McKusick v. Travelers Indem. Co.

• Decision Date: 23 August 2001
• Docket Number: Docket No. 221171.
• Citation: 246 Mich. App. 329,632 N.W.2d 525
• Parties: William F. McKUSICK, Tammy K. McKusick, Faye L. Tietz, and Robert Tietz, Plaintiffs-Appellants/Cross Appellees, v. TRAVELERS INDEMNITY COMPANY, Defendant-Appellee/Cross Appellant, and Hi-Tech Engineering, Inc., Not Participating.
• Court: Court of Appeal of Michigan — District of US

632 N.W.2d 525

246 Mich. App. 329

William F. McKUSICK, Tammy K. McKusick, Faye L. Tietz, and Robert Tietz, Plaintiffs-Appellants/Cross Appellees, v. TRAVELERS INDEMNITY COMPANY, Defendant-Appellee/Cross Appellant, and Hi-Tech Engineering, Inc., Not Participating.

Docket No. 221171.

Court of Appeals of Michigan.

Submitted January 4, 2001, at Grand Rapids.

Decided June 8, 2001, at 9:05 a.m.

Released for Publication August 23, 2001.

Strain, Murphy & Vanderwal, P.C., (by Peter D. Bosch), Grand Rapids, for the plaintiffs.

Kelley, Casey & Clarke, P.C., (by Stephen M. Kelley, Timothy J. Clarke, and Kourtney N. Twenhafel), Detroit, for Travelers Indemnity Company.

Before WILDER, P.J., and HOOD and MARK J. CAVANAGH, JJ.

PER CURIAM.

Plaintiffs appeal as of right, and defendant Travelers Indemnity Company cross appeals, from an order granting Travelers summary disposition, pursuant to MCR 2.116(C)(10), in this garnishment action. We affirm.

Plaintiffs William F. McKusick and Faye L. Tietz were employed by Polaris Industries in Osceola, Wisconsin.¹ In the course of their employment, a high-pressure hose delivery system used to carry polyhydroxyl resin and toluene diisocyanate (TDI) in the manufacture of polyurethane flexible foam failed, causing plaintiffs to be exposed to and injured by TDI, a highly toxic substance. Hi-Tech Engineering, Inc., designed and manufactured the urethane machinery and high-pressure hose delivery system.

Thereafter, plaintiffs filed separate products liability actions against Hi-Tech in the state of Wisconsin. Hi-Tech notified its insurer, Travelers, of the pending lawsuits and Travelers denied coverage on the basis of a pollution exclusion endorsement in their commercial general liability (CGL) insurance contract. Hi-Tech then filed a declaratory judgment action in Michigan against Travelers, seeking insurance coverage for the products liability actions.

Before the resolution of the declaratory judgment action, plaintiffs and Hi-Tech entered into a settlement agreement regarding the products liability actions that included Hi-Tech's admission of liability, a judgment in favor of plaintiffs, an agreement by Hi-Tech to pay a portion of the judgment, and an assignment to plaintiffs of Hi-Tech's indemnification rights against Travelers. Plaintiffs then filed this garnishment action against Travelers to collect the balance owed on their Wisconsin judgment against Hi-Tech.

Subsequently, Travelers filed a motion for summary disposition with regard to Hi-Tech's declaratory judgment action. After considering the claims filed against Hi-Tech in the underlying lawsuit, the trial court held that plaintiffs' claims were precluded from coverage by the pollution exclusion endorsement and granted Travelers summary disposition. Travelers then filed a motion for summary disposition with regard to this garnishment action. The trial court granted the motion, holding that Travelers owed no duty to insure or defend Hi-Tech in the underlying lawsuit, thus Hi-Tech had no indemnification rights to assign to plaintiffs, and that the assignment without Travelers' consent was invalid.

On appeal, plaintiffs argue that the trial court erred in summarily disposing of their claims against Travelers because the pollution exclusion endorsement did not apply to plaintiffs' products liability claims. We disagree. Travelers cross appeals arguing that res judicata barred plaintiffs' garnishment action; however, we need not address this issue.

This Court reviews a trial court's grant of a motion for summary disposition de novo. Spiek v. Dep't of Transportation, 456 Mich. 331, 337, 572 N.W.2d 201 (1998). When reviewing a motion brought under MCR 2.116(C)(10), this Court reviews the documentary evidence to determine whether a party was entitled to judgment as a matter of law or whether a genuine issue of material fact exists. Id. Interpretation of contractual language is an issue of law subject to review de novo. Morley v. Automobile Club of Michigan, 458 Mich. 459, 465, 581 N.W.2d 237 (1998).

An insurance policy is a contract that should be read as a whole to determine what the parties intended to agree on. Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 566, 489 N.W.2d 431 (1992). In interpreting insurance policies, we are guided by well-established principles of construction. Allstate Ins. Co. v. Keillor (After Remand), 450 Mich. 412, 416-417, 537 N.W.2d 589 (1995); Michigan Millers Mut. Ins. Co. v. Bronson Plating Co., 445 Mich. 558, 567, 519 N.W.2d 864 (1994). The policy must be enforced in accordance with its terms; therefore, if the terms of the contract are clear, we cannot read ambiguities into the policy. Farm Bureau Mut. Ins. Co. of Michigan v. Nikkel, 460 Mich. 558, 566, 596 N.W.2d 915 (1999); Bronson Plating Co., supra. Clear and specific exclusionary clauses must be given effect, but are strictly construed in favor of the insured. Fire Ins. Exchange v. Diehl, 450 Mich. 678, 687, 545 N.W.2d 602 (1996); South Macomb Disposal Authority v. American Ins. Co. (On Remand), 225 Mich.App. 635, 653, 572 N.W.2d 686 (1997).

First, plaintiffs argue that the pollution exclusion provision contained in Travelers' insurance policy did not bar coverage for plaintiffs' products liability claims because the clause applied only to claims arising from traditional forms of environmental pollution. Plaintiffs rely on several cases from other jurisdictions in support of their argument, and Travelers rebuts this argument with several cases that declined to adopt that position. As discussed at length in Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181-1182 (C.A.6, 1999), review of the relevant case law reveals that state and federal jurisdictions are divided on the issue whether pollution exclusion clauses should be limited in application to traditional forms of environmental pollution. However, we hold that the pollution exclusion provision at issue in this case precludes coverage for plaintiffs' underlying products liability claims; therefore, the trial court properly granted summary disposition in favor of Travelers.

In this case, the pollution exclusion endorsement to the CGL policy provides, in pertinent part:

This insurance does not apply to:

* * *

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

* * *

(d) Which arises out of "your work"...; or

(e) Which arises out of "your product."

* * *

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.

The CGL policy defines "your product" as follows:

a. Any goods or products, other than real property[,] manufactured, sold, handled, distributed or disposed of by:

(1) You;

* * *

b. Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products.

This type of pollution exclusion has generally been known as an "absolute pollution exclusion" and was implemented by the insurance industry "to eliminate all pollution claims." McGuirk Sand & Gravel, Inc. v. Meridian Mut. Ins. Co., 220 Mich. App. 347, 354, 559 N.W.2d 93 (1996). The absolute pollution exclusion has been interpreted by this Court, as well as many other jurisdictions, to be clear and unambiguous in precluding coverage for claims arising from pollution. Id. However, neither our Supreme Court nor this Court has considered the version of the pollution exclusion provision at issue in this case, nor has the exclusion been interpreted in a similar factual context, i.e., where there is no polluting of land, water, air, or other natural resources.² Other jurisdictions have addressed the issue whether an absolute pollution exclusion provision precluded coverage when the pollutant was confined to a relatively localized area, including the Sixth Circuit in Kellman, supra. In that case, the defendant, Kellman, allegedly sustained personal injuries after being exposed to fumes from chemicals used by the codefendant, in the course of his business, to seal a floor in a room immediately above where Kellman was working. The Kellman court, relying on Lumbermens Mut. Casualty Co. v. S-W Industries, Inc., 23 F.3d 970 (C.A.6, 1994), aff'd. in part, vacated in part, and remanded 39 F.3d 1324 (C.A.6, 1994), held that the pollution exclusion did not bar coverage because the provision did not unambiguously exclude coverage for injuries sustained by a person in the immediate area of where the chemicals were being used as they were intended to be used. Kellman, supra at 1183.³

In Lumbermens, supra, an employee of the defendant, S W Industries, Inc., suffered injuries after years of exposure to toxic cements and solvents and various congestive dusts created during rubber fabrication processing. In holding that the pollution exclusion did not preclude coverage, the Lumbermens court focused on the terms "`discharge, dispersal, release or escape'" and held that the fumes and dust that caused the employee's injuries had not been discharged, dispersed, or released and had not escaped within the plain meaning and intent of those terms.⁴ Lumbermens, supra at 981-982.

Plaintiffs primarily argue that West American Ins. Co. v. Tufco Flooring East, Inc., 104 N.C.App. 312, 409 S.E.2d 692 (1991), overruled on other grounds in Gaston Co. Dyeing Machine Co. v. Northfield Ins. Co., 351 N.C. 293, 524 S.E.2d 558 (2000), is apposite and stands for the proposition that only claims involving traditional forms of pollution are precluded by a pollution exclusion provision. In that case, the defendants were floor resurfacers and had performed such work, using several chemicals that contained styrene, in a chicken processing facility. It was alleged that chickens stored near where the resurfacing occurred were damaged by...