City of Grosse Pointe Park v. Michigan Municipal Liability & Property Pool

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:

Opinion Clifford W. Taylor Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

FILED JULY 19, 2005

CITY OF GROSSE POINTE PARK,

Plaintiff-Appellee,

v No. 125630

MICHIGAN MUNICIPAL LIABILITY
AND PROPERTY POOL,

Defendant-Appellant.
_______________________________

BEFORE THE ENTIRE BENCH (except CORRIGAN, J.).

CAVANAGH, J.

Plaintiff city of Grosse Pointe Park had a practice of

discharging sewage into a nearby creek when its sewer

system became overtaxed during, for example, heavy periods

of rain. As a result of these discharges, the residents

who lived near the creek filed a lawsuit against the city.

Defendant Michigan Municipal Liability and Property Pool

was the city’s insurer and provided a defense in the

lawsuit under a reservation of rights. Although the pool

covered other claims regarding sewage backups into homes

and businesses, the pool refused to cover claims regarding
the discharges into the creek on the basis of the insurance

policy’s pollution exclusion clause.

In this insurance coverage case, we must decide

whether the insurance policy’s pollution exclusion clause

is ambiguous and whether extrinsic evidence may be examined

in this particular case to aid in the construction of the

policy. We hold that this pollution exclusion clause is

not ambiguous; therefore, consideration of extrinsic

evidence as a construction aid is not appropriate.

Further, we conclude that the city’s discharges fell within

the scope of the pollution exclusion provision and, thus,

coverage was properly denied on this basis.

Because we conclude that the pollution exclusion

clause applies, we must also decide whether the pool is

nonetheless estopped from enforcing this clause because of

its practice of covering sewage backup claims or because of

the manner in which it provided a defense to the city. We

hold that under these facts, the pool is not estopped from

enforcing the pollution exclusion clause. The pool timely

reserved its rights under the policy, and the city was

aware of the reservation. While the city claims to have

suffered prejudice as a result of its reliance on a belief

that the underlying lawsuit would be covered, this belief

was not justifiable under the facts presented in this case.

2

Accordingly, the decision of the Court of Appeals is

reversed, and we remand this case to the trial court for

entry of an order of summary disposition in favor of the

pool.

I. Facts and Proceedings

In 1938, plaintiff city of Grosse Pointe Park entered

into a contract with the city of Detroit to use Detroit’s

sewer system. Under the terms of the contract, Grosse

Pointe Park acquired the right to pump the contents of its

sewer line into an interceptor sewer for transport to

Detroit’s treatment plant. Further, Grosse Pointe Park was

permitted under the contract to build a pump station and a

discharge pipe. If Grosse Pointe Park’s sewer flow

exceeded eighty-four cubic feet a second and its line

became overtaxed, the discharge pipe would allow Grosse

Pointe Park to discharge the overflow into Fox Creek. Fox

Creek is a tributary located in Detroit, but rests close to

the Detroit-Grosse Pointe Park border.

At the time, Grosse Pointe Park had what is known as a

combined sewer system, whereby sewage and rainwater are

transported to a treatment plant in a single sewer line.

If, for example, there was a heavy rainfall and the

capacity of the sewer system became strained, both sewage

and rainwater would flow into the basements of buildings

3

connected to the city’s sewer line. To relieve the

overflow and prevent basement backups, the city would pump

sewage and rainwater into Fox Creek. Beginning in about

1940, the city began discharging overflow from the combined

sewer system into Fox Creek. Soon after the first

discharges, residents near Fox Creek began to complain of

this practice. Nonetheless, this practice continued until

1995, roughly fifty-five years.1

Defendant Michigan Municipal Liability and Property

Pool is a group self-insurance pool created by certain

local governments. See MCL 124.5. Every year, beginning

in 1985 and running through 1998, Grosse Pointe Park

purchased one-year, occurrence-based liability policies

from the pool. Each policy period ran from August 1 to

July 31. While these policies were in effect, Grosse

Pointe Park residents made numerous claims against the city

for sewage backups into their homes and businesses, and the

pool covered these claims. At issue in this case is the

policy issued on August 1, 1994, and effective through July

31, 1995.

1
Grosse Pointe Park now uses a separated sewer system,
whereby sewage and rainwater are collected and transported
in separate sewer lines. Further, the city has blocked the
discharge pipe leading into Fox Creek.

4

 Underlying this case is a class action filed in Wayne

Circuit Court against the city by residents who lived near

Fox Creek, Etheridge v Grosse Pointe Park (Docket No. 95-

527115NZ).2 The Etheridge complaint was filed on September

14, 1995, and the plaintiffs alleged that their homes were

flooded by the city’s discharge of sewer overflow into Fox

Creek on July 24, 1995. Because of this discharge, as well

as the city’s long-term practice of discharging into Fox

Creek, the plaintiff class alleged claims for trespass,

nuisance, trespass/nuisance, gross negligence, and a

taking; also alleged were third-party beneficiary claims

arising under the contracts between Grosse Pointe Park and

Detroit. Grosse Pointe Park submitted the Etheridge

complaint to the pool for defense and indemnification

coverage.

On October 6, 1995, the pool sent a letter to the

city, indicating that it would provide the city a defense,

but that it was reserving its rights under the policy. The

letter provided, in pertinent part:

Our review of the [Etheridge] Complaint
reveals that if judgment or damages are awarded
based on certain allegations, the judgments based
on those allegations may not be covered by the

2
The Etheridge complaint also named the city of
Detroit as a defendant.

5

 coverage contract. The purpose of this letter is
to point out the allegations and exposures that
may not be covered, and to formally advise you
that we will defend the entire action, with your
cooperation, but will not pay any damages not
covered by our contract. In legal terms, we are
reserving our rights to restrict payments to
those owed under the coverage contract.

* * *

Please be advised that if there is any
judgment against the City of Grosse Pointe Park
for eminent domain, a discharge of any
pollutants, or an intentional act, the Michigan
Municipal Liability & Property Pool reserves the
right not to indemnify Grosse Pointe Park for
said damages.

After noting the allegations and exposures, among

other things, the pool’s letter referred the city to

section V of the insurance policy and specifically quoted

the following language from that section—the pollution

exclusion clause:

In addition to the specific exclusions in
SECTION I–COVERAGES A–BODILY INJURY AND PROPERTY
DAMAGE LIABILITY, B–PERSONAL AND ADVERTISING
INJURY LIABILITY, C–MEDICAL PAYMENTS, D–PUBLIC
OFFICIALS ERRORS AND OMISSIONS, AND E–AUTO, this
coverage does not apply to:

d. bodily Injury or Property Damage arising
out of the actual, alleged or threatened
discharge, dispersal, seepage, migration, release
or escape of pollutants:

(1) At or form [sic] any premises, site or
location which is or was at any time owned or
occupied by, or rented or loaned to, any Member;

(2) At or from any premises, site or
location which is or was at any time used by or
fro [sic] any Member or others for the handling,

6

 storage, disposal, processing or treatment of
waste;

(3) Which are or were at any time
transported, handled, stored, treated, disposed
of, or processed as waste by or fro [sic] may
[sic] Member or any person or organization for
whom you may be legally responsible, or

(4) At or from any premises, site or
location on which any Member or any contractors
or subcontractors working directly or indirectly
on any Member's behalf are performing operations:

(a) if the pollutants are brought on or to
the premises, site or location in connection with
such operations by such Member contractor or
subcontractor; or

(b) if the operations are to test for,
monitor, clean up, remove, contain, treat,
detoxify or neutralize, or in any way respond to,
or assess the effects of pollutants.

* * *

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.

The pool received all the pleadings and participated

in the Etheridge litigation by attending meetings,

hearings, and facilitation. Notably, the pool also

continued to cover basement backup claims during the

Etheridge lawsuit. Settlement was ultimately reached in

the Etheridge lawsuit, whereby Grosse Pointe Park and

Detroit would each pay the plaintiffs $1.9 million and take

the necessary action to stop the discharges into Fox Creek.

7

The pool then notified Grosse Pointe Park that

indemnification coverage would be denied. Nonetheless,

Grosse Pointe Park finalized the Etheridge settlement and

filed this declaratory judgment action.3 Both parties moved

for summary disposition, and the trial court concluded that

the pool was equitably estopped from invoking the pollution

exclusion clause to deny coverage because the pool had

previously paid basement backup claims without incident.4

Thus, the trial court granted the city’s motions for

summary disposition and ordered the pool to indemnify the

city for the amount of the Etheridge settlement. The pool

appealed this decision.

In a two-to-one decision, the Court of Appeals

reversed the trial court’s determination that the pool was

estopped as a matter of law from denying coverage,

reasoning that a question of fact existed on this issue.

3
In count I, the city alleged that the pool breached
the insurance contract by failing to provide coverage in
the Etheridge lawsuit. Count II alleged that the pool
breached its duty to timely investigate, decide whether the
claims were covered, and timely communicate its decision to
deny coverage. In counts III through V, the city alleged
alternative theories seeking equitable relief. And count
VI alleged a violation of the Michigan Consumer Protection
Act.
4
The trial court also dismissed counts II and VI of
the complaint and dismissed counts III through V as moot in
light of the relief granted under count I.

8

Unpublished opinion per curiam of the Court of Appeals,

issued October 30, 2003 (Docket No. 228347). Moreover, the

Court of Appeals majority concluded, among other things,

that the city presented a question of fact regarding the

parties’ intent concerning the application and meaning of

the pollution exclusion clause. Because of the pool’s

practice of paying basement backup claims without invoking

the pollution exclusion clause, the Court of Appeals held

that extrinsic evidence regarding such payments may reveal

an ambiguity in the insurance policy, relying on Michigan

Millers Mut Ins Co v Bronson Plating Co, 197 Mich App 482;

496 NW2d 373 (1992), aff’d 445 Mich 558 (1994), overruled

on other grounds in Wilkie v Auto-Owners Ins Co, 469 Mich

41 (2003). Judge O’Connell dissenting in part, asserted

that because the policy was unambiguous and the pool

reserved its rights under the policy, (1) consideration of

extrinsic evidence was unwarranted, and (2) equitable

estoppel did not apply.

This Court granted the pool’s application for leave to

appeal, limited to the issues whether: (1) sewage is a

“pollutant” under the applicable insurance policy's

pollution exclusion clause; (2) extrinsic evidence may be

used to establish an ambiguity in this pollution exclusion

9

clause; and (3) the pool may be estopped from asserting the

pollution exclusion clause.5

II. Analysis

We review decisions on motions for summary

dispositions de novo. American Federation of State, Co &

Muni Employees v Detroit, 468 Mich 388, 398; 662 NW2d 695

(2003). Similarly, the proper interpretation and

application of an insurance policy is a question of law

that we review de novo. Cohen v Auto Club Ins Ass’n, 463

Mich 525, 528; 620 NW2d 840 (2001).

A. Extrinsic Evidence and the Pollution Exclusion Clause

The Court of Appeals observed that although an

insurance policy is enforced according to its terms, the

contracting parties’ intent controls. Further, the Court

of Appeals reasoned that because the city had presented

evidence that the pool repeatedly paid basement backup

5
471 Mich 915 (2004). After granting leave to appeal
and before this Court heard oral arguments in this case, we
granted the pool’s motion for immediate consideration but
denied its motion to strike the city’s brief on appeal.
Unpublished order of the Supreme Court, entered March 4,
2005 (Docket No. 125630). In response to the pool’s
motions, the city filed a brief in opposition to the
motions, a motion for immediate consideration, and a motion
to supplement the record on appeal. We did not rule on the
city’s motions before entertaining oral arguments. Thus,
we take this opportunity to grant the city’s motion for
immediate consideration, but deny its motion to supplement
the record on appeal.

10

claims, a question of fact existed with respect to the

parties’ intent regarding the applicability of the

pollution exclusion clause. Relying on Michigan Millers,

supra,6 the Court of Appeals concluded that the insurance

policy was not “so unambiguous that no extrinsic evidence

6
In Michigan Millers, the defendant insured submitted
discovery requests to the plaintiff and other insurers,
desiring information on the plaintiff’s handling of certain
types of insurance claims. The insurers denied the
requests. The trial court agreed that the information
sought was irrelevant and assessed sanctions on the
defendant. On appeal, the defendant claimed that how the
insurers handled past claims was relevant to show whether
the term “suit,” as used in the contract, was ambiguous.
Stated differently, the defendant argued that extrinsic
evidence would tend to show that the insurers’ construction
of “suit” was wrong, or at least ambiguous. The plaintiff
asserted that the requested information was irrelevant
because: (1) if the term is unambiguous, extrinsic evidence
is not admissible to contradict the insurance policy; or
(2) if the term is ambiguous, the term is construed against
the insurers and in favor of the defendant. The Court of
Appeals agreed with the defendant.

The Court of Appeals noted that the plaintiff’s
rationale ignored “a third principle of evidence.
Extrinsic evidence is admissible to show the existence of
an ambiguity.” Michigan Millers, supra at 495 (emphasis in
original). Accordingly, the Court of Appeals found that
the information the defendant sought was relevant to show
the insurers’ prior interpretations of the term “suit.”
Thus, the Court of Appeals vacated the trial court’s order
assessing sanctions. However, the Court of Appeals noted
that the purpose for which the defendant wanted the
information was rendered moot because the Court of Appeals
actually interpreted the term “suit” and concluded that a
“suit” had been brought.

11

of the parties’ intent can be considered.” Slip op at 7

n 9. We disagree with the Court of Appeals rationale.

“An insurance policy is much the same as any other

contract.” Auto-Owners Ins Co v Churchman, 440 Mich 560,

566; 489 NW2d 431 (1992). “The cardinal rule in the

interpretation of contracts is to ascertain the intention

of the parties. To this rule all others are subordinate.”

McIntosh v Groomes, 227 Mich 215, 218; 198 NW 954 (1924).

In light of this cardinal rule, and to effectuate the

principle of freedom of contract, this Court has generally

observed that “[i]f the language of the contract is clear

and unambiguous, it is to be construed according to its

plain sense and meaning; but if it is ambiguous, testimony

may be taken to explain the ambiguity.” New Amsterdam Cas

Co v Sokolowski, 374 Mich 340, 342; 132 NW2d 66 (1965); see

also Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 111;

595 NW2d 832 (1999). “However, we will not create

ambiguity where the terms of the contract are clear.” Id.

In light of these principles, we note that

consideration of extrinsic evidence generally depends on

some finding of contractual ambiguity. Ambiguity in

written contracts can fairly be said to consist of two

types: patent and latent. A patent ambiguity is one “that

clearly appears on the face of a document, arising from the

12

language itself.” Black’s Law Dictionary (7th ed). See

also Hall v Equitable Life Assurance Society, 295 Mich 404,

409; 295 NW 204 (1940). Accordingly, resort to extrinsic

evidence is unnecessary to detect a patent ambiguity. A

latent ambiguity, however, is one “that does not readily

appear in the language of a document, but instead arises

from a collateral matter when the document’s terms are

applied or executed.” Black’s Law Dictionary (7th ed).

Because “the detection of a latent ambiguity requires a

consideration of factors outside the instrument itself,

extrinsic evidence is obviously admissible to prove the

existence of the ambiguity, as well as to resolve any

ambiguity proven to exist.” McCarty v Mercury Metalcraft

Co, 372 Mich 567, 575; 127 NW2d 340 (1964). In other

words, “where a latent ambiguity exists in a contract,

extrinsic evidence is admissible to indicate the actual

intent of the parties as an aid to the construction of the

contract.” Id. Thus, the question becomes whether an

ambiguity exists in this insurance policy’s pollution

exclusion clause.

This insurance policy provides that coverage is

excluded when bodily injury or property damage results from

“the actual, alleged or threatened discharge, dispersal,

seepage, migration, release or escape of pollutants.” The

13

policy further defines “pollutants” as “any solid, liquid,

gaseous or thermal irritant or contaminant, including

smoke, vapor, soot, fumes, acids, alkalis, chemicals and

waste.” The insurance policy, however, does not

specifically define “waste.” Where a term is not defined

in the policy, it is accorded its commonly understood

meaning. Allstate Ins Co v McCarn, 466 Mich 277, 280; 645

NW2d 20 (2002) (McCarn I). “Waste” is commonly understood

to include sewage.7 In other words, “waste” is commonly

understood to include urine and feces, bathwater and

dishwater, toilet paper, feminine napkins and tampons,

condoms, and the countless other substances typically

introduced into a sewer system.

We believe that the term “waste” in this policy is not

patently ambiguous and the text of the policy fairly admits

of but one interpretation.8 We must observe, however, that

7
See, e.g., American Heritage Dictionary (2d college
ed, 1982) (defining “waste” to include “[a] useless or
worthless by-product . . . [g]arbage; trash . . . [t]he
undigested residue of food eliminated from the body”).
8
See, e.g., Raska v Farm Bureau Mut Ins Co of
Michigan, 412 Mich 355, 362; 314 NW2d 440 (1982) (“Yet if a
contract, however inartfully worded or clumsily arranged,
fairly admits of but one interpretation it may not be said
to be ambiguous or, indeed, fatally unclear.”). See also
Bianchi v Automobile Club of Michigan, 437 Mich 65, 70-73;
(continued…)

14

we do not make this determination lightly. Again, the

cardinal rule in the interpretation of contracts is to

ascertain and give effect to the parties’ intentions.

McIntosh, supra at 218. We are also mindful of Professor

Corbin’s warning that when judges attempt to enforce a

contract according to their own understanding of what is

plain and clear, these judges run the risk of substituting

their own judgment for the intent of the parties and, thus,

making a contract for the parties that was never intended.

See Stark v Budwarker, Inc, 25 Mich App 305, 314; 181 NW2d

298 (1970).9 Indeed, such a result would actually undermine

(…continued)

467 NW2d 17 (1991); Auto Club Ins Ass’n v DeLaGarza, 433

Mich 208, 213; 444 NW2d 803 (1989).

9
Professor Corbin observes:

On reading the words of a contract, a judge
may jump to the instant and confident opinion
that these words have but one reasonable meaning.
A greater familiarity with dictionaries and the
usages of words, a better understanding of the
uncertainties of languages, and a comparative
study of more cases in the field of
interpretation, will make one beware of holding
such an opinion. A judge who believes that
contract terms can have a single, reasonable
meaning that is apparent without reference to
extrinsic evidence of the parties’ intentions
“retires into that lawyer’s Paradise where all
words have a fixed, precisely ascertained
meaning; where [people] may express their
purposes, not only with accuracy, but with
(continued…)

15

the freedom of contract principle. Nonetheless, we

conclude that this pollution exclusion clause is not

patently ambiguous because an ambiguity does not readily

appear in the text of the policy. Again, courts are not

permitted to “create ambiguity where the terms of the

contract are clear.” Masters, supra at 111. Therefore, we

will apply this pollution exclusion clause as written

unless we determine that a latent ambiguity arises from a

matter outside of the text of the policy.

We initially observe that it is well-established that

“[i]n construing [contractual provisions] due regard must

be had to the purpose sought to be accomplished by the

parties as indicated by the language used, read in the

light of the attendant facts and circumstances. Such

intent when ascertained must, if possible, be given effect

and must prevail as against the literal meaning of

(…continued)
fulness [sic]; and where, if the writer has been
careful, a lawyer . . . may sit in [a] chair,
inspect the text, and answer all questions
. . . .” Such a belief is unrealistic, for “the
fatal necessity of looking outside the text in
order to identify persons and things, tends
steadily to destroy such illusions and to reveal
the essential imperfection of language, whether
spoken or written.” [5 Corbin, Contracts,
§ 24.7, pp 32-33 (rev ed, 1998) (internal
citations omitted).]

16

expressions used in the agreement.” W O Barnes Co, Inc v

Folsinski, 337 Mich 370, 376-377; 60 NW2d 302 (1953).

Further, attendant facts and circumstances explain the

context in which the words were used and may reveal the

meaning the parties intended. Sobczak v Kotwicki, 347 Mich

242, 249; 79 NW2d 471 (1956).10 In this respect, the

detection of a latent ambiguity unquestionably requires

consideration of factors outside the policy itself.

McCarty, supra at 575. Therefore, extrinsic evidence is

admissible to prove the existence of the ambiguity, and, if

a latent ambiguity is proven to exist, extrinsic evidence

may then be used as an aid in the construction of the

contract. Id.; see also Goodwin, Inc v Orson E Coe

Pontiac, Inc, 392 Mich 195, 209-210; 220 NW2d 664 (1974).

In light of the attendant facts and circumstances of this

case, we conclude that a latent ambiguity does not exist.

10
See also 5 Corbin, Contracts § 24.7, p 31 (rev ed,
1998) (“It is therefore invariably necessary, before a
court can give any meaning to the words of a contract and
can select a single meaning rather than other possible ones
as the basis for the determination of rights and other
legal effects, that extrinsic evidence be admitted to make
the court aware of the ‘surrounding circumstances,’
including the persons, objects, and events to which the
words can be applied and which caused the words to be
used.” [internal citations omitted]); see also 2
Restatement Contracts, 2d, §§ 200-203.

17

 We are unpersuaded by Grosse Pointe Park’s arguments

that the pool’s practice of covering basement backup claims

somehow shows that this pollution exclusion clause is

ambiguous. The pool’s practice of paying backup claims

does not render the clause susceptible to two reasonable,

yet mutually exclusive, interpretations. Indeed, the

pool’s practice does not change our conclusions that the

parties intended for coverage to be excluded when property

damage results from the actual discharge of pollutants,

that pollutants include waste, and that the term “waste”

include urine and feces, bathwater and dishwater, toilet

paper, feminine napkins and tampons, condoms, and the

countless other substances typically introduced into a

sewer system. Indeed, a latent ambiguity does not exist

under this policy because when we consider how the clause

applies or has been applied, it cannot be said that the

clause was intended to have a different meaning than that

reflected in the text of the policy. Accordingly, after

considering factors outside the four corners of this

policy, we cannot detect any latent ambiguities.11 In other

11
We disagree with Justice Young’s proposal to adopt a
clear and convincing standard with respect to proving the
existence of a latent ambiguity. In support of this
standard, Justice Young relies on a broad reading of
Quality Products & Concepts Co v Nagel Precision, Inc, 469
(continued…)

18

words, the extrinsic evidence introduced by Grosse Pointe

Park does not prove the existence of a latent ambiguity.

Thus, it is unnecessary to examine outside factors as an

aid in construing this policy.

(…continued)
Mich 362; 666 NW2d 251 (2003). However, Nagel was
concerned with the circumstances under which a contract can
be waived or modified. Accordingly, where a party alleges
waiver or modification, that party is alleging that both
contracting parties mutually assented to alter or amend the
existing contract. Therefore, a clear and convincing
standard in this context makes sense. This standard,
however, does not necessarily make sense where a party
alleges the existence of a latent ambiguity.

When a party alleges the existence of a latent
ambiguity, that party, contrary to Justice Young’s
implications, is not attempting to alter or amend the
bargain struck. Rather, the party argues that application
of the contract’s terms would be inconsistent with the
parties’ intent. Thus, the party alleging the existence of
a latent ambiguity is arguing that the parties’ intent
should be effectuated-the cardinal rule of contract
interpretation. However, the party alleging the existence
of a latent ambiguity is not arguing that the contract was
altered or amended.

Accordingly, Nagel is distinguishable and we believe
that Justice Young’s broad reading of that decision to
support his view cannot withstand scrutiny. Further, the
other decisions Justice Young uses to support his rationale
are distinguishable as well. In our view, none of these
cases supports his preference to impose a clear and
convincing standard on a party arguing the existence of a
latent ambiguity. While Justice Young may be inclined to
broadly extend “common theme[s],” without more we must
decline in this instance to adopt Justice Young’s
preference to impose a clear and convincing standard on
contracting parties.

19

 In sum, we conclude that this pollution exclusion

clause is not patently ambiguous. Further, review of

extrinsic evidence neither leads to the detection nor

proves the existence of a latent ambiguity. Thus, because

an ambiguity does not exist, extrinsic evidence is

inadmissible as an aid in the construction of this policy.

Accordingly, we hold that the Court of Appeals erred when

it concluded that the insurance policy was not “so

unambiguous” and, thus, extrinsic evidence was generally

admissible.

Because we believe that this policy’s pollution

exclusion clause is unambiguous, we will enforce it

according to its terms and consistent with the parties’

intent. When we accord “waste” the meaning intended by the

parties, as well as its commonly understood meaning, we

have little difficulty concluding that the city discharged

“pollutants” into Fox Creek. Thus, we hold that the city’s

discharges fell under the purview of this insurance

policy’s pollution exclusion clause.

B. Estoppel

Having concluded that the discharges fall under the

pollution exclusion clause, we must next decide whether the

pool is nonetheless estopped from enforcing the clause.

“The principle of estoppel is an equitable defense that

20

prevents one party to a contract from enforcing a specific

provision contained in the contract.” Morales v Auto-

Owners Ins Co, 458 Mich 288, 295; 582 NW2d 776 (1998). For

equitable estoppel to apply, the city must establish that

(1) the pool’s acts or representations induced the city to

believe that the pollution exclusion clause would not be

enforced and that coverage would be provided, (2) the city

justifiably relied on this belief, and (3) the city was

prejudiced as a result of its reliance on its belief that

the clause would not be enforced and coverage would be

provided. See, e.g., Morales, supra at 296-297.

The city maintains that the pool should be estopped

from enforcing the pollution exclusion clause because of

the pool’s practice of covering basement backup claims

before, during, and after the underlying litigation in this

case, without ever invoking the pollution exclusion clause.

According to the city, the pool’s failure to enforce this

clause, as well as the manner in which the pool conducted

the defense, led the city to believe that the underlying

litigation would be covered. The city maintains that were

it not for this belief, it would have conducted discovery

and settlement negotiations differently. Thus, the city

contends that it was prejudiced by its reliance on its

21

belief that coverage would be provided in the underlying

suit.

The Court of Appeals, in part, remanded this matter to

the trial court for consideration of this issue, concluding

that a question of fact remained whether the pool should be

estopped from asserting the pollution exclusion clause. We

disagree. Under the facts of this case, a reasonable trier

of fact could not conclude that the city satisfied its

burden.

In this case, it cannot be said that the city’s

reliance on the pool’s actions or representations was

justified. At the beginning of the underlying litigation,

the pool notified the city that it would provide a defense

in the underlying litigation, “but will not pay any damages

not covered by our contract. In legal terms, we are

reserving our rights to restrict payments to those owed

under the coverage contract.” The pool timely notified the

city that if any judgment was entered against the city for

the discharge of pollutants into Fox Creek, the pool was

reserving the right to not indemnify, specifically quoting

the pollution exclusion clause. We find the pool’s

reservation of rights particularly damaging to the city’s

estoppel theory.

22

 “[W]hen an insurance company undertakes the defense of

its insured, it has a duty to give reasonable notice to the

insured that it is proceeding under a reservation of

rights, or the insurance company will be estopped from

denying its liability.” Kirschner v Process Design Assoc,

Inc, 459 Mich 587, 593; 592 NW2d 707 (1999). Here, the

pool duly reserved its rights, and the city was aware of

the reservation. Accordingly, the city was on notice that

the pool might not indemnify it. Moreover, by the city’s

own account, the pool had never before reserved its right

to contest coverage under the auspices of the pollution

exclusion clause. Yet the city claims that it was

justified in believing that the pool would indemnify it.

We believe, however, that these facts, when viewed in the

light most favorable to the city, weigh against a finding

of estoppel.

The city was clearly on notice that the pool might not

provide coverage under the pollution exclusion clause.

While the city was aware that the pool had never sought to

enforce the pollution exclusion clause before the

underlying litigation, this Court had not been presented

with any evidence that the pool reserved its rights on the

basis of the pollution exclusion clause with regard to any

other claim. Because the pool timely notified the city at

23

the start of the underlying litigation that it was

reserving its rights, the pool specifically invoked the

pollution exclusion clause, the pool had done neither

before, and, arguably, the nature of the discharges

differed from the nature of the basement backups, we fail

to see how the city was justified in believing that

indemnification would be provided in this particular case.12

12
We disagree with Justice Young’s expansive reading
of Kirschner, supra. Relying on that decision, Justice
Young posits that even if Grosse Pointe Park could prove
all the elements for the application of estoppel, the city
will still be unprotected because estoppel can never be
applied to extend coverage, period. In our view, Justice
Young misreads Kirschner. Kirschner does not set forth the
inflexible rule that Justice Young prefers. Indeed,
Justice Weaver’s Kirschner opinion was careful to avoid
making sweeping generalizations or extending Ruddock v
Detroit Life Ins Co, 209 Mich 638; 177 NW 242 (1920),
beyond its intended bounds. Further, Kirschner, supra at
594-595, prudently observed that in some instances, courts
have applied the doctrine of estoppel to bring within
coverage risks not covered by the policy. Kirschner then
provided a few examples–examples that we believe are not
exhaustive nor could reasonably be inferred to be
exhaustive. Justice Young further laments that we do not
give credence to the “prominent language” from Kirschner
that emphasizes that “[t]he application of . . . estoppel
is limited . . . .” Post at 21 n 35, quoting Kirschner,
supra at 593-594. We respectfully disagree. Rather, we
believe that our evenhanded reading of Kirschner considers
all of the opinion’s “prominent language.” For example,
this Court observed that the “application of waiver and
estoppel is limited, and, usually, the doctrines will not
be applied to broaden the coverage of a policy . . . .”
Kirschner, supra at 594 (emphasis added).
(continued…)

24

 In sum, we find the city’s position untenable. No

reasonable trier of fact could conclude that the city was

justified in believing that indemnification was certainly

going to be provided in this case when the pool reasonably

notified the city to the contrary. Because we find that

the city’s reliance was unjustified, the estoppel claim

fails and it is unnecessary for us to consider whether the

city was prejudiced by its reliance. Moreover, we believe

that the manner in which the pool provided a defense in

this particular case was not inconsistent with the

reservation of rights or the pool’s practice of paying

basement backup claims. Thus, the pool is not estopped

from enforcing the pollution exclusion clause, and the

trial court erred in concluding otherwise.13

(…continued)

In any event, because Grosse Pointe Park’s estoppel
claim fails and the discharges fall under the purview of
the pollution exclusion clause-as Justice Young likewise
concludes-it is unnecessary to determine whether estoppel
could be used to bring the discharges within coverage. In
other words, because Grosse Pointe Park’s estoppel claim
fails, it is unnecessary to adopt Justice Young’s preferred
rule, decide whether coverage in this case should be
expanded, or depart from this Court’s prior precedent.
13
In Kirschner, supra, I joined Justice KELLY’s
concurrence. I do not retreat from the view expressed in
that opinion. Our state would be well-served by a rule
that requires an insurer to timely notify the court, the
insured, and other parties that it is reserving its rights
(continued…)

25

 Accordingly, the decision of the Court of Appeals is

reversed and we remand this case to the trial court for

entry of an order of summary disposition in favor of the

pool. MCR 7.302(G)(1).

III. Conclusion

Under the facts of this case, we hold that the city’s

discharges fell within the purview of the pollution

exclusion clause. This pollution exclusion clause is not

ambiguous; therefore, consideration of extrinsic evidence

as aid in the construction of the policy is not

appropriate. Further, we hold that under these facts, the

pool is not estopped from enforcing the pollution exclusion

clause. Therefore, the decision of the Court of Appeals is

reversed and we remand this case to the trial court for

entry of an order of summary disposition in favor of the

pool.

Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly

(…continued)
under the policy. Further, a court should be empowered to
refuse to effectuate an untimely reservation of rights when
the court determines that the insured was prejudiced. In
this case, however, the pool timely reserved its rights and
the city was made aware of the reservation of rights.

26

 S T A T E O F M I C H I G A N

SUPREME COURT

CITY OF GROSSE POINTE PARK,

Plaintiff-Appellee,

v No. 125630

MICHIGAN MUNICIPAL LIABILITY
& PROPERTY POOL,

Defendant-Appellant.
_______________________________

BEFORE THE ENTIRE BENCH (except CORRIGAN, J.).

YOUNG, J.

Although this Court is equally divided on the

appropriate legal analysis, this Court is unanimous

regarding the proper result. All members of this Court

agree that the insurance policy at issue is not latently

ambiguous and that it must therefore be enforced as

written. According to the plain language of the policy’s

pollution exclusion clause, it is clear that sewage is a

“pollutant.” Moreover, this Court is in unanimous

agreement that equitable estoppel is not applicable.

Accordingly, all members of this Court agree that the

judgment of the Court of Appeals must be reversed and this

case remanded to the trial court for entry of an order
granting the Michigan Municipal Liability and Property

Pool’s motion for summary disposition.1

While all justices conclude that sewage is a

“pollutant” under the clear and unambiguous language of the

policy’s pollution exclusion clause, the justices joining

this opinion believe that principles of contract

enforcement require special proofs when a contracting party

seeks to vary the terms of a written agreement by alleging

latent ambiguity. Thus, while extrinsic evidence generally

may be introduced to demonstrate the existence of a latent

ambiguity, we conclude that a court must presume that the

contracting parties’ intent is manifested in the actual

language used in the contract itself unless the party

alleging the existence of the latent ambiguity rebuts this

presumption by proving with clear and convincing evidence

1
It is important to note that neither Justice
Cavanagh’s opinion nor ours has garnered a majority.
Therefore neither establishes binding precedent. As we
stated in People v Anderson, 389 Mich 155, 170; 205 NW2d
461 (1973), overruled in part on other grounds by People v
Hickman, 470 Mich 602 (2004),“The clear rule in Michigan is
that a majority of the Court must agree on a ground for
decision in order to make that binding precedent for future
cases. If there is merely a majority for a particular
result, then the parties to the case are bound by the
judgment but the case is not authority beyond the immediate
parties.”

2

that such an ambiguity does indeed exist. Here, we

conclude that the city of Grosse Pointe Park has not

presented clear and convincing evidence to demonstrate that

a latent ambiguity actually exits. We further conclude

that the Pool is not equitably estopped from denying

coverage because, under the well-established rule

articulated by this Court in Ruddock v Detroit Life Ins Co2

and reiterated in Kirschner v Process Design Assoc, Inc,3

estoppel will not be applied to expand coverage beyond the

particular risks covered by the actual insurance policy

itself.

I. FACTS & PROCEDURAL HISTORY

In 1938, Grosse Pointe Park and the city of Detroit

entered into an agreement under which Grosse Pointe Park

was permitted to discharge overflow sewage into Fox Creek,

a tributary near the Grosse Pointe Park-Detroit border.

Release of excess sewage into Fox Creek was necessary

because Grosse Pointe Park’s “combined” sewer system—a

single sewer line used to transport both sewage (e.g., from

toilets) and storm water runoff—would become overtaxed

during periods of heavy rainfall. If Grosse Pointe Park

2
209 Mich 638; 177 NW 242 (1920).

3
459 Mich 587; 592 NW2d 707 (1999).

3

did not use Fox Creek as a release valve during such

periods, sewage would back up into the basements of homes

and businesses. It is undisputed that from 1940 to 1995,

Grosse Pointe Park released overflow rainwater and sewage

into Fox Creek hundreds of times.4

Each year from 1985 to 1998, Grosse Pointe Park

purchased annual “occurrence-based” commercial general

liability policies from the Pool, a self-insurance pool

comprised of local governments.5 During this period, under

4
Grosse Pointe Park has built and now operates a
“separate” sewer system, which uses different lines for
sewage and rainwater runoff. As such, Grosse Pointe Park
no longer releases overflow sewage into Fox Creek.
5
Municipal insurance pools are statutorily authorized
under MCL 124.5, which provides:

(1) Notwithstanding any other provision of
law to the contrary, any 2 or more municipal
corporations, by intergovernmental contract,
may form a group self-insurance pool to
provide for joint or cooperative action
relative to their financial and
administrative resources for the purpose of
providing to the participating municipal
corporations risk management and coverage for
pool members and employees of pool members,
for acts or omissions arising out of the
scope of their employment, including any or
all of the following:

(a) Casualty insurance, including general
and professional liability coverage.

(continued…)

4

successive annual policies, the Pool paid numerous

insurance claims submitted by Grosse Pointe Park residents

for sewage backups that occurred in their basements. It

did so without issuing reservation of rights letters based

on the policies’ pollution exclusion clauses, unlike in the

present case. The particular insurance policy at issue

covers the period from August 1, 1994, to August 1, 1995.

The current dispute derives from an underlying class

action (the Etheridge litigation) brought by Grosse Pointe

Park residents against the city for discharges made into

Fox Creek in July 1995. In the Etheridge complaint, filed

on September 14, 1995, the class action plaintiffs sued

(…continued)
(b) Property insurance, including marine
insurance and inland navigation and
transportation insurance coverage.

(c) Automobile insurance, including motor
vehicle liability insurance coverage and
security for motor vehicles owned or
operated, as required by section 3101 of the
insurance code of 1956, 1956 PA 218, MCL
500.3101, and protection against other
liability and loss associated with the
ownership of motor vehicles.

(d) Surety and fidelity insurance
coverage.

(e) Umbrella and excess insurance
coverages.

5

Grosse Pointe Park under various trespass, nuisance, and

negligence theories for sewage backups that occurred in

their homes and businesses. In addition to basement backup

claims, the Etheridge plaintiffs also submitted insurance

claims for alleged damage caused to boats, docks, seawalls,

garages, lawns, shrubbery, and outdoor furniture resulting

from the city's release of sewage into Fox Creek.

On October 6, 1995, three weeks after the Etheridge

suit was filed, the Pool provided the city a defense under

a reservation of rights letter. In the letter, the Pool

specifically quoted the insurance policy’s pollution

exclusion clause and warned the city that it had not yet

determined whether it would cover any liability arising

from the Etheridge suit. The letter concluded by stating:

Please be advised that if there is any
judgment against the City of Grosse Pointe
Park for eminent domain, a discharge of any
pollutants, or an intentional act, the
Michigan Municipal Liability & Property Pool
reserves the right not to indemnify Grosse
Pointe Park for said damages. [Emphasis
added.]

The Pool subsequently assigned an outside adjusting

firm to monitor the Etheridge lawsuit. During the course

of the Etheridge litigation, the Pool’s adjuster received

copies of all pleadings and attended meetings with the

litigants. The Pool also paid in-house sewage backup

6

claims involving residences and businesses unrelated to the

Etheridge suit while the Etheridge litigation was

proceeding. After several facilitation sessions, in August

1997, the Etheridge plaintiffs agreed to settle with Grosse

Pointe Park for $1.9 million.6

Before the Etheridge settlement was finalized,

however, the Pool informed the city that the Pool's outside

counsel did not believe that the Pool was obligated to

indemnify the city given the policy’s pollution exclusion

clause. Subsequently, the Pool formally notified the city

that coverage would be denied. Nevertheless, the city

proceeded to approve the $1.9 million settlement with the

Etheridge plaintiffs a few months later.

The city then filed suit in the Wayne Circuit Court

seeking a declaratory judgment that the Pool was obligated

to indemnify the city for the Etheridge settlement. After

lengthy discovery, both the Pool and the city filed cross-

motions for summary disposition pursuant to MCR

2.116(C)(10). Ruling in favor of the city, the trial court

held that the Pool was equitably estopped from denying

coverage under the pollution exclusion clause because the

6
A similar settlement was reached with the city of
Detroit, which was also named as a defendant in the class
action, for $1.9 million.

7

Pool had paid prior backup claims made by Grosse Pointe

Park residents.7

In a two-to-one decision, the Court of Appeals

reversed the trial court’s holding that the Pool was

equitably estopped from invoking the pollution exclusion

clause.8 The Court of Appeals held that a question of fact

existed with regard to the estoppel claim and therefore

remanded the case to the trial court for further

proceedings. It also held that the Pool’s payment of prior

backup claims was “extrinsic evidence” of ambiguity in the

insurance policy and remanded the case to the trial court

to determine “the parties’ intent as to the exclusion’s

applicability . . . .” Judge O’Connell dissented, arguing

7
Ruling from the bench, Judge Amy P. Hathaway stated:

It’s clearly an issue of equity, which I’m
not sure is going to necessarily trump the
contract claim, at least in front of the
Court of Appeals. But in this case we have a
contract that was paid and paid and paid
again under this pollutant, this sewage, and
now there’s a reservation of rights issue.
I’ve got a big problem. To the point where
I’m going to deny the motion, the Defendant’s
motion, and grant the inapplicability of the
pollution exclusion based on estoppel.
8
Unpublished opinion per curiam of the Court of
Appeals, issued October 30, 2003 (Docket No. 228347).

8

that extrinsic evidence should not be considered because

the insurance policy was clear and unambiguous. He further

argued that equitable estoppel was not applicable because

the Pool timely provided the city a reservation of rights

letter. We granted the Pool’s application for leave to

appeal.9

II. STANDARD OF REVIEW

A motion for summary disposition under MCR

2.116(C)(10), which tests the factual support of a claim,

is reviewed by this Court de novo.10 Similarly, the

interpretation of an insurance policy is also a question of

law that is reviewed by this Court de novo.11

III. ANALYSIS

A. IS SEWAGE A “POLLUTANT” UNDER THE INSURANCE POLICY’S POLLUTION
EXCLUSION CLAUSE?

The insurance policy at issue provides:

Section V – General Exclusions

In addition to the specific exclusions in
SECTION I – COVERAGES A – BODILY INJURY AND
PROPERTY DAMAGE LIABILITY, B – PERSONAL AND

9
471 Mich 915 (2004).
10
Oade v Jackson Nat’l Life Ins Co, 465 Mich 244, 250-
251; 632 NW2d 126 (2001); Smith v Globe Life Ins Co, 460
Mich 446, 454; 597 NW2d 28 (1999).
11
Klapp v United Ins Group Agency, Inc, 468 Mich 459,
463; 663 NW2d 447 (2003); Archambo v Lawyers Title Ins
Corp, 466 Mich 402, 408; 646 NW2d 170 (2002).

9

 ADVERTISING INJURY LIABILITY, C – MEDICAL
PAYMENTS, D – PUBLIC OFFICIALS ERRORS AND
OMISSIONS, AND E – AUTO, this coverage also
does not apply to:

* * *

d. Bodily Injury or Property Damage
arising out of the actual, alleged or
threatened discharge, dispersal, seepage,
migration, release or escape of pollutants:

* * *

Pollutants means 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. [Emphasis added.]

As this Court has previously held, “The principles of

construction governing other contracts apply to insurance

policies.”12 As such, the foremost duty of a court in

construing an insurance policy is to determine the intent

of the contracting parties.13 In doing so, a court must

always begin with the actual language used by the parties

in the insurance policy itself.14 If the text of the

insurance policy is clear and unambiguous, the contract

12
Farm Bureau Mut Ins Co v Nikkel, 460 Mich 558, 566;
596 NW2d 915 (1999).
13
Quality Products & Concepts Co v Nagel Precision,
Inc, 469 Mich 362, 375; 666 NW2d 251 (2003); see also
Nikkel, supra at 566; Morley v Automobile Club of Michigan,
458 Mich 459, 465; 581 NW2d 237 (1998).
14
Quality Products, supra at 375.

10

must be enforced as written.15 “[A]n unambiguous

contractual provision is reflective of the parties’ intent

as a matter of law.”16

It is difficult to imagine an insurance policy that is

clearer or more explicit than the one found in the present

case. The pollution exclusion clause defines “pollutant”

as “any solid, liquid, gaseous or thermal irritant or

contaminant . . . .” The word “contaminant,” given its

plain and ordinary meaning,17 is “something that

contaminates,” and “contaminate” is defined as “to make

impure or unsuitable by contact or mixture with something

unclean, bad, etc.; pollute; taint . . . .”18 It is

undeniable that Fox Creek was “made impure” and “tainted”

by the sewage that the city released. The record indicates

that the sewage contained dirt, debris, garbage, condoms,

feminine hygiene products, urine, feces, dishwater, toilet

paper, cleaning fluids, and compounds containing E.coli.

15
Id.; Wilkie v Auto-Owners Ins Co, 469 Mich 41, 51;
664 NW2d 776 (2003); Nikkel, supra at 566.
16
Quality Products, supra at 375.
17
In Frankenmuth Mut Ins Co v Masters, 460 Mich 105,
112; 595 NW2d 832 (1999), this Court unanimously held that
courts are to “interpret [undefined] terms of an insurance
contract in accordance with their ‘commonly used meaning.’”
(Citations omitted.)
18
Random House Webster’s College Dictionary (1995).

11

Therefore, because these “solid” and “liquid” materials are

“contaminants,” the sewage the city released is necessarily

a “pollutant” under the plain terms of the insurance

policy.

This conclusion is bolstered by the fact that the

pollution exclusion clause also provides specific examples

of “pollutants,” such as “smoke, vapor, soot, fumes, acids,

alkalis, chemicals and waste.” Given the composition of

the sewage described above, it is clear that most, if not

all, of these specific examples of “pollutants” were found

in Fox Creek. We conclude, therefore, that the sewage

released by the city into Fox Creek is within the scope of

the policy’s pollution exclusion clause.

B. THE ROLE OF EXTRINSIC EVIDENCE IN ILLUMINATING A LATENT AMBIGUITY

The city argues that the word “pollutant” is latently

ambiguous and that extrinsic evidence must be introduced to

give the word the true meaning that the parties intended.

According to the city, the Pool’s payment of prior basement

backup claims demonstrates that the parties intended the

word “pollutant” to have a meaning different than the one

used in the insurance policy itself.

We find the city's argument unpersuasive. The

argument that the city is advancing is actually one of

equitable estoppel, not contract interpretation. The city

12

is attempting to rely on the Pool’s payment of similar

basement sewer backup claims as a way to require the Pool

to cover the present claim. Accordingly, the city's

argument sounds more in equity than in the law of

contracts. For the reasons discussed in part III(C) of

this opinion, we are unpersuaded by the city's equitable

estoppel argument. Nonetheless, to the extent that the

city argues that a latent ambiguity exits, we disagree.

There are generally two categories of ambiguity that

may arise in a contract: patent and latent.19 A patent

ambiguity is one that is “apparent upon the face of the

instrument, arising by reason of inconsistency, obscurity

or an inherent uncertainty of the language adopted, such

that the effect of the words in the connection used is

either to convey no definite meaning or a double one.”20 In

contrast, a latent ambiguity “‘arises not upon the words of

the will, deed, or other instrument, as looked at in

19
See 11 Williston, Contracts (4th ed), § 33:40, p
816.
20
Zilwaukee Twp v Saginaw-Bay City R Co, 213 Mich 61,
69; 181 NW 37 (1921); 11 Williston, Contracts (4th ed), §
33:40, p 816 (“Patent ambiguities are those that are
apparent on the face of the document . . . .”).

13

themselves, but upon those words when applied to the object

or to the subject which they describe.’”21

By asserting the existence of a latent ambiguity, the

city illustrates an inherent tension found in contract law.

On the one hand, it is well-settled law that when a

contract is clear and unambiguous on its face, a court will

not consult extrinsic evidence and will enforce the

contract as written.22 On the other hand, a party generally

is permitted to introduce extrinsic evidence to demonstrate

the existence of a latent ambiguity—one that is not

apparent on the face of the contract.23

21
Zilwaukee Twp, supra at 69 (citation omitted); 11
Williston, Contracts (4th ed), § 33:40, p 816 (“[L]atent
ambiguities are those which appear only as the result of
extrinsic or collateral evidence showing that a word,
thought to have but one meaning, actually has two or more
meanings.”).

The classic example of a latent ambiguity is found in
the traditional first-year law school case of Raffles v
Wichelhaus, 2 Hurl & C 906; 159 Eng Rep 375 (1864). In
Raffles, two parties contracted for a shipment of cotton
“to arrive ex Peerless” from Bombay. However, as it turned
out, there were two ships sailing from Bombay under the
name “Peerless.” Thus, even though the contract was
unambiguous on its face, there was a latent ambiguity
regarding the ship to which the contract referred.
22
Quality Products, supra at 375; Cruz v State Farm
Mut Automobile Ins Co, 466 Mich 588, 594; 648 NW2d 591
(2002); Nikkel, supra at 566; Morley, supra at 465.
23
Hall v Equitable Life Assurance Society of the
United States, 295 Mich 404, 408; 295 NW 204 (1940) (“It is
(continued…)

14

 In balancing these two seemingly conflicting

principles of contract law, a court must never cross the

point at which the written contract is altered under the

guise of contract interpretation.24 Indeed, it is during

litigation that a party’s motivations are the most suspect

and the party’s incentives the greatest to attempt to

achieve that which the party could not during the give-and-

take of the contract negotiation process. As this Court

stated in Nikkel, a "court may not read ambiguity into a

policy where none exists.”25 Therefore, in clarifying the

proper role of extrinsic evidence in illuminating a latent

ambiguity, it is helpful to turn to basic principles of

contract law.

As stated, the primary goal of contract interpretation

is to ascertain and effectuate the intent of the

contracting parties.26 The law presumes that the

(…continued)

a well-settled rule that extrinsic evidence is admissible

to show that a latent ambiguity exists.”).

24
Wilkie, supra at 51 (“This approach, where judges
. . . rewrite the contract . . . is contrary to the bedrock
principle of American contract law that parties are free to
contract as they see fit, and the courts are to enforce the
agreement as written . . . .”).
25
Nikkel, supra at 568.
26
Quality Products, supra at 375 (“In interpreting a
contract, our obligation is to determine the intent of the
(continued…)

15

contracting parties’ intent is embodied in the actual words

used in the contract itself.27 A rule to the contrary would

reward imprecision in the drafting of contracts. More

significant, it would create an incentive for an aggrieved

party to enlist the judiciary in an attempt to achieve a

benefit that the party itself was unable to secure in

negotiating the original contract—a proposition this Court

flatly rejected in Wilkie.28 These principles require that,

(…continued)
contracting parties.”); McIntosh v Groomes, 227 Mich 215,
218; 198 NW 954 (1924) (“The cardinal rule in the
interpretation of contracts is to ascertain the intention
of the parties. To this rule all others are subordinate.”);
Mills v Spencer, 3 Mich 127, 135 (1854) (“In the
construction of a contract, we are to look at the intention
of the parties.”); 17A CJS, Contracts, § 308, p 321 (“The
primary and overriding purpose of contract law is to
ascertain and give effect to the intentions of the parties
. . . .”); 17A Am Jur 2d, Contracts, § 345, p 332 (“[T]he
fundamental and cardinal rule in the construction or
interpretation of contracts is that the intention of the
parties is to be ascertained, and effect is to be given to
that intention . . . .”); 1 Restatement Contracts, 2d,
§201(1), p 83 (“Where the parties have attached the same
meaning to a promise or agreement or a term thereof, it is
interpreted in accordance with that meaning.”).
27
Michigan Chandelier Co v Morse, 297 Mich 41, 49; 297
NW 64 (1941)(“‘The law presumes that the parties understood
the import of their contract and that they had the
intention which its terms manifest.’” [citation omitted]);
see also United States ex rel Int'l Contracting Co v
Lamont, 155 US 303, 310; 15 S Ct 97; 39 L Ed 160 (1894);
17A Am Jur 2d, Contracts, § 348, p 336 (“[T]he parties are
presumed to have intended what the terms clearly state.”).
28
Wilkie, supra at 51.

16

when a party asserts that a latent ambiguity exists, a

court presume that the contracting parties’ intent is

manifested in the actual language used in the contract.

The party alleging the existence of the latent ambiguity

may rebut this presumption only by proving, through clear

and convincing evidence, that such an ambiguity does indeed

exist.

This Court emphasized these same bedrock principles of

contract law in Quality Products, which held that

contracting parties are free, with mutual assent, to modify

a contract notwithstanding a written anti-modification or

anti-waiver clause present in the original agreement.29 We

recognized that the anti-modification clause contained in

the written contract was presumptive of the parties’ intent

as a matter of law, but also that “the parties possess, and

never cease to possess, the freedom to contract even after

the original contract has been executed.”30 We held,

therefore, that contracting parties are always entitled

mutually to modify the underlying contract, but the party

29
Quality Products, supra at 372-373.

30
Id. at 372.

17

asserting that a modification has occurred must present

clear and convincing evidence to that effect.31

Although Quality Products involved contract

modification, not contract interpretation, the same core

principles of contract law apply in the present case. It

must be presumed that the city and the Pool intended the

actual language that they used in the insurance policy. We

conclude, therefore, that the city, in asserting the

existence of a latent ambiguity, bears the burden of

proving by clear and convincing evidence that such an

ambiguity actually exists.32

31
Id. at 373.
32
Justice Cavanagh asserts that we are relying on a
“broad reading” of Quality Products and that the principles
adopted by this Court in Quality Products should be limited
to cases involving contract modification or waiver and not
to cases when one party asserts the existence of a latent
ambiguity. Ante at 18 n 11. There is no principled basis
for the distinction Justice Cavanagh draws. In both cases—
a claimed contract modification/waiver and the claimed
existence of a latent ambiguity—a party to a contract is
asserting that the written terms of the contract should not
be enforced. This Court has gone to great lengths in the
past few terms to clarify the law so that contracts will be
enforced as written. See Wilkie v Auto Owners Ins Co, 469
Mich 41; 664 NW2d 776 (2003); Klapp v United Ins Group
Agency, Inc, 468 Mich 459; 663 NW2d 447 (2003). By
applying a clear and convincing standard of proof for
latent ambiguities, this Court would simply be adhering to
the common theme we articulated in Quality Products and all
our other recent contract cases: that contracts will be
(continued…)

18

 The city has failed to satisfy that burden of proof.

The reality is that none of the parties to this insurance

contract asserts that the term “pollutant” contained in the

exclusion clause means something different when city sewage

is discharged into Fox Creek or when it backs up into

individual Grosse Pointe Park residences. Indeed, the Pool

has conceded that the source of the pollution in both cases

is the same.33 Thus, the record reflects no evidence that

one party contends that “pollutant” means something

different from how that term is defined in the policy.

(…continued)

enforced as written unless substantial evidence to the

contrary is presented.

Justice Cavanagh also states that we do not cite
decisions other than Quality Products for the clear and
convincing rule discussed above. We are unaware of the
bedrock jurisprudential rule on which Justice Cavanagh
relies: that a legal principle duly adopted by this Court
is not binding unless there are other related cases with
the same holding. Quality Products is a binding decision
of this Court and the doctrinal underpinnings of that case
are applicable here. As such, it must be given due regard.
Nevertheless, as we indicate above, the clear and
convincing rule regarding latent ambiguities is not a new
concept, but an embodiment of the precise contract
principle to which this Court has steadfastly adhered in
our recent contract jurisprudence: that contracts will be
enforced as written unless compelling evidence to the
contrary is offered. See Schmalfeldt v North Pointe Ins
Co, 469 Mich 422, 428; 670 NW2d 651 (2003); Klapp, supra at
467; Wilkie, supra at 51-52, 62-63; Rednour v Hastings Mut
Ins Co, 468 Mich 241, 251; 661 NW2d 562 (2003); Nikkel,
supra at 566-568.
33
Pool reply brief at 4.

19

 That being the case, there is no “latent ambiguity”

requiring the introduction of extrinsic evidence to show

that “pollutant” means something other than how it is

defined in the contract. Rather, the city is attempting to

bootstrap its estoppel argument—that the Pool paid similar

claims involving pollutants so it is precluded from denying

indemnification on this claim—to manufacture a latent

ambiguity claim. Such a tactic violates basic contract

construction principles and should be rejected for that

reason.

C. EQUITABLE ESTOPPEL

The city argues that, even if sewage is a “pollutant”

under the policy’s pollution exclusion clause, the Pool

should nonetheless be equitably estopped from denying

coverage. It asserts that the Pool’s payment of prior

basement backup claims and the Pool’s involvement in

monitoring the Etheridge litigation led the city to believe

that the Pool would indemnify any eventual settlement that

was reached. According to the city, it would have altered

its strategy in the Etheridge litigation had it known that

the Pool would not cover the settlement and, therefore, it

was prejudiced by the Pool’s actions.

In general, “[t]he principle of estoppel is an

equitable defense that prevents one party to a contract

20

from enforcing a specific provision contained in the

contract.”34 Although equitable estoppel appears to be

broad in theory, the doctrine is rather limited in

practice. As then-Chief Justice Weaver stated in writing

for the Court in Kirschner, “The application of . . .

estoppel is limited, and, usually, the doctrine[] will not

be applied to broaden the coverage of a policy to protect

the insured against risks that were not included in the

policy or that were expressly excluded from the policy.”35

Indeed, the rule discussed in Kirschner is well

established in Michigan law. In Ruddock, the beneficiary

of a life insurance policy sought to estop the insurer from

invoking the policy’s “military service” exclusion clause

as a basis for denying payment. This Court expressly

rejected the beneficiary’s equitable estoppel argument,

holding that estoppel will not be applied to broaden

34
Morales v Auto-Owners Ins Co, 458 Mich 288, 295; 582
NW2d 776 (1998).
35
Kirschner, supra at 593-594 (emphasis added). While
Justice Cavanagh cites Kirschner for the proposition that
an insurer may be equitably estopped from denying coverage
if the insurer does not timely reserve its rights, Justice
Cavanagh omits the prominent language from Kirschner that
emphasizes that “[t]he application of . . . estoppel is
limited . . . ." Ante at 23.

21

coverage beyond the specific risks covered by the policy

itself. This Court stated:

To apply the doctrine of estoppel and
waiver here would make this contract of
insurance cover a loss it never covered by
its terms, to create a liability not created
by the contract and never assumed by the
defendant under the terms of the policy. In
other words, by invoking the doctrine of
estoppel and waiver it is sought to bring
into existence a contract not made by the
parties, to create a liability contrary to
the express provisions of the contract the
parties did make.[36]

By asking this Court to hold that the Pool is

equitably estopped from denying coverage for the Etheridge

settlement, the city is essentially requesting this Court

to ignore the policy’s pollution exclusion clause that the

Pool specifically invoked in its reservation of rights

letter. To do so, however, would be to alter fundamentally

the nature of the bargain struck between the city and the

Pool and to protect the city “against risks that were . . .

expressly excluded from the policy.”37 This Court

explicitly rejected this argument in Ruddock and Kirschner.

We do so again today. Equitable estoppel must not be

applied to expand coverage beyond the scope originally

36
Ruddock, supra at 654.

37
See Kirschner, supra at 594.

22

contemplated by the parties in the insurance policy as

written. A court must not bestow under the veil of equity

that which the aggrieved party itself failed to achieve in

negotiating the contract.38

Because we believe that Kirschner and Ruddock are

fatal to the city's estoppel claim, unlike Justice

Cavanagh, we would not apply the test articulated in

Morales. Nevertheless, to the extent that the city relies

on the principles in Morales, its reliance is misplaced.

In Morales, this Court applied a three-part test to

determine whether equitable estoppel should apply: (1) the

defendant's acts or representations induced the plaintiff’s

belief, (2) the plaintiff justifiably relied on its belief,

38
Justice Cavanagh states that we are giving Kirschner and
Ruddcok an “expansive reading” and setting forth an
“inflexible rule” regarding the application of estoppel.
Ante at 24 n 12. To the contrary, we are merely applying
the well-established rule this Court adopted in Ruddock and
reiterated in Kirschner that estoppel will not be applied
to give the insured a benefit that was never negotiated in
the first place. Ruddock, supra at 654; Kirschner, supra at
594. Indeed, in our view, it is Justice Cavanagh who is
unduly limiting the holding of Kirschner by implying
exceptions to the Kirschner rule beyond the two explicitly
recognized: (1) misrepresentation by the insurer and (2)
the insurer’s failure to provide a timely reservation of
rights. Id. at 594-595.

23

and (3) the plaintiff was prejudiced as a result of its

belief.39

Even assuming, arguendo, that the Pool’s payment of

prior basement backup claims and its involvement in

monitoring the Etheridge suit led the city to hope that the

settlement would be covered, and that the city actually

relied on its mistaken belief, the city's equitable

estoppel claim must fail because its reliance was not

justifiable. Three weeks after the Etheridge suit was

filed, the Pool sent the city a reservation of rights

letter that specifically quoted the policy’s pollution

exclusion clause. The letter concluded by stating, “Please

be advised that if there is any judgment against the City

of Grosse Pointe Park for . . . a discharge of any

pollutants, . . . the Michigan Municipal Liability &

Property Pool reserves the right not to indemnify Grosse

Pointe Park for said damages.” Moreover, the Pool

frequently reminded the city during the Etheridge

litigation that “serious coverage issues” remained.

Despite all this, and after being notified by the Pool that

coverage was formally denied, the city still proceeded to

39
Morales, supra at 296-297.

24

finalize the settlement with the Etheridge plaintiffs.40

Any reliance on the part of the city, therefore, was

unjustified.41 Because there was no justifiable reliance,

we need not consider whether the city suffered any

prejudice on the basis of its reliance; the city's

estoppel claim fails as a matter of law.

IV. CONCLUSION

Sewage is clearly a “pollutant” under the plain

language of the policy’s pollution exclusion clause.

Moreover, while extrinsic evidence may generally be

introduced to demonstrate the existence of a latent

40
The City Attorney for Grosse Pointe Park testified
in his deposition that “a decision [was made] by the city
that it was in the best interests of the city if there was
to be no coverage to proceed with a settlement because we
were where we were.”
41
Since at least 1911, in the case of Sargent Mfg Co v
Travelers’ Ins Co, 165 Mich 87; 130 NW 211 (1911), this
Court has adhered to the rule that a timely reservation of
rights letter will protect an insurer against an insured’s
claims of estoppel. This Court reiterated this fundamental
rule of insurance law in Kirschner by noting that an
insurer who complies with its “duty to give reasonable
notice . . . that it is proceeding under a reservation of
rights” will be shielded from subsequent claims of estoppel
or waiver. Kirschner, supra at 593. Accordingly, if an
insurer timely reserves its rights, an insured will
generally not be able to sustain a claim of estoppel on the
basis that it altered its litigation strategy in reliance
on the insurer’s payment of previous claims. To conclude
otherwise would be to emasculate completely the entire
purpose of the reservation of rights process.

25

ambiguity, we conclude that a court must presume that the

contracting parties’ intent is manifested in the actual

language used in the contract itself and that the party

alleging the existence of the latent ambiguity may rebut

this presumption only by proving, through clear and

convincing evidence, that such an ambiguity does actually

exist. The city has failed to meet this burden of proof.

Moreover, any reliance on Morales is misplaced. Under

Ruddock and Kirschner, the Pool is not equitably estopped

from denying coverage because estoppel will not be applied

to broaden coverage beyond the particular risks

specifically covered by the policy itself.

The judgment of the Court of Appeals is reversed, and

this matter is remanded to the trial court for entry of an

order granting the Pool’s motion for summary disposition.

Robert P. Young, Jr.
Clifford W. Taylor
Stephen J. Markman

26