CENTER FOR CREATIVE STU. v. AETNA LIFE AND CAS.

• Decision Date: 08 December 1994
• Docket Number: No. 94-CV-70896-DT.,94-CV-70896-DT.
• Citation: 871 F. Supp. 941
• Parties: CENTER FOR CREATIVE STUDIES, Plaintiff, v. AETNA LIFE AND CASUALTY COMPANY, Aetna Casualty and Surety Company of Illinois, and Aetna Casualty and Surety Company, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

871 F. Supp. 941

CENTER FOR CREATIVE STUDIES, Plaintiff, v. AETNA LIFE AND CASUALTY COMPANY, Aetna Casualty and Surety Company of Illinois, and Aetna Casualty and Surety Company, Defendants.

No. 94-CV-70896-DT.

United States District Court, E.D. Michigan, Southern Division.

December 8, 1994.

Jonathan T. Walton, Jr., Paul E. Scheidemantel, Clark, Klein and Beaumont, Detroit, MI, for plaintiff.

Daniel G. Litchfield, Mitchell H. Frazen, Burdit & Radzius, Chartered, Chicago, IL, Michael F. Condit, Condit, McGarry & Schloff, P.C., Bloomfield Hills, MI, for defendants.

OPINION

DUGGAN, District Judge.

Before this Court are plaintiff's and defendants' cross motions for summary judgment.

I. Background

Plaintiff, Center for Creative Studies (Center), is a non-profit educational institution in Detroit, which specializes in creative arts education (degree programs in fine arts, industrial design, graphic communications and photography).

In September of 1992, one of Center's former students, Linda Dittmer, filed a lawsuit in the Wayne County Circuit Court. Dittmer alleged that in September 1989 she became ill from exposure to a "photographic chemical" product that she was using to develop film in a darkroom during a photography class. Specifically, she alleges that she "was overcome by the fumes form sic the chemicals and was exposed to high levels of toxic fumes." (Pl's.Br.Ex. F, Dittmer's Compl. ¶ 10). She alleged that Center failed to instruct her on the proper usage of the chemical, failed to warn her of potential dangers associated with the use of the product and failed to properly ventilate the darkroom (all forming the basis of a negligence claim against Center).

In September 1992, Center tendered the defense of the suit to Aetna Illinois (Aetna).¹ Aetna retained counsel to defend Center and did not assert a reservation of rights or request a non-waiver agreement. Dittmer dismissed the complaint without prejudice within approximately one year's time.

In October 1993, Dittmer filed a second complaint against Center in the Wayne County Circuit Court (the allegations were essentially the same as those made in the first suit). Center again tendered its defense to Aetna. This time, however, Aetna denied coverage pursuant to a letter dated October 15, 1993. Aetna refused to provide any further defense of Center after November 14, 1993, asserting that the Pollution Exclusion clause of the insurance policy² justified denial of coverage for the suit.

Plaintiff filed this action on March 8, 1994, requesting the Court to determine that defendants are required to defend and indemnify against a personal injury claim by one of plaintiff's former students. Plaintiff maintains that Aetna's failure to defend Center in the underlying state action is a breach of its contract of insurance.

The facts in this case are not in dispute, and therefore, both parties agree that this case can be decided by summary judgment.

II. Discussion

A. Applicable Law

The Court shall apply the state law that the state court would apply. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties do not dispute that Michigan law must be applied.

The Michigan courts have explained that:

the duty of the insurer to defend the insured depends upon the allegations in the complaint of the third party in his or her action against the insured. This duty is not limited to meritorious suits and may even extend to actions which are groundless, false, or fraudulent, so long as the allegations, against the insured even arguably come within the policy coverage. An insurer has a duty to defend, despite theories of liability asserted against any insured which are not covered under the policy, if there are any theories of recovery that fall within the policy. The duty to defend cannot be limited by the precise language of the pleadings. The insurer has the duty to look behind the third party's allegations to analyze whether coverage is possible. In a case of doubt as to whether or not the complaint against the insured alleges a liability of the insurer under the policy, the doubt must be resolved in the insured's favor.

Protective Nat'l Ins. v. Woodhaven, 438 Mich. 154, 159, 476 N.W.2d 374 (1991) (emphasis in original) (citations omitted). The Court indicated that "it was the duty of the insurer to undertake the defense until it could confine the claim to a recovery that the policy did not cover." Id. at 159-60, 476 N.W.2d 374 (citation and footnote omitted).

Michigan courts have found that "initially, in determining whether a policy applies, we first must determine whether the policy is clear and unambiguous on its face. We cannot create an ambiguity where none exists." Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 206, 476 N.W.2d 392 (1991) (citations omitted). Similarly, the courts "reject the temptation to rewrite the plain and unambiguous meaning of the policy under the guise of interpretation. Rather, we enforce the terms of the contract as written. If the language of the policy is unambiguous, it must be considered `in its plain and easily understood sense.'" Id. at 207, 476 N.W.2d 392 (citations omitted).

B. History of Pollution Exclusion Language

As indicated by Professor Jeffrey Stempel, "one of the most hotly litigated insurance coverage questions of the late 1980s and early 1990s has been the scope and application of the pollution exclusion contained in the standard commercial general liability (CGL) policy." Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy for Insurers and Policyholders 825 (1994) hereinafter Interpretation.³ The impetus for development of such pollution exclusion language was the increasing damage claims "caused by pollutants released by the policyholders in dramatic fashion in locations such as Times Beach and Love Canal." Id.; see also West Am. Ins. Co. v. Tufco Flooring East, Inc., 104 N.C.App. 312, 409 S.E.2d 692, 699 (1991).⁴

C. Interpretation of the Old Exclusion Language

The "sudden and accidental" exclusion language was prominent between 1970-1984. Beginning in 1984, the new "more" absolute exclusion language (which is the type at issue before this Court) began to be written into policies. Interpretation at 826.

The biggest interpretation issue to date has been over what the terms "sudden" and "accidental" mean. The cases dealing with this issue have been evenly divided between courts finding coverage for gradual pollution and others finding coverage only when the pollution was unexpected and occurred rapidly. Id. 835 nn. 8-9 (listing cases on both sides of the issue).

In 1991, the Michigan Supreme Court in a series of three cases, found that the "sudden and accidental" pollution exclusion covers only abrupt discharges. Woodhaven, 438 Mich. at 161-63, 476 N.W.2d 374; Polkow; 438 Mich. at 189, 476 N.W.2d 382 (Riley, J., dissenting); Upjohn, 438 Mich. at 207-10, 476 N.W.2d 392.

D. New "Absolute" Language

Stempel explains that "after the beginning of the challenge to the insurance industry's view of the temporal meaning of the sudden and accidental language, the standard CGL was amended by ISO." Interpretation at 828 (emphasis in original). The current CGL pollution exclusion language is the one at issue before this Court (see supra note 2). The exclusion omits the "sudden and accidental" and "into or upon land, the atmosphere ..." language that existed in the old exclusion.

Plaintiff cites to Tufco, 409 S.E.2d at 699, a case from the North Carolina Court of Appeals, in support of its contention that the pollution exclusion does not apply in this case. The Tufco court analyzed a policy coverage issue involving the new exclusion language and an underlying dispute over the alleged contamination of chickens by the defendant's use of chemicals in resurfacing a cooler. The court explained that:

the operative terms in the version of the pollution exclusion clause at issue in this case are "discharge," "dispersal," "release," and "escape." While they are not defined in the policy, the terms "discharge" and "release" are terms of art in environmental law and include "escape" by definition and "dispersal" by concept.

"Discharge" is defined in the federal regulations interpreting RCRA as the "accidental or intentional spilling, leaking, pumping, pouring, emitting, emptying, or dumping of hazardous waste into or on any land or water." * * * "Release" is defined in CERCLA as "any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment...."

Id. The court found that:

because the operative policy terms "discharge," "dispersal," "release," and "escape" are environmental terms of art, the omission of the language "into or upon land, the atmosphere or any water course of body of water" in the new pollution exclusion clause is insignificant. The omission of the phrase only removes a redundancy in the language of the exclusion....

Id. at 699-700.⁵

The court concluded that:

in light of the language of the West American policy and Tufco's reasonable belief that damages accidentally arising from its normal business activities would not be excluded, we agree that the pollution exclusion clause in the West American policy applies only to discharges into the environment and not to the non-environmental damage that led to Perdue's claim against Tufco.

Id. at 700.

The Seventh Circuit in Pipefitters Welfare Educ. Fund v. Westchester Fire, 976 F.2d 1037, 1043 (7th Cir.1992), interpreted a portion exclusion similar to the one before this Court in the context of a situation involving the release of PCBs. An argument was made before the Court that "the term `pollutants' does not encompass any release of irritants or contaminants, but rather only those releases associated with industrial emissions, waste disposal, or other pollution-generating activities." Id. (emphasis in original). The...