Traverse City Light & Power Board v. Home Insurance , 209 Mich. App. 112 ( 1995 )

Taylor, P.J.

Defendant appeals as of right the trial court order granting summary disposition in favor of plaintiff. We reverse.

From 1975 to 1987, plaintiff disposed of its fly ash, a waste material produced by its electrical generation plant, at the abandoned Samuelson gravel pit. In the early 1980s, plaintiff began taking steps to obtain a type III license to dispose of inert materials. As a requirement of the licensing application, plaintiff conducted tests on the fly ash and ground water at the pit. In 1987, the Michigan Department of Natural Resources denied plaintiff’s type III license application, concluding that the fly ash, when combined with precipitation, could leach into the underground aquifer and cause contamination. The dnr advised plaintiff that continued use of the site for fly ash disposal would violate the Solid Waste Management Act, MCL 299.401 et seq.; MSA 13.29(1) et seq. In 1988, the dnr issued a cease and desist order requiring plaintiff to discontinue using the gravel pit to dump fly ash and to remediate ground water contamination.

From 1975 to 1984, defendant issued three comprehensive general insurance policies to plaintiff; each was an "occurrence policy” covering consecutive three-year periods. The two policies covering plaintiff from 1975 to 1981 contained the following exclusion:

This policy does not apply:

(i) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is neither expected nor intended by the insured.

Simply stated, the policy covers damage arising from the discharge of certain materials if the insured did not expect or intend the discharge.

The 1981 through 1984 policy had a slightly different exclusion that provided:

This policy does not apply:

(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

This is similar to the earlier policy language and says, again simplified, that the damage is covered if the discharge was sudden and accidental.

Plaintiff challenged the dnr’s cease and desist order and contacted defendant to request coverage of the cost of defending against the order. Defendant denied coverage and plaintiff initiated the instant suit. Eventually, both parties moved for summary disposition. Defendant argued that it had no duty to defend or indemnify plaintiff because plaintiff’s claim fell within the previously cited exclusions of the policies (commonly referred to as the pollution exclusion). In essence, plaintiff argued that defendant had a duty to defend plaintiff in its challenge of the dnr order until the source of the alleged contamination was discovered. At that point, depending on what had been determined, the exclusion under the policy might preclude coverage.

In granting plaintiff’s motion for summary disposition, the trial court determined that our Supreme Court’s decision in Polkow v Citizens Ins Co, 438 Mich 174; 476 NW2d 382 (1991), was dispositive. The trial court concluded that an event triggering coverage under the policy occurred when the dnr claimed that plaintiff’s actions caused damage. The court reasoned that because an insurer has a duty to defend a claim if coverage is even arguable, id. at 180, the insurer should have defended until it was clear that plaintiff’s actions did not cause the damage. We disagree.

Polkow is distinguishable from the instant case on its facts.¹ In Polkow, there was a factual dispute regarding whether the initial discharge was the result of oil leaks in the underground storage tanks or was the result of spillage during the transfer process from the tanker trucks to the underground tanks. Id. at 178-179. Accordingly, when the discharge occurred, it was impossible to say if the discharge was sudden and accidental. The Supreme Court remanded the case for factual determinations regarding "whether the discharge falls within the pollution-exclusion clause or whether the unknown discharge falls within the sudden and accidental exception to the exclusion clause.” Id. at 180-181.

In relying on Polkow, the trial court inappropriately focused on whether plaintiffs fly ash caused the ground water contamination, rather than on plaintiffs initial discharge of the material into the environment. According to the trial court, because a factual dispute existed regarding the cause of the ground water contamination, it could not determine if the "pollution exclusion” applied until it examined "whether the discharge of pollutants was sudden and accidental.” The trial court’s error is understandable in light of the fact that this type of exclusion in insurance policies is commonly referred to as a "pollution exclusion.” This description of the exclusion clause is misleading. There need not be pollution for the exclusion to be triggered. The mere discharge, dispersal, release, or escape of the enumerated materials precludes coverage under the policy, regardless of the materials’ potential to cause pollution. Coverage may be restored if the initial discharge was unexpected or unintended, or sudden and accidental.

In Auto-Owners Ins Co v City of Clare, 446 Mich 1; 521 NW2d 480 (1994), our Supreme Court specifically declined to address the question whether the "initial discharge rule” announced in Protective Nat’l Ins Co of Omaha v City of Woodhaven, 438 Mich 154; 476 NW2d 374 (1991), applied. The Court reasoned that because the result would be the same under either analysis, the question regarding initial discharge need not be reached. City of Clare, supra at 15, n 12. We hold that the initial discharge rule articulated in Woodhaven is applicable to the instant case. Accordingly, our analysis focuses on the initial discharge or placement of the materials into the gravel pit, not on their alleged subsequent migration into the soil. If the insured expected or intended the initial discharge (1975-81 policies) or if the initial discharge was not sudden and accidental (1981-84 policy), then there is no coverage. Unlike Polkow, in this case it is undisputed that the initial discharge was plaintiffs dumping fly ash at the gravel pit. It is this event, and whether it was "expected or intended” or, later, "sudden and accidental,” that must determine the applicability of the exclusions under the policies.

The exclusion clause in the policies covering plaintiff from 1975 to 1981 provides for coverage if the initial discharge is "neither expected nor intended by the insured.” Accordingly, the insured’s actions must be analyzed under a subjective standard. Arco Industries Corp v American Motorists Ins Co, 198 Mich App 347, 351; 497 NW2d 190 (1993). Admittedly, determining an individual’s subjective intentions or expectations is difficult. However, the facts of the instant case present circumstances in which the insured’s subjective intentions can be easily inferred.

"Intent is a secret of the defendant’s mind,” which he can disclose by his declarations or by his actions and "his actions sometimes speak louder than words.” [Allstate Ins Co v Freeman, 432 Mich 656, 679; 443 NW2d 734 (1989). Citations omitted.]

For twelve years, plaintiff arranged to discharge fly ash at the gravel pit at least two times a day. To now claim that plaintiff did not expect or intend this discharge "flies in the face of all reason, common sense and experience.” Id. at 720 (Boyle, J.). There being no factual dispute that plaintiff expected and intended the initial discharge of the fly ash, as a matter of law, the policies effective from 1975 to 1981 preclude coverage. Accordingly, the trial court should have granted defendant’s motion for summary disposition pursuant to MCR 2.116(0(10).

Unlike the policies that provided coverage from 1975 to 1981, the policy effective from 1981 through 1984 contained an exclusion that precluded coverage unless the discharge was "sudden and accidental.” The actual language of this exclusion clause "unambiguously links the terms 'sudden and accidental’ with the release as opposed to the knowledge, intent, or expectation of the insured.” Matakas v Citizens Mutual Ins Co, 202 Mich App 642, 653; 509 NW2d 899 (1993). Accordingly, under this policy the insured’s actions must be analyzed under an objective rather than subjective standard. See State Farm Fire & Casualty Co v Fisher, 192 Mich App 371, 377; 481 NW2d 743 (1991); Secura Ins Co v Blotsky, 182 Mich App 637, 642; 452 NW2d 899 (1990).

In interpreting an identical "sudden and accidental” policy exclusion, our Supreme Court stated, "[f]or something to be sudden, it must be both immediate and unexpected.” Upjohn Co v New Hampshire Ins Co, 438 Mich 197, 210, n 9; 476 NW2d 392 (1991) (emphasis in original). In this case, plaintiff’s disposal of the fly ash was both intended and expected. Therefore, it cannot possibly be viewed as sudden. For the same reason, the discharge cannot be viewed as accidental because "[accidental means occurring unexpectedly and unintentionally; by chance.” Id. at 207-208. Thus, viewed objectively, plaintiff’s actions fall within the pollution exclusions contained in these insurance policies and the trial court erred in denying defendant’s motion for summary disposition pursuant to MCR 2.116(0(10).

Reversed and remanded for entry of judgment in favor of defendant.

MacKenzie, J., concurred.

1 This case is also distinguishable from American Bumper & Mfg Co v Hartford Fire Ins Co, 207 Mich App 60; 523 NW2d 841 (1994). As far as the American Bumper opinion reveals, the policies at issue in that case did not contain either "intended or expected” or "sudden and accidental” exclusion language similar to the language at issue here. The Court in American Bumper simply addressed the question whether there were sufficient indicia of an "occurrence” to give rise to a duty to defend. Id. at 65.