forth inconsistent interpretations of the same pollution exclusion clause in cases only two years apart.

Other courts have recognized that Donaldson is applicable ’ when determining whether lea'd in paint is a "pollutant" under the pollution exclusion clause. See, e.g., Danbury Ins. Co. v. Novella, 727 A.2d 279, 281 (Conn. Super. Ct. 1998).

Without citation, the majority makes a statement to the effect that a substance which is a "pollutant" in one scenario must be a "pollutant" in every scenario, regardless of whether it is incorporated into another material. See majority op. at 130 n. 16. As I explained previously in the text and footnote 3, such a sweeping reading of the pollution exclusion clause is wholly contrary to our holding in Donaldson.

Moreover, it is unclear how the majority reconciles its "once a pollutant, always a pollutant" rule with its reliance earlier in its opinion on United States Fire Insurance Co. v. Ace Baking Co., 164 Wis. 2d 499, 476 N.W.2d 280 (Ct. App. 1991), and Vance v. Sukup, 207 Wis. 2d 578, 558 N.W.2d 683 (Ct. App. 1996), vacated, 211 Wis. 2d 529, 568 N.W.2d 297 (1997). The majority points out that in Ace Baking, the court of appeals noted that the chemical linalool was a "valued ingredient for some uses" even though it was a "pollutant" in the particular factual setting of the case. Majority op. at 128 (quoting Ace Baking, 164 Wis. 2d at 505). The majority quotes the Ace Baking court as stating that "it is a rare substance indeed that is always a pollutant; the most noxious of materials have their appropriate and non-polluting uses." Majority op. at 128 (quoting Ace Baking, 164 Wis. 2d at 505). The majority also quotes the following passage from Vance: "As we noted in Ace Baking, a substance's status as either a valued ingredient or a contaminant depends on where it is. . . ." Majority op. at 129 (quoting Vance, 207 Wis. 2d at 583-84).

See, e.g., St. Leger v. American Fire and Casualty Insurance Co., 870 F. Supp. 641, 643 (E.D. Pa. 1994); Shalimar Contractors, Inc. v. American States Ins. Co., 975 F. Supp. 1450, 1457 (M.D. Ala. 1997); Auto-Owners Ins. Co. v. Hanson, 588 N.W.2d 777, 779 (Minn. Ct. App. 1999); Oates, 597 N.Y.S.2d at 554.

Several state supreme courts have'held that lead in paint does not fit unambiguously within the definition of "pollutant" in the pollution exclusion clause. See, e.g., Atlantic Mutual Ins. Co. v. McFadden, 595 N.E.2d 762, 764 (Mass. 1992); Sullins v. Allstate Ins. Co., 667 A.2d 617, 620 (Md. 1995); Weaver v. Royal Ins. Co. of Am., 674 A.2d 975, 977-78 (N.H. 1996).

Other courts agree. See, e.g., Sphere Drake Ins. Co. v. Y.L. Realty Co., 990 F.Supp. 240, 244-45 (S.D.N.Y. 1997); Danbury Ins. Co., 727 A.2d at 283; Insurance Co. of Ill. v. Stringfield, 685 N.E.2d 980, 984 (Ill. App. Ct. 1997); Generali-U.S. Branch v. Caribe Realty Corp., 612 N.Y.S.2d 296, 299 (N.Y. Sup. Ct. 1994).

Significantly, our court of appeals is among these courts:

The history of the CGL pollution exclusion clause shows that the insurance industry was concerned about liability if faced from environmental accidents such as oil spills and under federal environmental legislation. Nowhere in his history is there any suggestion that the pollution exclusion clause was intended to exclude more than coverage for liability for environmental damage.

Beahm v. Pautsch, 180 Wis. 2d 574, 584, 510 N.W.2d 702 (Ct. App. 1993).

In Donaldson, we explained the purpose of the rule that ambiguous language in insurance policies is construed against the insurer: "The principle underlying the doctrine is straightforward. As the drafter of the insurance policy, an insurer has the opportunity to employ expressive exactitude in order to avoid a misunderstanding of the policy's terms." Donaldson, 211 Wis. 2d at 230. The number of cases on the subject (see footnotes 7 and 8) provided Northwestern with ample notice that lead in paint might not be unambiguously included in its pollution . exclusion clause. If Northwestern had wished to avoid its duty to defend this case, it could have redrafted the clause.