U.S. Fire Ins. Co. v. Ace Baking Co.

• Citation: 476 N.W.2d 280,164 Wis.2d 499
• Decision Date: 03 September 1991
• Docket Number: No. 91-0156,91-0156
• Parties: UNITED STATES FIRE INSURANCE CO., Plaintiff-Appellant Cross Respondent, v. ACE BAKING COMPANY, Defendant-Respondent Cross Appellant. d
• Court: Court of Appeals of Wisconsin

Page 280

476 N.W.2d 280

164 Wis.2d 499

UNITED STATES FIRE INSURANCE CO., Plaintiff-Appellant Cross Respondent, v. ACE BAKING COMPANY, Defendant-Respondent Cross Appellant.^d

No. 91-0156.

Court of Appeals of Wisconsin.

Submitted on Briefs July 2, 1991.

Opinion Released Sept. 3, 1991.

Opinion Filed Sept. 3, 1991.

Jeffrey A. Schmeckpeper of Kasdorf, Lewis & Swietlik, S.C., Milwaukee, on the briefs, for plaintiff-appellant-cross respondent.

Joseph M. Nicks of Godfrey & Kahn, S.C., Green Bay, on the briefs, for defendant-respondent-cross appellant.

Before MOSER, P.J., and SULLIVAN and FINE, JJ.

FINE, Judge.

United States Fire Insurance Company appeals from a judgment that held it liable to its insured, Ace Baking Company, for the contamination of Ace Baking's products and packaging materials as a result of their having been stored in a warehouse near a supply of fabric softener. Ace Baking cross-appeals from a judgment that dismissed its claim against United States Fire for bad faith. We conclude that United States Fire is not liable on its policy, and we reverse the trial court on that issue. Accordingly, the cross appeal is moot.

I.

The facts are undisputed. Ace Baking manufactures ice-cream cones. During 1989, it stored products and packaging materials in a warehouse that also stored a fabric softener, Bounce, manufactured by the Proctor & Gamble Company. In late August of 1989, one of Ace Baking's customers complained that ice-cream cones it had purchased from Ace smelled and tasted like soap. Subsequently, it was discovered that a fragrance additive from the fabric softener, linalool, had affected the Ace Baking products and packaging materials making them unusable. Ace Baking claimed resulting losses, and sought payment of $148,111.08 from United States Fire. United States Fire refused payment, contending that there was no coverage because of a policy provision that excluded losses "caused by or resulting from ... [r]elease, discharge or dispersal of 'pollutants.' " The parties agree that linalool is harmless when properly used in appropriate products.

United States Fire commenced this action, seeking a declaratory judgment that Ace Baking's losses caused by the linalool were not covered by the insurance policy. Ace Baking counterclaimed, alleging that United States Fire handled its claim in bad faith. The trial court granted summary judgment to Ace Baking on the coverage issue, but held that United States Fire did not act in bad faith.

II.

As we have seen, the dispute on this appeal concerns an insurance-policy provision that excluded losses "caused by or resulting from ... [r]elease, discharge or dispersal of 'pollutants.' " Although the policy notes that "[w]ords and phrases that appear in quotation marks have special meaning," and refers to the policy's definition section for those special meanings, the word "pollutants" is not defined by the policy even though it appears in the policy in quotation marks. The trial court held that the word "pollutants" was ambiguous because it was capable of two recognized meanings. First, it could mean "toxic materials." Second, it could "be a lot broader than just toxic materials." The trial court concluded that "pollutants" should be given its narrow meaning:

The ordinary person would interpret pollutant as something that would adversely affect the environment or a person's health. The substance linalool is not such a pollutant as the affidavits indicate but may and apparently can affect a product's taste or smell.

"It is well settled that the construction of an insurance policy is a question of law for the court and, therefore, is reviewed de novo." Kaun v. Indus. Fire & Casualty Ins. Co., 148 Wis.2d 662, 667, 436 N.W.2d 321, 323 (1989). Insurance policies, like other contracts, are construed to ascertain and effectuate the parties' intent. Id., 148 Wis.2d at 668-669, 436 N.W.2d at 324; Ehlers v. Colonial Penn Ins. Co., 81 Wis.2d 64, 74, 259 N.W.2d 718, 724 (1977). Thus, a clear contractual provision must be construed as it stands. Duncan v. Ehrhard, 158 Wis.2d 252, 259, 461 N.W.2d 822, 825 (Ct.App.1990). Ambiguities, however, are construed against the party who drafted the contract, here United States Fire. See Northwestern Nat. Ins. Co. v. Nemetz, 135 Wis.2d 245, 254-255, 400 N.W.2d 33, 37 (Ct.App.1986).

A contractual term in an insurance policy is ambiguous if it is "reasonably or fairly susceptible to more than one construction," Garriguenc v. Love, 67 Wis.2d 130, 135, 226 N.W.2d 414, 417 (1975), when read in its "context," Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 744-745, 456 N.W.2d 570, 572-573 (1990), modified on other grounds, 157 Wis.2d 507 (1990). This is key; the mere fact that a word has more than one meaning does not necessarily make that word "ambiguous" if only one meaning comports with the parties' objectively reasonable expectations. See Garriguenc, 67 Wis.2d at 134-135, 226 N.W.2d at 417. Thus,

[M]erely being able to conjure up a remotely possible second interpretation is not sufficient to invoke the ambiguity rule [and thus resolve the ambiguity against the insurer]. If it were, no contract would be safe from modification by construction. ¹

Wiesmueller v. Interstate Fire & Cas. Co., 568 F.2d 40, 46 (7th Cir.1978) (applying Wisconsin law). Additionally, a word is not ambiguous merely because it is undefined in the policy, Welter v. Singer, 126 Wis.2d 242, 248, 376 N.W.2d 84, 86 (Ct.App.1985), or because the parties may disagree about its meaning, Bartel v. Carey, 127 Wis.2d 310, 314, 379 N.W.2d 864, 866 (Ct.App.1985); see Just, 155 Wis.2d at 758, 456 N.W.2d at 578 ("[T]he mere controversy concerning the meaning of a contract term does not itself establish an ambiguity."). Garriguenc is particularly on point here.

The plaintiff in Garriguenc was injured when she was struck by an automobile being driven in a demolition derby on land leased to the promoter by the Ozaukee County Agricultural Society. Id., 67 Wis.2d at 131-132, 226 N.W.2d at 415-416. Garriguenc sued the agricultural society's insurer, among others. The insurance...