Grinnell Mut. Reinsurance Co. v. Wasmuth, CIBA-GEIGY

• Decision Date: 13 December 1988
• Docket Number: CIBA-GEIGY,No. C1-88-1014,C1-88-1014
• Citation: 432 N.W.2d 495
• Parties: GRINNELL MUTUAL REINSURANCE COMPANY, Appellant, v. Lowell WASMUTH, et al., Respondents,Corporation, et al., Defendants, Edwin Carlson, d/b/a Eddie's Insulation, Respondent.
• Court: Minnesota Court of Appeals

Page 495

432 N.W.2d 495

57 USLW 2435

GRINNELL MUTUAL REINSURANCE COMPANY, Appellant, v. Lowell WASMUTH, et al., Respondents CIBA-GEIGY Corporation, et al., Defendants Edwin Carlson, d/b/a Eddie's Insulation, Respondent.

No. C1-88-1014.

Court of Appeals of Minnesota.

Dec. 13, 1988.

Review Denied Feb. 10, 1989.

Syllabus by the Court

The pollution exclusion in a business liability policy does not apply in the circumstances here, where a homeowner suffered damage resulting from negligent installation of building materials.

Kay Nord Hunt, V. Owen Nelson, Lommen, Nelson, Cole & Stageberg, P.A., Minneapolis, for appellant.

David S. Maring, Cahill & Maring, P.A., Fargo, for Lowell Wasmuth, et al.

Duane A. Lillehaug Dosland, Dosland, Nordhougen, Lillehaug & Johnson, P.A. American Bank & Trust Bldg. P.O. Box 100 Moorhead, for Edwin Carlson.

John B. Gordon, Faegre & Benson, Minneapolis, Thomas W. Brunner, John W. Cavilia, Robert R. Lawrence, Wiley, Rein & Fielding, Washington, D.C., for amicus curiae Ins. Environmental Litigation Ass'n.

Thomas J. Barrett, Thomas J. Radio, Popham, Haik, Schnobrich & Kaufman, Ltd., Minneapolis, John E. Hintz, Michael K. Hammaker, Washington, D.C., for amici curiae Honeywell, Inc. and Minnesota Min. and Mfg. Co. Heard, considered and decided by CRIPPEN, P.J., and FORSBERG and LOMMEN, JJ. ^*

OPINION

CRIPPEN, Judge.

Grinnell Mutual brought a declaratory judgment seeking a determination that the "pollution" exclusion in liability insurance policies issued to Edwin Carlson's business precluded coverage for alleged damage to a home and its occupants caused by formaldehyde unexpectedly emitted from deteriorating foam insulation Carlson sold and installed.

The trial court denied Grinnell's summary judgment motion and granted summary judgment for respondent homeowners. Claims against Carlson's business were dismissed because its exposure to liability had been extinguished by a settlement with respondents.

A prior insurer of Carlson was dismissed from the case when it settled with the homeowners. Grinnell appeals the summary judgment.

FACTS

In 1977, respondents Lowell and Marjorie Wasmuth hired Edwin Carlson of Eddie's Insulation to install ureaformaldehyde insulation in their home. In 1978, the Wasmuths felt the insulation was not keeping their house as warm as it did in 1977, and in the fall they contacted Eddie's. Eddie's examined the house, determined the insulation had shrunk, and in November 1979 pumped in additional insulation.

Shortly after the 1979 reinsulation, Mrs. Wasmuth became aware of a smell in her home, her eyes burned, she had difficulty breathing, and suffered from nausea and sore throats. Mrs. Wasmuth testified that the onset of symptoms was gradual, beginning in the fall of 1979. The severity of the symptoms gradually increased.

In 1981, the Wasmuths obtained a testing report indicating there was an abnormally high level of formaldehyde in their home caused by deteriorating foam insulation. The deterioration was caused by improper installation on both sides of the vapor barrier and in some places the vapor barrier was torn. The testing agency found the problem began in 1977 and would continue unless the insulation was removed.

The Wasmuths moved from their home in May 1981. They found it necessary to destroy many items of personal property which had absorbed the formaldehyde. Their claim that Carlson's company negligently installed the insulation was settled in January 1987.

ISSUES

1. Does the pollution exclusion preclude coverage?

2. Do other policy exclusions preclude coverage for some property damage?

3. Are there other factual issues which preclude summary judgment?

ANALYSIS

On appeal from summary judgment, this court must determine whether there are material fact issues or whether the trial court erred in its application of the law. Betlach v. Wayzata Condominium, 281 N.W.2d 328, 330 (Minn.1979).

The insurer has the burden of proving that a policy exclusion applies. Henning Nelson Construction Co. v. Fireman's Fund American Life Insurance Co., 383 N.W.2d 645, 652 (Minn.1986). If there are ambiguities in the language of the policy, they must be construed in favor of the insured. Id. "If the language of the policy is reasonably subject to more than one interpretation, there is ambiguity." Columbia Heights Motors, Inc. v. Allstate Insurance Co., 275 N.W.2d 32, 34 (Minn.1979). Whether the policy language is ambiguous is a question of law. Id.

1. Pollution Exclusion

Carlson's policy with Grinnell furnished liability coverage for unexpected bodily injury or property damage caused by an accident "including continuous or repeated exposure to conditions."

Grinnell agrees that its policy covers a broad range of unexpected damages. Absent application of an exclusion, the insurer does not dispute that the emission of formaldehyde which caused physical and property damage would be covered.

One of the policy exclusions, known as the "pollution" exclusion states:

This insurance does not apply * * *

(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water.

There is an exception to the exclusion when the "discharge, disposal, release or escape is sudden and accidental." Minnesota appellate courts have not considered this exclusion previously.

The intent of the exclusion clause was to deny coverage for polluting activities to those who knew or should have known their actions would cause harm. The insured should not be able to seek coverage for knowingly polluting the environment. Broadwell Realty Services, Inc. v. Fidelity & Casualty Company of New York, 218 N.J.Super. 516, 533, 528 A.2d 76, 85 (Ct.App.Div.1987).

We have reviewed prior appellate decisions involving construction of the pollution exclusion clause. Without exception, the cases which construe the pollution exclusion clause to preclude coverage involve (1) deliberate disposition of potentially hazardous waste or produced substances, (2) widespread pollution, (3) multiple claimants, (4) damaging actions over an extended period of time, usually in the regular course of business, and (5) discovery of the damage years after polluting conduct. See International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co., 168 Ill.App.3d 361, 119 Ill.Dec. 96, 522 N.E.2d 758 (1988), appeal denied, 122 Ill.2d 576, 125 Ill.Dec. 218, 530 N.E.2d 246 (1988) (company, in the course of reconditioning barrels, dumped caustic chemicals which contaminated surface and ground water over period of time); Borden, Inc. v. Affiliated FM Insurance Co., 682 F.Supp. 927 (S.D.Ohio 1987) (groundwater contamination due to regularly deposited radioactive wastes); Claussen v. Aetna Casualty & Surety Co., 676 F.Supp. 1571 (S.D.Ga.1987) (gradual leaching of wastes from landfill into surrounding soil and groundwater); American Motorists Insurance Co. v. General Host Corp., 667 F.Supp. 1423 (D.Kan.1987) (insured regularly dumped tons of salt brine over a period of at least 75 years); Centennial Insurance Co. v. Lumbermens Mutual Casualty Co., 677 F.Supp. 342 (E.D.Pa.1987) (in the normal course of business, insured had a third party dump hazardous industrial waste); American Mutual Liability Insurance Co. v. Neville Chemical Co., 650 F.Supp. 929 (W.D.Pa.1987) (insured regularly dumped chemical pollutants and hazardous industrial waste material into unlined pit over a period of more than six years); Fischer & Porter Co. v. Liberty Mutual Insurance Co., 656 F.Supp. 132 (E.D.Pa.1986) (insured regularly dumped toxic chemical for at least 30-40 years); Techalloy Company, Inc. v. Reliance Insurance Co., 388 Pa.Super. 1, 487 A.2d 820 (1984), appeal denied (Pa. Oct. 31, 1985) (insured regularly dumped toxic "TCE" for over 25 years). See also Note, The Pollution Exclusion Clause Through the Looking Glass, 74 Geo.L.J. 1237, 1239, n. 11 (1986).

Few elements of the typical pollution claim are present in this case. Insulation was installed on only two occasions as part of an improvement to a family home. The damage was confined to a single family dwelling, and was discovered within a year of the second installation.

We have found no cases involving exclusion of coverage in a situation similar to this case. In those few cases involving small businesses with limited damage, the insured had coverage. See, e.g., Farm Family Mutual Insurance Co. v. Bagley, 64 A.D.2d 1014, 409 N.Y.S.2d 294 (1978) (chemicals sprayed on one field may have migrated to another); Allstate Insurance Co. v. Klock Oil Co., 73 A.D.2d 486, 426 N.Y.S.2d 603 (1980) (gasoline storage tank leaked); A-1 Sandblasting & Steamcleaning Co., Inc. v. Baiden, 53 Or.App. 890, 632 P.2d 1377 (1981), aff'd, 293 Or. 17, 643 P.2d 1260 (1982) (overspray from painting bridge damaged passing cars).

Consistent with the rules of insurance policy construction protecting the insured, the reasonable expectation of the insured may be given effect in unique circumstances, even if careful examination of the policy provision would negate that expectation. Atwater Creamery Co. v. Western National Mutual Insurance Co., 366 N.W.2d 271, 276-77 (Minn.1985) (citing Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv.L.Rev. 961, 967 (1970)).

The narrowly recognized doctrine of protecting the insured's reasonable expectations recognizes the:

1. unequal bargaining power between the parties;

2. the lay person's inability to read and understand an insurance policy;

3. the insured relies on the agent or company to provide the appropriate coverage.

Atwater Creamery, 366 N.W.2d at 277.

The reasonable-expectations doctrine gives the court a standard by which to construe insurance contracts without having to rely on arbitrary rules which do not reflect real-life situations and without...