Peace v. N.W. Nat'l Ins. Co.

Decision Date09 September 1998
Citation228 Wis.2d 106,596 N.W.2d 429
Parties(Wis. 1999) NOTICE: This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. Kevin Peace, a Minor, By His Guardian Ad Litem, Robert J. Lerner, Plaintiff-Joint-Appellant, v. Northwestern National Insurance Company, Defendant-Respondent-Petitioner, Djukic Enterprises, Inc.,Defendant-Joint-Appellant, State Farm General Insurance Company, Darrell Harding, Edmund J. Durand and Wisconsin Department of Health and Social Services, Defendants. Case No.:96-0328 Submitted on Briefs: Oral Argument:
CourtWisconsin Supreme Court

JUDGE: Michael J. Barron

JUSTICES: Concurred: Bradley, J., concurs (opinion filed) Dissented: Abrahamson, C.J., dissents (opinion filed) Crooks, J., dissents (opinion filed)Bablitch, J., joins Not Participating:

ATTORNEYS:For the defendant-respondent-petitioner there were briefs by John R. Pendergast, Jr., and Crivello, Carlson, Mentkowski & Steeves, S.C., Milwaukee and oral argument by John R. Pendergast, Jr.

For the plaintiff-joint appellant there was a brief by Robert J. Lerner, B. Michele Sumara and Perry, Lerner, Quindel & Saks, S.C., Milwaukee and oral argument B. Michele Sumara.

For the defendant-joint appellant there was a brief by James E. Culhane and Davis & Kuelthau, S.C., Milwaukee and oral argument by James E. Culhane.

Amicus curiae was filed by Susan R. Tyndall and Hinshaw & Culbertson, Milwaukeee for the Wisconsin Insurance Alliance and Civil Trial Counsel of Wisconsin.

Amicus curiae was filed by Robert C. Burrell, R. Jeffrey Wagner and Borgelt, Powell, Peterson & Frauen, S.C., Milwaukee, of counsel, Laura A. Foggan, Daniel E. Troy, Howard M. Radzely and Wiley, Rein & Fielding, Washington, D.C., for the Insurance Environmental Litigation Association.

Amicus curiae was filed by Peter G. Earle and Boyton & Earle, Milwaukee, Irene C. Warshauer and Anderson, Kill & Olick, P.C., New York, NY, of counsel, Amy Bach, counsel for Untied Policyholders, San Francisco, CA, for the United Policyholders.

Amicus curiae was filed by Raymond R. Krueger, David V. Meany and Michael, Best & Friedrich, LLP, Milwaukee, of counsel, Howard S. Lindenberg, senior counsel for Federal Home Loan Mortgage Corporation, McLean, VA, for Federal Home Loan Mortgage Corporation and Fair Lending Coalition.


Northwestern National Insurance Company (Northwestern) seeks review of a court of appeals' decision which reversed a circuit court grant of summary judgment to Northwestern. Northwestern asserts that the insurance policy it sold to Djukic Enterprises (Djukic) excludes coverage for personal injury claims arising from the ingestion of lead in flaked or chipped paint or dust present in an apartment Djukic rented to the minor plaintiff, Kevin Peace, and his mother. The circuit court concluded that lead present in paint is a pollutant under the terms of Northwestern's pollution exclusion clause, and that when lead-based paint has chipped, flaked, or deteriorated into dust, that action is a discharge, dispersal, release, or escape under the policy's exclusion. The court of appeals ultimately reversed, concluding that lead derived from paint chips, paint flakes and dust is not a pollutant or contaminant under the exclusion.

¶2 Based on the terms of the insurance policy at issue and the reasonable expectations of an insured property owner in 1988, we conclude that lead present in paint in a residence is a pollutant. We also conclude that when lead-based paint either chips, flakes, or deteriorates into dust or fumes, that action is a discharge, dispersal, release, or escape within the meaning of terms in the insurance policy. We therefore reverse the court of appeals and hold that the pollution exclusion clause in this case bars the property owner's claim against its insurer for defense against a suit for bodily injuries arising from lead-based paint that chips, flakes, or deteriorates to dust on his property.


¶3 The complaint reveals the following: Between the period of August 1987 and March 1989, Djukic, and at some point Darrell Harding and Edmund J. Durand, owned an apartment building on North 15th Street in Milwaukee. Kevin Peace, a minor, lived with his mother in an apartment in that building during the relevant time period.

¶4 On November 3, 1988, a City of Milwaukee Health Department inspector visited the North 15th Street premises. That inspection, while not identifying a particular apartment at the premises, revealed the presence of loose, peeling, flaking, or chipped paint which contained a hazardous concentration of lead. In a November 7 notice of ordinance violation addressed to Djukic, the city sanitarian advised Djukic that such conditions tend to cause lead poisoning. The sanitarian ordered Djukic to take immediate corrective action to protect the public health and permanently correct the hazardous conditions within 30 days.

¶5 Approximately six weeks after the notice of ordinance violation was issued, Djukic obtained commercial general liability coverage for the 15th Street property through Northwestern. The policy was in effect from December 15, 1988, through March 10, 1989.

¶6 The policy provided coverage for "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies."

¶7 The policy also excluded certain coverage. The pollution exclusion clause excluded "'bodily injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants: (a) At or from premises you own, rent or occupy. . . ." The policy defined "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."


¶8 On May 10, 1995, the guardian ad litem for Peace filed a complaint asserting that Djukic, Harding, and Durand negligently failed to comply with a City of Milwaukee ordinance prohibiting any lead-based nuisance from existing on the property, negligently failed to inspect and maintain the apartment, and negligently failed to properly remove all lead-based paint from the property. The plaintiff also asserted that Djukic, Harding, and Durand rented the property in violation of Wis. Admin. Code § Ag 134.04(2)(b)4, because the property, by virtue of its deteriorated and poorly maintained surfaces which had been painted with lead-based paint, posed an unreasonable risk of personal injury.

¶9 In addition, the complaint alleged that Djukic, Harding, and Durand violated Wis. Stat. § 100.20(5) (1987-88) by failing to disclose to Kevin Peace or his mother the existence of such hazardous conditions. Lastly, the complaint asserted that Djukic, Harding, and Durand breached an implied warranty of habitability. The complaint alleged that defendants' actions caused Kevin Peace personal injury and substantial medical expense. Specifically, Peace's complaint alleged that he "sustained lead poisoning by ingesting lead derived from paint chips, paint flakes and dust that was contaminated with lead derived from lead based paint" at the apartment he shared with his mother.

¶10 After Peace filed his complaint, Djukic tendered defense of the lawsuit to Northwestern. Northwestern asserted that it had no coverage for the loss, and thus had no duty to defend Djukic. Northwestern sought a summary judgment to confirm that it had no duty to defend. Northwestern based its denial of coverage and motion for summary judgment on the terms of the pollution exclusion clause in its policy.

¶11 Djukic and its other liability insurer, State Farm General Ins. Co., filed a cross motion for summary judgment. Relying on cases from other jurisdictions, Djukic argued that lead paint is not a pollutant because lead was not an unwanted additive in the paint. Instead, Djukic pointed out that lead was intentionally added to paint. Djukic also argued that there was no "release" of a pollutant. To fit the policy's definition of discharge, dispersal, release, or escape, Djukic asserted, the pollutant had to move to an unintended location but such movement did not occur in this case.

¶12 Peace argued that pollution exclusion clauses are intended to apply only to environmental pollution. He also argued that the act of ingesting lead paint does not fit the exclusion's requirement that the pollutant "discharge, disperse, release or escape," nor does lead paint fit the definition of "pollutant" contained in the policy.

¶13 At a hearing on November 27, 1995, the circuit court for Milwaukee County, Michael J. Barron, Judge, rendered an oral decision concluding that Northwestern had no duty to defend Djukic based on the policy's pollution exclusion clause. The circuit court relied on United States Fire Ins. Co. v. Ace Baking Co., 164 Wis. 2d 499, 476 N.W.2d 280 (Ct. App. 1991), and its discussion of when a substance is considered a pollutant under the pollution exclusion clause. The circuit court recognized that lead has a very toxic effect on children. In addition, the circuit court concluded that the lead on Djukic's property was not confined to the area of intended use on the walls, but instead had dispersed.

¶14 In a per curiam decision, the court of appeals affirmed the circuit court's entry of summary judgment, based in part on Vance v. Sukup, 207 Wis. 2d 578, 558 N.W.2d 683 (Ct. App. 1996), vacated, 211 Wis. 2d 529, 568 N.W.2d 297 (1997). The court of appeals concluded that lead was a contaminant under the pollution exclusion clause once the lead "escaped from the painted surfaces either by leaving the paint or because the paint itself chipped off." Peace v....

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