Duensing v. Traveler's Companies

• Decision Date: 29 March 1993
• Docket Number: No. 92-203,92-203
• Citation: 849 P.2d 203,50 St.Rep. 316,257 Mont. 376
• Parties: Stanley DUENSING and David Duensing, a general partnership, d/b/a The Parrot Confectionery, Plaintiffs and Appellants, v. The TRAVELER'S COMPANIES, a Connecticut corporation, Defendant, Respondent and Cross-Appellant.
• Court: Montana Supreme Court

Page 203

849 P.2d 203

257 Mont. 376

Stanley DUENSING and David Duensing, a general partnership, d/b/a The Parrot Confectionery, Plaintiffs and Appellants, v. The TRAVELER'S COMPANIES, a Connecticut corporation,

Defendant, Respondent and Cross-Appellant.

No. 92-203.

Supreme Court of Montana.

Submitted on Briefs Aug. 13, 1992.

Decided March 29, 1993.

W. William Leaphart, Leaphart, Leaphart Law Firm, Helena, for plaintiffs and appellants.

James R. Walsh, Robert J. Vermillion, Smith, Walsh, Clarke & Gregoire, Great Falls, for defendant and respondent.

GRAY, Justice.

Stanley and David Duensing appeal from an order of the First Judicial District Court, Lewis and Clark County, granting summary judgment in favor of the Travelers Companies. On cross-appeal, the Travelers Companies asserts an alternative basis for the granting of summary judgment in its favor. We reverse and remand.

We state the issues on appeal as follows:

1) Did the District Court err in granting summary judgment in favor of the Travelers Companies based on the contamination exclusion contained in the insurance policy?

2) If the District Court erred in granting summary judgment in favor of the Travelers Companies based on the contamination exclusion, can this Court nonetheless uphold the grant of summary judgment pursuant to the governmental action exclusion?

3) Are the Duensings entitled to entry of summary judgment in their favor?

The facts in this case are relatively straightforward. On August 28, 1990, Stanley and David Duensing (the Duensings), a partnership doing business as the Parrot Confectionery (the Parrot), discovered that a worker had been exposed to Hepatitis A. The Duensings immediately informed the City-County and State Health Departments and their insurance agency, Burrington Insurance Agency (Burrington). The next morning, the Duensings, their attorney, their accountant, Will Selser and Larry Fenster of the Lewis and Clark City-County Health Department (the health department), and an agent from Burrington met to discuss the possible problems associated with the hepatitis exposure. Later that same day, the Montana Department of Health and Environmental Sciences issued a "Notice of Embargo" to the Parrot, which prohibited the movement or sale of any of the Parrot's candy without permission. Although the Parrot's inventory had not been tested, the Duensings agreed to destroy voluntarily all existing inventory.

On August 31, 1990, the Duensings destroyed the Parrot's entire inventory of candy and food. They subsequently submitted a claim on their business owners' property insurance policy with Travelers for loss of contents and business interruption as a result of the destruction of the inventory. Travelers denied coverage, relying on the "contamination exclusion" and the "governmental action exclusion" contained in the policy.

The Duensings then filed a declaratory action against Travelers for a determination of rights of the parties under the insurance contract, waiver and estoppel. Both parties moved for summary judgment based on the contamination and governmental action exclusions. After briefing and oral argument, the District Court granted summary judgment for Travelers based on the contamination exclusion; it did not address the governmental action exclusion.

Did the District Court err in granting summary judgment in favor of Travelers based on the contamination exclusion contained in the insurance policy?

Summary judgment is proper when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. Faced with cross motions for summary judgment on the same legal questions, with both parties asserting an absence of factual issues as to those questions, the District Court concluded that Travelers was entitled to summary judgment based on the contamination exclusion.

The contamination exclusion relied on by the District Court reads:

2. We will not pay for loss or damage caused by or resulting from any of the following: ...

d. ... (7) The following causes of losses to personal property: ...

(d) Evaporation, loss of weight, contamination, exposure to light or change in flavor, color, texture or finish. [Emphasis added.]

The District Court determined that the policy did not require scientific findings of contamination and that reasonable belief of such contamination destroyed the business value of the inventory and was sufficient to fall within the exclusion. The District Court also stated that the fact that the contamination was not confirmed through testing was not material for purposes of the insurance contract. The court concluded that, given the common sense, usual meaning of the language, the parties had intended to exclude coverage for loss of the Parrot's inventory, which was destroyed because of the high probability of contamination. Thus, the contamination exclusion of the policy precluded coverage.

The Duensings contend that the District Court incorrectly concluded that the inventory was contaminated within the language of the contamination exclusion. They argue that the District Court erred by interpreting the contamination exclusion to exclude anything other than actual contamination. They further argue that, contrary to the rule of construing exclusions in insurance policies strictly against the insurer, the District Court enlarged the contamination exclusion to include suspected contamination.

The interpretation of an insurance contract is a question of law. Truck Ins. Exchange v. Waller (1992), 252 Mont. 328, 331, 828 P.2d 1384, 1386. Therefore, we review whether the District Court correctly interpreted the policy in question. Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 475, 803 P.2d 601, 603.

Well-established principles guide our interpretation of insurance contracts. The language of the insurance policy governs if it is clear and explicit. Waller, 252 Mont. at 331, 828 P.2d at 1386. Furthermore, exclusions from coverage will be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy. Farmers Union Mut. Ins. Co. v. Oakland (1992), 251 Mont. 352, 356, 825 P.2d 554, 556.

In this case, the contamination exclusion is unambiguous, clear and explicit: Travelers will not pay for loss or damage to personal property caused by or resulting from contamination. The exclusion from coverage requires two elements. First, there must be "contamination;" and second, the contamination must cause loss to personal property. Only if contamination exists does it become necessary to determine whether the contamination caused the loss to personal property.

The District Court concluded that the high probability of contamination and the reasonable belief of contamination were sufficient to exclude coverage. In essence, these conclusions define "contamination" to include suspected contamination. In interpreting insurance contracts, the words of the policy are to be understood in their usual meaning; common sense controls. James v. Prudential Ins. Co. (1957), 131 Mont. 473, 477, 312 P.2d 125, 127 (citations omitted).

In Hi-G, Inc. v. St. Paul Fire and Marine Ins. Co. (1st Cir.1968), 391 F.2d 924, 925, the First Circuit Court of Appeals defined contamination as the introduction of a foreign substance that injures the usefulness of the object. Similarly, the Fifth Circuit Court of Appeals defined contamination as a condition of impurity resulting from mixture or contact with a foreign substance, and stated that this definition is consistent with the common understanding of contamination. American Casualty Co. of Reading, Pennsylvania v. Myrick (5th Cir.1962), 304 F.2d 179, 183.

The Court of Appeals of Texas adopted the definition of contamination from Myrick in Auten v. Employers Nat. Ins. Co. (Tex.App.1987), 722 S.W.2d 468, 469. In Auten, an exterminator sprayed a toxic pesticide inside of Auten's home, and expert testimony established that the toxin was deposited on surfaces throughout the home. After touching these surfaces, the members of the Auten family absorbed the pesticide through their skin and became ill. Auten, 722 S.W.2d at 469. As in Myrick, the contamination involved the presence of a foreign substance, thus triggering the contamination exclusion.

We adopt the rationale expressed in Hi-G, Myrick and Auten, and conclude that contamination requires the actual presence of a foreign substance. We conclude, therefore, that the plain, ordinary meaning and understanding of "contamination" is actual contamination, not suspected contamination. Absent proof of actual contamination, the contamination exclusion does not bar coverage for the Duensings' losses.

Accordingly, we examine the record to determine whether it contains any proof of actual contamination. In this case, the candy was destroyed before it was tested, thereby preventing anyone from verifying whether it was actually contaminated by the hepatitis virus. Nonetheless, Travelers urges us to conclude that the candy was contaminated because the health department made a "finding" that the inventory was contaminated. The Duensings assert that the parties did not complete the necessary statutory steps to allow anyone to conclude that the inventory was actually contaminated. The parties base their respective arguments on § 50-31-509, MCA, which reads in pertinent part:

Detainer of adulterated or misbranded articles. (1) If an agent of the department finds or has probable cause to believe that any food, drug, device, or cosmetic is adulterated or so misbranded as to be dangerous or fraudulent within the meaning of this chapter, he shall affix to the article a tag or other appropriate marking giving notice that the article is or is suspected of being adulterated or misbranded and has been detained or embargoed and warning all persons not to remove or dispose of the article by sale or otherwise until...