Board of Regents of University of Minnesota v. Royal Ins. Co. of America

Decision Date17 June 1994
Docket NumberC8-93-36 and C5-93-186,No. C1-93-24,C1-93-24
Citation517 N.W.2d 888
Parties92 Ed. Law Rep. 644 BOARD OF REGENTS OF the UNIVERSITY OF MINNESOTA, et al., Petitioners, Appellants, v. ROYAL INSURANCE COMPANY OF AMERICA, Great American Insurance Company, North River Insurance Company, et al., Respondents.
CourtMinnesota Supreme Court

Syllabus by the Court

The pollution exclusion in the insurers' primary policies does not exclude coverage for the release of asbestos fibers from the insured's fireproofing material into the building interiors. On the other hand, the pollution exclusion in the excess policies does exclude coverage for such claims.

Michael R. Seiben, Harvey N. Jones, Michael R. Storm, Seiben, Polk, LaVerdiere, Jones & Hawn, P.A., Hastings and Edward J. Westbrook, Annetta Riley, J. Anderson Berly III, Ness, Motley, Loadholt, Richardson & Poole, P.A., Charleston, SC, for appellants.

Stephen J. Foley, Foley & Mansfield, Minneapolis, for Great American Ins. Co.

Andrew Horstman, Robins, Kaplan, Miller & Ciresi, Minneapolis, for North River Ins. Co., et al.

Austin D. Ditzler, Minneapolis, for Royal Ins. Co. of America.

Laurence M. McHeffey, North River Ins. Co., Morristown, NJ, for North River Ins. Co.

Michael Berens, Kelley & Berens, PA, Minneapolis and Thomas W. Brunner, Laura A. Foggan, Carol A. Barthel, Washington, DC, for amicus curiae Ins. Environmental Litigation Assoc.

Heard, considered, and decided by the court en banc.


SIMONETT, Justice.

Does the "pollution exclusion" in the defendant carriers' insurance policies exclude coverage for asbestos claims? We conclude in this case that it does not for the primary policies but it does for the excess policies. We reverse in part and affirm in part.

From 1969 to early 1972 the University of Minnesota installed asbestos-containing fireproofing materials, manufactured by Asbestospray Corporation, in some of its buildings. In 1985, the Board of Regents of the University and the State of Minnesota (hereinafter called "the Regents") sued, among others, Asbestospray and its successor in interest, H & A Construction Corporation (formerly Spraycraft), for damages for the cost of removing the asbestos from the buildings. When the liability insurers of Asbestospray and H & A Construction denied coverage, the two insureds entered into an agreement pursuant to Miller v. Shugart, 316 N.W.2d 729 (Minn.1982), confessing judgment in favor of the Regents for $1.6 million, and assigning their claims against their insurers to the Regents.

The Regents then commenced this action against defendants Royal Insurance Company, North River Insurance Company, U.S. Fire Insurance Company, and Great American Insurance Company. The trial court granted the Regents' motion for summary judgment, finding the Miller-Shugart settlement reasonable and the insurers' policies, both primary and excess, to provide coverage. 1 Royal, North River and U.S. Fire (hereinafter "respondent insurance companies") appealed to the court of appeals on multiple issues. 2 The court of appeals affirmed the trial court except on the pivotal issue of insurance coverage, finding that coverage was excluded by the "pollution exclusion" in the policies. Board of Regents v. Royal Ins. Co. of America, 503 N.W.2d 486 (Minn.App.1993). Because it found the pollution clause question dispositive, the court of appeals did not address the other issues presented to it. 503 N.W.2d at 489.

The Regents petitioned for further review of the pollution exclusion issue. This is the only issue before us, as the respondent insurers did not file a notice of review. The exclusion clause in the primary policies reads differently from the exclusion clause in the excess policies. Consequently, we will discuss the primary policy exclusion first, and then the excess policy exclusion.


Respondents' primary policies are Comprehensive General Liability Policies, affording broad coverage for all sums the insured is legally obligated to pay as damages for personal injury or property damage "caused by an occurrence." 3

The primary policies contain the standard 1973 Form pollution exclusion, which excludes

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.

At first glance, this provision seems clear enough. It would appear that if an insured deposits toxic waste in a contained place and it escapes, such as by seeping into the surrounding soil or underground water, the exclusion applies; thus the policy would afford no coverage for the classic case of a waste disposal site which gradually pollutes the area. On the other hand, it appears that if an explosion sends chemical fumes over a residential area, or an oil truck overturns and spills oil into a marsh, these would be sudden and accidental happenings which come within the exception clause of the pollution exclusion, so that the exclusion would not apply and there would be insurance coverage.

But what happens when, as in this case, an insured's fireproofing material installed in a building releases asbestos fibers? Is the pollution exclusion germane? If it is, does the "sudden and accidental" exception apply so that the exclusion is inapplicable? And if the exception clause does not apply, is the exclusion itself nevertheless inapplicable because of its language? The parties, of course, differ on each of these questions.

1. The relevancy of the pollution exclusion.

The Regents (standing in the shoes of the insureds) first argue that this is a products liability case, not a pollution case. This is simply a case, they argue, where the insured has sold a defective product which has caused property damage. This argument need not detain us for long.

The exclusion speaks to property damages "arising out of" the discharge or release of pollutants. It does not say "arising out of a defective or unfit or negligently made product." In other words, the exclusion defines itself by characterizing the activity of the pollutant, not the activity of the insured polluter. See, e.g., Park-Ohio Indus., Inc. v. Home Indem. Co., 975 F.2d 1215, 1223 (6th Cir.1992) (applying Ohio law).

The Regents also rely, however, on a court of appeals opinion, Grinnell Mutual Reinsurance Co. v. Wasmuth, 432 N.W.2d 495 (Minn.App.1988), pet. for rev. denied (Minn., Feb. 10, 1989), with a somewhat similar fact situation. There the insured's insulation material, when installed in a home, emitted formaldehyde fumes. The court of appeals found insurance coverage, holding that an insured would not reasonably have expected its comprehensive general liability policy to exclude coverage for "unexpected damage due to installation of building materials in a home." 432 N.W.2d at 499. The reasonable expectations test of Atwater Creamery Co. v. Western National Mutual Insurance Co., 366 N.W.2d 271 (Minn.1985), however, has no place here, and the contrary ruling of Grinnell is overruled. In Atwater, we held that "where major exclusions are hidden in the definitions section, the insured should be held only to reasonable knowledge of the literal terms and conditions." 366 N.W.2d at 278. 4 In the comprehensive general liability policy involved in this case, the pollution exclusion is plainly designated as such; consequently, the wording of the exclusion should be construed, if a claim of ambiguity is raised, in accordance with the usual rules of interpretation governing insurance contracts. The reasonable expectation test is not a license to ignore the pollution exclusion in this case nor to rewrite the exclusion solely to conform to a result that the insured might prefer. 5

2. The "sudden and accidental" exception.

The pollution exclusion does not apply "if such discharge, dispersal, release or escape is sudden and accidental."

The Regents argue that the gradual release of asbestos fibers into the interior space of its buildings over a period of some 20 years was "sudden," and, therefore, the exception to the pollution exclusion applies. And, indeed, the Regents cite respectable authority for the proposition that "sudden" means "unexpected," and then point out that the release of the asbestos fibers was unexpected. See, e.g., Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 157 Wis.2d 507, 456 N.W.2d 570, 573 (1990); Morton Int'l, Inc. v. General Accident Ins. Co. of America, 629 A.2d 831, 870 (N.J.1993). Other equally respectable authority holds that "sudden" has a temporal connotation, and means something that happens abruptly. See, e.g., Lumbermens Mut. Casualty Co. v. Belleville Indus., 407 Mass. 675, 555 N.E.2d 568, 572 (1990). We note, also, that two panels of our court of appeals have differed on the issue. Compare Grinnell, 432 N.W.2d at 499 (construing "sudden" to mean "unexpected" or "unintended") with Sylvester Bros. Dev. Co. v. Great Cent. Ins. Co., 480 N.W.2d 368, 375-76 (Minn.App.) ("sudden" means "abrupt"), pet. for rev. denied (Minn., Mar. 26, 1992).

Because a word has more than one meaning does not mean it is ambiguous. The sense of a word depends on how it is being used; only if more than one meaning applies within that context does ambiguity arise. Here "sudden and accidental" modifies "discharge, [etc.]." It refers not to the placement of waste in a particular place but to the discharge or escape of the waste from that place. The word "sudden" is used in tandem with the word "accidental," and "accidental" in liability insurance parlance means unexpected or unintended, Bituminous Casualty Corp. v. Bartlett, 307 Minn. 72, 76-77, 240 N.W.2d 310, 312-13 (1976), overruled in part on other grounds, Prahm v. Rupp Constr. Co., 277...

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