Auto-Owners Ins. Co. v. City of Clare, 96191
| Decision Date | 29 July 1994 |
| Docket Number | No. 96191,96191 |
| Citation | 446 Mich. 1,521 N.W.2d 480 |
| Parties | AUTO OWNERS INSURANCE COMPANY, Home Owners Insurance Company, and Farm Bureau Mutual Insurance Company, Plaintiffs, Counter-Defendants-Appellants, v. CITY OF CLARE, Defendant, Counter-Plaintiff-Appellee. |
| Court | Michigan Supreme Court |
The plaintiffs are insurance companies that seek a declaratory judgment concerning their obligations to a municipality that they insure. y sure. In circuit court, they sought summary disposition of their claim that the insurance contracts exclude coverage under the circumstances of this case. The circuit court denied summary disposition, but the Court of Appeals ordered the circuit court to reconsider the plaintiffs' motion.
We hold that the circuit court erred in its interpretation of the policy language, and we vacate the Court of Appeals order and the order in which the circuit court denied the plaintiffs' motion for summary disposition.
This case concerns a landfill operated by the City of Clare in Hatton Township of Clare County. 1 The landfill began as a five-acre operation on a 79-acre parcel of land owned by a man named William Bauer. The City of Clare purchased the Bauer property, including the landfill, by a 1974 land contract. That year, the city began operating the landfill. The city received a warranty deed in 1975.
In 1974 and 1975, the city expanded the five-acre landfill to 28.3 acres. The Department of Natural Resources issued a permit to the city in 1974, allowing it to operate the landfill. Later, the permit was renewed through September 1979.
In 1978, the Legislature enacted the Solid Waste Management Act, 2 which repealed the prior act 3 under which the landfill had been licensed.
The landfill remained open, and was used by many persons. Among the users was the DNR itself, which occasionally disposed of trash from its parks and other facilities. This happened fourteen times between 1979 and 1984, with the DNR paying a total of $100.25 in fees.
Representatives of the DNR met with the Clare City Commission in June 1980. They informed the city that it needed either to upgrade the landfill and sign a compliance schedule, or to close the facility. In a follow-up letter, the DNR invited the city to "arrange a meeting with a prospective consultant to discuss details of required hydrogeological work...."
In early October 1980, the DNR reminded the city that it did not have a license, and that it had not completed a required hydrogeologic survey.
Later in October 1980, the DNR told the city that the landfill did not meet the minimum requirements for licensure, and that substantial improvements would be necessary at the site in order to meet the minimum requirements. The DNR advised the city that it should be seeking other alternatives, and that it should be taking an active part in the solid-waste-management planning process then under way in Clare County.
The DNR again noted the lack of a license in January 1982, outlining the steps that would be necessary to gain one.
In May 1982, the DNR wrote to the city, saying that "adequate time has been provided for the city to determine its desire to continue operating the landfill." The DNR asked for a response to its earlier communications.
In December 1982, the DNR told the city that continued use of the landfill without monitoring could increase the seriousness of a contamination problem, if one existed.
Several years passed without the city completing the necessary hydrogeological study. Therefore the DNR requested and obtained the city's consent in 1985 to do the test itself. A July 1985 letter from the DNR stated the department's expectation that the landfill was contaminating ground water. This letter requested the city to close the landfill and cap the site, regardless of other DNR activities.
A June 1986 letter from the DNR explained that the department's hydrogeological investigations indicated contamination emanating from the landfill. The city was advised to terminate the landfill operation immediately. The DNR said that the unlicensed landfill must be closed and given an impermeable cap to prevent the generation of further leachate from the landfill. The DNR added that "other remedial actions" would also be necessary, and the city should retain an engineer to assist in the preparation of a DNR-approved closure plan.
During a subsequent meeting with representatives of the city in June 1986, DNR officials characterized the landfill as illegal and unlicensed. The city was told that the landfill was contaminating surface waters, and might also be polluting ground water. The city stated its recognition that the landfill was in a violation of state law, but indicated its desire to continue operation of the landfill until an alternative site could be located. The DNR, in turn, said that it would not permit the continued illegal operation of the landfill, and that the city needed to take immediate action to prevent what appeared to be contamination of both ground water and surface water.
In late June 1986, the DNR wrote to say that, because the city had failed to take "responsible action to resolve the unlicensed, illegal operation of the landfill," the DNR would not renew its 1985 offer to forgo recovering from the city the investigative costs.
In early July 1986, Hatton Township sued the City of Clare, 4 alleging violations of the Solid Waste Management Act and the Michigan Environmental Protection Act. 5 In support of its complaint, Hatton Township filed the affidavit of a DNR toxicologist, who explained that two residential wells close to the landfill had been found to be contaminated, and that other contaminants had been detected in surface water seeping from the landfill.
The following month, in August 1986, the Director of the DNR issued a formal order to cease and desist. The order recited the problems with the dump, and the resulting contamination of surface water and ground water. The city was ordered to cease operation of the landfill immediately and to begin making preparations to close the site and clean up the contamination.
Later in August 1986, the Clare City Manager answered a DNR question by projecting a volume of approximately 65,000 cubic yards of waste material entering the landfill in 1986.
In connection with the lawsuit filed by Hatton Township, the circuit court entered a partial consent judgment in December 1986. The city was required to close the dump and cease its operation by January 1, 1987. The city was also required to complete a hydrogeological study to identify the horizontal and vertical extent of the ground water contamination.
A March 1987 letter from the DNR repeated that the department had found that contamination had been released at the landfill site. This letter notified the city of its potential liability, and encouraged the city to replace voluntarily the water supply for the two houses with contaminated wells.
The firm that the city had commissioned to conduct the hydrogeological investigation issued its report in May 1987. Two distinct regions of contamination were found in the aquifer underlying the landfill. It also was determined that drainage from the new fill area (which had been operating since 1974) could have traveled as far as 2,500 feet from its source.
The Attorney General filed a second suit against the city in October 1987. 6 The complaint alleged that, through its operation of the landfill, the city had caused environmental contamination and had violated several statutes.
The two suits were consolidated. In July 1988, the circuit court ordered the parties to take certain steps to ensure proper closing of the landfill. Another order required capping the landfill, the providing of potable water to the nearby residences, and other remedial steps.
During the years that these events were taking place, three companies had insured the city--Auto-Owners Insurance Company, Home Owners Insurance Company, and Farm Bureau Mutual Insurance Company. 7
In September 1987, the city notified these carriers of the claims made against it in the Hatton Twp suit, and of the claims that were going to be made in the Attorney General action. Two of the insurers--Auto-Owners and Farm Bureau--tendered a defense, with a reservation of rights that there is no coverage.
The three insurance companies each had issued policies that contained a standard pollution exclusion. However, there was a "sudden and accidental" exception to the exclusion. The policies stated that the coverage did not apply
[t]o bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental....
Seeking to establish that they were obliged neither to provide the city a defense in Hatton Twp and Attorney General, nor to indemnify the city if it were found liable in those suits, the three insurance companies filed this action for declaratory judgment. The city counterclaimed for declaratory judgment, seeking a ruling that the insurers do bear these responsibilities.
The parties filed cross-motions for summary disposition, which the circuit court initially held in abeyance pending this Court's decision in Polkow v. Citizens Ins. Co., 438 Mich. 174, 476 N.W.2d 382 (1991).
Polkow was decided in August...
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