ESTEROVICH v. City of Kellogg, 27579.

• Decision Date: 20 November 2003
• Docket Number: No. 27579.,27579.
• Citation: 80 P.3d 1040,139 Idaho 439
• Parties: Ladina M. EXTEROVICH and Anthony R. Exterovich, wife and husband, Plaintiffs, and Ruby Burress and Perry J.C. Burress, wife and husband, Plaintiffs-Respondents, v. CITY OF KELLOGG, an Idaho municipal corporation, Defendant. City of Kellogg, an Idaho municipal corporation, Third-Party Plaintiff, v. Idaho Counties Risk Management Program, Underwriters, Third-Party Defendant-Appellant.
• Court: Idaho Supreme Court

80 P.3d 1040

139 Idaho 439

Ladina M. EXTEROVICH and Anthony R. Exterovich, wife and husband, Plaintiffs, and Ruby Burress and Perry J.C. Burress, wife and husband, Plaintiffs-Respondents, v. CITY OF KELLOGG, an Idaho municipal corporation, Defendant.

City of Kellogg, an Idaho municipal corporation, Third-Party Plaintiff, v. Idaho Counties Risk Management Program, Underwriters, Third-Party Defendant-Appellant.

No. 27579.

Supreme Court of Idaho, Coeur d'Alene, October 2003 Term.

November 20, 2003.

Anderson, Julian & Hull, Boise, and Hall, Farley, Oberrecht & Blanton, Boise, for appellant. Phillip J. Collaer argued.

Evans, Craven & Lackie, P.S., Spokane, Washington, for respondents. Hugh O. Evans argued.

EISMANN, Justice.

This is an appeal from a partial judgment entered against the insured after the insured stipulated to liability and the district court denied the insurer's request to participate in the evidentiary hearing regarding damages. We vacate the judgment and remand this case for further proceedings.

I. FACTS AND PROCEDURAL HISTORY

On March 22, 1994, the Public Works Department of the City of Kellogg (City) tested the City's sewer system by pumping into it a product known as DS-500 Dial Smoke Agent and then looking for places where the smoke escaped from the sewer system. Although the manufacturer's material safety data sheet warned that respiratory injury could occur upon exposure to the agent, the City crew did not warn persons who could be exposed to the agent during the test.

The plaintiffs Ladina M. Exterovich and Ruby Burress were both employed at an office located in the City, and during the course of the test they both noticed smoke coming from the bathroom in their office. When they went to investigate, they were both exposed to the DS-500. They were both subsequently diagnosed with Reactive Airways Disease Syndrome.

On March 13, 1996, the Burresses filed this negligence action against the City to recover for personal injuries suffered by Ruby Burress and for loss of consortium suffered by her husband Perry Burress.¹ The City tendered defense of the lawsuit to its liability insurer Idaho Counties Risk Management Program (ICRMP), and by letter dated March 27, 1996, it refused to provide a defense on the ground that there was no coverage because of the pollution hazard exclusion in the policy. The City retained counsel and on April 22, 1996, it filed an answer denying liability.

On June 24, 1999, the City filed a third-party complaint against ICRMP in which it sought a declaratory judgment that the pollution hazard exclusion was invalid and there was therefore coverage and a duty to defend, damages for breach of contract, and damages for the bad faith denial of coverage. On June 30, 1999, ICRMP answered the third-party complaint denying liability.

The Burresses and the City reached a partial settlement, and on February 4, 2000, the City filed documents reflecting the terms of that partial settlement. The City admitted liability, waived its right to appear at the hearing to determine the Burresses' damages, and agreed that the district court could determine those damages in the same manner as if default had been entered against the City for failure to plead or otherwise defend. The City also assigned to the Burresses all claims and causes of action that it had against ICRMP in this action. In exchange, the Burresses agreed not to record or execute upon any judgment it obtained against the City. By order entered on June 28, 2000, the district court bifurcated the third-party claim against ICRMP from the claims brought by the Burresses against the City.

On October 23, 2000, ICRMP filed a motion for summary judgment seeking a determination that the pollution exclusion was valid and that the insurance policy did not cover the Burresses' claims against the City. On November 27, 2000, the Burresses filed a motion seeking summary judgment that there was coverage. At the conclusion of the hearing held on February 12, 2001, the district court stated that it found the pollution exclusion to be ambiguous and that as a matter of law there was therefore coverage. After the district court orally announced its decision, ICRMP requested an opportunity to participate in the court trial regarding the issue of damages. The district court stated that it would think about that request overnight.

The district court denied ICRMP's request to participate in the hearing regarding damages, and on February 20, 2001, ICRMP filed a motion asking the district court to reconsider that ruling. The motion for reconsideration was heard on March 19, 2001. The district court stated that it would take the matter under advisement, and then proceeded to hear the issue of damages. On April 20, 2001, it entered its order denying the motion for reconsideration and awarding the Burresses damages totaling $691,280.00. The district court denied ICRMP's request to participate in the proceedings because ICRMP had no right to...