Stoney Run Co. v. Prudential-LMI Commercial Ins. Co.

• Citation: 47 F.3d 34
• Decision Date: 31 January 1995
• Docket Number: No. 257,D,PRUDENTIAL-LMI,257
• Parties: STONEY RUN COMPANY and Larrymore Organization, Plaintiffs-Appellants, v.COMMERCIAL INSURANCE COMPANY, Defendant-Appellee. Paul L. Gruner, as Executor of the Estate of Helen Ann Gruner, Deceased, Judith Baker, as Limited Administratrix of the Estate of William Charles Russel, Margaret Osterhoudt, Judith Baker, Individually, James Schomer and Mary Schomer, Defendants. ocket 94-7285.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 34

47 F.3d 34

63 USLW 2502

STONEY RUN COMPANY and Larrymore Organization, Plaintiffs-Appellants, v. PRUDENTIAL-LMI COMMERCIAL INSURANCE COMPANY, Defendant-Appellee.

Paul L. Gruner, as Executor of the Estate of Helen Ann

Gruner, Deceased, Judith Baker, as Limited Administratrix of

the Estate of William Charles Russel, Margaret Osterhoudt,

Judith Baker, Individually, James Schomer and Mary Schomer,

Defendants.

No. 257, Docket 94-7285.

United States Court of Appeals, Second Circuit.

Argued Sept. 14, 1994.

Decided Jan. 31, 1995.

Jon C. Dupee, Dupee & Orloff, Goshen, NY (Jeffrey Albanese, Dupee & Orloff, of counsel), for plaintiffs-appellants.

Julius A. Rousseau III, Kroll & Tract, New York City, for defendant-appellee.

Before: LUMBARD, OAKES, and ALTIMARI, Circuit Judges.

ALTIMARI, Circuit Judge:

Plaintiffs-appellants Stoney Run Company and Larrymore Organization (collectively, "Plaintiffs") appeal from a judgment of the United States District Court for the Northern District of New York (McAvoy, J.), granting defendant-appellee Prudential-LMI Commercial Insurance Company's ("Prudential") motion to dismiss two claims for relief in Plaintiffs' complaint. Plaintiffs sought a declaration that Prudential was obliged to defend and/or indemnify them in connection with three civil actions filed against Plaintiffs for damages due to carbon monoxide poisoning in their apartment buildings. The district court dismissed the two claims for relief on the grounds that they fell unambiguously within a "pollution exclusion" clause contained in the policies issued by Prudential to Plaintiffs. Because we conclude that under New York law, the pollution exclusion clause at issue does not unambiguously apply to the underlying civil actions, we reverse the judgment of the district court.

BACKGROUND

Stoney Run Company is a partnership that owns the Stoney Run Apartments, a real estate complex in Kingston, New York. Larrymore Organization is a Virginia corporation that acts as the real estate agent for Stoney Run. Prudential issued two general commercial liability policies to Plaintiffs in connection with the Stoney Run Apartments. During the effective dates of these policies, several tenants at the Stoney Run Apartments were killed or injured by the inhalation of carbon monoxide emitted into their apartments due to a faulty heating and ventilation system.

Subsequently, three civil actions were commenced against Plaintiffs by the injured persons or their legal representatives. The first action (the "Baker action") alleged that Plaintiffs "negligently and carelessly caused Prudential declined to defend or provide coverage for the Gruner and Schomer actions, and disclaimed coverage for the Baker action. Prudential relied on the following exclusion clause contained in its policies:

                personal injury, pain and suffering to [ ] decedent."   The second action (the "Gruner action") alleged that decedent died "as a result of asphyxia due to carbon monoxide" released into her apartment.  The third action (the "Schomer action") alleged that Schomer was injured by "carbon monoxide which was released by the negligently maintained heating and ventilation system in her apartment."
                

This insurance does not apply to:

(f)(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

(a) [a]t or from premises you own, rent or occupy[.]

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.

This clause (hereinafter the "pollution exclusion clause") is a standard industry clause used in general commercial liability policies.

Plaintiffs commenced this action in the district court, seeking a declaratory judgment against Prudential that it was obligated to defend and/or indemnify Plaintiffs with respect to the three civil actions. Upon Prudential's motion pursuant to Fed.R.Civ.P. 12(b)(6), the district court dismissed the counts of Plaintiffs' complaint relating to the Gruner and Schomer actions, but granted Plaintiffs' cross-motion for summary judgment to the extent that Prudential is obligated to defend the Baker action. The district court reasoned that the pollution exclusion clause applied unambiguously to the allegations contained in the Gruner and Schomer actions, but not to the allegations in the Baker action. Pursuant to Fed.R.Civ.P. 54(b), the district court certified as final the dismissal of the claims for relief relating to the Gruner and Schomer actions.

Plaintiffs now appeal the district court's dismissal of the claims for relief in their complaint relating to the Gruner and Schomer actions.

DISCUSSION

The sole issue on appeal is whether the claims for relief alleged in the Gruner and Schomer actions fall unambiguously within the pollution exclusion clause under New York law. Prudential argues that the district court correctly held that the injuries caused by carbon monoxide poisoning clearly fell within the pollution exclusion clause: there was a "discharge, dispersal, release or escape" of carbon monoxide, a "pollutant," "at or from the premises" owned by Plaintiffs. Plaintiffs, on the other hand, contend that the district court should have considered the purpose of the pollution exclusion clause in determining whether or not the clause was subject to another reasonable interpretation. The purpose of this standard clause, Plaintiffs maintain, is to exclude coverage only for environmental pollution, not damages due to routine commercial hazards such as a faulty heating and ventilation system. We conclude that the pollution exclusion clause at issue is ambiguous as applied to the Gruner and Schomer actions because it is reasonable to interpret that clause as applying only to environmental pollution.

We review de novo the district court's grant of Prudential's motion to dismiss. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991). Under New York law, an insurer's duty to defend is "exceedingly broad." Colon v. Aetna Life & Casualty Ins. Co., 66 N.Y.2d 6, 494 N.Y.S.2d 688, 689, 484 N.E.2d 1040, 1041 (1985). An insurer must defend a claim whenever the complaint suggests a reasonable possibility of coverage, regardless of the merits of the action. See Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 571 N.Y.S.2d 672, 673-74, 575 N.E.2d 90, 91-92 (1991).

An insurer, however, may negate coverage by virtue of an exclusionary clause if the insurer establishes that the clause "is stated in clear and unmistakable language, is subject to no other reasonable interpretation As a threshold matter, we believe that it is appropriate to construe the standard pollution exclusion clause in light of its general purpose, which is to exclude coverage for environmental pollution. New York courts have consistently considered this purpose in determining whether an insurer is obliged to defend. In Continental Casualty, for example, the Court of Appeals considered an insurer's duty to defend actions for personal injuries suffered by assorted contractors who were exposed to asbestos products. The pollution exclusion clause before the court, which differs slightly from the one we now consider, applied to the discharge, dispersal, release, or escape of irritants, contaminants, or pollutants "into or upon land, the atmosphere or any water course or body of water." The court held that the pollution exclusion clause did not apply, stating that the term "atmosphere" was ambiguous as applied to the inhalation of asbestos. See 593 N.Y.S.2d at 972-73, 609 N.E.2d at 512-13. The court then noted that "[a]mbiguity is further revealed by examining the purpose of the clause, meant to exclude coverage for environmental pollution." Id. at 973, 609 N.E.2d at 513. In addition, the court stated that terms such as "discharge" and "dispersal" were terms of art of environmental law used in reference to injuries caused by "disposal or containment of hazardous waste." Id.

                and applies in the particular case."  Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 640, 593 N.Y.S.2d 966, 972, 609 N.E.2d 506, 512 (1993).  See also Niagara County v. Utica Mut. Ins. Co., 80 A.D.2d 415, 439 N.Y.S.2d 538, 542 (1981) (to be relieved of its obligation to defend, insurer must "demonstrate that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions....") (quotations omitted).  When construing an insurance policy, the tests applied are "common speech" and the "reasonable expectation and purpose of the ordinary businessman."  Ace Wire & Cable Co. v. Aetna Casualty & Surety Co., 60 N.Y.2d 390, 469 N.Y.S.2d 655, 658, 457 N.E.2d 761, 764 (1983).  Any ambiguity is to be construed against the insurer, particularly when the ambiguity is in an exclusionary clause.  See id.   An exclusionary clause, moreover, can be ambiguous in one context and not in another.  See Continental Casualty, 593 N.Y.S.2d at 972, 609 N.E.2d at 512
                

Subsequent decisions of New York courts have also construed pollution exclusion clauses as applying only to environmental...