Auto Owners Ins. v. Ferwerda Enterprises

• Decision Date: 09 April 2009
• Docket Number: Docket No. 277574.
• Citation: 771 N.W.2d 434,283 Mich. App. 243
• Parties: AUTO-OWNERS INSURANCE COMPANY v. FERWERDA ENTERPRISES, INC.
• Court: Court of Appeal of Michigan — District of US

771 N.W.2d 434

283 Mich. App. 243

AUTO-OWNERS INSURANCE COMPANY v. FERWERDA ENTERPRISES, INC.

Docket No. 277574.

Court of Appeals of Michigan.

Submitted October 14, 2008, at Grand Rapids.

Decided April 9, 2009, at 9:05 a.m.

Gross & Nemeth, P.L.C. (by James G. Gross), Detroit, and Lincoln G. Herweyer, P.C. (by Lincoln G. Herweyer), for Auto-Owners Insurance Company.

Varnum, Riddering, Schmidt & Howlett LLP (by Mark S. Allard and April H. Sawhill), Grand Rapids for Ferwerda Enterprises, Inc.

Gee & Longstreet LLP (by Bruce W. Gee), Hastings, for Daryl, Jackson T., Caleb A., Savannah J., and Melissa Bronkema.

Before: O'CONNELL, P.J., and BANDSTRA and GLEICHER, JJ.

GLEICHER, J.

In this insurance contract dispute, plaintiff appeals as of right from a circuit court order granting defendant Ferwerda Enterprises, Inc. (Holiday Inn), summary disposition of plaintiff's declaratory judgment action. The circuit court also granted Holiday Inn summary disposition with respect to its claim that plaintiff owed it a duty to defend and indemnify against the underlying personal injury lawsuit of defendants Daryl Bronkema, individually and as next friend of Jackson T., Caleb A., and Savannah J. Bronkema, minors, and Melissa Bronkema. The circuit court then awarded Holiday Inn damages and awarded Holiday Inn and the Bronkemas attorney fees, costs, and penalty interest. We reverse the circuit court's orders with regard to these matters and remand to the circuit court for further proceedings consistent with this opinion.

Holiday Inn cross-appeals as of right from the circuit court's order dismissing its counterclaims based on waiver and estoppel. We affirm the circuit court's order dismissing these claims.

I. UNDERLYING FACTS AND PROCEDURE

The Holiday Inn Express Ludington offers its guests the use of a swimming pool, located in a building attached to the hotel. The equipment used to operate the pool includes a water pump, polyvinyl chloride (PVC) lines that carry pool water to and from the water pump, a boiler that heats the pool water, and a device called a Rola-Chem that dispenses chemicals into the pool water. The pump propels pool water through the PVC lines into the filter and then into the boiler, which heats the water. From the boiler, the warmed water travels to the Rola-Chem, which injects chlorine and muriatic acid, and the pump then pushes the warmed, chemically treated water back into the pool. An affidavit signed by Jeffrey Curtis, Holiday Inn's general manager, describes the mechanical equipment as "an integrated system that filters, heats, and sanitizes the indoor pool water."

The boiler used to heat the pool water serves as the primary source of heat for the entire pool building. Curtis's affidavit explains, "There are no heat ducts from any source in the pool pump room. The sole source of heat for the pump room is the heat given off by the integrated pipe and boiler system." Gerald Gregorski, a mechanical engineer, also supplied an affidavit, which attested that the pool "lose[s] heat through the processes of convection and evaporation," and as a result heats the air space in the building housing the pool. Gregorski's affidavit continues, "Because of heat loss through convection and evaporation, pools require the use of a heater to maintain a constant water temperature. A system that pumps pool water into a boiler to heat the water and pumps the heated water back into the pool heats the building where the pool is located." Plaintiff retained engineer Michael T. Williams to inspect the Holiday Inn's pool equipment. At his deposition, Williams conceded that "the only source of heat for the pool building at issue in this litigation in the Holiday Inn Express that requires the use of equipment is the heating of the pool water by the boiler in the utility room." Williams expressed that apart from solar heat entering the pool room's windows, he did not know of any source of heat besides the boiler.

On April 9, 2004, an elbow in the PVC line "blew out." A Holiday Inn maintenance man repaired it, but did not turn off the Rola-Chem "feeder system" while completing the repair. Gases created by the continuously flowing chlorine and muriatic acid formed in the PVC lines. When the maintenance man successfully repaired the elbow and powered the system back on, a cloud of the gas traveled through the PVC lines, entered the pool area, and injured the Bronkema family.

Plaintiff filed a declaratory judgment action seeking a determination whether Holiday Inn's insurance policy with plaintiff covered the Bronkemas' claims for personal injuries.¹ Holiday Inn filed a counterclaim alleging breach of contract, estoppel, and waiver, and requesting attorney fees and penalty interest. Pursuant to MCR 2.116(C)(10), plaintiff moved for summary disposition, contending that Holiday Inn's policy did not cover the Bronkemas' injuries. Holiday Inn then filed a cross-motion for partial summary disposition under MCR 2.116(C)(8), (9), and (10), on the basis that an endorsement to the policy's building heating equipment exclusion afforded coverage for the Bronkemas' personal injuries.

The circuit court determined as a matter of law that the Bronkemas' personal injury claims fell within the scope of Holiday Inn's policy with plaintiff, specifically the "heating equipment exception" to the policy's pollution exclusion, and thus granted summary disposition of the declaratory judgment action in favor of Holiday Inn. Ultimately, after multiple summary disposition and other hearings, the circuit court entered a final judgment awarding Holiday Inn nearly $529,000 on its breach of contract claim, granting Holiday Inn more than $186,000 in attorney fees and costs, awarding the Bronkemas more than $71,000 in attorney fees and costs, and granting all defendants "penalty interest pursuant to [MCL 500.2006]."

II. STANDARD OF REVIEW AND GOVERNING LEGAL PRINCIPLES

Because the circuit court considered documentation beyond the pleadings in granting Holiday Inn summary disposition, it appears that the court ruled under MCR 2.116(C)(10), which tests a claim's factual support. This Court reviews de novo a circuit court's summary disposition ruling. Walsh v. Taylor, 263 Mich.App. 618, 621, 689 N.W.2d 506 (2004). "Summary disposition is appropriate under MCR 2.116(C)(10) if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law." West v. Gen. Motors Corp., 469 Mich. 177, 183, 665 N.W.2d 468 (2003). "In reviewing a motion under MCR 2.116(C)(10), this Court considers the pleadings, admissions, affidavits, and other relevant documentary evidence of record in the light most favorable to the nonmoving party to determine whether any genuine issue of material fact exists to warrant a trial." Walsh, supra at 621, 689 N.W.2d 506. "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." West, supra at 183, 665 N.W.2d 468.

"Questions involving the proper interpretation of a contract or the legal effect of a contractual clause are also reviewed de novo." McDonald v. Farm Bureau Ins. Co., 480 Mich. 191, 197, 747 N.W.2d 811 (2008). This Court applies to insurance contracts the same contract construction principles that govern any other type of contract, and thus begins by considering the language of the parties' agreement to determine their intent. Royal Prop. Group, LLC v. Prime Ins. Syndicate, Inc., 267 Mich.App. 708, 714, 706 N.W.2d 426 (2005).

Accordingly, an insurance contract should be read as a whole and meaning should be given to all terms. The policy application, declarations page of policy, and the policy itself construed together constitute the contract. The contractual language is to be given its ordinary and plain meaning. An insurance contract must be construed so as to give effect to every word, clause, and phrase, and a construction should be avoided that would render any part of the contract surplusage or nugatory. [U]nless a contract provision violates law or one of the traditional [contract] defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written. [T]he judiciary is without authority to modify unambiguous contracts or rebalance the contractual equities struck by the contracting parties because fundamental principles of contract law preclude such subjective post hoc judicial determinations of "reasonableness" as a basis upon which courts may refuse to enforce unambiguous contractual provisions. A provision in a contract is ambiguous if it irreconcilably conflicts with another provision, or when it is equally susceptible to more than a single meaning. [Id. at 715, 706 N.W.2d 426 (citations and quotation marks omitted).]

III. THE INSURANCE POLICY

Holiday Inn's form "Commercial General Liability" insurance policy, issued by plaintiff, included the following pollution exclusion:

This insurance does not apply to:

* * *

f. (1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;

(b) At or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste;

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any insured or any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations:

(i) if the...