Federated Mut. Ins. Co. v. Abston Petroleum

• Citation: 967 So.2d 705
• Decision Date: 13 April 2007
• Docket Number: No. 1051589.,1051589.
• Parties: FEDERATED MUTUAL INSURANCE COMPANY v. ABSTON PETROLEUM, INC., et al.
• Court: Supreme Court of Alabama

967 So.2d 705

FEDERATED MUTUAL INSURANCE COMPANY v. ABSTON PETROLEUM, INC., et al.

No. 1051589.

Supreme Court of Alabama.

April 13, 2007.

Jeff Friedman, P. Thomas Dazzio, Jr., H. Spence Morano, and Lee T. Patterson of Friedman, Leak, Dazzio, Zulanas & Bowling, P.C., Birmingham, for appellant.

J. Patrick Courtney III, Mobile, for appellees Victor Schill and Cynthia Schill.

Halron W. Turner of Turner, Onderdonk, Kimbrough & Howell, Chatom, for appellees Abston Petroleum, Inc., and Eddie Abston.

Vernon L. Wells II of Walston, Wells & Birchall, LLP, Birmingham, for amicus curiae Complex Insurance Claims Litigation Association, in support of the appellant.

LYONS, Justice.

Federated Mutual Insurance Company appeals from a judgment of the Choctaw Circuit Court in favor of Abston Petroleum, Inc., Eddie Abston, Victor Schill, and Cynthia Schill. We reverse and remand.

I. Factual Background and Procedural History

Victor Schill and Cynthia Schill owned a hardware and grocery store in Silas. The Schills sold gasoline from pumps located in front of the store pursuant to a consignment agreement with Abston Petroleum. Abston Petroleum owned the pumps, the tanks in which the gasoline was stored, and the underground lines connecting the tanks and the pumps, all of which were located on the Schills' property. In 1999, pursuant to applicable state and federal laws, Abston Petroleum removed the existing underground gasoline storage tanks on the Schills' property and replaced them with aboveground storage tanks. After the aboveground tanks were installed, the Schills said that they complained repeatedly to Abston Petroleum about leaks in the underground lines from the aboveground tanks to the pumps. The Schills alleged that in May 2001 customers and adjacent landowners complained about a gasoline smell and a gasoline film in and around the store. On June 11, 2001, the Schills notified the Alabama Department of Environmental Management that a significant and dangerous quantity of gasoline fumes was emanating from the leaks, and, as a result, the state fire marshal closed their business. The store remained closed for six to eight weeks while environmental cleanup efforts were conducted and the necessary repairs were attempted. Abston Petroleum ultimately removed all the gasoline pumps and tanks from the Schills' property, but the Schills were never able to reopen their business.

The Schills sued Abston Petroleum and Eddie Abston, its president (hereinafter collectively referred to as "Abston Petroleum"), alleging that their property was contaminated by gasoline that had leaked from the underground lines owned and maintained by Abston Petroleum, and that the contamination had caused them to suffer personal injury, including a worsening of Cynthia Schill's migraine headaches, and property damage, including the loss of revenue during the period the store was closed and, ultimately, the loss of their business.

At the time of the gasoline contamination, Abston Petroleum was insured under a commercial general-liability insurance policy issued by Federated Mutual. After Abston Petroleum notified Federated Mutual of the Schills' personal injury and property damage and their resulting claims, Federated Mutual informed Abston Petroleum that the pollution-exclusion endorsement to its insurance policy with Federated Mutual excluded coverage for the Schills' claims arising out of the gasoline contamination.

Abston Petroleum filed a third-party complaint against Federated Mutual and Keith Mills, the agent who had sold the Federated Mutual policy to Abston Petroleum and who serviced the account. Abston Petroleum sought a judgment declaring that the policy covered the Schills' claims against it and asserted claims against Federated Mutual alleging breach of contract, bad faith, and negligent or wanton hiring and retention of Mills. Abston Petroleum asserted claims against Mills of fraudulent misrepresentation and suppression, and claims against both defendants of conspiracy to defraud and negligent or wanton procurement of insurance. The trial court severed Abston Petroleum's claims against Federated Mutual and Mills from those of the Schills against it.

In July 2004, the Schills settled their action against Abston Petroleum, entered into a $500,000 consent judgment and nonexecution agreement, and dismissed their complaint. Abston Petroleum assigned its rights to the Federated Mutual insurance policy to the Schills. They, in turn, agreed not to proceed further against Abston Petroleum. The Schills and Abston Petroleum agreed to jointly prosecute Abston Petroleum's claims against Federated Mutual and Mills. The Schills then filed a complaint in intervention in Abston Petroleum's third-party action against Federated Mutual and Mills. They later filed a motion requesting permission to intervene; the trial court granted that motion.

Abston Petroleum and the Schills moved for a summary judgment as to two counts of the third-party complaint: Count I, seeking a judgment declaring that the Federated Mutual policy provided coverage to Abston Petroleum for the Schills' claims and damages, and Count II, alleging that Federated Mutual had breached the insurance contract. Abston Petroleum and the Schills also moved for a judgment declaring that Federated Mutual was bound by their consent judgment. The trial court did not rule on that motion. After discovery was completed, Federated Mutual and Mills filed a cross-motion for a summary judgment in their favor as to all claims in the third-party complaint. The trial court entered a summary judgment in favor of Abston Petroleum and the Schills as to Counts I and II of the complaint, holding that Federated Mutual was obligated as a matter of law to provide coverage for the Schills' damage. The court also entered a summary judgment in favor of Federated Mutual and Mills as to Count III, alleging bad faith against Federated Mutual, and Count VI, alleging that Federated Mutual and Mills had conspired to defraud Abston Petroleum and the Schills. The court denied all motions as to the other claims in the complaint, including the fraud claims against Mills, the claims of negligent or wanton failure to procure insurance against both defendants, and the claims of negligent or wanton hiring and retention against Federated Mutual. The court made the summary judgment final pursuant to Rule 54(b), Ala. R. Civ. P. Federated Mutual appeals the trial court's summary judgment in favor of Abston Petroleum and the Schills on Count I, seeking a judgment declaring that the Federated Mutual policy provided coverage to Abston Petroleum for the Schills' personal injury and property damage and their resulting claims, and on Count II, alleging that Federated Mutual had breached the insurance contract.

II. Standard of Review

"The standard by which this Court will review a motion for summary judgment is well established:

"`The principles of law applicable to a motion for summary judgment are well settled. To grant such a motion, the trial court must determine that the evidence does not create a genuine issue of material fact and that the movant is entitled to a judgment as a matter of law. Rule 56(c)(3), Ala. R. Civ. P. When the movant makes a prima facie showing that those two conditions are satisfied, the burden shifts to the nonmovant to present "substantial evidence" creating a genuine issue of material fact. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989); § 12-21-12(d)[,] Ala.Code 1975. Evidence is "substantial" if it is of "such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assur. Co. of Florida, 547 So.2d 870, 871 (Ala.1989).

"`In our review of a summary judgment, we apply the same standard as the trial court. Ex parte Lumpkin, 702 So.2d 462, 465 (Ala.1997). Our review is subject to the caveat that we must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Hanners v. Balfour Guthrie, Inc., 564 So.2d 412 (Ala. 1990).'"

Payton v. Monsanto Co., 801 So.2d 829, 832-33 (Ala.2001) (quoting Ex parte Alfa Mut. Gen. Ins. Co., 742 So.2d 182, 184 (Ala.1999)).

III. Analysis

Federated Mutual contends that the pollution-exclusion clause in the insurance policy issued to Abston Petroleum is unambiguous and, therefore, that Federated Mutual is not obligated to indemnify Abston Petroleum for the contamination that occurred on the Schills' property. Abston Petroleum and the Schills argue that the pollution-exclusion clause is ambiguous and, therefore, that Federated Mutual should be responsible for the damage sustained by the Schills.

A. History of the Pollution-Exclusion Clause

The pollution-exclusion clause in the Federated Mutual policy is customarily referred to as an "absolute pollution-exclusion clause." For a thorough discussion of the history of the pollution-exclusion clause and the differences between a qualified pollution-exclusion clause and an absolute pollution-exclusion clause, see Porterfield v. Audubon Indemnity Co., 856 So.2d 789 (Ala.2002).

Examining the absolute pollution-exclusion clause at issue in Porterfield, a clause comparable to the clause in this proceeding, this Court stated that the applicability of the clause depended upon the "affirmative confluence" of three elements:

"[T]he bodily injury or property damage in question must have been caused by exposure to a `pollutant'; that exposure must have arisen out of the actual, alleged, or threatened discharge, dispersal, release, or escape of the pollutant; and that discharge, dispersal, release, or escape must have occurred at or from certain locations or have constituted `waste.' In other words, the exclusion comes into play only with respect to bodily injury or property damage arising out of the discharge, dispersal, release, or...