United Nuclear Corp. v. Allstate Insurance

I attest to the accuracy and
integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 16:47:03 2012.09.19
IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
Opinion Number: 2012-NMSC-032Filing Date: August 23, 2012
Docket No. 32,939
UNITED NUCLEAR CORPORATION,
Plaintiff-Petitioner,
v.
ALLSTATE INSURANCE COMPANY,
Defendant-Respondent.
ORIGINAL PROCEEDING ON CERTIORARI
Louis E. DePauli, Jr., District Judge
Comeau, Maldegen, Templeman & Indall, L.L.P.
Michael R. Comeau
Jon J. Indall
Stephen J. Lauer
Santa Fe, NM
McCarter & English, L.L.P.
Arnold L. Natali, Jr.
J. Wylie Donald
Newark, NJ
for Petitioner
Civerolo, Gralow, Hill & Curtis, P.A.
William P. Gralow
Lisa Entress Pullen
Albuquerque, NM
Troutman Sanders LLP
Louise M. McCabe
San Diego, CA
Troutman Sanders LLP
1
Charles I. Hadden
Stephanie T. Schmelz
Washington, DC
for Respondent
Montgomery & Andrews, P.A.
J. Brent Moore
Lara Katz
Santa Fe, NM
Wiley Rein LLP
Laura A. Foggan
Santa Fe, NM
for Amicus Curiae Complex Insurance Claims Litigation Association
Sawtell, Wirth & Biedscheid, P.C.
W. Anthony Sawtell
Santa Fe, NM
for Amici Curiae County of Doña Ana, City of Las Cruces and The Association of
Commerce & Industry of New Mexico
OPINION
SERNA, Justice.
{1} This appeal turns on our construction of a single word, “sudden,” within a pollution
exclusion clause in a series of liability insurance policies barring coverage for certain
damages unless the events causing those damages were “sudden and accidental”—an issue
of first impression in New Mexico, although one already considered by numerous courts in
other jurisdictions. Concluding that “sudden” lacks a single clear meaning, we reverse the
Court of Appeals’ holding that the word unambiguously signifies “quick, abrupt, or a
temporarily short period of time.” United Nuclear Corp. v. Allstate Ins. Co., 2011-NMCA-
039, ¶ 20, 149 N.M. 574, 252 P.3d 798. Under well-established principles of insurance law,
we construe this ambiguity in favor of the insured, Petitioner United Nuclear Corporation
(United Nuclear), and interpret the term “sudden” in the insurance policies at issue in this
dispute to mean “unexpected.” We remand to the district court for further proceedings
consistent with this Opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
{2} United Nuclear operated several uranium mines in New Mexico from the 1960s
2
through the early 1980s, one of which was the Northeast Church Rock Mine (Church Rock
Mine) in McKinley County. Although the parties do not mention this fact in their briefs, in
July 1979, a breach opened in a dam at the Church Rock Mine and about 94 million gallons
of radioactive liquid escaped from a tailings pond and poured into the nearby Rio Puerco.
See United Nuclear Corp. v. Allendale Mut. Ins. Co., 103 N.M. 480, 482, 709 P.2d 649, 651
(1985). This spill was “the largest accidental release of radioactive material in U.S. history.”
Judy Pasternak, Yellow Dirt: An American Story of a Poisoned Land and a People Betrayed
150 (Free Press 2010). Remediation of the area around the Church Rock Mine continues to
this day. See U.S. Envtl. Prot. Agency, EPA Seeks Comment on the Surface Soil Proposed
Plan for the United Nuclear Corporation Superfund Site, 4-5,July 2012, available at
http://www.epa.gov/region6/6sf/pdffiles/unc_pplan_fs_7-16-2012.pdf (last visited August
20, 2012). Although these facts do not affect the narrow issue of insurance policy
interpretation presented here, they help make tangible the dispute underlying this appeal.
{3} To insure its mining operations, United Nuclear obtained commercial general liability
and umbrella liability insurance policies from a number of carriers, including the polices
relevant to this dispute (the Policies), which were issued by two predecessor corporations
of Respondent Allstate Insurance Company (Allstate). Together, the Policies were in effect
between August 1, 1977 and June 1, 1981.
{4} United Nuclear either incurred actual costs or was exposed to potential liability for
environmental contamination resulting from its mining operations through several different
proceedings. Those proceedings included a 1996 lawsuit filed by the New Mexico Mining
Commission ultimately requiring United Nuclear to remediate three of its mines (including
the Church Rock Mine), see N.M. Mining Comm’n v. United Nuclear Corp., 2002-NMCA-
108, ¶ 1, 133 N.M. 8, 57 P.3d 862; a 1997 lawsuit that the mineral lessor at the Church Rock
Mine filed in state district court over environmental damage caused by United Nuclear’s
“mining and disposal practices”; notices in 2002 and 2004 from the New Mexico
Environment Department requiring United Nuclear to abate excess use of water at two of its
mines (including the Church Rock Mine); notices of claim from the United States Forest
Service in 2001 holding United Nuclear responsible for environmental remediation at two
of the sites; and an investigation by the Environmental Protection Agency into “alleged
radiation claims on Indian lands adjacent to the [Church Rock] mine.” United Nuclear
tendered the defense and indemnity of the two lawsuits to Allstate in 1997, and notified
Allstate about the administrative notices and determinations in 2002 and 2004. Allstate
denied any duty to United Nuclear with respect to the tendered claims.
{5} United Nuclear ultimately filed a third-party complaint in the 1997 lawsuit filed by
the mineral lessor, seeking a declaration that Allstate and various other insurers are required
to defend and indemnify United Nuclear in the underlying suit. By April 2005, United
Nuclear had amended the third-party complaint to seek declaratory relief against Allstate and
the other insurers for all of its actual and potential liabilities mentioned above.
{6} In February 2006, Allstate moved for summary judgment on the sole ground that the
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Policies contain an exclusion clause removing from coverage all claims for damages caused
by pollution or contamination unless the underlying discharges were “sudden and
accidental.” Allstate further asserted that the term “sudden” as used in the Policies connotes
an abrupt event or events, and because the discharges that lead to the contamination at
United Nuclear’s mines occurred over a period of years, those events were not “sudden” and
thus are excluded from coverage.
{7} In October 2008, the district court granted Allstate’s motion. The court found “the
word ‘sudden’ and the word ‘accidental’ . . . [to be] clear and unambiguous . . . . The word
‘sudden’ means quick, abrupt or otherwise a temporarily short period of time. . . . The word
‘accidental’ means unintended, unexpected or by chance.” United Nuclear appealed the
district court’s determination to the Court of Appeals. In its opinion, a divided panel upheld
the district court’s grant of summary judgment to Allstate on the meaning of “sudden” as
used in the Policies’ pollution exclusion clause. United Nuclear, 2011-NMCA-039, ¶¶ 1,
14, 21, 28.
{8} As the district court had done, the Court of Appeals relied heavily on the reasoning
and holding of Mesa Oil, Inc. v. Ins. Co. of North America, 123 F.3d 1333, 1339-41 (10th
Cir. 1997). United Nuclear, 2011-NMCA-039, ¶¶ 7, 12-14. In Mesa Oil, the Tenth Circuit
acknowledged an absence of New Mexico case law interpreting the term “sudden,” but
surmised that New Mexico courts “would likely honor the plain meaning of the word
‘sudden’ and conclude that the term encompasses a temporal component.” Mesa Oil, 123
F.3d at 1340. The court concluded that “[t]he word ‘sudden’ clearly expresses a meaning
of quickness or abruptness, particularly in light of the fact that it would be entirely redundant
when paired with the word ‘accidental’ if it merely meant ‘unexpected.’” Id.II. STANDARD OF REVIEW
{9} This Court reviews de novo an order granting or denying summary judgment. See
Romero v. Philip Morris Inc., 2010-NMSC-035, ¶ 7, 148 N.M. 713, 242 P.3d 280. Summary
judgment should be granted “only when there are no issues of material fact, with the facts
viewed in the light most favorable to the non-moving party.” Summers v. Ardent Health
Servs., L.L.C., 2011-NMSC-017, ¶ 10, 150 N.M. 123, 257 P.3d 943. Similarly, the
interpretation of terms within an insurance policy is “a matter of law about which the court
has the final word,” Rummel v. Lexington Ins. Co., 1997-NMSC-041, ¶ 60, 123 N.M. 752,
945 P.2d 970, and is subject to de novo review, Battishill v. Farmers Alliance Ins. Co., 2006-
NMSC-004, ¶ 6, 139 N.M. 24, 127 P.3d 1111.
III. DISCUSSION
A. Analytical Principles
1. Ambiguities Construed Against The Insurer
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{10} As with other contracts, where an insurance policy’s terms “have a common and
ordinary meaning, that meaning controls in determining the intent of the parties.” Id. ¶ 13.
Reviewing courts should not “create ambiguity where none exists, and an ambiguity does
not exist merely because the parties hold competing interpretations” about the meaning of
a policy provision. City of Santa Rosa v. Twin City Fire Ins. Co., 2006-NMCA-118, ¶ 7, 140
N.M. 434, 143 P.3d 196 (citing Battishill, 2006-NMSC-004, ¶ 17). But where a policy term
is “reasonably and fairly susceptible of different constructions,” it is deemed ambiguous and
“must be construed against the insurance company as the drafter of the policy.” Knowles v.
United Servs. Auto. Ass’n, 113 N.M. 703, 705, 832 P.2d 394, 396 (1992). Insurance policies
almost always are contracts of adhesion, meaning that “the insurance company controls the
language” and “the insured has no bargaining power.” Cal. Cas. Ins. Co. v. Garcia-Price,
2003-NMCA-044, ¶ 20, 133 N.M. 439, 63 P.3d 1159; accord Padilla v. State Farm Mut.
Auto. Ins. Co., 2003-NMSC-011, ¶ 14 n. 3, 133 N.M. 661, 68 P.3d 901. As this Court
explained in Sanchez v. Herrera,
[t]he typical insured does not bargain for individual terms within policy
clauses; the insured makes only broad choices regarding general concepts of
coverage, risk, and cost. Not only does the insurance company draft the
documents, but it does so with far more knowledge than the typical insured
of the consequences of particular words.
109 N.M. 155, 159, 783 P.2d 465, 469 (1989).
{11} Cognizant of this imbalance in power, “as a matter of public policy” courts
“generally construe[]” ambiguities “in favor of the insured and against the insurer.” Ponder
v. State Farm Mut. Auto. Ins. Co., 2000-NMSC-033, ¶ 26, 129 N.M. 698, 12 P.3d 960; see
also 2 Steven Plitt et al., Couch on Insurance § 22:14 (3d ed. 2010). Where a term in an
insurance policy is found to be ambiguous, “[t]he court’s construction of [the] policy will
be guided by the reasonable expectations of the insured.” Rummel, 1997-NMSC-041, ¶ 22;
see also Phx. Indem. Ins. Co. v. Pulis, 2000-NMSC-023, ¶ 23, 129 N.M. 395, 9 P.3d 639(quoting W. Commerce Bank v. Reliance Ins. Co., 105 N.M. 346, 348, 732 P.2d 873, 875
(1987)) (“[T]he test is not what the insurer intended its words to mean, but what a reasonable
person in the insured’s position would have understood them to mean.”). Finally, “[i]t is
unnecessary to show that a construction against the insurer is more logical than a
construction against the insured,” so long as both constructions are reasonable. 2 Plitt,
supra, § 22:17, at 22-98 to 22-99.
2. Consideration of Extrinsic Evidence in Assessing Ambiguity
{12} Because the Court of Appeals’ majority opinion held the term “sudden” to have a
plain and unambiguous meaning, it did not consider extrinsic evidence necessary to resolve
the appeal. United Nuclear, 2011-NMCA-039, ¶ 21. In the dissent’s view, though, various
factors, discussed below, support a finding of ambiguity, and “the entire matrix” shows “that
‘sudden and accidental’ does not have only one meaning as a matter of law . . . .” Id. ¶ 66
5
(Vigil, J., dissenting).
{13} “New Mexico law . . . allows the court to consider extrinsic evidence to make a
preliminary finding on the question of ambiguity.” Mark V, Inc. v. Mellekas, 114 N.M. 778,
781, 845 P.2d 1232, 1235 (1993). This general principle of New Mexico contract law has
been reaffirmed in the specific context of insurance coverage disputes. See, e.g., Ponder,
2000-NMSC-033, ¶ 13 (interpreting provisions of an automobile insurance policy and noting
that “[i]n abandoning reliance only on the four-corners approach, courts are now allowed to
consider extrinsic evidence in determining whether an ambiguity exists in the first instance,
or to resolve any ambiguities that a court may discover”); see also, e.g., Mesa Oil, 123 F.3d
at 1340-41 (“New Mexico courts generally allow a party to introduce extrinsic evidence of
a[n insurance] contract’s meaning to determine whether an ambiguity exists and how that
ambiguity should be resolved.”). Therefore, we consider extrinsic evidence to help evaluate
whether the term “sudden,” as used in the Policies’ pollution exclusion, is ambiguous.
B. Interpreting the Word “Sudden”
1. Relevant Policy Terms
{14} The Policies’ general coverage forms provide that Allstate will defend and indemnify
United Nuclear for “damages on account of . . . Property Damage . . . caused by or arising
out of each Occurrence . . . .” The Policies define an “Occurrence” as “an accident, event
or happening including continuous or repeated exposure to conditions which results, during
the policy period, in . . . Property Damage . . . neither expected nor intended from the
standpoint of the Insured. . . . All such . . . Property Damage . . . caused by one event or by
continuous or repeated exposure to substantially the same conditions shall be deemed to
result from one Occurrence.”
{15} The Policies do not apply to every conceivable incident of property damage; they
contain various exclusions, including the pollution exclusion at issue here which bars
coverage for property damage “arising out of the discharge, dispersal, release or escape of
. . . toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or
pollutants into or upon land, the atmosphere or any water course or body of water; but th[e]
exclusion does not apply if such discharge, dispersal, release or escape is sudden and
accidental.” (Emphasis added).1 The Policies’ pollution exclusion is a boilerplate form that
once was widely used in the liability insurance industry. See, e.g., Century Indem. Co. v.
Liberty Mut. Ins. Co., 708 F. Supp. 2d 202, 206 (D.R.I. 2010); City of Northglenn v. Chevron
U.S.A., Inc., 634 F. Supp. 217, 223 (D. Colo. 1986). Although wording of the pollution
exclusion may vary slightly from policy to policy, numerous courts in other jurisdictions
1
One of the four policies in question (the 1980-81 Policy), has a slightly different
version of the exclusion, providing that coverage does not apply if the discharge “is both
sudden and accidental.”
6
have considered functionally identical language from policies issued by dozens of different
insurers. See, e.g., State v. Allstate Ins. Co., 201 P.3d 1147, 1153 (Cal. 2009) (discussing
insurance policies with identical pollution exclusions to the Policies at issue in this appeal);
Textron, Inc. v. Aetna Cas. & Sur. Co., 754 A.2d 742, 744 (R.I. 2000) (same). As an
exception to an exclusion, the “sudden and accidental” clause acts as a restoration of
coverage under the conditions specified and therefore should be construed broadly in favor
of the insured as if the exclusion did not exist. See Allstate Ins. Co., 201 P.3d at 1154; see
also Bering Strait Sch. Dist. v. RLI Ins. Co., 873 P.2d 1292, 1295 (Alaska 1994) (“Grants
of coverage should be construed broadly while exclusions are interpreted narrowly.”
(citation and internal quotation marks omitted)).
2. Sources for the Possible Meaning of “Sudden”
a. Other Provisions in the Policies
{16} Our inquiry begins with the other relevant terms of the Policies. See Rummel, 1997-
NMSC-041, ¶ 20 (“[W]e will first look to whether [a disputed term’s] meaning and intent
is explained by other parts of the policy.”). Insurance policy terms “cannot be analyzed in
a vacuum,” and a policy “must be construed in its entirety, with each clause interpreted in
relation to others contained therein.” 2 Plitt, supra, § 21:19, at 21-76 to 21-80. The Policies
do not provide any definition for the word “sudden” or for the phrase “sudden and
accidental.” Although far from dispositive, the lack of a definition in a policy may be one
indication of ambiguity. See Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co.,
855 P.2d 1263, 1270 (Cal. 1993).
{17} United Nuclear presents both persuasive and unpersuasive arguments for the
proposition that the Policies contain other language that inherently contradicts Allstate’s
preferred meaning of the word “sudden.” One of the four Policies (the 1978-79 Policy),
contains an endorsement, or modification, that alters coverage to exclude property damage
caused by “seepage, pollution or contamination” unless the discharge “is caused by accident
and results in property damage,” or subsequent to the discharge, “an accident ensues which
causes property damage.” (Emphasis added). To the extent an endorsement conflicts with
the terms of the main coverage forms, the policy will be deemed ambiguous. See Ivy Nelson
Grain Co. v. Commercial Union Ins. Co. of N.Y., 80 N.M. 224, 226, 453 P.2d 587, 589
(1969). If Allstate were correct that “sudden” is equivalent to “abrupt,” the 1978-79 Policy’s
coverage of damages caused by “seepage” would be in conflict with the language of the
pollution exclusion, because “seepage” indicates a gradual rather than an abrupt process.
See Queen City Farms, Inc. v. Cent. Nat’l. Ins. Co. of Omaha, 827 P.2d 1024, 1049 (Wash.
Ct. App. 1992) (noting that one policy in question covered “leakage” and another policy
covered “seepage,” and that both of these words “generally connote a gradual process”),
aff’d Queen City Farms, 882 P.2d 703 (Wash. 1991); accord City of Northglenn, 634 F.
Supp. at 222. This specific endorsement is found in only one of the four Policies, however,
and therefore does not aid United Nuclear in establishing an ambiguity in the other three
Policies.
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{18} United Nuclear also attempts to establish an inconsistency between the pollution
exclusion clause and the promise in the Policies’ general ‘insuring agreement’ to provide
coverage for damages or claims arising from occurrences “including continuous or repeated
exposure to conditions which results . . . in . . . Property Damage . . . neither expected nor
intended from the standpoint of the Insured.” (Emphasis added). United Nuclear’s argument
that this language is inconsistent with defining “sudden” within the pollution exclusion as
requiring abruptness or a short duration is not persuasive. An exclusion does not conflict
with an insurance policy’s insuring agreement simply because it affords less or different
coverage as compared with what the policy would provide without the exclusion; that is the
very purpose of an exclusion, to restrict the scope of the policy beyond what would
otherwise be covered. See Century Transit Sys., Inc. v. Am. Empire Surplus Lines Ins. Co.,
42 Cal. App. 4th 121, 129, 49 Cal. Rptr. 2d 567, 572 (Ct. App. 1996) (A “policy must be
read as a whole and it cannot be said that an exclusion is in ‘conflict’ with an insuring
clause. The very purpose of an exclusion is to withdraw coverage which, but for the
exclusion, would otherwise exist.”). We now look to evidence outside of the Policies to
evaluate whether the word “sudden” as used therein is ambiguous.
b. Dictionary Definitions
{19} When a term is undefined in the policy, a reviewing court “may look to that term’s
‘usual, ordinary, and popular’ meaning, such as found in a dictionary.” Davis v. Farmers
Ins. Co. of Ariz., 2006-NMCA-099, ¶ 7, 140 N.M. 249, 142 P.3d 17 (quoting Battishill,
2006-NMSC-004, ¶ 8); see also Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 619
(Colo. 1999) (noting that “it is . . . appropriate [for courts] to rely on dictionary definitions
of undefined terms used in an insurance contract”). Courts routinely refer to dictionaries for
aid in assessing the meaning of undefined terms in insurance policies. See, e.g., Estate of
Galloway v. Guar. Income Life Ins. Co., 104 N.M. 627, 628, 725 P.2d 827, 828 (1986)
(Court referenced dictionary in interpreting meaning of insurance policy term “suicide.”);
Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888,
897-98 (Pa. 2006) (Pennsylvania Supreme Court consulted dictionary where relevant policy
did not provide definition for term “accident.”); Builders Mut. Ins. Co. v. Parallel Design
& Dev. LLC, 785 F. Supp. 2d 535, 546-47 (E.D. Va. 2011) (District court first looked to
“reputable dictionaries” for guidance as to meaning of term “pollutant” where policy failed
to define the term.); Kratz v. Kratz, 905 P.2d 753, 755 (Okla. 1995) (consulting Black’s Law
Dictionary to define “benefit” in the context of an insurance policy).
{20} Although “the mere existence of multiple dictionary definitions of a word, without
more,” does not create an ambiguity, Citation Ins. Co. v. Gomez, 688 N.E.2d 951, 953
(Mass. 1998), dictionary definitions “can serve as an appropriate starting point for analysis.”
United Nuclear, 2011-NMCA-039, ¶ 58 (Vigil, J., dissenting); see also Vegas v. Compania
Anonima Venezolana de Navegacion, 720 F.2d 629, 631 (11th Cir. 1983) (acknowledging
that dictionary definitions “provide at least a starting point in th[e] inquiry.”).
{21} Dictionaries define “sudden” as either synonymous with “unexpected,” or as the
8
temporal descriptor of a brief occurrence, or both. Webster’s Third New International
Dictionary defines sudden as “unexpected,” “to come up, occur unexpectedly,” “happening
without previous notice or with very brief notice,” and “not foreseen or prepared for,” which
do not necessarily convey a temporal meaning; as well as “characterized by or manifesting
hastiness,” and “characterized by swift action,” which do convey a temporal meaning.
Webster’s Third New International Dictionary 2284 (1993). Black’s Law Dictionary defines
“sudden” as “[h]appening without previous notice or with very brief notice; coming or
occurring unexpectedly; unforeseen; unprepared for.” Black’s Law Dictionary 1432 (6th ed.
1990). While “[h]appening with . . . very brief notice” may connote a temporal limitation,
“occurring unexpectedly” does not. Similarly, another standard dictionary gives primary
meanings of “sudden” as “[1] [h]appening or coming without warning; [2] unexpected,
unforeseen; [3] abrupt, hasty,” the first two of which do not necessarily include a temporal
element and the third of which does. 2 Shorter Oxford English Dictionary 3131 (5th ed.
2002). The Court of Appeals did not explain its preference for one set of these definitions
over the other, but simply concluded that “the word ‘sudden’ . . . ordinarily means: quick,
abrupt, or a temporarily short period of time.” United Nuclear, 2011-NMCA-039, ¶ 20. The
only support for that conclusion derives from Mesa Oil, which we discuss below. Allstate
offers no arguments here as to why, where numerous sources indicate that there are multiple
commonplace definitions for the word “sudden,” most of those definitions should be
disregarded.
{22} The Rhode Island Supreme Court considered the competing definitions of “sudden”
to demonstrate the ambiguity of the term:
Giving the word “sudden” its “plain everyday meaning” is no easy task.
Both sides muster dictionary support of their respective positions, half of
which accord a temporal meaning to the word and the other half of which
give it the meaning of unexpected. This diversity proves only that the word’s
meaning is legitimately subject to different interpretations - in other words,
that it is ambiguous.
Textron, 754 A.2d at 748; see also id. at 748 n. 1; accord Just v. Land Reclamation, Ltd., 456
N.W.2d 570, 573 (Wis. 1990) (“The very fact that recognized dictionaries differ on the
primary definition of ‘sudden’ is evidence in and of itself that the term is ambiguous.”).
{23} Other courts, while not relying quite so heavily on dictionaries, nonetheless have
found the conceptually distinct definitions of “sudden” to render the term ambiguous. See
St. Paul Fire & Marine Ins. Co., Inc. v. McCormick & Baxter Creosoting Co., 923 P.2d
1200, 1217 (Or. 1996) (citing Webster’s Third New Internat’l Dictionary, Oregon Supreme
Court determined that “‘sudden’ may have, but need not always have, a temporal element”);
Queen City Farms, 882 P.2d at 727 (“There is . . . wide recognition that various dictionaries
define the word ‘sudden’ both as ‘unexpected,’ and in terms connoting a temporal idea of
abrupt, instantaneous, short in duration, or the like.”).
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c. Divergence of Opinion Among Courts
{24} Perhaps more consequential than the fact that “sudden” has multiple definitions in
the abstract is the split among other courts that have considered the issue in similar insurance
coverage disputes. While it is true that “[a] split in legal authority may be indicative of an
ambiguity in the policy, [it] does not establish one.” Davis, 2006-NMCA-099, ¶ 7. Courts
from around the country “have divided nearly evenly on the meaning of ‘sudden,’” with
“[n]early half” concluding that the term is ambiguous. Va. Prop., Inc. v. Home Ins. Co., 74
F.3d 1131, 1134 (11th Cir. 1996) (applying Georgia law to define “sudden” as
“unexpected”). The Rhode Island Supreme Court similarly found “no clear majority among
state or federal courts concerning whether this word entails a temporal element. Both sides
claim to hold the majority view, but the numbers are close enough that any slight
preponderance of one position over the other is not particularly meaningful.” Textron, 754
A.2d at 748 (internal punctuation omitted).2
{25} The Tenth Circuit opinion relied upon by the district court and Court of Appeals in
the present case, Mesa Oil,123 F.3d 1333, determined that “sudden” is unambiguous for two
reasons. First, contrary to this Court’s observations, Mesa Oil notes that “the trend in this
area is to read ‘sudden and accidental’ as requiring that [the] pollution must occur quickly
and abruptly . . . .” Id. at 1339 (citing Quaker State Minit-Lube, Inc. v. Fireman’s Fund Ins.
Co., 52 F.3d 1522, 1525-30 (10th Cir. 1995)); contra Textron, 754 A.2d at 748 (noting that
there is “no clear majority” among courts on whether “sudden” is ambiguous, although
“[b]oth sides claim to hold the majority view”).
{26} The second basis for the Tenth Circuit’s determination is that “the word ‘sudden’
would be superfluous if it did not impose a temporal requirement on the exemption.” Mesa
2
States whose high courts have found the term “sudden” to be ambiguous include
Colorado, Georgia, Illinois, Oregon, South Carolina, Washington, and Wisconsin. See, e.g.,
Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083 (Colo. 1991); Claussen v. Aetna Cas. &
Sur. Co., 380 S.E.2d 686 (Ga. 1989); Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607
N.E.2d 1204 (Ill. 1992); St. Paul Fire & Marine Ins. Co., 923 P.2d 1200; Greenville County
v. Ins. Reserve Fund, 443 S.E.2d 552 (S.C. 1994); Queen City Farms, 882 P.2d 703; Just,
456 N.W.2d 570.
States whose high courts have held the term “sudden” to be unambiguous include
Florida, Massachusetts, Michigan, Nebraska, Oklahoma, South Dakota, and Utah. See, e.g.,
Dimmitt Chevrolet, Inc. v. Se. Fid. Ins. Corp., 636 So. 2d 700 (Fla. 1993); Lumbermens Mut.
Cas. Co. v. Belleville Indus., Inc., 555 N.E.2d 568 (Mass. 1990); Upjohn Co. v. N.H. Ins.
Co., 476 N.W.2d 392 (Mich. 1991); Dutton-Lainson Co. v. Cont’l Ins. Co., 716 N.W.2d 87(Neb. 2006); Kerr-McGee Corp. v. Admiral Ins. Co., 905 P.2d 760 (Okla. 1995); Demaray
v. De Smet Farm Mut. Ins. Co., 801 N.W.2d 284 (S.D. 2011); Sharon Steel Corp. v. Aetna
Cas. & Sur. Co., 931 P.2d 127 (Utah 1997).
10
Oil, 123 F.3d at 1339; accord Dimmitt Chevrolet, 636 So. 2d at 704; N. Ins. Co. of. N.Y. v.
Aardvark Assocs., Inc., 942 F.2d 189, 192 (3d Cir. 1991). We disagree that defining
“sudden” as “unexpected” would automatically render the term redundant with “accidental.”
While “accidental” may be defined as “unexpected,” see Black’s Law Dictionary, supra, at
16, it has just as plausibly been defined as “occurring unintentionally,” see The American
Heritage Dictionary of the English Language 11 (4th ed. 2000); see also Hecla Mining Co.,
811 P.2d at 1092. Even if the terms “sudden” and “accidental” are “partially coextensive,
. . . insurance policies routinely use words that, while not strictly redundant, are somewhat
synonymous.” Hudson v. Farm Family Mut. Ins. Co., 697 A.2d 501, 504 (N.H. 1997)
(internal quotation marks, citation, and alterations omitted); see also Hatco Corp. v. W.R.
Grace & Co.—Conn., 801 F. Supp. 1334, 1350, 1350 n.7 (D.N.J. 1992) (finding the phrase
“sudden and accidental” ambiguous because “it is equally plausible that the phrase was
meant as a string of terms of similar meaning, a practice routinely engaged in by drafters of
insurance contracts,” and noting that insurance policies are replete with synonymous terms,
discussing by way of example that “[t]he difference, if any, between ‘happening’ and ‘event’
escapes recognition”).
{27} Numerous courts finding ambiguity in the phrase “sudden and accidental” have
interpreted the term to mean “unexpected and unintended”—two words that, while
conceptually related, are not identical in meaning. See, e.g., Queen City Farms, 882 P.2d
at 721 (noting that interpreting “sudden” as “unexpected” does not render policy language
duplicative because “‘accidental’ has independent effect as ‘unintended’”); Cotter Corp. v.
Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 821 (Colo. 2004) (interpreting the phrase
“sudden and accidental’ as meaning ‘unexpected and unintended’”) (quoting Hecla Mining,
811 P.2d at 1091-92).
{28} Even assuming, arguendo, that defining “sudden” as “unexpected” renders the term
superfluous, this fact alone does not preclude our holding the term to be ambiguous. New
Mexico’s public policy of protecting the reasonable expectations of insureds, see Montano
v. Allstate Indem. Co., 2004-NMSC-020, ¶ 25, 135 N.M. 681, 92 P.3d 1255, should take
precedence over rescuing an insurer from redundancies in its own policy, cf. Wis. Realtors
Ass’n, Inc. v. Town of West Point, 747 N.W.2d 681, 685 (Wis. Ct. App. 2008) (noting that
interpreting statutory terms to avoid redundancy “is only one rule of . . . construction[, and]
is not absolute.”). Mesa Oil’s holding that “sudden” clearly means “abrupt” was premised
on two assumptions we view to be erroneous, and thus provided inadequate support for the
district court’s and the Court of Appeals’ reliance on that case.
{29} Many courts have reasonably concluded, both inside and outside of the insurance
context, that such a lack of interpretive consensus is itself an indicator of ambiguity. See
Greenville, 443 S.E.2d at 553 (S.C. 1994) (“That different courts have construed the
language of an insurance policy differently is some indication of ambiguity.”); Bankwest v.
Fid. & Deposit Co. of Md., 63 F.3d 974, 978 (10th Cir. 1995) (“The fact that judicial
opinions have interpreted identical policy provisions differently may demonstrate
ambiguity.”); see also Salazar v. Butterball, LLC, 644 F.3d 1130, 1137 (10th Cir. 2011) (The
11
court concluded that the disputed term was ambiguous in part because of the “differing
interpretations of several courts” and a federal agency.); INS v. Errico, 385 U.S. 214, 218
(1966) (“The sharp divergence of opinion among . . . judges . . . indicates that the meaning
of the words ‘otherwise admissible’ is not obvious.”). We do not resolve this appeal simply
by tallying reported decisions that have addressed the issue before. However, the
conspicuous division among courts on the meaning of the term “sudden” is another
indication that the term may be reasonably susceptible to two distinct interpretations.
d. Industry Practice and Drafting History
{30} United Nuclear urges this Court to consider the “custom and usage” of the phrase
“sudden and accidental” within the insurance industry, arguing that prior use of the term in
other kinds of insurance policies supports “a non-temporal construction.” United Nuclear
similarly asks the Court to consider the drafting history of the pollution exclusion, arguing
that documentation from the drafting process supports the understanding that the pollution
exclusion was intended to only disallow coverage for deliberate pollution.
{31} In support of its argument, United Nuclear points to court decisions involving boiler
and machinery insurance policies, which are policies that insure losses or breakdowns to
equipment and fixtures. Boiler and machinery policies had employed the term “sudden”
within the policies prior to use of the term’s use in the pollution exclusion context. See Ala.
Plating Co. v. U.S. Fid. & Guar. Co., 690 So.2d 331, 336 (Ala. 1996). In cases addressing
coverage under such policies, some courts have interpreted “sudden” to mean “unexpected.”
See Anderson & Middleton Lumber Co. v. Lumbermen’s Mut. Cas. Co., 333 P.2d 938, 941
(Wash. 1959) (“We do not so construe the word ‘sudden,’ when its primary meaning, in
common usage, is not ‘instantaneous’ but rather ‘unforeseen and unexpected.’”). Several
courts have relied on the interpretation of “sudden” in decisions involving boiler and
machinery policies in order to construe “sudden” as it appears within the pollution exclusion.
For example, in Queen City Farms, the Washington Supreme Court reasoned that, in the
boiler and machinery context, the risk to insurer is the same regardless of “whether a break
is instantaneous or began with a crack which developed over a period of time,” and
concluded that defining “sudden” as “instantaneous” would be inconsequential. 882 P.2d
at 720 (citing Anderson, 333 P.2d at 940-41). The court then by extension held “sudden”
to mean “unforseen and unexpected” rather than “instantaneous” within a pollution exclusion
clause. Id. at 720.
{32} More recent decisions analyzing “sudden and accidental” in the context of other
types of insurance policies are also instructive. For instance, the New Hampshire Supreme
Court found “sudden and accidental” to be ambiguous in a ‘special farm package policy’ that
provided coverage for, among other events, “[s]udden and [a]ccidental [d]amage from
[a]rtific[i]ally [g]enerated [e]lectrical [c]urrent.” Hudson, 697 A.2d at 504. In doing so, the
court relied in part on dictionaries and an insurance treatise which appeared to favor a
definition of “sudden” as “unexpected.” Id. (“[T]he term ‘sudden and accidental’ is at least
reasonably susceptible to an interpretation consistent with ‘unexpected and unintended.’”).
12
In litigation involving homeowners’ insurance policies, a federal district court applying
Louisiana law defined “sudden and accidental” as “an event which is either abrupt (though
expected), or unexpected,” and which “occur[s] from an unknown cause or [is] an unusual
result of a known cause.” In re Chinese Manufactured Drywall Prods. Liab. Litig., 759 F.
Supp. 2d 822, 834 (E.D. La. 2010) (internal quotation marks and citation omitted). Thus,
varying interpretations of “sudden” from cases considering other types of insurance, while
not governing the outcome here, cast doubt on Allstate’s assertion that there is a single
obvious meaning to the term.
{33} Turning to the drafting history of the pollution exclusion, “[a]round 1970,” United
Nuclear asserts, “the insurance industry ‘tacked’ the pollution exclusion onto general
liability policies as a way to distance insurers ‘in the public mind from deliberate polluters.’”
United Nuclear contends that documents from the policy drafting process show “the
insurance industry expected the exclusion merely to clarify the industry’s intention to
exclude pollution events that are expected or intended . . . .” The propriety and necessity of
considering drafting history in evaluating the meaning of the term “sudden” has featured
prominently in prior decisions. Our Court of Appeals, however, deemed it unnecessary to
do so in this case because “[t]he hypothetical reasonable insured with limited knowledge of
insurance law would understand the word ‘sudden’ to mean what it ordinarily means: quick,
abrupt, or a temporarily short period of time.” United Nuclear, 2011-NMCA-039, ¶ 20. We
do not conclude, as did the Court of Appeals, that “sudden” has only one reasonable
meaning. Moreover, unlike the Court of Appeals we view the consideration of extrinsic
evidence as important to the initial determination of whether an ambiguity exists in the
insurance policy. See generally Ponder, 2000-NMSC-033, ¶ 13.
{34} The crux of United Nuclear’s argument with respect to drafting history is that the
insurance industry sought regulatory approval for the pollution exclusion without being
required to reduce premiums by reassuring state regulators that the exclusion was merely a
clarification, rather than a limitation, of coverage. Allstate offers two substantive arguments
in response. First, it contends that the drafting history “concerns alleged representations
only by third parties . . . . Neither [United Nuclear] nor Allstate participated in either the
drafting or the approval of the form language.” The purpose of exploring the drafting history
of the pollution exclusion, however, is not to demonstrate Allstate’s participation in the
drafting of the pollution exclusion or even its assent to other insurers’ representations, but
rather to show that the term acquired a particular meaning as the pollution exclusion worked
its way through the regulatory approval process. See generally Queen City Farms, 882 P.2d
at 721, 722 (“[I]nsurance industry statements examined by [prior] courts may be considered
insofar as they represent a reasonable construction of the ambiguous policy language.”).
{35} Second, Allstate asserts that a reasonable insured would not be apprised of the
intricacies of the insurance industry’s common trade practices, and therefore such
information should not be considered. This argument contradicts the policy rationale
underlying the “reasonable expectations” standard and the ultimate resolution of ambiguities
in favor of the insured. As we have established, a reviewing court may use extrinsic
13
evidence to answer the preliminary question of whether the language of an insurance
agreement is clear on its face. See Mark V, 114 N.M. at 781, 845 P.2d at 1235. Then, after
the resolution of this preliminary question, the court resolves the question of whether a
reasonable person would or could interpret the agreement differently. Id. Due to the
inherent power imbalances previously discussed, we construe any resulting ambiguities in
favor of the insured. See generally Ponder, 2000-NMSC-033, ¶ 26. The purpose of the
“reasonable expectations” doctrine is not to restrict a court from considering relevant sources
in interpreting a policy term, but rather to protect the insured from disclaimers based on
information that is hyper-technical, obscure, or hidden. See Fed. Ins. Co. v. Century Fed.
Sav. & Loan Ass’n, 113 N.M. 162, 169, 824 P.2d 302, 309 (1992) (focusing the reasonable
expectations inquiry on “protecting the one for whose benefits premiums have been paid for
insurance coverage”) (internal quotation marks and citation omitted); Thompson v.
Occidental Life Ins. Co. of Cal., 90 N.M. 620, 626, 567 P.2d 62, 68 (Ct. App. 1977) (“The
doctrine of ‘reasonable expectations’ is an equitable approach” which allows a court to read
a policy to “yield the maximum of protection to, and the reasonable expectation of, the
insured” to prevent the insurer from “tak[ing] an unconscionable advantage.”) (Sutin, J.,
concurring in part and dissenting in part); Atwater Creamery Co. v. W. Nat’l Mut. Ins. Co.,
366 N.W.2d 271, 278 (Minn. 1985) (applying reasonable expectations doctrine to prevent
insurer from denying coverage on the basis of a “technical definition” that was “hidden” in
the policy); Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 581 F. Supp. 2d 677,
690 (W.D. Pa. 2008) (“[T]he ‘reasonable expectations’ doctrine is intended to protect against
the inherent danger, created by the nature of the insurance industry, that an insurer will agree
to certain coverage when receiving the insured’s application, and then unilaterally change
those terms when it later issues a policy.”) (internal quotation marks and citation omitted).
{36} As the dissent to the Court of Appeals’ opinion recognizes, “[t]he events leading up
to the creation of the pollution exception by the insurance industry are ‘well-documented and
relatively uncontroverted.’” United Nuclear, 2011-NMCA-039, ¶ 40 (Vigil, J., dissenting)
(quoting Morton Int’l, Inc. v. Gen. Accident Ins. Co. of Am., 629 A.2d 831, 848 (N.J. 1993)).
Many courts from around the country have examined the drafting history of this exclusion
to decode the intended scope of the clause, and have concluded that the insurance industry
introduced the clause merely to clarify its stance on intentional pollution, not to substantively
change the coverage itself. See, e.g., Textron, 754 A.2d at 752 (“Our examination of the
pollution-exclusion clause’s drafting history . . . suggests that its original purpose–at least
as the industry represented it to regulators–was to deny coverage to reckless or intentional
polluters.”); Queen City Farms, 882 P.2d at 721-22 (“As reported in published decisions,
representations were made to state insurance regulators that the pollution exclusion was
intended to exclude coverage for intentional polluters and clarify the occurrence clause.”);
Joy Techs., Inc. v. Liberty Mut. Ins. Co., 421 S.E.2d 493, 499 (W. Va. 1992) (“In this Court’s
view, the insurance industry thus represented to the State of West Virginia, acting through
the West Virginia Commissioner of Insurance, that the exclusion which is in issue in the
present case merely clarified the pre-existing ‘occurrence’ clause.”). Allstate insists that we
should ignore the drafting history of the pollution exclusion because United Nuclear did not
introduce evidence of that history in an admissible form before the trial court. This argument
14
misses the point of our, and other courts’, reference to that history. Interpreting an
ambiguous term in an insurance policy is a question of law, see Richardson v. Farmers Ins.
Co., 112 N.M. 73, 74, 811 P.2d 571, 572 (1991), and we need not blind ourselves to prior
judicial exploration of the origins of the language employed in the exclusion in the course
of addressing the identical interpretive question that we confront here.
{37} Judge Vigil’s dissent viewed the industry’s proferred meaning of the pollution
exclusion during the drafting and approval process to be in tension with the meaning that
Allstate urges, as do we. See United Nuclear, 2011-NMCA-039, ¶ 48 (Vigil, J., dissenting)
(“I do not agree that insurance companies can represent to regulators that they intend a
phrase to mean one thing in a policy when they seek its approval, then assert that it means
something else when a claim is subsequently filed.”). Although a review of the origins of
the pollution exclusion does not by itself determine ambiguity, that history provides another
indication that the word “sudden” in the phrase “sudden and accidental” did not then, and
does not now, bear a single obvious meaning. See id. ¶ 50 (Vigil, J., dissenting).
III. CONCLUSION
{38} The absence of a definition of the term in the Policies, taken together with diverging
definitions in standard dictionaries and the lack of any consensus among courts nationwide,
we hold that the meaning of the term “sudden” as used in the Policies is ambiguous. In
recognizing the inherent imbalance of the two parties to an insurance contract—that often
times “language in standard policies does not involve mutual negotiations between the
insurers and the insureds”—we must resolve such ambiguities against the insurer. Queen
City Farms, 882 P.2d at 721. “Where exceptions to or limitations upon coverage are
concerned, this principle applies with added force.” Id.
{39} Typically, the determination that a term in an insurance policy is ambiguous is “a
matter of law rather than a factual determination.” Rummel, 1997-NMSC-041, ¶ 19. Where
facts relating to the term at issue are in dispute, or where a credibility determination is
required, an ambiguity may be remanded to the trier of fact for resolution. See, e.g.,
Ellingwood v. N.N. Investors Life Ins. Co., 111 N.M. 301, 305, 307-08, 805 P.2d 70, 74, 76-
77 (1991). Where there are no disputed material facts, however, courts routinely view
construction of a term in an insurance policy “as purely a question of law and construe[] any
ambiguities” in the insured’s favor. Allstate Ins. Co. v. Fackett, 125 Nev. 132, 138, 206 P.3d
572, 575 (2009); see also Clarendon Nat’l Ins. Co. v. Ins. Co. of the West, 442 F. Supp. 2d
914, 922 (E.D. Cal. 2006) (“Unless it turns on the credibility of conflicting extrinsic
evidence or on underlying facts that are in dispute, the interpretation of an insurance policy
is solely a question of law.”) Here the parties do not disagree about any facts material to the
interpretation of the term “sudden,” but only dispute the significance of those facts. We
hold, therefore, as a matter of law that the term “sudden,” in the Policies’ pollution
exclusion, means “unexpected,” rather than indicating a temporal limitation on the
occurrence. Our holding does not necessarily mean that United Nuclear is entitled to
coverage under the Policies. United Nuclear must still prove that its operations led to
15
discharges that were in fact “sudden and accidental,” and Allstate may have other policy
defenses to coverage not raised in its summary judgment motion and this appeal. We reverse
the Court of Appeals’ grant of summary judgment to Allstate, and remand the case to the
district court for further proceedings consistent with this Opinion.
{40} IT IS SO ORDERED.
____________________________________
PATRICIO M. SERNA, Justice
WE CONCUR:
____________________________________
PETRA JIMENEZ MAES, Chief Justice
____________________________________
RICHARD C. BOSSON, Justice
____________________________________
EDWARD L. CHÁVEZ, Justice
____________________________________
CHARLES W. DANIELS, Justice
Topic Index for United Nuclear Corp. v. Allstate Insurance Co., No. 32,939
APPEAL AND ERROR
Standard of Review
CONTRACT
Ambiguous Contracts
EVIDENCE
Extrinsic Evidence
INSURANCE
Exclusion Clause
Indemnity
Insurance Contract
NATURAL RESOURCES
Mines and Minerals
Pollution
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