West American Ins. Co. v. Tufco Flooring East, Inc., No. 9018SC1052
| Decision Date | 05 November 1991 |
| Docket Number | No. 9018SC1052 |
| Citation | 409 S.E.2d 692,104 N.C.App. 312 |
| Parties | WEST AMERICAN INSURANCE CO., Plaintiff, v. TUFCO FLOORING EAST, INC., Tufco Flooring Sales & Service, Inc., and Perdue Farms, Inc., Defendants. |
| Court | North Carolina Court of Appeals |
William L. Stocks and Douglas E. Wright, for plaintiff-appellant.
Tuggle Duggins & Meschan by Robert C. Cone, Greensboro, for defendant-appellee, Tufco.
Brooks, Pierce, McLendon, Humphrey & Leonard by George W. House and James A. Wilson, Greensboro, for defendant-appellee, Perdue Farms.
Plaintiff, West American Insurance Co. ("West American"), seeks to overturn the summary judgment granted to defendants, Tufco Flooring East, Inc., Tufco Flooring Sales & Service, Inc. ("Tufco"), and Perdue Farms, Inc. ("Perdue"). We affirm the decision of the trial judge to grant the summary judgment in favor of the defendants Tufco and Perdue.
The facts in this case are undisputed. Tufco is in the floor resurfacing business which includes installation of a coating over existing floors. The coating used consists of a six-layer system using several chemicals, three of which contain a chemical compound known as styrene. From 25 March through 27 March 1989, employees and agents of Tufco performed floor resurfacing work in certain areas of the Perdue chicken processing facility in Accomac, Virginia. While the work was being done, chicken products were being stored by Perdue in a location known as the "twenty-eight degree cooler" which was adjacent to one of the areas being resurfaced.
On 28 March 1989, the day after Tufco completed its work, Perdue shipped the chicken which had been in the twenty-eight degree cooler to various customers. On 29 March 1989, these customers notified Perdue that there was a problem with the smell and taste of the chicken. Subsequent chemical testing revealed that the chicken contained styrene and was unfit for human consumption. After disposing of approximately $500,000 in chicken parts, Perdue asserted a claim against Tufco. Perdue alleged that the chicken was damaged while in the twenty-eight degree cooler as a result of coming into contact with styrene vapors or fumes released from the chemicals used by Tufco during the resurfacing work.
In March of 1989, Tufco had in force a commercial liability policy through West American which contained a "pollution exclusion" clause. Based upon that exclusion, West American took the position that no insurance coverage was provided for any claims by Perdue against Tufco resulting from the infiltration of chicken by styrene fumes which were released by the products Tufco used in its operations.
Subsequently, West American filed a declaratory judgment action seeking a declaration that Tufco's insurance policy provided no liability coverage for Perdue's claim against Tufco. Both Perdue and Tufco filed counterclaims asking for a declaratory judgment in their favor. Perdue also had a cross-claim against Tufco for damages alleging that Tufco was negligent, but that action has been severed from the claims for declaratory relief. Based upon information produced at discovery, all parties filed motions for summary judgment.
Following a hearing, the trial judge entered judgment denying West American's motion for summary judgment and granting summary judgment to Tufco and Perdue. The judge found that the pollution exclusion in the policy did not exclude coverage for the claims of Perdue against Tufco and that Tufco had liability coverage under the West American policy. Further, pursuant to N.C.R.Civ.P. 54, the trial judge entered final judgment as to all parties and all claims for declaratory relief concerning insurance coverage. From that judgment, West American has appealed.
The central controversy in this case is whether the trial court erred in ruling that the "pollution exclusion" clause in the West American policy covers Perdue's claims against Tufco. The "pollution exclusion" clause in controversy is contained in section I.2.f. of the commercial general liability (CGL) insurance policy that Tufco purchased from West American. When Perdue asserted its claim in March 1989, Tufco had in force this CGL insurance policy through West American. The West American policy contained the following exclusion pertaining to pollutants:
2. Exclusions
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) At or from premises you own, rent or occupy;
(b) At or from any site or location used by or for you or others for the handling, storage, disposal, processing or treatment of waste;
(c) Which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for you or any person or organization for whom you may be legally responsible; or
(d) At or from any site or location on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations:
(i) if the pollutants are brought on or to the site or location in connection with such operations; or
(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants.
(2) Any loss, cost, or expense arising out of any governmental direction or request that you test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants.
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.
Based upon this "pollution exclusion" clause, West American takes the position that no insurance coverage is provided for any claims by Perdue against Tufco resulting from the infiltration of chicken products in the twenty-eight degree cooler by styrene fumes or vapors which were released by the products that Tufco used in resurfacing the floor at the Perdue plant I.
from 25 March through 27 March 1989. We disagree. The trial court's ruling that the "pollution exclusion" clause does not apply to the claim at issue is supported by four independent grounds: (1) the "pollution exclusion" clause is expressly inapplicable to and overridden by the "completed operations" coverage in the policy, which applies to the claim at issue; (2) the West American insurance policy applied to this claim is ambiguous, and that ambiguity must be construed against the drafter/insurer; (3) as brought onto the site, the flooring material, styrene monomer resin, was not a "pollutant" under the "pollution exclusion" clause; and (4) the "pollution exclusion" clause applies only to discharges into the environment, and none occurred here.
The trial court did not err in ruling that the "pollution exclusion" clause in the West American policy does not exclude coverage for the claims of Perdue against Tufco. The "pollution exclusion" clause is expressly inapplicable to and overridden by the "completed operations" coverage in the policy, which applies to the claim at issue.
Section V.11.a. of the West American policy defines the "products-completed operations hazard." This completed operations coverage is a common form of additional coverage available to purchasers of liability insurance, and it was purchased by Tufco in this case. As pertinent here, the scope of the completed operations coverage includes all property damage occurring away from premises the insured owns or rents and arising out of the insured's work, so long as the work is completed before the property damage has occurred.
The "products-completed operations hazard" applies to Perdue's claim against Tufco. The work was done by Tufco at Perdue's plant in Accomac, Virginia, away from any premises rented or owned by Tufco. Also, it is undisputed that the property damage suffered by Perdue arose out of Tufco's work. Nevertheless, West American claims that the "products-completed operations hazard" does not extend coverage to Tufco for Perdue's claims because the property damage in question "occurred," for insurance purposes, before the completion of Tufco's work. This argument has no merit. The damage to the chicken was not discovered until 29 March 1989--two days after Tufco completed its work--when customers notified Perdue that there was a problem with the smell and taste of the chicken. Despite the fact that neither this Court nor the North Carolina Supreme Court has had occasion to rule on the issue, the "general" rule is that, for insurance purposes, property damage "occurs" when it is manifested or discovered. Mraz v. Canadian Universal Ins. Co., 804 F.2d 1325, 1328 (4th Cir.1986). This rule is also the majority rule in the United States. See Community Fed. Sav. & Loan Ass'n v. Hartford Steam Boiler Inspection & Ins. Co., 580 F.Supp. 1170 (E.D.Mo.1984); Aetna Casualty & Surety Co. v. PPG Industries, Inc., 554 F.Supp. 290, 294 (D.Ariz.1983) (); Travelers Ins. Co. v. C.J. Gayfer's & Co., 366 So.2d 1199, 1202 (Fla.App.1979) (). The Mraz "date of discovery" rule also has been specifically adopted by the U.S. District Court for the Eastern District of North Carolina, applying North Carolina law. See Peerless Ins. Co. v. Strother, 765 F.Supp. 866, 870 (E.D.N.C.1990) ().
The Fourth Circuit's decision in Mraz is highly relevant to the instant case. At issue was a determination of insurance coverage for the costs of cleaning up buried hazardous waste. The Fourth Circuit held that the "occurrence" is judged by "the time at which the leakage and damage are first discovered." 804 F.2d at 1328 (emphasis added). West American argues that Mraz is limited to the...
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