Acuity v. Chartis Specialty Insurance Company

2015 WI 28SUPREME COURT OF WISCONSIN
CASE NO.: 2013AP1303
COMPLETE TITLE: Acuity, A Mutual Insurance Company,
Third-Party
Plaintiff-Respondent-Petitioner,
v.
Chartis Specialty Insurance Company, sued as and
f/k/a
American International Specialty Lines Insurance
Company,
Third-Party Defendant-Appellant.
REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 353 Wis. 2d 554, 846 N.W.2d 34(Ct. App. 2014 – Unpublished)
OPINION FILED: March 17, 2015
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: January 14, 2015
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Waukesha
JUDGE: J. Mac Davis
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING:
ATTORNEYS:
For the third-party plaintiff-respondent-petitioner, there
were briefs by Michael J. Cohen, Joseph J. Sarmiento, and
Meissner Tierney Fisher & Nichols, S.C., Milwaukee, and Lance S.
Grady, Daniel K. Miller, and Grady Hayes & Neary, LLC, Waukesha.
Oral argument by Michael J. Cohen.
For the third-party defendant-appellant, there was a brief
by Mark W. Rattan, Ericka C. Piotrowski, and Litchfield Cavo
LLP, Brookfield. Oral argument by Mark W. Rattan.
2015 WI 28NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2013AP1303
(L.C. No. 2009CV2478, 2009CV4611, 2010CV1506 & 2011CV2087)
STATE OF WISCONSIN : IN SUPREME COURT
Acuity, A Mutual Insurance Company,
Third-Party Plaintiff-Respondent-
Petitioner FILED
v. MAR 17, 2015
Chartis Specialty Insurance Company, sued as Diane M. Fremgen
and f/k/a American International Specialty Clerk of Supreme Court
Lines Insurance Company
Third-Party Defendant-Appellant
REVIEW of a decision of the Court of Appeals. Reversed.
¶1 SHIRLEY S. ABRAHAMSON, C.J. This is a review of an
unpublished decision of the court of appeals reversing orders
and a judgment of the Circuit Court for Waukesha County, J. Mac
Davis, Judge.1
¶2 The dispute in the instant case is between two
insurance companies: Acuity, A Mutual Insurance Company and
1
Acuity, A Mutual Ins. Co. v. Chartis Specialty Ins. Co.,
No. 2013AP1303, unpublished slip op. (Wis. Ct. App. Mar. 12,
2014).
No. 2013AP1303
Chartis Specialty Insurance Company.2 Both insurance companies
issued liability policies to Dorner, Inc., a construction
company, the insured.3 The Acuity policy was a Comprehensive
General Liability (CGL) policy. The Chartis policy was a
Contractors' Pollution Liability (CPL) policy.
¶3 Acuity has defended and indemnified the insured in
four lawsuits seeking recovery for bodily injury and property
damage caused by a natural gas-fueled explosion and fire. This
explosion and fire occurred after the insured's employees
disturbed an underground natural gas pipeline during an
excavation project. Acuity now seeks recovery from Chartis,
asserting that Chartis's CPL policy provides coverage for the
insured in these four lawsuits.
¶4 The dispute in the instant case revolves around the
insurance companies' different interpretations of Chartis's
duties and obligations to the insured under Chartis's CPL
policy.
¶5 The circuit court concluded that Chartis breached its
duties of defense and indemnification under the CPL policy and
ordered Chartis to share with Acuity "on a 50-50 basis" the cost
2
Chartis was formerly known as American International
Specialty Lines Insurance Company (AISLIC) and was sued under
that name.
3
Dorner, Inc. is not a party in this review because Acuity
has paid all of the insured's defense costs and indemnity
settlements and the lawsuits against the insured have been
settled and dismissed.
2
No. 2013AP1303
of defending and indemnifying the insured. Pursuant to this
order, a money judgment was entered in favor of Acuity and
against Chartis for $785,880.90 (which constitutes one-half of
the indemnity settlement payments of $1,531,761.80 that Acuity
paid on the insured's behalf), plus taxable costs of $905.75.
The two insurance companies stipulated that Chartis had already
paid one-half of the total defense fees.
¶6 The court of appeals reversed the judgment and orders
of the circuit court and ruled in favor of Chartis. The court
of appeals held that the claims of bodily injury and property
damage asserted against the insured were not "caused by
Pollution Conditions" and therefore were not covered under
Chartis's CPL policy.
¶7 Chartis, according to the court of appeals, had no
duty to defend the insured in the four lawsuits. The court of
appeals remanded the matter to the circuit court with directions
to enter judgment in favor of Chartis and against Acuity for the
sum Chartis had paid Acuity toward the insured's defense fees.
¶8 For the reasons set forth, we agree with the circuit
court's determination that that the natural gas leak was a
pollution condition under Chartis's CPL policy and that this
pollution condition caused the bodily injury and property damage
alleged in the four lawsuits. We therefore conclude that
Chartis's CPL policy covers the insured's liability arising from
the natural gas-fueled explosion and fire. Chartis must pay its
share of the defense fees and indemnity payments as ordered by
the circuit court. Accordingly, we reverse the decision of the
3
No. 2013AP1303
court of appeals and remand the cause to the circuit court to
reinstate the judgment in favor of Acuity and against Chartis.
I
¶9 The facts are not in dispute for purposes of this
review.
¶10 The insured contracted with the Wisconsin Department
of Transportation to perform road construction, including
underground excavation. While the insured's employees were
excavating a portion of Worthington Street in Oconomowoc,
Wisconsin, they discovered a pressurized natural gas pipe and
incorrectly concluded that it was no longer in use. The
employees attempted to move the pipe, damaging it in the
process.
¶11 The damage to the pipe caused natural gas to escape.
Shortly thereafter, natural gas that had leaked out of the
damaged pipe exploded, causing a fire. The explosion and fire
caused property damage to various buildings, including a nearby
church and residence, and caused personal injury to various
people at the scene.
¶12 In the aftermath of the explosion and fire, four
lawsuits were filed against the insured seeking recovery for
property damage and bodily injury. These four lawsuits were
consolidated in Waukesha County Circuit Court.
¶13 Acuity undertook the insured's defense in the four
lawsuits. The insured and Acuity filed a third-party complaint
against Chartis seeking, among other things, a declaration that
4
No. 2013AP1303
Chartis has a duty to defend and indemnify the insured in the
four lawsuits.
¶14 Acuity did not contest its duties to defend and
indemnify the insured and does not contest its liability in the
instant case. Rather, it seeks reimbursement from Chartis for
one-half of the defense fees incurred in representing the
insured and one-half of the indemnity payments made on the
insured's behalf.
¶15 Chartis denies coverage under its CPL policy, which
covers the insured's liability for "Bodily Injury [or] Property
Damage . . . caused by Pollution Conditions . . . ." Chartis
does not contest that the four lawsuits allege bodily injury and
property damage resulting from the natural gas-fueled explosion
and fire. Rather, Chartis asserts that neither the natural gas-
fueled explosion and fire nor the resulting bodily injury and
property damage were "caused by Pollution Conditions" as
required by the CPL policy.
¶16 Acuity and Chartis filed opposing motions for summary
judgment on the issue of coverage under Chartis's CPL policy.
On January 28, 2011, the circuit court entered summary judgment
in favor of Acuity. The circuit court determined that the
natural gas that leaked from the damaged pipe constitutes a
"contaminant" under the CPL policy and thus that its release
from the damaged pipe was a "pollution condition" under the
policy. The circuit court explained: "[N]atural gas doesn't
belong floating around in the street, or in the church, or in
5
No. 2013AP1303
the air around this area because it might blow up. So it's a
contaminant in that sense, it's certainly dangerous."
¶17 With regard to the allocation of defense fees and
indemnity payments, the circuit court entered an order on May
25, 2012, instructing Acuity and Chartis to split the cost of
defending and indemnifying the insured "on a 50-50 basis."
¶18 The underlying lawsuits settled, and Chartis paid its
one-half share of the defense fees incurred by Acuity. The
circuit court entered an order on May 2, 2013, after the four
lawsuits had settled, instructing Chartis to pay its one-half
share of the indemnity settlement payments as well. On May 8,
2013, a money judgment was entered against Chartis.
¶19 The court of appeals reversed the circuit court and
remanded the cause to the circuit court with instructions to
vacate the orders and judgment in favor of Acuity and to enter
judgment in favor of Chartis. The court of appeals provided
scant explanation of its decision, concluding that the four
lawsuits alleged bodily injury and property damage "due only to
the explosion and fire, not to contact with the escaped natural
gas itself because the gas intrinsically is an 'irritant or
contaminant' . . . ."4 Thus, the opinion continues, coverage
under Chartis's CPL policy is not "fairly debatable" and Chartis
had no duty to defend the insured in the underlying lawsuits.5
4
Acuity, A Mutual Ins. Co. v. Chartis Specialty Ins. Co.,
No. 2013AP1303, unpublished slip op., ¶14 (Wis. Ct. App. Mar.
12, 2014).
5
Id.6
No. 2013AP1303
II
¶20 We review the circuit court's grant of summary
judgment in favor of Acuity using the same standards and methods
applied by the circuit court.6 Under Wis. Stat. § 802.08(2)
(2011-12),7 a moving party is entitled to summary judgment if
there are no genuine issues of material fact and the moving
party is entitled to judgment as a matter of law.8 The parties
in the instant case do not dispute the facts. The issue is
whether Acuity is entitled to judgment as a matter of law.
¶21 Whether Acuity is entitled to summary judgment as a
matter of law depends on the interpretation of Chartis's CPL
policy. The interpretation of an insurance policy ordinarily
presents a question of law that this court decides independently
of the circuit court and court of appeals, but benefiting from
their analyses.9
III
¶22 We begin by repeating the rules governing a court's
interpretation of an insurance policy. These rules have been
set forth many times.
6
Pawlowski v. Am. Family Mut. Ins. Co., 2009 WI 105, ¶15,
322 Wis. 2d 21, 777 N.W.2d 67.
7
All subsequent references to the Wisconsin Statutes are to
the 2011-12 version unless otherwise indicated.
8
Pawlowski, 322 Wis. 2d 21, ¶15.
9
Martin v. Am. Family Mut. Ins. Co., 2002 WI 40, ¶10, 252
Wis. 2d 103, 643 N.W.2d 452.
7
No. 2013AP1303
¶23 Words and phrases in insurance policies are subject to
the same rules of construction applicable to contracts
generally.10 The primary objective in construing these words and
phrases is "to ascertain and carry out the true intent of the
parties."11 To that end, "a court may consider the purpose or
subject matter of the insurance, the situation of the parties,
and the circumstances surrounding the making of the contract."12
¶24 When language in an insurance policy is unambiguous, a
court will not rewrite the policy by interpretation or impose
obligations the parties did not undertake.13 However, when
language in an insurance policy is ambiguous, it should be
construed against the insurance company that drafted the
policy.14 "Under the doctrine of contra proferentem, ambiguities
in a policy's terms are to be resolved in favor of coverage,
while coverage exclusion clauses are construed narrowly against
the insurer."15
¶25 To protect the insured's reasonable expectations of
coverage, a policy's terms "should be interpreted as they would
10
Frost ex rel. Anderson v. Whitbeck, 2002 WI 129, ¶15, 257
Wis. 2d 80, 654 N.W.2d 225.
11
Id., ¶16.
12
Id., ¶22.
13
Id., ¶17.
14
Id., ¶19.
15
Donaldson v. Urban Land Interests, Inc., 211 Wis. 2d 224,
230, 564 N.W.2d 728 (1997) (footnote omitted).
8
No. 2013AP1303
be understood from the perspective of a reasonable person in the
position of the insured."16
¶26 To determine whether a duty to defend exists, the
court must compare "the allegations of the complaint to the
terms of the insurance policy."17 As this court declared in
Liebovich v. Minnesota Insurance Co., 2008 WI 75, ¶16, 310
Wis. 2d 751, 751 N.W.2d 764, "[a]n insurer has a duty to defend
when there are allegations in a complaint that, if proven, would
give rise to recovery under the terms and conditions of the
insurance policy." (Internal quotation marks omitted.)
16
Id.Two more recent cases discuss the reasonable insured
standard for interpreting a general liability policy's pollution
exclusion clause. See Preisler v. Gen. Cas. Ins. Co., 2014 WI
135, ¶40, ___ Wis. 2d ___, 857 N.W.2d 136; Wilson Mutual Ins.
Co. v. Falk, 2014 WI 136, ¶38, ___ Wis. 2d ___, 857 N.W.2d 156.
17
Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI
33, ¶19, 261 Wis. 2d 4, 660 N.W.2d 666. See also Estate of
Sustache v. Am. Family Mut. Ins. Co., 2008 WI 87, ¶20, 311
Wis. 2d 548, 751 N.W.2d 845 (stating that the "allegations
contained within the four corners of the complaint" trigger the
duty to defend).
The insurance policy at issue in the instant case provides
a duty to defend as follows:
B. DEFENSE
When a Claim is made against the Insured to which
Section I. INSURING AGREEMENT, A. COVERAGE above
applies, the Company has the right to appoint
counsel and the duty to defend such Claim, even if
groundless, false, or fraudulent.
9
No. 2013AP1303
¶27 Although "the duty to defend is triggered by arguable,
as opposed to actual, coverage,"18 the duty to indemnify is
triggered by actual coverage.19 In other words, the duty to
defend depends upon the nature, not the merits, of the claim
against the insured,20 while the duty to indemnify depends on the
merits of the claim.21 The duty to defend is therefore broader
than the duty to indemnify.22
¶28 Employing these rules of interpretation, a court
engages in a three-step process to determine whether an
insurance policy provides coverage.23 A court first determines
18
Fireman's Fund, 261 Wis. 2d 4, ¶20 (emphasis added).
19
See 14 Steven Plitt et al., Couch on Insurance § 200:3 at
200-10 (3rd ed. 1997) (explaining that the duty to defend
depends on whether there is a possibility of "liability to
indemnify," whereas "the duty to indemnify [] arises only when
the insured's underlying liability is established" (emphasis
added)).
20
Liebovich v. Minn. Ins. Co., 2008 WI 75, ¶16, 310
Wis. 2d 751, 751 N.W.2d 764.
21
See 14 Plitt et al., supra note 19, § 200:3 at 200-10
("[T]he duty to indemnify arises only once liability has been
conclusively determined."). See also 2 Arnold P. Anderson,
Wisconsin Insurance Law § 7.24 (6th ed. 2010) (stating that the
duty to defend "depends on the nature of the claim and has
nothing to do with the merits of the claim" and explaining that
"[t]he duty to indemnify is not reached if there is no arguable
coverage (duty to defend)").
22
Elliott v. Donahue, 169 Wis. 2d 310, 320, 485 N.W.2d 403(1992).
23
See, e.g., Preisler, ___ Wis. 2d ___, ¶22; Wilson Mut.,
___ Wis. 2d ___, ¶26; Wadzinski v. Auto-Owners Ins. Co., 2012 WI
75, ¶14, 342 Wis. 2d 311, 818 N.W.2d 819.
10
No. 2013AP1303
whether the dispute at issue falls within the initial coverage
grant of the policy. If so, the court then determines whether
any of the policy's exclusions apply to remove the matter from
the scope of the policy's coverage. If an exclusion applies,
the court must then decide whether an exception to the exclusion
applies to reinstate coverage.
¶29 With these interpretive principles in mind, we turn to
Chartis's CPL policy, the policy at issue.
IV
¶30 Three sections of Chartis's CPL policy are important
to determining Chartis's liability in the present case.
¶31 First is the coverage section of the CPL policy. The
policy provides that Chartis will cover the insured's liability
for claims of bodily injury and property damage "caused by
Pollution Conditions." The relevant coverage provision states
as follows:
A. COVERAGE
1. The Company will pay on behalf of the Insured all
sums that the Insured shall become legally
obligated to pay as Loss as a result of Claims
for Bodily Injury, Property Damage, or
Environmental Damage caused by Pollution
Conditions resulting from Covered Operations.
The Pollution Conditions must be unexpected and
unintended from the standpoint of the Insured.
The Bodily Injury, Property Damage, or
Environmental Damage must occur during the Policy
Period.
¶32 Second is the CPL policy's definitions of the phrases
"Pollution Conditions" and "Covered Operations," which are
critical to defining the scope of the policy's coverage.
11
No. 2013AP1303
¶33 The phrase "Pollution Conditions" is defined by the
policy as the "release or escape of any solid, liquid, gaseous,
or thermal irritant or contaminant . . . into or upon land, or
any structure on land, [or] the atmosphere . . . provided such
conditions are not naturally present in the environment in the
concentration or amounts discovered." The policy does not
define the terms "irritant" or "contaminant." The full
definition of "Pollution Conditions" is as follows:
Pollution Conditions means the discharge, dispersal,
release or escape of any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke,
vapors, soot, fumes, acids, alkalis, toxic chemicals,
medical waste and waste materials into or upon land,
or any structure on land, the atmosphere or any
watercourse or body of water, including groundwater,
provided such conditions are not naturally present in
the environment in the concentration or amounts
discovered.
¶34 The phrase "Covered Operations" is defined by
Chartis's CPL policy as "those activities performed by the Named
Insured at a job site." No one disputes that the insured's
excavation project, during which the insured's employees damaged
the natural gas pipe, was a covered operation under the policy.
¶35 Third are the policy's "other insurance" provisions.
An endorsement to the CPL policy regarding other insurance
provides that "[w]here other insurance may be available for Loss
covered under [the CPL] Policy," the CPL policy "is primary."
The endorsement details Chartis's obligations under such
circumstances, including its obligation to contribute one half
of the cost of covering an insured's liability when the
12
No. 2013AP1303
insured's other insurance policy "is also primary" and that
policy "permits contribution by equal shares."
¶36 The "other insurance" endorsement to the CPL policy
also excludes from coverage any claim arising out of covered
operations with respect to which the named insured is insured
under another CPL policy.
¶37 We now explore these sections of the CPL policy in the
context of the facts underlying the instant case. We begin by
determining whether the escape of natural gas from the damaged
pipe falls within the policy's definition of "Pollution
Conditions." More specifically, we address whether the four
lawsuits assert claims of bodily injury or property damage
"caused by Pollution Conditions." We explore the "other
insurance" sections of the CPL policy last.
V
¶38 We address three arguments the parties pose regarding
Chartis's obligations under its CPL policy to defend and
indemnify the insured.
¶39 First, the parties dispute whether the escape of
natural gas from the damaged pipe constitutes a pollution
condition. This dispute centers on whether natural gas is an
"irritant or contaminant."
¶40 Second, if the escape of natural gas from the damaged
pipe was a pollution condition, the parties dispute whether the
property damage and bodily injury alleged in the four lawsuits
were "caused" by that pollution condition.
13
No. 2013AP1303
¶41 Third, the parties dispute whether concurrent coverage
under Acuity's CGL policy and Chartis's CPL policy is possible
in the instant case.
1
¶42 First, we address whether the escape of natural gas
from the damaged pipe constitutes a pollution condition. The
answer turns on whether the natural gas that escaped from the
damaged pipe was an "irritant or contaminant." Chartis's policy
does not define the words "irritant" and "contaminant." The
court has, however, previously interpreted the words "irritant"
and "contaminant" in the context of pollution exclusion clauses
in general liability policies.
¶43 In the instant case, we are interpreting the words
"irritant" and "contaminant" in the CPL policy's statement of
coverage. The meanings of these words when used in a CPL
policy's statement of coverage may be different than the
meanings of these words when used in a pollution exclusion
clause in a general liability policy. As explained previously,
ambiguities in the coverage terms of an insurance policy are
construed broadly (in favor of coverage), while ambiguities in
an insurance policy's exclusion are construed narrowly (in favor
of coverage).24 Nevertheless, our interpretation of the words
"irritant" and "contaminant" in prior cases involving pollution
exclusion clauses is instructive.
24
Donaldson, 211 Wis. 2d at 230.
14
No. 2013AP1303
¶44 When interpreting these words in the context of
pollution exclusion clauses in general liability policies, the
court has used the common, ordinary, dictionary definitions of
these words.
¶45 Furthermore, in the pollution exclusion clause cases,
the court has interpreted the words "irritant" and "contaminant"
by looking to the particular fact situation presented. The
court has recognized that the words "irritant" and
"contaminant," when "viewed in isolation, are virtually
boundless, for there is virtually no substance or chemical in
existence that would not irritate or damage some person or
property."25 Thus, when interpreting these words in a pollution
exclusion clause, the court has applied limiting principles to
prevent the exclusion from extending beyond its intended scope
and leading to absurd results.26
¶46 In discussing whether natural gas is a contaminant,
the parties in the instant case focus on two pollution exclusion
clause cases: Peace ex rel. Lerner v. Northwestern National
Insurance Co., 228 Wis. 2d 106, 596 N.W.2d 429 (1999), and
Hirschhorn v. Auto-Owners Insurance Co., 2012 WI 20, 338
Wis. 2d 761, 809 N.W.2d 529.
25
Id. at 232 (quoting Pipefitters Welfare Educ. Fund v.
Westchester Fire Ins. Co., 976 F.2d 1037, 1043 (7th Cir. 1992)).
26
Donaldson, 211 Wis. 2d at 232 (citing Pipefitters, 976
F.2d at 1043).
15
No. 2013AP1303
¶47 In Peace, the issues were whether lead paint was a
pollutant and, relatedly, whether damage caused by lead paint
was excluded from coverage under an insurance policy's pollution
exclusion clause.
¶48 The insured landlords in Peace sought coverage under
their commercial general liability policy for a child tenant's
personal injury claim. The complaint alleged that the landlord
"negligently failed to properly remove all lead-based paint from
the property"; that the child had ingested lead paint chips,
flakes, and dust inside the property; and that the child
suffered lead poisoning as a result.27
¶49 The landlords' commercial general liability policy
excluded from coverage all claims of bodily injury or property
damage "arising out of the actual, alleged or threatened
discharge, dispersal, release or escape of pollutants . . . ."28
The policy defined "pollutants" as "any solid, liquid, gaseous
or thermal irritant or contaminant . . . ."29 The insurance
company asserted that lead paint was a contaminant and thus a
pollutant, and denied coverage under the policy's pollution
exclusion clause.
¶50 The Peace court observed that the commercial general
liability policy provided no definition of "contaminant." The
27
Peace ex rel. Lerner v. Nw. Nat'l Ins. Co., 228
Wis. 2d 106, 113-14, 596 N.W.2d 429 (1999).
28
Id. at 113.
29
Id.16
No. 2013AP1303
court stated: "When determining the ordinary meaning of
[undefined] words, it is appropriate to look to the definitions
in a non-legal dictionary."30 The court further stated that the
dictionary definition of "contaminant" is "one that
contaminates."31 "Contaminate," the court explained, "is defined
as '1. To make impure or unclean by contact or mixture.'"32
¶51 Because of the severe consequences of lead poisoning
for human health, the Peace court concluded that "[t]here is
little doubt that lead derived from lead paint chips, flakes, or
dust is . . . [a] serious contaminant."33 Thus, the Peace court
determined that lead released from "lead paint, chips, flakes,
or dust" fell under the definition of "pollutant" in the
pollution exclusion clause of the commercial general liability
policy at issue. The Peace court barred recovery on that
ground.
¶52 A second case defining "pollutant," this time for
purposes of a pollution exclusion clause in a homeowner's
policy, is Hirschhorn v. Auto-Owners Insurance Co., 2012 WI 20,
338 Wis. 2d 761, 809 N.W.2d 529.
¶53 In Hirschhorn, insured homeowners sought coverage
under their homeowners' policy for damage to their vacation home
30
Id. at 122.
31
Id.32
Id.33
Id. at 125.
17
No. 2013AP1303
that resulted from "the accumulation of bat guano between the
home's siding and walls."34 The alleged damage was a
"penetrating and offensive odor emanating from the home."35
¶54 The homeowners' policy at issue in Hirschhorn
contained a pollution exclusion clause similar to the one at
issue in Peace. This pollution exclusion clause barred recovery
for any "loss resulting directly or indirectly from . . . [the]
discharge, release, escape, seepage, migration or dispersal of
pollutants."36 The policy defined "pollutants" as "any solid,
liquid, gaseous or thermal irritant or contaminant,
including . . . waste."37
¶55 As in Peace, the policy in Hirschhorn included no
definition of "contaminant." The Hirschhorn court applied the
dictionary definition of "contaminant" provided by the Peace
court, concluding that bat guano——like the lead released from
lead paint——is a contaminant and thus a pollutant. The court
explained that "bat guano and its attendant odor make impure or
unclean the surrounding ground and air space . . . ."38 Thus,
34
Hirschhorn v. Auto-Owners Ins. Co., 2012 WI 20, ¶8, 338
Wis. 2d 761, 809 N.W.2d 529.
35
Id.36
Id., ¶5.
37
Id.
38
Id., ¶33 (internal quotation marks omitted).
18
No. 2013AP1303
the court barred recovery under the policy's pollution exclusion
clause.39
¶56 Using the dictionary definition of "contaminant"
applied by the court in Peace and Hirschhorn, natural gas that
is released into the air from a damaged natural gas pipe
constitutes a contaminant. Natural gas renders the surrounding
ground and air space impure or unclean because natural gas is
extremely flammable and explosive.40 An explosion and fire
resulted in "great harm" in the present case. Thus, we conclude
that natural gas is a contaminant under the circumstances of the
present case.
¶57 However, to qualify as a pollution condition under
Chartis's CPL policy, the contaminant must also be released in
concentrations above those "naturally present in the
environment." In the instant case, the natural gas released at
the site of the explosion and fire indisputably occurred in
39
For additional discussion of Peace, Hirschhorn, and
related cases that interpret the words "irritant" and
"contaminant" in pollution exclusion clauses, see Preisler, ___
Wis. 2d ___, ¶¶29-52, and Wilson Mutual, ___ Wis. 2d ___, ¶¶23-
52.
40
Natural gas invariably contains methane, usually contains
ethane, and sometimes contains propane and butane, all of which
are combustible. G.G. Nasr & N.E. Connor, Natural Gas
Engineering Safety and Challenges: Downstream Process, Analysis,
Utilization and Safety 2 (2014). Consequently, the release of
natural gas may result in fires or explosion. See U.S. Dep't of
Transportation, The State of National Pipeline Infrastructure 2,
https://opsweb.phmsa.dot.gov/pipelineforum/docs/Long%20Version%2
0Preliminary%20Report%20on%20Infrastructure%20040711draftwDecade
CauseCharts.pdf (last visited March 12, 2015).
19
No. 2013AP1303
concentrations above those "naturally found in the environment."
The escape of natural gas from the damaged pipe was, therefore,
a pollution condition under Chartis's CPL policy.
¶58 Furthermore, the expectations of a reasonable insured
guide our analysis. A reasonable insured in the position of the
insured construction company in the instant case would believe
that natural gas inadvertently released into the air is a
contaminant that creates a pollution condition.
¶59 The insured construction company in the instant case
contracts with the Wisconsin Department of Transportation to
perform road construction, including excavation. The insured
knows that numerous sources of contamination are found
underground, including natural gas pipelines, sanitary sewer
lines, and septic tanks. The insured operates heavy machinery
excavating near and around these various contamination sources.
¶60 Any reasonable insured construction company engaged in
this kind of work would be concerned about possibly damaging
these contamination sources and releasing contaminants.
Consequently, a reasonable insured construction company would
expect its CPL policy to cover damages from the accidental
release of contaminants during an excavation. In other words, a
reasonable insured construction company would conclude that the
natural gas leak in the instant case constituted a pollution
condition under Chartis's CPL policy.
¶61 To summarize: "Pollution Conditions" is defined by
Chartis's CPL policy as the "release or escape of
any . . . gaseous . . . irritant or contaminant . . . [into] the
20
No. 2013AP1303
atmosphere . . . provided such conditions are not naturally
present in the environment in the concentration or amounts
discovered." Natural gas is, of course, "gaseous." Natural gas
is also a "contaminant" under the circumstances of the instant
case. Natural gas was "release[d] or escape[d]" from the
damaged natural gas pipe, and there is no dispute that natural
gas is "not naturally present in the environment in the
concentration" that caused the explosion and fire.
¶62 We therefore agree with Acuity and the circuit court
that natural gas constitutes a "contaminant" in the instant case
and that the escape of natural gas from the damaged pipe was a
pollution condition under Chartis's CPL policy.
2
¶63 Having determined that natural gas constitutes a
contaminant and that the escape of natural gas from the damaged
pipe was a pollution condition under Chartis's CPL policy, we
next address whether this pollution condition caused the
property damage and bodily injury alleged in the four lawsuits
brought against the insured.
¶64 The coverage provision in Chartis's CPL policy states
that Chartis will pay on behalf of the insured all sums that the
insured shall become legally obligated to pay for bodily injury
or property damage "caused by Pollution Conditions." (Emphasis
added.)
¶65 We conclude that the bodily injury and property damage
alleged in the four lawsuits fulfill this requirement, that is,
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No. 2013AP1303
the alleged bodily injury and property damage were "caused by
Pollution Conditions."
¶66 Our reasoning is simple. Each of the four lawsuits
against the insured alleges that the actions of the insured's
employees led to a natural gas leak that ultimately resulted in
an explosion and fire, causing bodily injury and property
damage. There is no dispute that the natural gas leak caused
the explosion and fire. There is no dispute that the explosion
and fire caused the alleged bodily injury and property damage.
This sequence of events is sufficient to establish that the
escape of natural gas (a pollution condition) caused the alleged
bodily injury and property damage.
¶67 In Peace, the release of lead from lead paint, chips,
and dust caused the child tenant to ingest lead, and the
ingestion of lead poisoned the child. In Hirschhorn, the
release of bat guano into the walls led to an offensive odor,
and the offensive odor made the property uninhabitable. As in
Peace and Hirschhorn, it is clear under the language of
Chartis's CPL policy that the bodily injury and property damage
alleged in the four lawsuits were "caused by Pollution
Conditions."
¶68 Chartis, however, contends that the language of the
CPL policy does not mean what it says. Chartis argues that to
fulfill the policy's causation requirement, it is not enough
that a substance capable of acting as a contaminant was the but-
for cause of the alleged bodily injury and property damage.
Rather, according to Chartis, "the contaminating nature of the
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No. 2013AP1303
substance at issue" must directly cause the alleged bodily
injury and property damage. (Emphasis added.)
¶69 Chartis contends that the bodily injury and property
damage alleged in the four lawsuits were caused by the explosion
and fire, not by the contaminating nature of natural gas. Thus,
Chartis reasons, there is no coverage under the CPL policy.
¶70 We are not convinced by Chartis's argument.
¶71 First, Chartis fails to tether its argument to the
language of the CPL policy. We do not agree that Chartis's CPL
policy requires the contaminating nature of the substance at
issue to cause the alleged damage in order to trigger coverage.
On its face, the CPL policy covers claims of bodily injury or
property damage "caused by Pollution Conditions"——nothing more,
nothing less. Chartis does not explain why this court should
read a more stringent causation requirement into this provision.
¶72 Second, even assuming that the contaminating nature of
the contaminant must cause the bodily injury or property damage,
we conclude that the contaminating nature of natural gas is
precisely what caused the bodily injury and property damage
alleged in the four lawsuits.
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No. 2013AP1303
¶73 As discussed previously, natural gas is a contaminant.
It can cause injury through inhalation41 and when it mixes with
air in certain concentrations, it can explode or ignite. In
other words, part of the contaminating nature of natural gas is
its capacity to cause explosions and fire. In the instant case,
the escape of natural gas caused an explosion and fire that
resulted in bodily injury and property damage. The alleged
bodily injury and property damage were therefore caused by the
contaminating nature of natural gas.
¶74 Chartis's counterarguments are unpersuasive.
¶75 The three principal cases upon which Chartis relies to
support its causation argument are Guenther v. City of Onalaska,
223 Wis. 2d 206, 588 N.W.2d 375 (Ct. App. 1998); Beahm v.
Pautsch, 180 Wis. 2d 574, 510 N.W.2d 702 (Ct. App. 1993); and
URS Corp. v. Zurich American Insurance Co., 979 N.Y.S.2d 506(Sup. Ct. 2014). None of these cases persuades us to adopt
Chartis's position in the instant case.
¶76 Guenther and Beahm interpret pollution exclusion
clauses in general liability policies; they do not interpret
pollution liability policies such as the CPL policy at issue in
the present case. As we explained above, the interpretation of
41
"If a natural gas leak has occurred and is severe, oxygen
can be reduced, causing dizziness, fatigue, nausea, headache,
and irregular breathing." U.S. Nat'l Library of Med., "Natural
Gas," Tox Town, toxtown.nlm.nih.gov/text_version/
chemicals.php?is=18 (last updated Oct. 29, 2014). Further,
"[e]xposure to extremely high levels of natural gas can cause
loss of consciousness or even death." Id.24
No. 2013AP1303
the words "pollutant" and "contaminant" in a pollution exclusion
clause in a general liability policy will not necessarily be the
same as the interpretation of the terms "pollution condition"
and "contaminant" in a coverage provision in a pollution
liability policy. Guenther and Beahm, therefore, do not control
the instant case.
¶77 Furthermore, even assuming Chartis is correct that the
"contaminating nature" reasoning in Guenther and Beahm applies
to the instant case, we conclude that the damage alleged in the
four lawsuits was caused by the contaminating nature of natural
gas.
¶78 URS, in contrast, does interpret a pollution liability
policy. URS is one of the few cases interpreting a pollution
liability policy.42 But URS is not persuasive. The facts in URS
are readily distinguishable from the facts in the instant case
and the analysis in URS relies on New York case law that differs
from Wisconsin case law.
¶79 We briefly review these three cases.
¶80 In Guenther, homeowners sued the City of Onalaska when
a sewer backed up and spewed sewage into their basement, causing
damage. The City's general liability policy had a pollution
exclusion clause that excluded coverage for any claim arising
42
URS Corp. v. Zurich Am. Ins. Co., 979 N.Y.S.2d 506, 510
(Sup. Ct. 2014) ("There are, in fact, few cases that deal with
interpretation of a pollution liability policy.").
25
No. 2013AP1303
out of "contamination . . . by POLLUTANTS."43 The parties
disputed whether the damage to the Guenthers' basement caused by
a sewage back-up constituted contamination by pollutants. The
insurance company asserted that the back-up did constitute
contamination by pollutants and denied coverage.
¶81 The court of appeals disagreed, in part, with the
insurance company's position. The court of appeals reasoned
that the policy's definition of "contamination" implies that for
contamination to occur, the alleged harm "must be caused by the
toxic nature of the discharged material."44 The damage to the
basement was apparently caused to some extent by the liquid
nature of the sewage——not by its toxic nature.45
¶82 The court of appeals in Guenther therefore held that
the policy provided coverage for any damage caused by the liquid
nature of the sewage and not its toxic nature. To the extent
the damage was caused by the toxic nature of the sewage,
however, the court of appeals concluded that the damage
constituted contamination by pollutants and the policy's
pollution exclusion clause barred coverage.
¶83 In Beahm, Wilson Mutual Insurance Company's insured
was in the business of setting fires to burn off grass. One
such fire became uncontrollable, with smoke blowing across a
43
Guenther v. City of Onalaska, 223 Wis. 2d 206, 211, 588
N.W.2d 375 (Ct. App. 1998).
44
Id. at 213.
45
Id. at 215.
26
No. 2013AP1303
nearby highway and obscuring the vision of motorists. A multi-
vehicle accident resulted.
¶84 Wilson Mutual denied coverage for the incident because
of its policy's pollution exclusion clause. The policy listed
"smoke" in its definition of "pollutant."46 The court of appeals
disagreed with Wilson Mutual's assessment, concluding that a
reasonable insured would believe the pollution exclusion clause
excluded coverage only when the alleged damage was caused by the
toxic nature of smoke.47
¶85 The Beahm court determined that the multi-vehicle
accident resulted because smoke is an opaque substance, not
because smoke "may have toxic properties which may corrode
property or injure a person's eyes, skin or respiratory
system."48 Thus, the pollution exclusion clause in the Wilson
Mutual policy did not bar coverage.
¶86 Guenther and Beahm do not support Chartis in the
present case. Even accepting Chartis's argument that the
"contaminating nature" analysis in Guenther and Beahm applies to
the instant case, we have already determined that the damage
alleged in the four lawsuits was caused by the contaminating
nature of natural gas. Consequently, the causation requirement
Chartis proposes has been fulfilled in the instant case.
46
Beahm v. Pautsch, 180 Wis. 2d 574, 580, 510 N.W.2d 702(Ct. App. 1993).
47
Id. at 584-85.
48
Id. at 584.
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No. 2013AP1303
¶87 Unlike Beahm and Guenther, URS involves a pollution
liability policy. URS is not helpful to Chartis, however.
¶88 In URS, the Hudson Specialty Insurance Company was
obligated to cover damage caused by pollution conditions on any
site where an insured was performing contracting operations.
The Hudson policy's definition of "pollution conditions" is
identical to the definition provided by Chartis's CPL policy.49
¶89 A fire took place at a building at which a Hudson
insured was performing contracting operations. Lawsuits were
filed against the insured alleging that its negligence resulted
in the creation of fire hazards within the building; that these
fire hazards eventually caused a fire to break out; and that the
fire caused death and injury to firefighters who responded to
the emergency.
¶90 Hudson maintained that none of the alleged deaths or
injuries arose out of a pollution condition as required by its
pollution liability policy. The URS court agreed with Hudson.50
In reaching this conclusion, the URS court stressed the "close
identity between the traditional pollution exclusion provision
and Hudson's pollution coverage provision."51 Because of this
"close identity," the URS court relied on New York cases
interpreting pollution exclusion clauses in general liability
49
See URS, 979 N.Y.S.2d at 507-08.
50
Id. at 511.
51
Id. at 510 (emphasis added).
28
No. 2013AP1303
policies when construing the Hudson policy's pollution coverage
provision.52
¶91 New York's pollution exclusion cases had interpreted
pollution exclusion clauses as barring coverage for "broadly
dispersed environmental pollution."53 Thus, the URS court held
that under New York law, a pollution liability policy insures
against claims arising from broadly dispersed environmental
pollution, not pollution occurring within the confined
environment of a building.54
52
The URS court also relied on Colonial Oil Indus. Inc. v.
Indian Harbor Ins. Co., 528 Fed. Appx. 71 (2nd Cir. 2013).
Colonial Oil interpreted a pollution coverage policy similarly
worded to the one in URS.
Colonial was a corporation whose business involved
transporting, storing, and selling fuel oil. Colonial received
a delivery of 25 truckloads of oil, which were unloaded into one
of Colonial's storage tanks. Colonial later discovered that
this fuel oil was contaminated with polychlorinated biphenyl, a
pollutant. Colonial lost the oil as a result and incurred costs
for decontamination and remediation. Colonial sought coverage
for the incident under its pollution and remediation liability
policy.
Applying New York law, the federal court of appeals
concluded that the policy did not cover Colonial's claim.
Coverage under the policy was limited to "pollution conditions,"
which was defined as the "discharge, dispersal, release,
seepage, migration, or escape of POLLUTANTS." Colonial Oil, 528
Fed. Appx. at 73 (emphasis added). Because the pollutant in the
oil remained confined in Colonial's storage tanks and was never
released into environment, the federal court of appeals
concluded that the events did not constitute a "pollution
condition" as required by the policy.
53
See URS, 979 N.Y.S.2d at 510.
54
Id. at 511.
29
No. 2013AP1303
¶92 Our case law interpreting pollution exclusion clauses
in general liability policies does not take the same approach as
the New York cases. Wisconsin cases have not interpreted
pollution exclusion clauses as dealing solely with broadly
dispersed environment pollution. We are therefore not persuaded
by the reasoning or conclusion of the New York court in URS.
¶93 In sum, Guenther, Beahm, and URS do not convince us to
adopt Chartis's proposed requirement that the contaminating
nature of the contaminant cause the damage. These cases are not
dispositive of the instant case because the facts, policy
language, or governing law are different in the instant case.
Nonetheless, we are convinced that Chartis's proposed
requirement has been fulfilled in the instant case, and thus
that Acuity prevails.
¶94 For these reasons, we conclude that the bodily injury
and property damage alleged in the underlying lawsuits were
"caused by Pollution Conditions" as required by Chartis's CPL
policy.
3
¶95 We turn, finally, to Chartis's contention that
concurrent coverage under Acuity's CGL policy and Chartis's CPL
policy is not possible in the instant case. Chartis argues that
if Acuity's policy covers the insured's liability in the instant
case, Chartis's policy does not.
¶96 Chartis spends a considerable portion of its brief
claiming that the manifest intent of the two policies is that
Chartis's policy covers the insured's liability for pollution
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No. 2013AP1303
and Acuity's policy excludes it. Chartis explains that the CGL
policy issued by Acuity and the CPL policy issued by Chartis
"are essentially the flip side” of each other. Chartis asserts
that "the Acuity CGL Policy is intended to cover [the insured's]
liability for bodily injury or property damage not caused by
pollution, and the Chartis Pollution Policy is intended to cover
liability for bodily injury or property damage caused by
pollution." (Emphasis added.)
¶97 In sum, Chartis argues that the four lawsuits allege
non-pollution losses covered by Acuity, not pollution losses
covered by Chartis.
¶98 Although Chartis may be correct that CPL policies were
designed to fill the gap in coverage created by pollution
exclusions in CGL policies, the coverage terms of Chartis's CPL
policy are not the mirror image of the pollution exclusion
clause in Acuity's CGL policy. Slightly different language can
have slightly different meanings. Furthermore, our approach to
construing a pollution exclusion clause in a commercial
liability policy differs from our approach to construing the
coverage terms in a pollution liability policy.
¶99 Depending on the language of the policies and the
facts of the case, it is entirely possible for both a commercial
general liability policy with a pollution exclusion clause and a
contractors' pollution liability policy to cover the insured's
liability.
¶100 The very terms of Chartis's CPL policy further support
our position that the two policies can simultaneously cover the
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No. 2013AP1303
insured's liability. Specifically, the "other insurance"
sections described above demonstrate that when drafting its CPL
policy, Chartis contemplated concurrent coverage between the CPL
policy and other insurance policies, including general liability
policies.
¶101 Finally, we note that our determination that Chartis's
CPL policy provides coverage in the instant case does not
necessarily mean concurrent coverage exists. Acuity defended
and indemnified the insured, but the question of whether
Acuity's CGL policy covers the insured's liability for the
natural gas-fueled explosion and fire is not before us and we do
not decide it.
* * * *
¶102 For the reasons set forth, we agree with the circuit
court's determination that that the escape of natural gas from
the damaged pipe was a pollution condition under Chartis's CPL
policy and that this pollution condition caused the bodily
injury and property damage alleged in the four lawsuits. We
therefore conclude that Chartis's CPL policy covers the
insured's liability arising from the natural gas-fueled
explosion and fire. Chartis must pay its share of the defense
fees and indemnity payments as ordered by the circuit court.
Accordingly, we reverse the decision of the court of appeals and
remand the cause to the circuit court to reinstate the judgment
in favor of Acuity and against Chartis.
By the Court.—The decision of the court of appeals is
reversed.
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No. 2013AP1303
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