Keggi v. Northbrook Property and Cas. Ins.

• Decision Date: 05 December 2000
• Docket Number: No. 1 CA-CV 99-0566.,1 CA-CV 99-0566.
• Citation: 199 Ariz. 43,13 P.3d 785
• Parties: Caroline Saunders KEGGI, Plaintiff-Appellant, v. NORTHBROOK PROPERTY AND CASUALTY INSURANCE COMPANY; Transamerica Insurance Company; and TIG Insurance Company, Defendants-Appellees.
• Court: Arizona Court of Appeals

13 P.3d 785

199 Ariz. 43

Caroline Saunders KEGGI, Plaintiff-Appellant, v. NORTHBROOK PROPERTY AND CASUALTY INSURANCE COMPANY; Transamerica Insurance Company; and TIG Insurance Company, Defendants-Appellees.

No. -0566.

Court of Appeals of Arizona, Division 1, Department D.

December 5, 2000.

Robbins & Green, P.A. by Philip A. Robbins, Dwayne Ross and John P. Ager, Phoenix, Attorneys for Plaintiff-Appellant.

Teilborg, Sanders & Parks, P.C. by David J. Damron, Phoenix and Luce, Forward, Hamilton & Scripps, LLP by Kathy P. Waring and Sonia S. Waisman, San Diego, CA, Attorneys for Defendant-Appellee Northbrook.

Lewis and Roca, LLP by Douglas L. Christian, James T. Acuff, Jr. and Bret A. Maidman, Phoenix, Attorneys for Defendant-Appellee TIG.

Copple, Chamberlain, Boehm & Murphy, P.C. by Scott E. Boehm, Phoenix, Attorneys for Amicus Curiae Insurance Environmental Litigation Association.

Whiteman Osterman & Hanna by Jean F. Gerbini, Albany, NY, Attorneys for Amicus Curiae Washington County Fair, Inc.

OPINION

THOMPSON, Judge.

¶ 1 Caroline Saunders Keggi appeals from the trial court's judgment in favor of Northbrook Property and Casualty Insurance Company (Northbrook) and TIG Insurance Company (TIG). Keggi sought a declaratory judgment that policies issued by the two insurance companies covered Keggi's injuries arising from drinking bacteria-contaminated water served by the insurers' policyholder, Desert Mountain Properties (Desert Mountain). The trial court concluded that the pollution exclusion clauses barred coverage for Keggi's alleged injury. The trial court further concluded that Keggi lacked standing to pursue her claim against TIG. For the following reasons, we reverse the trial court's judgment and remand for further proceedings.

FACTS

¶ 2 Keggi was a professional golfer who, on occasion, lived and trained at her parents' home in a mixed-use development in north Scottsdale, Arizona, known as Desert Mountain. Desert Mountain included homes, golf courses, and clubhouses. These facilities were served by a water distribution system that originally was owned, operated, and maintained by the Carefree Ranch Water Company, and later was purchased by Desert Mountain.

¶ 3 In late February 1993, the City of Scottsdale detected both total and fecal coliform bacteria in the water system at Desert Mountain. The source of the bacteria remains unknown. Before receiving notice of the contamination Keggi became seriously ill. Keggi had consumed contaminated water from the taps at her parents' home and from the Desert Mountain facilities.

¶ 4 Keggi sued Desert Mountain and others for her injuries, asserting claims for negligence, strict liability, and breach of the implied warranties of merchantability and fitness. She alleged that Desert Mountain negligently operated and maintained the water system and that it was strictly liable for serving her contaminated water. She claimed damages for medical expenses, loss of earnings, and loss of earning capacity.

¶ 5 Northbrook provided commercial general liability (CGL) and umbrella insurance coverage for Desert Mountain. TIG provided Desert Mountain's excess liability coverage. Desert Mountain tendered defense of the Keggi lawsuit to Northbrook and TIG, but both insurers denied coverage and refused to defend. Northbrook disclaimed coverage based on the pollution exclusion clause. TIG refused to cover or defend the lawsuit until the limits on the underlying Northbrook policies were exhausted. Desert Mountain filed a declaratory judgment action against Northbrook and TIG, alleging breach of contract and insurance bad faith claims.

¶ 6 In July 1997, Desert Mountain and Keggi entered into a Damron agreement. Desert Mountain stipulated to a $1.2 million dollar judgment against it and assigned its rights against Northbrook to Keggi. Keggi agreed not to execute the judgment against Desert Mountain. Keggi was granted leave to intervene in the lawsuit filed by Desert Mountain against Northbrook and TIG.

¶ 7 After cross motions for summary judgment, the trial court granted summary judgment to Northbrook and TIG, ruling that the pollution exclusion clauses in each of the insurance policies precluded coverage for Keggi's claims. The trial court also ruled that Keggi lacked standing to bring her claims against TIG because she had failed to obtain an assignment of Desert Mountain's claims against TIG. We have jurisdiction pursuant to Arizona Revised Statutes Annotated (A.R.S.) § 12-2101(B).

¶ 8 We granted leave for the Insurance Environmental Litigation Association and Washington County Fair, Inc. to file amicus curiae briefs.

DISCUSSION

A. Standing

¶ 9 TIG contends that Keggi lacks standing to pursue the claims against it because she did not obtain an assignment of Desert Mountain's claims against TIG. Keggi contends that she was a proper party to the declaratory judgment action against TIG pursuant to the uniform declaratory judgments act. See A.R.S. §§ 12-1831 to -1846 (1994). The declaratory judgments act provides:

Any person interested under a ... written contract, ... or whose rights, status or other legal relations are affected by a ... contract ... may have determined any question of construction or validity arising under the instrument ... [or] contract, ... and obtain a declaration of rights, status or other legal relations thereunder.

A.R.S. § 12-1832.

¶ 10 The declaratory judgments act is interpreted liberally. See, e.g., Planned Parenthood Center of Tucson, Inc. v. Marks, 17 Ariz.App. 308, 310, 497 P.2d 534, 536 (1972)

. Under the declaratory judgments act a justiciable controversy exists if there is "an assertion of a right, status, or legal relation in which the plaintiff has a definite interest and a denial of it by the opposing party." Samaritan Health Services v. City of Glendale, 148 Ariz. 394, 395, 714 P.2d 887, 888 (App.1986)(citing Morris v. Fleming, 128 Ariz. 271, 625 P.2d 334 (App.1981)). In this case, Keggi asserts a right to payment of her judgment against Desert Mountain under TIG's policy and TIG denies that the policy applies. This dispute is sufficient to create a justiciable controversy for the purposes of the declaratory judgments act. The trial court therefore erred in concluding that Keggi lacked standing to assert her claims against TIG.¹

B. Northbrook's Pollution Exclusion Clause

¶ 11 Interpretation of an insurance contract is a question of law which we review de novo. Benevides v. Arizona Prop. & Cas. Ins. Guar. Fund, 184 Ariz. 610, 613, 911 P.2d 616, 619 (App.1995)

. We construe provisions in insurance contracts according to their plain and ordinary meaning. Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 534, 647 P.2d 1127, 1132 (1982). "[A]mbiguity in an insurance policy will be construed against the insurer"; however, this rule applies only to provisions that are "actually ambiguous." Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 325, 842 P.2d 1335, 1338 (App.1992). If a clause may be susceptible to different constructions, rather than simply finding ambiguity and resorting to the contra proferentem doctrine, we will first attempt to discern the meaning of the clause "by examining the purpose of the exclusion in question, the public policy considerations involved and the transaction as a whole." Ohio Cas. Ins. Co. v. Henderson, 189 Ariz. 184, 186, 939 P.2d 1337, 1339 (1997) (quoting Transamerica Ins. Group v. Meere, 143 Ariz. 351, 355, 694 P.2d 181, 185 (1984)).

¶ 12 Northbrook provided both CGL and umbrella insurance coverage for Desert Mountain. The primary CGL policy was effective from February 28, 1992 to February 28, 1994, and the umbrella policy was effective from February 28, 1992 to February 28, 1993. The primary policy was a standard form and provided coverage for "bodily injury... caused by an occurrence that takes place in the coverage territory ... during the policy period." The policy defined "Bodily injury" as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." The excess policy covers losses in excess of the primary policy limits "for losses covered under the terms of such underlying insurance." The policies contained identical pollution exclusion clauses.

¶ 13 Generally, the insured bears the burden to establish coverage under an insuring clause, and the insurer bears the burden to establish the applicability of any exclusion. Pacific Indem. Co. v. Kohlhase, 9 Ariz.App. 595, 597, 455 P.2d 277, 279 (1969). In this case, Northbrook does not argue that Keggi's injuries were not covered; rather, Northbrook argues that the total and fecal coliform bacteria that contaminated the water and caused Keggi's illness were excluded "pollutants" within the meaning of the pollution exclusion clauses. Cf. United States Fidelity & Guar. Corp. v. Advance Roofing & Supply Co., 163 Ariz. 476, 483, 788 P.2d 1227, 1234 (App.1989)

("policy exclusions ... merely subtract from coverage already granted"). Thus, Northbrook had the burden of establishing the exclusion.

¶ 14 Both Northbrook policies include standard pollution exclusion clauses, which are identical except for the numbering of the paragraphs, and provide as follows:

This insurance does not apply to:

(1) Bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any Insured;

(b) At or from any premises, site or location which is or was at any time used by or for any Insured or others for the handling, storage, disposal, processing or treatment of waste;

(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any Insured or any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site...