North River Ins. Co. v. Mayor and City Council of Baltimore

Decision Date01 September 1995
Docket NumberNo. 98,98
PartiesNORTH RIVER INSURANCE COMPANY and United States Fire Insurance Company et al. v. MAYOR AND CITY COUNCIL OF BALTIMORE. ,
CourtMaryland Court of Appeals

Benjamin R. Civiletti (G. Stewart Webb, Jr., Mitchell Y. Mirviss, Kevin B. Collins, Venable, Baetjer and Howard, L.L.P., Jervis S. Finney, Warren B. Daly, Jr., Ober, Kaler, Grimes & Shriver, on brief), Baltimore, McElroy, Deutsch & Mulvaney (Lawrence F. McHeffey, Pamela A. Tanis), Morristown, NJ, for appellants.

Melvin J. Sykes (Carl E. Tuerk, Jr., Cooper, Beckman & Tuerk, L.L.P., Neal M. Janey, City Solicitor, Otho M. Thompson, Deputy City Solicitor, Baltimore, on brief), Stanley J. Levy, Jordan C. Fox, Levy, Phillips & Konigsberg, L.L.P., on brief, New York City, for appellee.

Laura A. Foggan, Keith S. Watson, Christine E. Connelly, Elizabeth A. Eastwood, Robert E. Johnston, Wiley, Rein & Fielding, Washington, amicus curiae for Ins. Environmental Litigation Ass'n Argued before ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI, BELL, RAKER and JOHN F. McAULIFFE (retired, specially assigned), JJ.


Presented here are appeals from judgments entered as sanctions for discovery violations in a sequel to United States Gypsum Co. v. Mayor & City Council of Baltimore, 336 Md. 145, 647 A.2d 405 (1994). There we affirmed, inter alia, a judgment of the Circuit Court for Baltimore City in favor of Mayor and City Council of Baltimore (the City) for compensatory damages against Asbestospray Corp. in the amount of $8,333,183.81. Id. at 153, 647 A.2d at 408. Asbestospray was a manufacturer/distributor of asbestos-containing surface treatment products. Id. at 152, 647 A.2d at 408.

"The greatest part of the compensatory damages award against Asbestospray represented $8,016,442.33 in costs to the City associated with rectifying the effects of and the complete removal of approximately 350,000 square feet of Asbestospray's fireproofing from Walbrook Senior High School. The asbestos fireproofing in Walbrook Senior High School had deteriorated, and had contaminated furniture, equipment and books in the school."

Id. at 155, 647 A.2d at 409.

In an effort to collect its judgment, the City caused writs of garnishment to be served on two liability insurers whose policies, the City contended, covered Asbestospray's loss. The insurers denied coverage, the parties undertook discovery, discovery disputes developed, and the circuit court entered, as a discovery sanction, a default judgment against the garnishees for $10,351,412.44, representing the full amount of the judgment of the City against Asbestospray, together with interest. The circuit court further entered judgment against both the garnishees and their attorneys for the City's attorneys' fees of $335,981.66. The aggrieved parties appealed, and this Court, on its own motion, issued the writ of certiorari prior to consideration of the matter by the Court of Special Appeals.

The garnishees are North River Insurance Company (North River) and United States Fire Insurance Company (USFI). They have business offices in the Morristown area of New Jersey. Garnishees were represented by: McElroy, Deutsch & Mulvaney, a Morristown-based law firm; by Lawrence F. McHeffey and Pamela A. Tanis (Tanis), a partner and associate respectively in the McElroy firm; by Ober, Kaler, Grimes & Shriver (OKG & S), a Baltimore-based law firm; and by Jervis S. Finney (Finney) and Warren B. Daly, Jr. (Daly), partners in OKG & S. Garnishees and all of their counsel are appellants. Approximately thirteen months after the garnishment was instituted, OKG & S replaced local counsel initially engaged by the garnishees. Counsel for the City, in addition to the City Solicitor, were Jordan C. Fox (Fox) of the New York City-based firm of Levy, Phillips & Konigsberg, L.L.P. and Carl E. Tuerk, Jr. (Tuerk) of the Baltimore-based firm of Cooper, Beckman & Tuerk, L.L.P. Neither of the attorneys who argued in this Court participated in the garnishment proceedings.

United States Gypsum v. Baltimore and its spin-off proceedings were complex litigation, administratively assigned to a single judge. All proceedings were conducted before Judge Joseph I. Pines, a retired judge of the Circuit Court for Baltimore City, acting pursuant to Article IV, § 3A of the Maryland Constitution.

On their legal merits the garnishment proceedings present insurance coverage issues. In Maryland, insurance contracts are interpreted as are other contracts. Chantel Assocs. v. Mount Vernon Fire Ins. Co., 338 Md. 131, 142, 656 A.2d 779, 785 (1995); Pacific Indem. Co. v. Interstate Fire & Casualty Co., 302 Md. 383, 388, 488 A.2d 486, 488 (1985). The general Maryland rule for the construction of insurance contracts is

"that the intention of the parties is to be ascertained if reasonably possible from the policy as a whole. In the event of an ambiguity, however, extrinsic evidence may be considered. If no extrinsic or parol evidence is introduced or if the ambiguity remains after consideration of the extrinsic or parol evidence ... it will be construed against the insurer as the drafter of the instrument."

Cheney v. Bell Nat'l Life Ins. Co., 315 Md. 761, 766-67, 556 A.2d 1135, 1138 (1989). " 'A word's ordinary signification is tested by what meaning a reasonably prudent layperson would attach to the term.' " Sullins v. Allstate Ins. Co., 340 Md. 503, 508, 667 A.2d 617, 619 (1995) (quoting Bausch & Lomb Inc. v. Utica Mut. Ins. Co., 330 Md. 758, 779, 625 A.2d 1021, 1031 (1993)). The foregoing rules have also been stated in: Collier v. MD-Individual Practice Ass'n, 327 Md. 1, 607 A.2d 537 (1992); Valliere v. Allstate Ins. Co., 324 Md. 139, 596 A.2d 636 (1991); Lloyd E. Mitchell, Inc. v. Maryland Casualty Co., 324 Md. 44, 595 A.2d 469 (1991); Finci v. American Casualty Co., 323 Md. 358, 593 A.2d 1069 (1991); Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 578 A.2d 1202 (1990); St. Paul Fire & Marine Ins. Co. v. House, 315 Md. 328, 554 A.2d 404 (1989); and Mutual Fire, Marine & Inland Ins. Co. v. Vollmer, 306 Md. 243, 508 A.2d 130 (1986).

In the circuit court the City's position was that its garnishment reached credits under three policies, a primary policy and two commercial, comprehensive, catastrophe-liability policies. The primary policy was North River No. GLA 30-50-14 for the period 10/9/73 to 10/9/74 with a property damage limit of $100,000. During the pendency of the subject garnishment proceedings an interpleader action was filed in Ohio in which claims against this primary policy would be determined. That policy is nevertheless relevant to the instant matter, under the City's submission, because it contains a standard pollution exclusion which was found to be ambiguous in United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991), aff'g 193 Ill.App.3d 1087, 140 Ill.Dec. 907, 550 N.E.2d 1032 (1989). Ambiguity of the primary policy, argues the City, further reinforces its discovery rights.

The other two policies are described by garnishees as "umbrella" policies, and they were the principal objectives of the garnishments. The City contends that its attachment reached credits under (1) USFI umbrella policy No. DGL 92-45-46 issued to Asbestospray and originally covering the three years from 9/7/71 to 9/7/74 with a combined limit of $5,000,000 per year and (2) North River umbrella policy No. DCL 00-69-40 issued for a term of three years from 9/7/73 to 9/7/76 to Spraycraft, Inc. with a combined limit of $5,000,000 per year. The City contends that Spraycraft is liable to it as a successor in interest to Asbestospray. We shall refer to these insureds, collectively, as "Asbestospray."

Both umbrella policies contain substantially the same "Contamination and Pollution" exclusion. In the North River umbrella policy that exclusion reads as follows:

"It is agreed this policy shall not apply to liability for contamination or pollution of land, water, air or real or personal property or any injuries or damages resulting therefrom caused by an occurrence.

"It is further agreed that for the purpose of this endorsement 'Occurrence' means a continuous or repeated exposure to conditions which unexpectedly and unintentionally causes injury to persons or tangible property during the policy period. All damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence."

The contamination and pollution exclusion in the umbrella policies is a non-standard exclusion, in the sense that it was not prepared by any industry-wide service organization; rather, the exclusion originated sometime and somewhere within the Crum & Forster group of companies with which North River and USFI are affiliated.

A principal contention of the garnishees on the merits of the garnishments is that the contamination and pollution exclusion in the umbrella policies unambiguously prevents coverage for Asbestospray's loss. Garnishees' position is supported by Board of Regents of the Univ. of Minnesota v. Royal Ins. Co. of Am., 517 N.W.2d 888, 894 (Minn.1994) ("The common sense view, we think, is that the 'occurrence' causing the pollution damage is the continuous or repeated exposure of the building's interior to the gradual release of the asbestos fibers."), and by the unreported opinion in University of South Carolina v. Royal Ins. Co. of Am., C/A No. 3:90-2856-17 (D.S.C. Mar. 21, 1994).

The City's position on the merits is that the terms "contamination" and "pollution" are ambiguous when the exclusion relating thereto is applied to the facts underlying the judgment against Asbestospray. The City cites Sullins v. Allstate Ins. Co., 340 Md. 503, 667 A.2d 617 (1995), where we held that application of the terms, "contaminants" and "pollutants," to lead paint is ambiguous under an exclusion for

"bodily injury which results...

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