No. 92-203
IN THE SUPREME COURT OF THE STATE OF MONTANA
STANLEY DUENSING and DAVID DUENSING,
a general partnership, d/b/a
THE PARROT CONFECTIONERY,
Plaintiffs and Appellants,
THE TRAVELER'S COMPANIES,
a Connecticut corporation,
Defendant, Respondent and Cross-Appellant.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Dorothy McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
W. ~illiamLeaphart, Leaphart; Leaphart Law Firm,
Helena, Montana
For Respondent:
James R. Walsh, Robert J. Vermillion; Smith, Walsh,
Clarke & Greqoire, Great Falls, Montana
-
submitted on Briefs: Auaust 13,
* 1992
oecid&: March 29, 1993
Justice Karla M. Gray delivered the Opinion of the Court.
Stanley and David Duensing appeal from an order of the First
Judicial District Court, Lewis and Clark County, granting summary
judgment in favor of the Travelers Companies. On cross-appeal, the
Travelers Companies asserts an alternative basis for the granting
of summary judgment in its favor. We reverse and remand.
We state the issues on appeal as follows:
1) Did the District Court err in granting summary judgment in
favor of the Travelers Companies based on the contamination
exclusion contained in the insurance policy?
2) If the District Court erred in granting summary judgment
in favor of the Travelers Companies based on the contamination
exclusion, can this Court nonetheless uphold the grant of summary
judgment pursuant to the governmental action exclusion?
3) Are the Duensings entitled to entry of summary judgment in
their favor?
The facts in this case are relatively straightforward. On
August 28, 1990, Stanley and David Duensing (the Duensings), a
partnership doing business as the Parrot Confectionery (the
Parrot), discovered that a worker had been exposed to Hepatitis A.
The Duensings immediately informed the City-County and State Health
Departments and their insurance agency, Burrington Insurance Agency
(Burrington). The next morning, the Duensings, their attorney,
their accountant, Will Selser and Larry Fenster of the Lewis and
Clark City-County Health Department (the health department), and an
agent from Burrington met to discuss the possible problems
2
associated with the hepatitis exposure. Later that same day, the
Montana Department of Health and Environmental Sciences issued a
"Notice of Embargo" to the Parrot, which prohibited the movement or
sale of any of the Parrot's candy without permission. Although the
Parrot's inventory had not been tested, the Duensings agreed to
destroy voluntarily all existing inventory.
On August 31, 1990, the Duensings destroyed the Parrot's
entire inventory of candy and food. They subsequently submitted a
claim on their business ownersr property insurance policy with
Travelers for loss of contents and business interruption as a
result of the destruction of the inventory. Travelers denied
coverage, relying on the "contamination exclusionn and the
"governmental action exclusion" contained in the policy.
The Duensings then filed a declaratory action against
Travelers for a determination of rights of the parties under the
insurance contract, waiver and estoppel. Both parties moved for
summary judgment based on the contamination and governmental action
exclusions. After briefing and oral argument, the District Court
granted summary judgment for Travelers based on the contamination
exclusion; it did not address the governmental action exclusion.
Did the District Court err in granting summary judgment in
favor of Travelers based on the contamination exclusion contained
in the insurance policy?
Summary judgment is proper when there are no genuine issues of
material fact and the moving party is entitled to judgment as a
matter of law. Rule 56(c), M.R.Civ.P. Faced with cross motions
for summary judgment on the same legal questions, with both parties
asserting an absence of factual issues as to those questions, the
District Court concluded that Travelers was entitled to summary
judgment based on the contamination exclusion.
The contamination exclusion relied on by the District Court
reads:
2. We will not pay for loss or damage caused by or
resulting from any of the following: ...
d. ... (7) The following causes of losses to personal
property: . . .
(d) Evaporation, loss of weight, contamination, exposure
to light or change in flavor, color, texture or finish.
[Emphasis added.]
The District Court determined that the policy did not require
scientific findings of contamination and that reasonable belief of
such contamination destroyed the business value of the inventory
and was sufficient to fall within the exclusion. The District
Court also stated that the fact that the contamination was not
confirmed through testing was not material for purposes of the
insurance contract. The court concluded that, given the common
sense, usual meaning of the language, the parties had intended to
exclude coverage for loss of the Parrot's inventory, which was
destroyed because of the high probability of contamination. Thus,
the contamination exclusion of the policy precluded coverage.
The Duensings contend that the District Court incorrectly
concluded that the inventory was contaminated within the language
of the contamination exclusion. They argue that the District Court
erred by interpreting the contamination exclusion to exclude
anything other than actual contamination. They further argue that,
contrarytothe rule of construing exclusions in insurance policies
strictly against the insurer, the District Court enlarged the
contamination exclusion to include suspected contamination.
The interpretation of an insurance contract is a question of
law. Truck Ins. Exchange v. Waller (l992), 252 Mont. 328, 331, 828
P.2d 1384, 1386. Therefore, we review whether the District Court
correctly interpreted the policy in question. Steer, Inc. v.
Department of Revenue (1990), 245 Mont. 470, 475, 803 P.2d 601,
603.
Well-established principles guide our interpretation of
insurance contracts. The language of the insurance policy governs
if it is clear and explicit. Waller, 252 Mont. at 331, 838 P.2d at
1386. Furthermore, exclusions from coverage will be narrowly and
strictly construed because they are contrary to the fundamental
protective purpose of an insurance policy. Farmers Union Mut.
Ins. Co. v. Oakland (1992), 251 Mont. 352, 356, 825 P.2d 554, 556.
In this case, the contamination exclusion is unambiguous,
clear and explicit: Travelers will not pay for loss or damage to
personal property caused by or resulting from contamination. The
exclusion from coverage requires two elements. First, there must
be "contamination;" and second, the contamination must cause loss
to personal property. Only if contamination exists does it become
necessary to determine whether the contamination caused the loss to
personal property.
The District Court concluded that the high probability of
contamination and the reasonable belief of contamination were
sufficient to exclude coverage. In essence, these conclusions
define "contamination'* to include suspected contamination. In
interpreting insurance contracts, the words of the policy are to be
understood in their usual meaning; common sense controls. James v.
Prudential Ins. Co. (1957), 131 Mont. 473, 477, 312 P.2d 125, 127
(citations omitted).
In Hi-G, Inc. v. St. Paul Fire and Marine Ins. Co. (1st Cir.
1968), 391 F.2d 924, 925, the First Circuit Court of Appeals
defined contamination as the introduction of a foreign substance
that injures the usefulness of the object. Similarly, the Fifth
Circuit Court of Appeals defined contamination as a condition of
impurity resulting from mixture or contact with a foreign
substance, and stated that this definition is consistent with the
common understanding of contamination. American Casualty Co. of
Reading, Pennsylvania v. Myrick (5th Cir. 1962), 304 F.2d 179, 183.
The Court of Appeals of Texas adopted the definition of
contamination from Mvrick in Auten v. Employers Nat. Ins. Co.
(Tex.App. l987), 722 S.W.2d 468, 469. In Auten, an exterminator
sprayed a toxic pesticide inside of Auten's home, and expert
testimony established that the toxin was deposited on surfaces
throughout the home. After touching these surfaces, the members of
the Auten family absorbed the pesticide through their skin and
became ill. Auten, 722 S.W.2d at 469. As in Mvrick, the
contamination involved the presence of a foreign substance, thus
triggering the contamination exclusion.
We adopt the rationale expressed in u,Mvrick and Auten,
and conclude that contamination requires the actual presence of a
foreign substance. We conclude, therefore, that the plain,
ordinary meaning and understanding of "contaminationw is actual
contamination, not suspected contamination. Absent proof of actual
contamination, the contamination exclusion does not bar coverage
for the Duensings' losses.
Accordingly, we examine the record to determine whether it
contains any proof of actual contamination. In this case, the
candy was destroyed before it was tested, thereby preventing anyone
from verifying whether it was actually contaminated by the
hepatitis virus. Nonetheless, Travelers urges us to conclude that
the candy was contaminated because the health department made a
"finding" that the inventory was contaminated. The Duensings
assert that the parties did not complete the necessary statutory
steps to allow anyone to conclude that the inventory was actually
contaminated. The parties base their respective arguments on 5 50-
31-509, MCA, which reads in pertinent part:
Detainer of adulterated or misbranded articles. (1) If an
agent of the department finds or has probable cause to
believe that any food, drug, device, or cosmetic is
adulterated or so misbranded as to be dangerous or
fraudulent within the meaning of this chapter, he shall
affix to the article a tag or other appropriate marking
giving notice that the article is or is suspected of
being adulterated or misbranded and has been detained or
embargoed and warning all persons not to remove or
dispose of the article by sale or otherwise until
permission for removal or disposal is given by the agent
or the court. ... The owner of an embargoed article or
another authorized person and the department may enter
into a disposal agreement providing for the disposal,
reconditioning, or other disposition of the embargoed
article. ...
(2) If an article detained or embargoed under
subsection (1) is found by the agent to be adulterated or
misbranded and a disposal agreement is not executed as
provided in subsection (I), the agent shall petition the
justice of peace, city judge, or district court . for ..
an order for condemnation of the article. If the agent
finds that an article so detained or embargoed is not
adulterated or misbranded, he shall remove the tag or
other marking.
(3) If the court finds that a detained or embargoed
article is adulterated or misbranded, the article shall,
after entry of the decree, be destroyed ... .
Travelers notes that 5 50-31-509(2), MCA, requires the health
department to make a "findingf1 contamination before petitioning
of
the court. On the basis of Larry Fenster's statement to the
Duensings that he would petition the court for an order to destroy
the inventory if they would not agree to destroy it voluntarily,
Travelers argues that Fenster "found" the inventory to be
contaminated. We disagree.
Fenstertsaffidavit clearly shows that he had made no finding
of contamination, but only a finding of probable cause. The
affidavit of Larry Fenster reads:
In my handwritten notes of August 30, 1990 . . [I .
stated that] all of this product must be "considered
contaminated." In making this statement, I was not
implying that there was any factual or scientific finding
of contamination. There had been no testing of the
candy. This statement was merely my finding, on behalf
of the Department, that, since a candy maker was
diagnosed with jaundice, we had "probable cause to
believe" the product was contaminated . . . .
Similarly, Will Selser, another health department official,
explained in his affidavit that:
[a]s of the date of the Aug. 31, 1990, destruction of the
candy, there had been no laboratory testing of the candy
and thus there was no factual determination as to whether
or not the candy was, in fact, contaminated.
Furthermore, comparing these facts to the statutory procedure
set forth in 5 50-31-509, MCA, does not support a conclusion that
the health department had made a finding of contamination.
Subsection (1) of 5 50-31-509, MCA, requires either a finding of
adulteration probable cause to believe an article is adulterated
before the health department can issue an embargo order. Under
subsection ( Z ) , if no disposal agreement is reached the agent
finds that the object is adulterated, the agent can petition the
court for an order of condemnation; subsection (2) also is clear
that the agent could find at this post-embargo stage of the process
that the article is not adulterated. Finally, under subsection
(3), the embargoed object can be ordered to be destroyed only after
a court finds that it is adulterated. Again, at this third stage
of the process, the court could find that the object was not
adulterated.
Fensterls statement that he would petition the court if the
parties did not reach a disposal agreement does not require us to
conclude that the health department "found" that the inventory was
contaminated. The parties here completed subsection (1) of the
statutory procedure based on a "probable causeI1 determination and
reached a disposal agreement. The parties did not need to proceed
through subsections (2) and (3) of 5 50-31-509, MCA, to a finding
of adulteration.
Given the clear language of 5 50-31-509, MCA, and the
affidavits of the health department officials, we conclude that no
finding of contamination had been made. No other evidence was
offered that the inventory actually was contaminated. We hold that
the District Court erred as a matter of law in interpreting the
contamination exclusion to preclude coverage in this case.
If the District Court erred in granting summary judgment in
favor of Travelers based on the contamination exclusion, can this
Court nonetheless uphold the grant of summary judgment pursuant to
the governmental action exclusion?
On cross-appeal, Travelers asserts that the governmental
action exclusion provides an alternative basis for summary judgment
in its favor. We have affirmed the correct conclusion of a trial
court even though that conclusion may have been arrived at for the
wrong reason. See Wolfe v. Webb (1992), 251 Mont. 217, 234, 824
P.2d 240, 250. We cannot do so in this case, however, because we
conclude that the governmental action exclusion does not preclude
coverage for the Duensingsl losses.
The governmental action exclusion in the Duensingsl policy
with Travelers excludes coverage for "loss or damage caused
directly or indirectly by . . . [sleizure or destruction of
property by order of governmental authority." Travelers argues
that both the seizure and destruction clauses of the governmental
action exclusion apply to the facts at hand. Specifically,
Travelers argues that the seizure clause bars coverage because the
embargo constituted a Mconstructive seizure," thus triggering the
exclusion. Travelers also asserts, under the destruction clause,
that the embargo order (as a governmental order) caused the
destruction of the candy. We address each clause in turn.
In support of its contention that the seizure clause bars
coverage under these facts, Travelers argues that "constructive
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seizure" via the embargo satisfies the exclusion. Webster's ~ h i r d
New International Dictionary defines seizure as the act of taking
possession of persons or property by virtue of a warrant or by
legal authority.
Here, although the embargo restricted the movement of the
inventory, the embargo order did not authorize governmental agents
to take possession of the inventory; nor was possession taken.
Therefore, no seizure occurred. As discussed above, the rule of
strict construction of exclusions from insurance coverage prevents
us from expanding the plain language of this exclusion to include
constructive seizure. See Oakland, 251 Mont. at 356, 825 P.2d at
556. We hold that the Duensings' losses are not excluded by the
seizure clause of the governmental action exclusion.
Travelers' reliance on the destruction clause of the
governmental action exclusion also is misplaced. For this clause
to apply, property must be destroyed by order of governmental
authority, and such a destruction then must cause, directly or
indirectly, the loss claimed by the insured.
The embargo order only restricts the sale or movement of the
property; it does not order or require the destruction of the
property, nor could it do so under 5 50-31-509, MCA. An embargo
pursuant to 5 50-31-509, MCA, merely serves as a means of
preserving the status quo until further proceedings occur. Indeed,
under 5 50-31-509(3), a governmental authority can only require the
destruction of property after a court finds that the object is
adulterated. Thus, it is clear that the inventory was not
destroyed by order of governmental authority in this case.
Travelers additionally notes that Will Selser, in describing
the embargo order in his first affidavit, stated that the Duensings
were required to destroy the inventory. According to Travelers,
this demonstrates that the inventory was destroyed pursuant to
governmental order. However, Will Selservs second affidavit
controverts Travelersv argument. He stated:
In my prior affidavit when I stated that the Duensings
were "requiredvv destroy the food, I merely meant that
to
they were being told by me and my staff that if they did
not voluntarily destroy the candy, the Department would
take the next step and petition the Court for an order to
destroy the candy. In fact, no such petition had been
filed with the Court. The only governmental order in
effect was the Order of Embarqo from the Montana
Department of Health. The ~ p r m n
eat't had no authority to
"require" the Duensinqs to do anythinq beyond comply with
the embarqo. [Emphasis added.]
Absent a court order under subsection (3) of 5 50-31-509, MCA,
the health department could not order the destruction of the
inventory. No court order for the destruction of the Parrot's
inventory was obtained. We hold, therefore, that the inventory was
not destroyed by order of governmental authority and the
destruction clause of the governmental action exclusion does not
bar coverage in this case.
Are the Duensings entitled to entry of summary judgment in
their favor?
Before the trial court, both parties moved for summary
judgment as a matter of law on the question of insurance coverage
under the contamination and governmental action exclusions of the
Travelers' policy. The parties presented identical legal theories,
albeit seeking opposite legal conclusions; both asserted that no
genuine issues of material fact existed as to the legal theories
propounded. Travelers now argues that factual questions remain
"regarding the actions of the Health Department."
The fact that both parties have moved for summary judgment
does not establish, in and of itself, that no genuine issues of
material fact exist. A party may assert that there is no remaining
factual issue if his legal theory is accepted and still maintain
that there is a genuine dispute as to material facts if his
opponent's theory is adopted. Faith Lutheran Retirement Home v.
Veis (1970), 156 Mont. 38, 47, 473 P.2d 503, 507. Conversely, if
the parties presented identical legal theories to the trial court,
while arguing that no issues of fact remain, neither party can then
maintain on appeal that factual questions have surfaced on that
very same issue. A trial court has no duty to anticipate such
possible proof. a.
In this case, Travelers has asserted for the first time on
appeal that "factual questions remain regarding the actions of the
Health Department.l a We have stated many times that this Court will
not hear on appeal an issue not presented to the trial court.
Wyman v. DuBray Land Realty (1988), 231 Mont. 294, 299, 752 P.2d
196, 200. In any event, Travelers cannot rely on speculative,
fanciful or conclusory statements to raise a genuine issue of
material fact, but must specify the precise facts which are
disputed. Sprunk v. First Bank System (1992), 252 Mont. 463, 466,
830 P.2d 103, 105. Travelers1 assertion is conclusory and
speculative and does not identify any genuine factual issue in
dispute.
This Court has the power to reverse a district court's grant
of summary judgment and direct it to enter summary judgment in
favor of the other party only when it is clear that all of the
facts bearing on the issues are before the court. Canal Ins. Co.
v. Bunday (1991), 249 Mont. 100, 108, 813 P.2d 974, 979. Given
the record before us and our determination that the contamination
and governmental action exclusions do not preclude coverage for the
Duensings' losses, we conclude that the Duensings are entitled to
entry of summary judgment on the issues of coverage under the
contamination and governmental action exclusions.
We reverse and remand for entry of summary judgment consistent
with this opinion.