Quadrant Corp. v. American States Ins. Co.

Decision Date28 April 2005
Docket NumberNo. 74663-0.,74663-0.
Citation110 P.3d 733,154 Wash.2d 165
CourtWashington Supreme Court
PartiesThe QUADRANT CORPORATION, a Washington corporation; Equity Residential Properties Trust, a Maryland corporation; and Roy Street Associates, a Washington general partnership, Petitioners, v. AMERICAN STATES INSURANCE COMPANY, a foreign corporation, and State Farm Fire and Casualty Company, a foreign corporation, Respondents.

Dan'L Wayne Bridges, Law Offices of Dan'L W Bridges, Bellevue, for Petitioners.

Mary R. DeYoung, Reed McClure, Seattle, for Respondents.

BRIDGE, J.

¶ 1 A tenant in an apartment building was overcome by fumes and became ill after a restoration company applied sealant to a nearby deck. The tenant sued the restoration company and the owners of the apartment building. Both the restoration company and the building owners settled and the owners now claim that their business liability insurance should cover the loss.

¶ 2 The business liability policies at issue here both contain absolute pollution exclusion clauses, which the insurers now argue apply to exclude coverage for the tenant's claim. The building owners contend that after this court's decision in Kent Farms, Inc. v. Zurich Insurance Co., 140 Wash.2d 396, 402, 998 P.2d 292 (2000), the pollution exclusion cannot be applied to exclude occurrences that are not "traditional environmental harms." The owners also assert that if it is applied as the insurers suggest, the pollution exclusion would render the policy illusory with regard to the restoration company.

¶ 3 We hold that the plain language of the absolute pollution exclusion clause encompasses the injuries at issue here and therefore the tenant's claim is excluded from coverage. We find that the Kent Farms case is distinguishable on its facts and instead we adopt the reasoning of Cook v. Evanson, 83 Wash.App. 149, 920 P.2d 1223 (1996), a case similar to this one in that it involved injuries that resulted from toxic fumes. Furthermore, we conclude that the pollution exclusion clause does not render the policies illusory with respect to the building owners because the insurance policy will still cover a variety of claims, including slip and fall accidents, despite the pollution exclusion. We note that the restoration company is not a party to this case and, thus, the question of whether the insurance contract is illusory with respect to the restoration company is not properly before us. The insureds' request for attorney fees is denied.

I Statement of Facts

¶ 4 The facts of this case are not in dispute. Roy Street Associates owns an apartment building located at 200 Roy Street in Seattle.1 In 1996, the building owners hired Pacific Restoration to make repairs and improvements on the building. In the course of completing the repair work, Pacific Restoration applied waterproofing sealants to the surface of a deck. The parties agree that Pacific Restoration used PC-220 and Polyglaze AL, manufactured by Polycoat Products. Both contain various chemicals, including a toxic substance called toluene diisocyanate (TDI), whose fumes can irritate the respiratory tract and, in high concentrations, can cause central nervous system depression.

¶ 5 Delores Kaczor was a tenant in the apartment adjacent to the deck. Pacific failed to warn Kaczor that it would be applying the sealant and then failed to properly ventilate the area. Fumes entered her apartment as the deck dried, making her ill enough to require hospitalization. Specifically, Kaczor's estate claimed that exposure to the fumes caused "exacerbation of her preexisting chronic obstructive pulmonary disease" and led to her "debilitating and declining health." Clerk's Papers (CP) at 175. Kaczor filed a lawsuit against Pacific Restoration and the building owners claiming personal injury and property damage. Kaczor died in 1998 and her lawsuit was dismissed without prejudice. In 1999, her estate filed a second lawsuit based on Kaczor's injuries. That suit was settled for $30,000 and dismissed in July 2000.

¶ 6 In early 1996, Pacific Restoration held a general liability policy from American States Insurance Company. The policy provided liability coverage to Pacific Restoration and to the apartment owners as additional insureds. The American States policy was subject to the following exclusion:

This insurance does not apply to:
....
f. Pollution
(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:
(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;
....
(d) At or from any premises, site or location on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations:
(i) if the pollutants are brought on or to the premises, site or location in connection with such operations by such insured, contractor or subcontractor;
....
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.

CP at 208-09. Similarly, Roy Street Associates held a general liability insurance policy from State Farm Fire and Casualty Company, which included Quadrant and Holly Corporation as additional insureds. The policy was subject to a nearly identical exclusion.2 Based on the pollution exclusions, the insurers denied coverage for the Kaczor claim.

¶ 7 The insureds filed this action, claiming that the insurers wrongfully denied their request for defense and indemnity with respect to the Kaczor claim. Both the insurers and the insureds filed motions for summary judgment based on agreed facts, arguing whether Kaczor's claim would be covered by the policy as a matter of law.3 The insurers claimed that the plain language of the pollution exclusion renders it applicable in these circumstances and, therefore, they were justified in denying coverage. In contrast, the insureds claimed that after this court's decision in Kent Farms, the absolute pollution exclusion must be interpreted to apply only to traditional environmental harms, not personal injuries arising from ordinary negligence. Because this claim arguably did not involve traditional environmental pollution, the insureds asserted that the exclusion cannot apply under these circumstances.

¶ 8 The trial court granted summary judgment in favor of the insurers and denied the insureds' motion. The insureds appealed and the Court of Appeals affirmed, holding that Kent Farms was factually distinguishable and this case was instead comparable to Cook, a similar case in which toxic fumes had caused the injury. Quadrant Corp. v. Am. States Ins. Co., 118 Wash.App. 525, 533, 76 P.3d 773 (2003). The Court of Appeals also held that the exclusion was not so broad that it rendered the insurance contracts illusory.4 The insureds filed a petition for review, which this court granted.

II Analysis

¶ 9 We must determine whether summary judgment was properly granted in favor of the insurers. To do so, we first decide whether the absolute pollution exclusion at issue here bars coverage where the fumes of a toxic substance caused the injury. Second, we determine whether the absolute pollution exclusion is so broad that it renders the insurance contracts illusory. On review of summary judgment, we engage in the same inquiry as the trial court. Int'l Bhd. of Elec. Workers Local Union No. 46 v. Trig Elec. Constr. Co., 142 Wash.2d 431, 434-35, 13 P.3d 622 (2000). Summary judgment is appropriate if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Id. at 435, 13 P.3d 622. Interpretation of an insurance contract is a question of law subject to de novo review. See Overton v. Consol. Ins. Co., 145 Wash.2d 417, 424, 38 P.3d 322 (2002)

.

¶ 10 The criteria for interpreting insurance contracts in Washington are well settled. We construe insurance policies as contracts. Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wash.2d 654, 665, 15 P.3d 115 (2000). We consider the policy as a whole, and we give it a "`"fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance."'" Id. at 666, 15 P.3d 115 (quoting Am. Nat'l Fire Ins. Co. v. B & L Trucking & Constr. Co., 134 Wash.2d 413, 427-28, 951 P.2d 250 (1998) (quoting Key Tronic Corp. v. Aetna (CIGNA) Fire Underwriters Ins. Co., 124 Wash.2d 618, 627, 881 P.2d 201 (1994))). Most importantly, if the policy language is clear and unambiguous, we must enforce it as written; we may not modify it or create ambiguity where none exists. See id.

¶ 11 We will hold that a clause is ambiguous only "when, on its face, it is fairly susceptible to two different interpretations, both of which are reasonable." Id. (quoting B & L Trucking, 134 Wash.2d at 427-28, 951 P.2d 250). If a clause is ambiguous, we may rely on extrinsic evidence of the intent of the parties to resolve the ambiguity. Id. Any ambiguity remaining after examination of the applicable extrinsic evidence is resolved against the insurer and in favor of the insured. Id. But while exclusions should be strictly construed against the drafter, a strict application should not trump the plain, clear language of an exclusion such that a strained or forced construction results. See Findlay v. United Pac. Ins. Co., 129 Wash.2d 368, 374, 379, 917 P.2d 116 (1996)

; Transcon. Ins. Co. v. Wash. Pub. Utils. Dists. Util. Sys., 111 Wash.2d 452, 457, 760 P.2d 337 (1988). Finally, in Washington the expectations of the insured cannot override the plain language of the contract. See Findlay, 129 Wash.2d at 378,

917 P.2d 116.

Absolute Pollution Exclusion

¶ 12 Pollution Exclusions, Generally: Pollution...

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