ACUITY v. Chartis Specialty Ins. Co.

• Decision Date: 17 March 2015
• Docket Number: No. 2013AP1303.,2013AP1303.
• Citation: 361 Wis.2d 396,861 N.W.2d 533
• Parties: 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.
• Court: Wisconsin Supreme Court

361 Wis.2d 396

861 N.W.2d 533

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.

No. 2013AP1303.

Supreme Court of Wisconsin.

Argued Jan. 14, 2015.

Decided March 17, 2015.

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.

Opinion

SHIRLEY S. ABRAHAMSON, C.J.

¶ 1 This is a review of an unpublished decision of the court of appeals reversing orders and a judgment of the Circuit Court for Waukesha County, J. Mac Davis, Judge.¹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 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 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 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 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 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

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.

¶ 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 be understood from the perspective...