City of Grosse Pointe Park v. MUNICIPAL LIABILITY AN PROPERTY POOL

• Decision Date: 19 July 2005
• Docket Number: Docket No. 125630. COA No. 8.
• Citation: 473 Mich. 188,702 N.W.2d 106
• Parties: CITY OF GROSSE POINTE PARK, Plaintiff-Appellee, v. MICHIGAN MUNICIPAL LIABILITY AND PROPERTY POOL, Defendant-Appellant.
• Court: Michigan Supreme Court

702 N.W.2d 106

473 Mich. 188

CITY OF GROSSE POINTE PARK, Plaintiff-Appellee, v. MICHIGAN MUNICIPAL LIABILITY AND PROPERTY POOL, Defendant-Appellant.

Docket No. 125630. COA No. 8.

Supreme Court of Michigan.

Argued March 9, 2005.

Decided July 19, 2005.

Bodman L.L.P. (by R. Craig Hupp and James A. Smith), Detroit, MI, for the plaintiff.

Pear Sperling Eggan & Daniels, P.C. (by Thomas E. Daniels and Karl V. Fink), Ypsilanti, MI, for the defendant.

MICHAEL F. CAVANAGH, J.

Plaintiff city of Grosse Pointe Park had a practice of discharging sewage into a nearby creek when its sewer system became overtaxed during, for example, heavy periods of rain. As a result of these discharges, the residents who lived near the creek filed a lawsuit against the city. Defendant Michigan Municipal Liability and Property Pool was the city's insurer and provided a defense in the lawsuit under a reservation of rights. Although the pool covered other claims regarding sewage backups into homes and businesses, the pool refused to cover claims regarding the discharges into the creek on the basis of the insurance policy's pollution exclusion clause. In this insurance coverage case, we must decide whether the insurance policy's pollution exclusion clause is ambiguous and whether extrinsic evidence may be examined in this particular case to aid in the construction of the policy. We hold that this pollution exclusion clause is not ambiguous; therefore, consideration of extrinsic evidence as a construction aid is not appropriate. Further, we conclude that the city's discharges fell within the scope of the pollution exclusion provision and, thus, coverage was properly denied on this basis.

Because we conclude that the pollution exclusion clause applies, we must also decide whether the pool is nonetheless estopped from enforcing this clause because of its practice of covering sewage backup claims or because of the manner in which it provided a defense to the city. We hold that under these facts, the pool is not estopped from enforcing the pollution exclusion clause. The pool timely reserved its rights under the policy, and the city was aware of the reservation. While the city claims to have suffered prejudice as a result of its reliance on a belief that the underlying lawsuit would be covered, this belief was not justifiable under the facts presented in this case. Accordingly, the decision of the Court of Appeals is reversed, and we remand this case to the trial court for entry of an order of summary disposition in favor of the pool.

I. Facts and Proceedings

In 1938, plaintiff city of Grosse Pointe Park entered into a contract with the city of Detroit to use Detroit's sewer system. Under the terms of the contract, Grosse Pointe Park acquired the right to pump the contents of its sewer line into an interceptor sewer for transport to Detroit's treatment plant. Further, Grosse Pointe Park was permitted under the contract to build a pump station and a discharge pipe. If Grosse Pointe Park's sewer flow exceeded eighty-four cubic feet a second and its line became overtaxed, the discharge pipe would allow Grosse Pointe Park to discharge the overflow into Fox Creek. Fox Creek is a tributary located in Detroit, but rests close to the Detroit-Grosse Pointe Park border.

At the time, Grosse Pointe Park had what is known as a combined sewer system, whereby sewage and rainwater are transported to a treatment plant in a single sewer line. If, for example, there was a heavy rainfall and the capacity of the sewer system became strained, both sewage and rainwater would flow into the basements of buildings connected to the city's sewer line. To relieve the overflow and prevent basement backups, the city would pump sewage and rainwater into Fox Creek. Beginning in about 1940, the city began discharging overflow from the combined sewer system into Fox Creek. Soon after the first discharges, residents near Fox Creek began to complain of this practice. Nonetheless, this practice continued until 1995, roughly fifty-five years.¹

Defendant Michigan Municipal Liability and Property Pool is a group self-insurance pool created by certain local governments. See MCL 124.5. Every year, beginning in 1985 and running through 1998, Grosse Pointe Park purchased one-year, occurrence-based liability policies from the pool. Each policy period ran from August 1 to July 31. While these policies were in effect, Grosse Pointe Park residents made numerous claims against the city for sewage backups into their homes and businesses, and the pool covered these claims. At issue in this case is the policy issued on August 1, 1994, and effective through July 31, 1995.

Underlying this case is a class action filed in Wayne Circuit Court against the city by residents who lived near Fox Creek, Etheridge v. Grosse Pointe Park (Docket No. 95-527115NZ).² The Etheridge complaint was filed on September 14, 1995, and the plaintiffs alleged that their homes were flooded by the city's discharge of sewer overflow into Fox Creek on July 24, 1995. Because of this discharge, as well as the city's long-term practice of discharging into Fox Creek, the plaintiff class alleged claims for trespass, nuisance, trespass/nuisance, gross negligence, and a taking; also alleged were third-party beneficiary claims arising under the contracts between Grosse Pointe Park and Detroit. Grosse Pointe Park submitted the Etheridge complaint to the pool for defense and indemnification coverage.

On October 6, 1995, the pool sent a letter to the city, indicating that it would provide the city a defense, but that it was reserving its rights under the policy. The letter provided, in pertinent part:

Our review of the [Etheridge] Complaint reveals that if judgment or damages are awarded based on certain allegations, the judgments based on those allegations may not be covered by the coverage contract. The purpose of this letter is to point out the allegations and exposures that may not be covered, and to formally advise you that we will defend the entire action, with your cooperation, but will not pay any damages not covered by our contract. In legal terms, we are reserving our rights to restrict payments to those owed under the coverage contract.

* * *

Please be advised that if there is any judgment against the City of Grosse Pointe Park for eminent domain, a discharge of any pollutants, or an intentional act, the Michigan Municipal Liability & Property Pool reserves the right not to indemnify Grosse Pointe Park for said damages.

After noting the allegations and exposures, among other things, the pool's letter referred the city to section V of the insurance policy and specifically quoted the following language from that section-the pollution exclusion clause:

In addition to the specific exclusions in SECTION I-COVERAGES A-BODILY INJURY AND PROPERTY DAMAGE LIABILITY, B-PERSONAL AND ADVERTISING INJURY LIABILITY, C-MEDICAL PAYMENTS, D-PUBLIC OFFICIALS ERRORS AND OMISSIONS, AND E-AUTO, this coverage does not apply to:

d. bodily Injury or Property Damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

(1) At or form [sic] any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any Member;

(2) At or from any premises, site or location which is or was at any time used by or fro [sic] any Member or others for the handling, storage, disposal, processing or treatment of waste;

(3) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or fro [sic] may [sic] Member or any person or organization for whom you may be legally responsible, or

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

(a) if the pollutants are brought on or to the premises, site or location in connection with such operations by such Member contractor or subcontractor; or

(b) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants.

* * *

Pollutants mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

The pool received all the pleadings and participated in the Etheridge litigation by attending meetings, hearings, and facilitation. Notably, the pool also continued to cover basement backup claims during the Etheridge lawsuit. Settlement was ultimately reached in the Etheridge lawsuit, whereby Grosse Pointe Park and Detroit would each pay the plaintiffs $1.9 million and take the necessary action to stop the discharges into Fox Creek. The pool then notified Grosse Pointe Park that indemnification coverage would be denied. Nonetheless, Grosse Pointe Park finalized the Etheridge settlement and filed this declaratory judgment action.³ Both parties moved for summary disposition, and the trial court concluded that the pool was equitably estopped from invoking the pollution exclusion clause to deny coverage because the pool had previously paid basement backup claims without incident.⁴ Thus, the trial court granted the city's motions for summary disposition and ordered the pool to indemnify the city for the amount of the Etheridge settlement. The pool appealed this decision.

In a two-to-one decision, the Court of Appeals reversed the trial court's determination that the pool was estopped as a matter of law from denying coverage, reasoning that a question of fact existed on this issue. Unpublished opinion per curiam of the Court of Appeals, issued October 30, 2003 (Docket No. 228347). Moreover, the Court of Appeals majority concluded, among other things, that the city presented a question of fact regarding ...