Polkow v. Citizens Ins. Co. of America

• Decision Date: 17 October 1991
• Docket Number: Docket No. 87617
• Citation: 33 ERC 1864,476 N.W.2d 382,438 Mich. 174
• Parties: Robert POLKOW, d/b/a Polkow Oiling Service, Plaintiff-Appellee, v. CITIZENS INSURANCE COMPANY OF AMERICA, Defendant-Appellant. 438 Mich. 174, 476 N.W.2d 382, 33 ERC 1864
• Court: Michigan Supreme Court

Page 382

476 N.W.2d 382

Robert POLKOW, d/b/a Polkow Oiling Service, Plaintiff-Appellee, v. CITIZENS INSURANCE COMPANY OF AMERICA, Defendant-Appellant.

Docket No. 87617.

438 Mich. 174, 476 N.W.2d 382, 33 ERC 1864

Supreme Court of Michigan.

Argued Jan. 10, 1991.

Decided Aug. 26, 1991.

Rehearing Denied Oct. 17, 1991.

[438 MICH 176] Richard J. Quist, Scott E. Pederson, Grand Rapids, and Robert N. Sayler, Washington, D.C. for plaintiff-appellee.

Mika, Meyers, Beckett & Jones by Douglas A. Donnell and Linda L. Blais, Grand Rapids, Foster, Swift, Collins & Smith, P.C. by Lawrence B. Lindemer, Lansing, for defendant-appellant.

Cooper, Fink & Zausmer, P.C. by David H. Fink, Thomas A. Biscup, and Alan D. Wasserman, Farmington Hills, for Gelman Sciences Inc. and Ralph Jackson.

Drinker, Biddle & Reath by Thomas S. Schaufelberger, Steven A. Bennett, and John W. Scott, Washington, D.C., Neal W. Bauer, Richard W. West, Petersmarck, Callahan, Bauer & Maxwell, Detroit, and Miller, Canfield, Paddock & Stone by Michael B. Ortega, Kalamazoo, for American Motorists Ins. Co. and Lumbermens Mut. Cas. Co.

Warner, Norcross & Judd by Paul T. Sorensen, Grand Rapids, and Covington & Burling by Robert N. Sayler, Gregg H. Levy, and Eric C. Bosset, Washington, D.C., for Gencorp, Inc., Laidlaw, Inc., Teledyne Industries, Inc., and the Upjohn Co.

Rivkin, Radler, Bayh, Hart & Kremer by John L. Rivkin and Alan S. Rutkin, Uniondale, N.Y., [438 MICH 177] and Nelson & Krueger by James R. Nelson, Grand Rapids, for Michigan Ass'n of Ins. Companies.

Willingham & Cote, P.C. by John A. Yeager and Anthony S. Kogut, East Lansing, for Michigan Farm Bureau and Farm Bureau Mut. Ins. Co. of Michigan.

Clark, Klein & Beaumont by Dwight H. Vincent and Susan J. Sadler, Detroit, for Michigan Mfrs. Ass'n.

Varnum, Riddering, Schmidt & Howlett by Robert J. Eleveld, Matthew D. Zimmerman, and Mark S. Allard, Grand Rapids, for Michigan Mun. League.

Clary, Nantz, Wood, Hoffius, Rankin & Cooper by Douglas W. VanEssen and Debra L. Geibig, Grand Rapids, for Celina Mut. Ins. Co.

OPINION

MICHAEL F. CAVANAGH, Chief Justice.

We granted leave in this case to consider an insurance contract with a pollution-exclusion clause and an exception to that exclusion where the discharge is sudden and accidental. ¹ In applying the definition of the "sudden and accidental" exception to this case, we recognize that the insurance contract contains a duty-to- defend clause. ² Thus, the insurer has a duty to defend against any claim where coverage is even arguable, even where the claim may be groundless or frivolous. The posture of the case is one of summary disposition; there has been no fact finding, and there is, at the very least, a question of fact regarding whether coverage is "arguable." Accordingly, we reverse the decision of the Court of Appeals and remand for further proceedings. To avoid redundancy, we adopt the statement of facts as set out in Justice Riley's dissent and direct our focus to the resolution of the appeal.

Polkow testified in his deposition that there was frequent spillage during the transfer process from the tanker truck to the underground tanks. These "mini-spills" spanned many years and apparently resulted from ongoing, regular business activity. Admittedly, this could constitute grounds for a trier of fact to conclude that Polkow "expected" the release of contaminants. ³ The difficulty is that there was some evidence that the contaminants at issue were not from these oil leaks and indeed may be entirely unrelated to Polkow's operation. ⁴ In addition, the contamination may have resulted from a discharge from the underground tanks. In any event, there are factual disputes regarding the cause of the contamination. Therefore, resolution of whether the sudden and accidental exception applies is impossible, given the current state of factual development. The resolution of this question requires an examination of whether the discharge of pollutants was sudden and accidental. On a record where it is unclear even what the discharge was, how can we, absent some form of augury, possibly declare that this unknown form of discharge was not sudden and accidental? The dissent criticizes the lower court for focusing upon whether the damage was "sudden and accidental" rather than on whether the release was "sudden and accidental." P. 388. The dissent, however, declares that the release was not "sudden and accidental" without any determination of exactly what the release was in this case. It was the "duty of [the insurer] to undertake the defense until it could confine the claim to a recovery that the policy did not cover." Jonesville Products, Inc. v. Transamerica Ins. Group, 156 Mich.App. 508, 513, 402 N.W.2d 46 (1986), cited with approval by the majority in Protective Nat'l Ins. v. City of Woodhaven, 438 Mich. 154, 476 N.W.2d 374 (1991), a companion to this case.

The grant of summary disposition was inappropriate in light of the factual dispute. The dissent would reverse the grant of summary disposition in favor of the plaintiff and impliedly grant summary disposition in favor of the defendant: "[D]efendant would have no duty to defend or indemnify. Finally, we decline to address the remaining issues because our disposition of the pollution exclusion would dispose of this case." ⁵ P. 391. (Emphasis added.) We accept the proposition that the pollution exclusion is dispositive and that the issue is whether the discharge was sudden and accidental. We note, however, that there has been a lack of factual resolution regarding exactly where the release of the pollution occurred. The insurer's duty to provide a defense extends to allegations which even arguably come within the policy coverage. Allstate Ins. Co. v. Freeman, 432 Mich. 656, 443 N.W.2d 734 (1989). Fairness requires that there be a duty to defend at least until there is sufficient factual development to determine what caused the pollution so that a determination can be made regarding whether the discharge was sudden and accidental. Until that time, the allegations must be seen as "arguably" within the comprehensive liability policy, resulting in a duty to defend.

The dissent concedes that "the duty to defend is broader than the duty to indemnify and is properly invoked when claims are even arguably within coverage." P. 386. In addition, the dissent, citing Guerdon Industries, Inc. v. Fidelity & Casualty Co., 371 Mich. 12, 123 N.W.2d 143 (1963), correctly states, "any doubt pertaining to application of the duty to defend is to be resolved in favor of the insured." P. 386. But without proof of the source of the discharge, the court cannot determine whether the discharge falls within the pollution-exclusion clause or whether the unknown discharge falls within the sudden and accidental exception to the exclusion clause. This uncertainty creates doubt regarding coverage. Summary disposition was inappropriate.

A remand is needed in this case because application of the pollution-exclusion clause and of the exception to that exclusion depend upon the facts of each case. See Grant-Southern Iron & Metal Co. v. CNA Ins. Co., 905 F.2d 954 (CA 6, 1990) (summary judgment was reversed on the basis of the existence of a genuine issue of fact regarding how the discharge of contaminants occurred). The circuit court, despite its unsuccessful attempt to get the parties to stipulate facts, resolved the factual disputes itself, thus depriving the parties of the right to an evidentiary hearing. Well-established summary disposition procedures require this Court to reverse the grant of summary disposition and remand the case for factual determinations.

LEVIN, BOYLE and BRICKLEY, JJ., concur.

RILEY, Justice (dissenting).

This appeal revolves around a comprehensive general liability insurance policy issued by defendant to plaintiff. The questions presented are:

. whether the damage caused by the release of contaminants is excepted from coverage under the pollution exclusion;

. whether the owned-property exclusion applies to preclude coverage;

. whether an administrative inquiry by a governmental agency constitutes a "suit" under the policy which triggers the insurer's duty to defend;

. whether the costs of responding to an administrative inquiry constitute "damages" under the policy which require the insurer to reimburse the insured.

We would find that the Court of Appeals erred in holding that the pollution exclusion was inapplicable to the facts of this case. Accordingly, we would reverse the decision of the Court of Appeals.

I. FACTS AND PROCEEDINGS

Since 1975, plaintiff Robert Polkow has owned and operated an oil-reclamation business, known as Polkow Oiling Service, located near Hillsdale, Michigan.

The business began in 1949, prior to plaintiff's ownership, as a road-oiling operation where crankcase oil was picked up from local businesses and used on roads for dust-control purposes. Plaintiff continued the road-oiling activities when he purchased part of the business in 1975. By 1982, because of state prohibition of road oiling, plaintiff had to discontinue such operations. Since then, plaintiff has limited his business activities to waste-oil reclamation. In conducting oil-reclaiming operations, plaintiff picks up oil from local businesses and transports the oil back to his premises. The oil is then pumped into an underground tank, where the oil separates from water. Once the separation process is complete, the oil is pumped into another tank. Eventually, the oil is sold to a processor.

On plaintiff's business premises, there are eight underground storage tanks ranging in capacity from three thousand to twenty thousand gallons. Plaintiff's deposition reveals that routine spillage of materials often occurred when the materials were transferred between the truck which transported the oils and the underground tanks. The premises have also been subject to oiling for the purpose of controlling dust. Further, plaint...