Kent Farms, Inc. v. Zurich Ins. Co.

Decision Date27 April 2000
Docket NumberNo. 67635-6.,67635-6.
Citation140 Wash.2d 396,998 P.2d 292
CourtWashington Supreme Court
PartiesKENT FARMS, INC., a Washington corporation, Respondent, v. ZURICH INSURANCE COMPANY, a foreign corporation, Petitioner.

John A. MacDonald, Philadelphia, PA, John A. Hoglund, Olympia, Amicus Curiae on Behalf of United Policy Holders.

Jacquelyn A. Beatty, Seattle, Laura Foggan, Washington, DC, for Petitioner.

Brian Miller, Othello, for Respondent.

JOHNSON, J.

This case involves the applicability of an insurance pollution exclusion clause to a claim based on a negligence tort. The Court of Appeals ruled the clause did not apply. We affirm.

FACTS

In August 1994, Steve Gugenberger delivered diesel fuel to Kent Farms, Inc. (Kent Farms). After filling the farm's fuel storage tank, he closed the tank's intake valve and started to remove the delivery hose. Because of a faulty intake valve, fuel back-flowed over him. He struggled to replace the hose, to stop the potential spill of thousands of gallons of diesel fuel. Fuel was driven into his eyes, his lungs, and his stomach, causing him significant injury.

Gugenberger filed suit against Kent Farms in Adams County Superior Court. Kent Farms had a commercial farm liability insurance policy underwritten by Zurich Insurance Company (Zurich Insurance) in force at the time. Among other things, the policy provided it would pay "those sums that the `insured' becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which the insurance applies. We will have the right and duty to defend any `suit' seeking those damages." Clerk's Papers at 10. Kent Farms turned to Zurich Insurance for help. Zurich Insurance refused to pay the claim or defend Kent Farms against the suit on the grounds the coverage was precluded by a pollution exclusion clause in the policy. Kent Farms brought a declaratory action to force Zurich Insurance to defend or pay a settlement. At summary judgment, the trial court found the exception did not apply to exclude coverage.

The Court of Appeals upheld the trial court on the grounds that diesel fuel "is not a pollutant when used as intended" and, thus, was not covered by the clause. Kent Farms, Inc. v. Zurich Ins. Co., 93 Wash.App. 414, 419-20, 969 P.2d 109 (1998). The court also found the clause ambiguous under these facts because it could be read as excluding any injury involving diesel fuel, or only traditional environmental injuries. Kent Farms, 93 Wash.App. at 420, 969 P.2d 109. Zurich Insurance petitioned this court for review of the Court of Appeals decisions, which we granted.

For the purpose of this appeal, Zurich Insurance agrees the claim is a "bodily injury" as defined by the insurance policy. Therefore, the issue is whether the pollution exclusion clause applies to a claim not based on environmental damage but on personal injury arising from alleged negligence on the part of the insured. Zurich Insurance's pollution exclusion clause reads as follows:

2. Exclusions

This insurance does not apply to:

. . . .

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

. . . .

Pollutants means 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.

Clerk's Papers at 10-11.

ANALYSIS

Summary judgment is reviewed de novo, with all inferences taken in favor of the nonmoving party. Reid v. Pierce Co., 136 Wash.2d 195, 201, 961 P.2d 333 (1998). It should be granted only if "there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Reid, 136 Wash.2d at 201, 961 P.2d 333. Interpretation of an insurance policy is a matter of law. American Star Ins. Co. v. Grice, 121 Wash.2d 869, 874, 854 P.2d 622 (1993), supplemented on other grounds by 123 Wash.2d 131, 865 P.2d 507, 44 A.L.R.5th 905 (1994). Policy language is to be interpreted as the average person would understand it, not in a technical sense. American Star Ins., 121 Wash.2d at 874, 854 P.2d 622.

Here, the underlying injury and cause of action are rooted in negligence, not in environmental harm caused by pollution. The plaintiff alleges negligence in the maintenance and design of a fuel storage facility that resulted in immediate bodily injury when a high-pressure jet of liquid struck him. We must decide whether the fact a pollutant appears in the causal chain triggers application of the exclusion clause. To do this, we must determine the purpose and scope of the exclusion. In Queen City Farms, we adopted the analytical approach used in resolving this question. Queen City Farms, Inc. v. Central Nat'l Ins. Co., 126 Wash.2d 50, 882 P.2d 703, 891 P.2d 718 (1995). Although the precise issue in Queen City Farms was different from the issue here, the analytical approach is equally applicable. We said:

[C]onstruction of policy language is for the court and undefined terms should be given their plain, ordinary, and popular meaning in accord with the understanding of the average purchaser of insurance....

The first step is to examine the language of the policies and construe it as a whole. As noted, coverage for pollution caused damage under the [insurance] policies is determined by reference to the primary policies under the [insurance] policies. To decide what is encompassed by the qualified pollution exclusion found in some of the primary policies, we examine the exclusion in context....

. . . .

... We are solely concerned with what the qualified pollution exclusion ... means, and that question is resolved in part by reference to the rest of the language of the primary policies, including the "occurrence" definition which they contain.

Queen City Farms, 126 Wash.2d at 74-75, 882 P.2d 703 (emphasis added).

Put another way, we are required to view the exclusion in light of the whole policy to determine whether, in that context, the exclusion applies. We begin by examining what the exclusion and similar exclusions are intended to accomplish.

The qualified pollution exclusion clause, a precursor to the clause at issue here, came into existence so insurers could avoid the "yawning extent of potential liability arising from the gradual or repeated discharge of hazardous substances into the environment." Waste Management of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 698, 340 S.E.2d 374 (1986). Later, various forms of absolute pollution exclusion clauses, including the clause here, were incorporated into insurance policies in the wake of expanded environmental liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601-9675 (1995) (CERCLA). See Queen City Farms, Inc. v. Central Nat'l Ins. Co., 64 Wash.App. 838, 873-84, 827 P.2d 1024 (1992)

(surveying the history of the clause). These clauses were clearly intended to exculpate insurance companies from liability for massive environmental cleanups required by...

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