SDCP v. Wausau Underwriters Ins. Co., No. 20789

• Decision Date: 23 August 2000
• Docket Number: No. 20815., No. 20789
• Citation: 2000 SD 116,616 N.W.2d 397
• Parties: The SOUTH DAKOTA STATE CEMENT PLANT COMMISSION, d/b/a South Dakota Cement Plant, for the use and benefit of The State of South Dakota, Plaintiff and Appellee, v. WAUSAU UNDERWRITERS INSURANCE COMPANY, a member of Wausau Insurance Companies, Defendant and Appellant.
• Court: South Dakota Supreme Court

616 N.W.2d 397

2000 SD 116

The SOUTH DAKOTA STATE CEMENT PLANT COMMISSION, d/b/a South Dakota Cement Plant, for the use and benefit of The State of South Dakota, Plaintiff and Appellee, v. WAUSAU UNDERWRITERS INSURANCE COMPANY, a member of Wausau Insurance Companies, Defendant and Appellant.

Nos. 20789, 20815.

Supreme Court of South Dakota.

Argued October 18, 1999.

Decided August 23, 2000.

James S. Nelson and Paul S. Swedlund of Gunderson, Palmer, Goodsell & Nelson, Rapid City, South Dakota, Attorneys for plaintiff and appellee.

James C. Robbennolt of Olinger, Lovald, Robbennolt & McCahren, Pierre, South Dakota, Patricia St. Peter of Zelle & Larson, Minneapolis, Minnesota, Attorneys for defendant and appellant.

AMUNDSON, Justice.

[¶ 1.] Wausau Underwriters Insurance Company (Wausau) appeals the trial court's judgment finding Wausau breached its duty to defend its insured South Dakota State Cement Plant (SDCP), claiming they had no duty to defend because the underlying lawsuit against SDCP fell within the "absolute pollution exclusion" in SDCP's insurance policy with Wausau. Wausau also appeals the trial court's decision that Wausau was liable for the underlying settlement amount of $200,000, the amount for which SDCP settled the underlying lawsuit. We reverse.

FACTS

[¶ 2.] SDCP is engaged in the business of manufacturing, marketing, and transporting cement products. This action involves SDCP's operations in Natrona County, Wyoming. Under Wyoming Air Quality Standards and Regulations, if a party wishes to construct or modify a facility which "may cause the issuance of, or an increase in the issuance of air contaminants into the air of the State [they] should obtain a construction permit from the State of Wyoming Department of Environmental Quality" (DEQ). See Wyoming Air Quality Standards and Regulations § 21(a). Further, "the owner or operator of the facility is responsible for obtaining a permit to construct and/or operate and that the application shall show the design of the source, the nature and amount of emission, and the manner in which it will be operated and controlled." See id. at § 21(b). SDCP submitted its permit application to the Wyoming Department of Environmental Quality (DEQ) in an effort to gain approval to operate its facility. SDCP noted on its permit application, which was submitted to DEQ, that the "pollutant removed" would be "cement dust," and the pollutant's emission would be controlled through the use of "air contaminant control equipment." Based upon this representation, SDCP received a waiver from the permit requirement and was allowed to operate its facility.

[¶ 3.] From November 1987 to October 1989, DEQ received numerous complaints from residents regarding excessive cement dust emissions from SDCP. On November 15, 1989, SDCP received a notice of violation from DEQ, alleging a violation of Wyoming environmental statutes and regulations because of their excessive dust emissions.¹ DEQ claimed that SDCP operated its facility "without full use of control equipment designed to limit excessive dust emissions;" a violation of Wyoming environmental statute XX-XX-XXX which provides that "[n]o person shall cause, threaten or allow the discharge or emission of any air contaminant in any form so as to cause pollution which violates rules, regulations and standards adopted by the Administrator...." In addition, SDCP was alleged to be in violation of section 21(a) of the Wyoming Air Quality Standards and Regulations which prohibits a person from using a facility "which may cause the issuance of, or an increase in the issuance of air contaminants into the air of the State" without a permit.

[¶ 4.] On October 20, 1989, property owners and residents of the Brookhurst Subdivision, which is located near SDCP's Natrona County facility, commenced an action against SDCP and nineteen other defendants. The nineteen defendants were divided into two classes: "polluting defendants" and "developer defendants." The "polluting defendants" were SDCP and seventeen other industrial operations in the Natrona County area. The action was brought to recover compensation for damages to property and property interests, both past, present, and future, "as a result of defendant's past and present toxic chemical and other emission/discharges" from SDCP's industrial facility. The complaint also sought recovery for private nuisance, public nuisance, intentional and negligent violation of statutory, regulatory and other permits and rules, intentional and negligent infliction of emotional distress, strict liability, trespass, and negligence.

[¶ 5.] SDCP had several general liability policies with Wausau during the time involving the litigation. These policies provided that Wausau had the "right and duty to defend any suit." However, the policies included an absolute pollution exclusion which relieves Wausau of liability on the policies if the bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants. Wausau refused to defend the suit against SDCP based upon the absolute pollution exclusion clause. Eventually, SDCP settled this lawsuit in November 1991 for $200,000, but incurred defense costs in the amount of $352,393 while defending the suit.

[¶ 6.] SDCP brought an action against Wausau for breaching its duty to defend. On October 8, 1992, the circuit court denied Wausau's motion for summary judgment, ruling that Wausau had not affirmatively established that cement dust was a pollutant within the meaning of the absolute pollution exclusion. Subsequently, the court granted SDCP summary judgment on the issues that Wausau had a duty to defend and that Wausau was liable for the $352,393 in costs of defending the suit. Following a bench trial, SDCP was awarded the $200,000, plus prejudgment interest, as a proximate result for Wausau's breach of its duty to defend.

[¶ 7.] The trial court held that "Wausau's policy would have covered the SDCP had SDCP been found liable for nuisance or trespass and had cement dust been found not to be a `pollutant' within the meaning of Wausau's policies." In addition, "Wausau had a duty to defend the claims in the underlying complaint for trespass and nuisance allegedly caused by the `other emissions/discharges.'" Finally, the trial court found that SDCP had proven a "causal connection between the settlement paid and Wausau's breach of its duty to defend" and that Wausau's breach was "instrumental" in "forcing the SDCP to settle the underlying suit." As a result, Wausau's breach of its duty to defend entitled SDCP to damages for breach of contract which would compensate SDCP for all detriment proximately caused by their breach of the duty to defend: the amount of the settlement ($200,000) plus prejudgment interest ($111,713.23).

[¶ 8.] Wausau appeals on the following issues:

1. Whether Wausau had a duty to defend the underlying lawsuit because the allegations of the underlying complaint fall squarely within the absolute pollution exclusion of the Wausau policies.

2. Whether the trial court improperly concluded that Wausau was liable for the underlying settlement as a consequence of its alleged breach of its duty to defend.

SDCP filed a notice of review raising the following issues:

3. Whether Wausau was justified under the pollution exclusion in Wausau's policies in failing to defend a complaint that alleged trespass and nuisance in addition to pollution claims.

4. Whether Wausau was liable for all damages naturally and reasonably flowing from the breach of the duty to defend.

STANDARD OF REVIEW

[¶ 9.] This case involves review of the trial court's granting of summary judgment on the issue of duty to defend. In discussing our standard of review for issues on summary judgment, we have often stated:

In reviewing a grant or a denial of summary judgment under SDCL 15-6-56(c), we must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.

Stoebner v. South Dakota Farm Bur. Mut. Ins. Co., 1999 SD 106, ¶ 6, 598 N.W.2d 557, 558 (quoting Weiss v. Van Norman, 1997 SD 40, ¶ 9, 562 N.W.2d 113, 115 (citations omitted)). "[A] disputed fact is not `material' unless it would affect the outcome of the suit under the governing substantive law in that a `reasonable jury could return a verdict for the nonmoving party.'" Weiss, 1997 SD 40, ¶ 11 n. 2, 562 N.W.2d at 116 (quoting Parsons v. Dacy, 502 N.W.2d 108, 110 (S.D.1993) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 212 (1986)). We will affirm a granting of summary judgment "if the trial court has correctly decided the legal issues before it." Alverson v. Northwestern Nat'l Cas. Co., 1997 SD 9, ¶ 4, 559 N.W.2d 234, 235 (citing Farmland Ins. Cos. v. Heitmann, 498 N.W.2d 620, 622 (S.D.1993) (citations omitted)).

[¶ 10.] The second part of this case on indemnification of the settlement amount was decided by a court trial. The court entered findings of fact and conclusions of law on June 15, 1998. A "trial court's findings of fact and decision are presumed correct and we will not seek reasons to reverse." City of Winner v. Bechtold Invs., Inc., 488 N.W.2d 416, 418 (S.D.1992) (citations omitted). In addition, since this action was tried to a court without a jury, we "will not disturb findings unless evidence clearly...