Title: CITY OF GROSSE POINTE PARK V MICHIGAN MUNI LIABILITY & PROP POOL

State: michigan

Issuer: Michigan Supreme Court

Document:

_______________________________ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michigan Supreme Court 
Lansing, Michigan 
Chief Justice:  
Justices: 
Clifford W. Taylor  
Michael F. Cavanagh 
Elizabeth A. Weaver 
Marilyn Kelly 
Opinion 
Maura D. Corrigan 
Robert P. Young, Jr. 
Stephen J. Markman 
FILED JULY 19, 2005 
CITY OF GROSSE POINTE PARK, 
Plaintiff-Appellee, 
v 
No. 125630 
MICHIGAN MUNICIPAL LIABILITY 
AND PROPERTY POOL, 
Defendant-Appellant. 
BEFORE THE ENTIRE BENCH (except CORRIGAN, J.). 
CAVANAGH, J.  
Plaintiff city of Grosse Pointe Park had a practice of 
discharging sewage into a nearby creek when its sewer 
system became overtaxed during, for example, heavy periods 
of rain. 
As a result of these discharges, the residents 
who lived near the creek filed a lawsuit against the city. 
Defendant Michigan Municipal Liability and Property Pool 
was the city’s insurer and provided a defense in the 
lawsuit under a reservation of rights. 
Although the pool 
covered other claims regarding sewage backups into homes 
and businesses, the pool refused to cover claims regarding 
 
 
 
 
the discharges into the creek on the basis of the insurance 
policy’s pollution exclusion clause. 
In this insurance coverage case, we must decide 
whether the insurance policy’s pollution exclusion clause 
is ambiguous and whether extrinsic evidence may be examined 
in this particular case to aid in the construction of the 
policy. 
We hold that this pollution exclusion clause is 
not 
ambiguous; 
therefore, 
consideration 
of 
extrinsic 
evidence 
as 
a 
construction 
aid 
is 
not 
appropriate. 
Further, we conclude that the city’s discharges fell within 
the scope of the pollution exclusion provision and, thus, 
coverage was properly denied on this basis. 
Because we conclude that the pollution exclusion 
clause applies, we must also decide whether the pool is 
nonetheless estopped from enforcing this clause because of 
its practice of covering sewage backup claims or because of 
the manner in which it provided a defense to the city. We 
hold that under these facts, the pool is not estopped from 
enforcing the pollution exclusion clause. 
The pool timely 
reserved its rights under the policy, and the city was 
aware of the reservation. 
While the city claims to have 
suffered prejudice as a result of its reliance on a belief 
that the underlying lawsuit would be covered, this belief 
was not justifiable under the facts presented in this case. 
2  
 
 
 
 
 
Accordingly, the decision of the Court of Appeals is 
reversed, and we remand this case to the trial court for 
entry of an order of summary disposition in favor of the 
pool. 
I. Facts and Proceedings 
In 1938, plaintiff city of Grosse Pointe Park entered 
into a contract with the city of Detroit to use Detroit’s 
sewer system. 
Under the terms of the contract, Grosse 
Pointe Park acquired the right to pump the contents of its 
sewer line into an interceptor sewer for transport to 
Detroit’s treatment plant. Further, Grosse Pointe Park was 
permitted under the contract to build a pump station and a 
discharge pipe. 
If Grosse Pointe Park’s sewer flow 
exceeded eighty-four cubic feet a second and its line 
became overtaxed, the discharge pipe would allow Grosse 
Pointe Park to discharge the overflow into Fox Creek. 
Fox 
Creek is a tributary located in Detroit, but rests close to 
the Detroit-Grosse Pointe Park border. 
At the time, Grosse Pointe Park had what is known as a 
combined sewer system, whereby sewage and rainwater are 
transported to a treatment plant in a single sewer line. 
If, for example, there was a heavy rainfall and the 
capacity of the sewer system became strained, both sewage 
and rainwater would flow into the basements of buildings 
3  
 
 
 
 
 
                                                 
connected to the city’s sewer line. 
To relieve the 
overflow and prevent basement backups, the city would pump 
sewage and rainwater into Fox Creek. 
Beginning in about 
1940, the city began discharging overflow from the combined 
sewer system into Fox Creek. 
Soon after the first 
discharges, residents near Fox Creek began to complain of 
this practice. 
Nonetheless, this practice continued until 
1995, roughly fifty-five years.1 
Defendant Michigan Municipal Liability and Property 
Pool is a group self-insurance pool created by certain 
local governments. 
See MCL 124.5. 
Every year, beginning 
in 1985 and running through 1998, Grosse Pointe Park 
purchased one-year, occurrence-based liability policies 
from the pool. 
Each policy period ran from August 1 to 
July 31. 
While these policies were in effect, Grosse 
Pointe Park residents made numerous claims against the city 
for sewage backups into their homes and businesses, and the 
pool covered these claims. 
At issue in this case is the 
policy issued on August 1, 1994, and effective through July 
31, 1995. 
1 Grosse Pointe Park now uses a separated sewer system,
whereby sewage and rainwater are collected and transported
in separate sewer lines. Further, the city has blocked the
discharge pipe leading into Fox Creek. 
4  
 
 
 
 
 
                                                 
Underlying this case is a class action filed in Wayne 
Circuit Court against the city by residents who lived near 
Fox Creek, Etheridge v Grosse Pointe Park (Docket No. 95­
527115NZ).2  The Etheridge complaint was filed on September 
14, 1995, and the plaintiffs alleged that their homes were 
flooded by the city’s discharge of sewer overflow into Fox 
Creek on July 24, 1995. Because of this discharge, as well 
as the city’s long-term practice of discharging into Fox 
Creek, the plaintiff class alleged claims for trespass, 
nuisance, 
trespass/nuisance, 
gross 
negligence, 
and 
a 
taking; also alleged were third-party beneficiary claims 
arising under the contracts between Grosse Pointe Park and 
Detroit. 
Grosse Pointe Park submitted the Etheridge 
complaint to the pool for defense and indemnification 
coverage. 
On October 6, 1995, the pool sent a letter to the 
city, indicating that it would provide the city a defense, 
but that it was reserving its rights under the policy. The 
letter provided, in pertinent part: 
Our review of the [Etheridge] Complaint 
reveals that if judgment or damages are awarded
based on certain allegations, the judgments based
on those allegations may not be covered by the 
2 The Etheridge complaint also named the city of
Detroit as a defendant. 
5  
 
 
 
coverage contract. The purpose of this letter is
to point out the allegations and exposures that
may not be covered, and to formally advise you
that we will defend the entire action, with your
cooperation, but will not pay any damages not
covered by our contract. 
In legal terms, we are
reserving our rights to restrict payments to 
those owed under the coverage contract. 
* * * 
Please be advised that if there is any
judgment against the City of Grosse Pointe Park
for 
eminent 
domain, 
a 
discharge 
of 
any
pollutants, or an intentional act, the Michigan
Municipal Liability & Property Pool reserves the
right not to indemnify Grosse Pointe Park for
said damages. 
After noting the allegations and exposures, among 
other things, the pool’s letter referred the city to 
section V of the insurance policy and specifically quoted 
the following language from that section—the pollution 
exclusion clause: 
In addition to the specific exclusions in
SECTION I–COVERAGES A–BODILY INJURY AND PROPERTY 
DAMAGE 
LIABILITY, 
B–PERSONAL 
AND 
ADVERTISING 
INJURY LIABILITY, C–MEDICAL PAYMENTS, D–PUBLIC 
OFFICIALS ERRORS AND OMISSIONS, AND E–AUTO, this
coverage does not apply to: 
d. bodily Injury or Property Damage arising
out 
of 
the 
actual, 
alleged 
or 
threatened 
discharge, dispersal, seepage, migration, release
or escape of pollutants: 
(1) At or form [sic] any premises, site or
location which is or was at any time owned or
occupied by, or rented or loaned to, any Member; 
(2) At or from any premises, site or 
location which is or was at any time used by or
fro [sic] any Member or others for the handling, 
6  
 
 
 
 
storage, disposal, processing or treatment of 
waste; 
(3) 
Which 
are 
or 
were 
at 
any 
time 
transported, handled, stored, treated, disposed
of, or processed as waste by or fro [sic] may
[sic] Member or any person or organization for
whom you may be legally responsible, or 
(4) At or from any premises, site or 
location on which any Member or any contractors
or subcontractors working directly or indirectly
on any Member's behalf are performing operations: 
(a) if the pollutants are brought on or to
the premises, site or location in connection with
such operations by such Member contractor or 
subcontractor; or 
(b) if the operations are to test for,
monitor, 
clean 
up, 
remove, 
contain, 
treat,
detoxify or neutralize, or in any way respond to,
or assess the effects of pollutants. 
* * * 
Pollutants mean 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. 
The pool received all the pleadings and participated 
in 
the 
Etheridge 
litigation 
by 
attending 
meetings, 
hearings, and facilitation. 
Notably, the pool also 
continued to cover basement backup claims during the 
Etheridge lawsuit. 
Settlement was ultimately reached in 
the Etheridge lawsuit, whereby Grosse Pointe Park and 
Detroit would each pay the plaintiffs $1.9 million and take 
the necessary action to stop the discharges into Fox Creek. 
7  
 
 
  
 
                                                 
The 
pool 
then 
notified 
Grosse 
Pointe 
Park 
that 
indemnification coverage would be denied. 
Nonetheless, 
Grosse Pointe Park finalized the Etheridge settlement and 
filed this declaratory judgment action.3  Both parties moved 
for summary disposition, and the trial court concluded that 
the pool was equitably estopped from invoking the pollution 
exclusion clause to deny coverage because the pool had 
previously paid basement backup claims without incident.4 
Thus, the trial court granted the city’s motions for 
summary disposition and ordered the pool to indemnify the 
city for the amount of the Etheridge settlement. 
The pool 
appealed this decision. 
In a two-to-one decision, the Court of Appeals 
reversed the trial court’s determination that the pool was 
estopped as a matter of law from denying coverage, 
reasoning that a question of fact existed on this issue. 
3 In count I, the city alleged that the pool breached
the insurance contract by failing to provide coverage in
the Etheridge lawsuit. 
Count II alleged that the pool
breached its duty to timely investigate, decide whether the
claims were covered, and timely communicate its decision to
deny coverage. 
In counts III through V, the city alleged
alternative theories seeking equitable relief. 
And count 
VI alleged a violation of the Michigan Consumer Protection
Act. 
4 The trial court also dismissed counts II and VI of 
the complaint and dismissed counts III through V as moot in
light of the relief granted under count I. 
8  
 
 
Unpublished opinion per curiam of the Court of Appeals, 
issued October 30, 2003 (Docket No. 228347). Moreover, the 
Court of Appeals majority concluded, among other things, 
that the city presented a question of fact regarding the 
parties’ intent concerning the application and meaning of 
the pollution exclusion clause. 
Because of the pool’s 
practice of paying basement backup claims without invoking 
the pollution exclusion clause, the Court of Appeals held 
that extrinsic evidence regarding such payments may reveal 
an ambiguity in the insurance policy, relying on Michigan 
Millers Mut Ins Co v Bronson Plating Co, 197 Mich App 482; 
496 NW2d 373 (1992), aff’d 445 Mich 558 (1994), overruled 
on other grounds in Wilkie v Auto-Owners Ins Co, 469 Mich 
41 (2003). 
Judge O’Connell dissenting in part, asserted 
that because the policy was unambiguous and the pool 
reserved its rights under the policy, (1) consideration of 
extrinsic evidence was unwarranted, and (2) equitable 
estoppel did not apply. 
This Court granted the pool’s application for leave to 
appeal, limited to the issues whether: (1) sewage is a 
“pollutant” 
under 
the 
applicable 
insurance 
policy's 
pollution exclusion clause; (2) extrinsic evidence may be 
used to establish an ambiguity in this pollution exclusion 
9  
 
 
 
        
 
 
 
                                                 
 
clause; and (3) the pool may be estopped from asserting the 
pollution exclusion clause.5 
II. Analysis 
We 
review 
decisions 
on 
motions 
for 
summary 
dispositions de novo. 
American Federation of State, Co & 
Muni Employees v Detroit, 468 Mich 388, 398; 662 NW2d 695 
(2003). 
Similarly, 
the 
proper 
interpretation 
and 
application of an insurance policy is a question of law 
that we review de novo. 
Cohen v Auto Club Ins Ass’n, 463 
Mich 525, 528; 620 NW2d 840 (2001). 
A. Extrinsic Evidence and the Pollution Exclusion Clause 
The Court of Appeals observed that although an 
insurance policy is enforced according to its terms, the 
contracting parties’ intent controls. 
Further, the Court 
of Appeals reasoned that because the city had presented 
evidence that the pool repeatedly paid basement backup 
5 471 Mich 915 (2004). After granting leave to appeal
and before this Court heard oral arguments in this case, we
granted the pool’s motion for immediate consideration but
denied its motion to strike the city’s brief on appeal.
Unpublished order of the Supreme Court, entered March 4,
2005 (Docket No. 125630). 
In response to the pool’s
motions, the city filed a brief in opposition to the
motions, a motion for immediate consideration, and a motion
to supplement the record on appeal. We did not rule on the 
city’s motions before entertaining oral arguments. 
Thus,
we take this opportunity to grant the city’s motion for
immediate consideration, but deny its motion to supplement
the record on appeal. 
10  
 
 
 
                                                 
 
 
 
 
claims, a question of fact existed with respect to the 
parties’ 
intent 
regarding 
the 
applicability 
of 
the 
pollution exclusion clause. 
Relying on Michigan Millers, 
supra,6 the Court of Appeals concluded that the insurance 
policy was not “so unambiguous that no extrinsic evidence 
6 In Michigan Millers, the defendant insured submitted
discovery requests to the plaintiff and other insurers,
desiring information on the plaintiff’s handling of certain
types of insurance claims. 
The insurers denied the 
requests. 
The trial court agreed that the information
sought was irrelevant and assessed sanctions on the 
defendant. 
On appeal, the defendant claimed that how the
insurers handled past claims was relevant to show whether
the term “suit,” as used in the contract, was ambiguous.
Stated differently, the defendant argued that extrinsic
evidence would tend to show that the insurers’ construction 
of “suit” was wrong, or at least ambiguous. 
The plaintiff
asserted that the requested information was irrelevant 
because: (1) if the term is unambiguous, extrinsic evidence
is not admissible to contradict the insurance policy; or
(2) if the term is ambiguous, the term is construed against
the insurers and in favor of the defendant. 
The Court of 
Appeals agreed with the defendant. 
The Court of Appeals noted that the plaintiff’s
rationale 
ignored 
“a 
third 
principle 
of 
evidence. 
Extrinsic evidence is admissible to show the existence of 
an ambiguity.” Michigan Millers, supra at 495 (emphasis in
original). 
Accordingly, the Court of Appeals found that
the information the defendant sought was relevant to show
the insurers’ prior interpretations of the term “suit.”
Thus, the Court of Appeals vacated the trial court’s order
assessing sanctions. 
However, the Court of Appeals noted
that the purpose for which the defendant wanted the 
information was rendered moot because the Court of Appeals
actually interpreted the term “suit” and concluded that a
“suit” had been brought. 
11  
  
 
 
 
 
 
of the parties’ intent can be considered.” 
Slip op at 7 
n 9. We disagree with the Court of Appeals rationale. 
“An insurance policy is much the same as any other 
contract.” 
Auto-Owners Ins Co v Churchman, 440 Mich 560, 
566; 489 NW2d 431 (1992). 
“The cardinal rule in the 
interpretation of contracts is to ascertain the intention 
of the parties. 
To this rule all others are subordinate.” 
McIntosh v Groomes, 227 Mich 215, 218; 198 NW 954 (1924). 
In light of this cardinal rule, and to effectuate the 
principle of freedom of contract, this Court has generally 
observed that “[i]f the language of the contract is clear 
and unambiguous, it is to be construed according to its 
plain sense and meaning; but if it is ambiguous, testimony 
may be taken to explain the ambiguity.” 
New Amsterdam Cas 
Co v Sokolowski, 374 Mich 340, 342; 132 NW2d 66 (1965); see 
also Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 111; 
595 NW2d 832 (1999). 
“However, we will not create 
ambiguity where the terms of the contract are clear.” Id. 
In 
light 
of 
these 
principles, 
we 
note 
that 
consideration of extrinsic evidence generally depends on 
some finding of contractual ambiguity. 
Ambiguity in 
written contracts can fairly be said to consist of two 
types: patent and latent. 
A patent ambiguity is one “that 
clearly appears on the face of a document, arising from the 
12  
 
 
 
language itself.” 
Black’s Law Dictionary (7th ed). 
See 
also Hall v Equitable Life Assurance Society, 295 Mich 404, 
409; 295 NW 204 (1940). 
Accordingly, resort to extrinsic 
evidence is unnecessary to detect a patent ambiguity. 
A 
latent ambiguity, however, is one “that does not readily 
appear in the language of a document, but instead arises 
from a collateral matter when the document’s terms are 
applied or executed.” 
Black’s Law Dictionary (7th ed). 
Because “the detection of a latent ambiguity requires a 
consideration of factors outside the instrument itself, 
extrinsic evidence is obviously admissible to prove the 
existence of the ambiguity, as well as to resolve any 
ambiguity proven to exist.” 
McCarty v Mercury Metalcraft 
Co, 372 Mich 567, 575; 127 NW2d 340 (1964). 
In other 
words, “where a latent ambiguity exists in a contract, 
extrinsic evidence is admissible to indicate the actual 
intent of the parties as an aid to the construction of the 
contract.” 
Id. Thus, the question becomes whether an 
ambiguity exists in this insurance policy’s pollution 
exclusion clause. 
This insurance policy provides that coverage is 
excluded when bodily injury or property damage results from 
“the actual, alleged or threatened discharge, dispersal, 
seepage, migration, release or escape of pollutants.” 
The 
13  
 
 
 
                                                 
policy further defines “pollutants” as “any solid, liquid, 
gaseous or thermal irritant or contaminant, including 
smoke, vapor, soot, fumes, acids, alkalis, chemicals and 
waste.” 
The 
insurance 
policy, 
however, 
does 
not 
specifically define “waste.” 
Where a term is not defined 
in the policy, it is accorded its commonly understood 
meaning. 
Allstate Ins Co v McCarn, 466 Mich 277, 280; 645 
NW2d 20 (2002) (McCarn I). 
“Waste” is commonly understood 
to include sewage.7
 In other words, “waste” is commonly 
understood to include urine and feces, bathwater and 
dishwater, toilet paper, feminine napkins and tampons, 
condoms, and the countless other substances typically 
introduced into a sewer system. 
We believe that the term “waste” in this policy is not 
patently ambiguous and the text of the policy fairly admits 
of but one interpretation.8  We must observe, however, that 
7 See, e.g., American Heritage Dictionary (2d college
ed, 1982) (defining “waste” to include “[a] useless or
worthless by-product . . . [g]arbage; trash . . . [t]he
undigested residue of food eliminated from the body”). 
8 See, e.g., Raska v Farm Bureau Mut Ins Co of 
Michigan, 412 Mich 355, 362; 314 NW2d 440 (1982) (“Yet if a
contract, however inartfully worded or clumsily arranged,
fairly admits of but one interpretation it may not be said
to be ambiguous or, indeed, fatally unclear.”). 
See also 
Bianchi v Automobile Club of Michigan, 437 Mich 65, 70-73;
(continued…) 
14  
 
 
 
 
                                                 
 
 
we do not make this determination lightly. 
Again, the 
cardinal rule in the interpretation of contracts is to 
ascertain and give effect to the parties’ intentions. 
McIntosh, supra at 218. 
We are also mindful of Professor 
Corbin’s warning that when judges attempt to enforce a 
contract according to their own understanding of what is 
plain and clear, these judges run the risk of substituting 
their own judgment for the intent of the parties and, thus, 
making a contract for the parties that was never intended. 
See Stark v Budwarker, Inc, 25 Mich App 305, 314; 181 NW2d 
298 (1970).9  Indeed, such a result would actually undermine 
(…continued) 
467 NW2d 17 (1991); Auto Club Ins Ass’n v DeLaGarza, 433 
Mich 208, 213; 444 NW2d 803 (1989).  
9 Professor Corbin observes: 
On reading the words of a contract, a judge
may jump to the instant and confident opinion
that these words have but one reasonable meaning.
A greater familiarity with dictionaries and the
usages of words, a better understanding of the 
uncertainties of languages, and a comparative
study 
of 
more 
cases 
in 
the 
field 
of 
interpretation, will make one beware of holding
such an opinion. 
A judge who believes that
contract terms can have a single, reasonable 
meaning that is apparent without reference to
extrinsic evidence of the parties’ intentions 
“retires into that lawyer’s Paradise where all
words 
have 
a 
fixed, 
precisely 
ascertained 
meaning; 
where 
[people] 
may 
express 
their 
purposes, not only with accuracy, but with 
(continued…) 
15  
 
 
 
 
                                                 
the freedom of contract principle. 
Nonetheless, we 
conclude that this pollution exclusion clause is not 
patently ambiguous because an ambiguity does not readily 
appear in the text of the policy. 
Again, courts are not 
permitted to “create ambiguity where the terms of the 
contract are clear.” Masters, supra at 111. Therefore, we 
will apply this pollution exclusion clause as written 
unless we determine that a latent ambiguity arises from a 
matter outside of the text of the policy. 
We initially observe that it is well-established that 
“[i]n construing [contractual provisions] due regard must 
be had to the purpose sought to be accomplished by the 
parties as indicated by the language used, read in the 
light of the attendant facts and circumstances. 
Such 
intent when ascertained must, if possible, be given effect 
and must prevail as against the literal meaning of 
(…continued)
fulness [sic]; and where, if the writer has been
careful, a lawyer . . . may sit in [a] chair,
inspect the text, and answer all questions
. . . .”  Such a belief is unrealistic, for “the
fatal necessity of looking outside the text in 
order to identify persons and things, tends 
steadily to destroy such illusions and to reveal
the essential imperfection of language, whether
spoken or written.” 
[5 Corbin, Contracts,
§ 24.7, 
pp 
32-33 
(rev 
ed, 
1998) 
(internal
citations omitted).] 
16  
 
 
 
 
 
 
                                                 
expressions used in the agreement.” 
W O Barnes Co, Inc v 
Folsinski, 337 Mich 370, 376-377; 60 NW2d 302 (1953). 
Further, attendant facts and circumstances explain the 
context in which the words were used and may reveal the 
meaning the parties intended. Sobczak v Kotwicki, 347 Mich 
242, 249; 79 NW2d 471 (1956).10
 In this respect, the 
detection of a latent ambiguity unquestionably requires 
consideration 
of 
factors 
outside 
the 
policy 
itself. 
McCarty, supra at 575. 
Therefore, extrinsic evidence is 
admissible to prove the existence of the ambiguity, and, if 
a latent ambiguity is proven to exist, extrinsic evidence 
may then be used as an aid in the construction of the 
contract. 
Id.; see also Goodwin, Inc v Orson E Coe 
Pontiac, Inc, 392 Mich 195, 209-210; 220 NW2d 664 (1974). 
In light of the attendant facts and circumstances of this 
case, we conclude that a latent ambiguity does not exist. 
10 See also 5 Corbin, Contracts § 24.7, p 31 (rev ed,
1998) (“It is therefore invariably necessary, before a
court can give any meaning to the words of a contract and
can select a single meaning rather than other possible ones
as the basis for the determination of rights and other
legal effects, that extrinsic evidence be admitted to make
the 
court 
aware 
of 
the 
‘surrounding 
circumstances,’
including the persons, objects, and events to which the
words can be applied and which caused the words to be
used.” 
[internal 
citations 
omitted]); 
see 
also 
Restatement Contracts, 2d, §§ 200-203. 
17  
2 
 
 
 
                                                 
We are unpersuaded by Grosse Pointe Park’s arguments 
that the pool’s practice of covering basement backup claims 
somehow shows that this pollution exclusion clause is 
ambiguous. 
The pool’s practice of paying backup claims 
does not render the clause susceptible to two reasonable, 
yet mutually exclusive, interpretations. 
Indeed, the 
pool’s practice does not change our conclusions that the 
parties intended for coverage to be excluded when property 
damage results from the actual discharge of pollutants, 
that pollutants include waste, and that the term “waste” 
include urine and feces, bathwater and dishwater, toilet 
paper, feminine napkins and tampons, condoms, and the 
countless other substances typically introduced into a 
sewer system. 
Indeed, a latent ambiguity does not exist 
under this policy because when we consider how the clause 
applies or has been applied, it cannot be said that the 
clause was intended to have a different meaning than that 
reflected in the text of the policy. 
Accordingly, after 
considering factors outside the four corners of this 
policy, we cannot detect any latent ambiguities.11  In other 
11 We disagree with Justice Young’s proposal to adopt a
clear and convincing standard with respect to proving the
existence of a latent ambiguity. 
In support of this
standard, Justice Young relies on a broad reading of 
Quality Products & Concepts Co v Nagel Precision, Inc, 469
(continued…) 
18  
 
 
 
 
 
                                                 
 
 
words, the extrinsic evidence introduced by Grosse Pointe 
Park does not prove the existence of a latent ambiguity. 
Thus, it is unnecessary to examine outside factors as an 
aid in construing this policy. 
(…continued)
Mich 362; 666 NW2d 251 (2003). 
However, Nagel was 
concerned with the circumstances under which a contract can 
be waived or modified. 
Accordingly, where a party alleges
waiver or modification, that party is alleging that both
contracting parties mutually assented to alter or amend the 
existing contract. 
Therefore, a clear and convincing
standard in this context makes sense. 
This standard,
however, does not necessarily make sense where a party
alleges the existence of a latent ambiguity. 
When a party alleges the existence of a latent 
ambiguity, 
that 
party, 
contrary 
to 
Justice 
Young’s
implications, is not attempting to alter or amend the
bargain struck. 
Rather, the party argues that application
of the contract’s terms would be inconsistent with the 
parties’ intent. Thus, the party alleging the existence of
a latent ambiguity is arguing that the parties’ intent
should 
be 
effectuated-the 
cardinal 
rule 
of 
contract 
interpretation. 
However, the party alleging the existence
of a latent ambiguity is not arguing that the contract was
altered or amended. 
Accordingly, Nagel is distinguishable and we believe
that Justice Young’s broad reading of that decision to
support his view cannot withstand scrutiny. 
Further, the
other decisions Justice Young uses to support his rationale
are distinguishable as well. 
In our view, none of these 
cases supports his preference to impose a clear and 
convincing standard on a party arguing the existence of a
latent ambiguity. 
While Justice Young may be inclined to
broadly extend “common theme[s],” without more we must
decline 
in 
this 
instance 
to 
adopt 
Justice 
Young’s
preference to impose a clear and convincing standard on
contracting parties. 
19  
 
 
 
 
 
In sum, we conclude that this pollution exclusion 
clause is not patently ambiguous. 
Further, review of 
extrinsic evidence neither leads to the detection nor 
proves the existence of a latent ambiguity. 
Thus, because 
an 
ambiguity 
does 
not 
exist, 
extrinsic 
evidence 
is 
inadmissible as an aid in the construction of this policy. 
Accordingly, we hold that the Court of Appeals erred when 
it concluded that the insurance policy was not “so 
unambiguous” and, thus, extrinsic evidence was generally 
admissible. 
Because we believe that this policy’s pollution 
exclusion clause is unambiguous, we will enforce it 
according to its terms and consistent with the parties’ 
intent. When we accord “waste” the meaning intended by the 
parties, as well as its commonly understood meaning, we 
have little difficulty concluding that the city discharged 
“pollutants” into Fox Creek. Thus, we hold that the city’s 
discharges fell under the purview of this insurance 
policy’s pollution exclusion clause. 
B. Estoppel 
Having concluded that the discharges fall under the 
pollution exclusion clause, we must next decide whether the 
pool is nonetheless estopped from enforcing the clause. 
“The principle of estoppel is an equitable defense that 
20  
 
 
 
prevents one party to a contract from enforcing a specific 
provision contained in the contract.” 
Morales v Auto-
Owners Ins Co, 458 Mich 288, 295; 582 NW2d 776 (1998). For 
equitable estoppel to apply, the city must establish that 
(1) the pool’s acts or representations induced the city to 
believe that the pollution exclusion clause would not be 
enforced and that coverage would be provided, (2) the city 
justifiably relied on this belief, and (3) the city was 
prejudiced as a result of its reliance on its belief that 
the clause would not be enforced and coverage would be 
provided. See, e.g., Morales, supra at 296-297. 
The city maintains that the pool should be estopped 
from enforcing the pollution exclusion clause because of 
the pool’s practice of covering basement backup claims 
before, during, and after the underlying litigation in this 
case, without ever invoking the pollution exclusion clause. 
According to the city, the pool’s failure to enforce this 
clause, as well as the manner in which the pool conducted 
the defense, led the city to believe that the underlying 
litigation would be covered. 
The city maintains that were 
it not for this belief, it would have conducted discovery 
and settlement negotiations differently. 
Thus, the city 
contends that it was prejudiced by its reliance on its 
21  
 
 
 
belief that coverage would be provided in the underlying 
suit. 
The Court of Appeals, in part, remanded this matter to 
the trial court for consideration of this issue, concluding 
that a question of fact remained whether the pool should be 
estopped from asserting the pollution exclusion clause. We 
disagree. Under the facts of this case, a reasonable trier 
of fact could not conclude that the city satisfied its 
burden. 
In this case, it cannot be said that the city’s 
reliance on the pool’s actions or representations was 
justified. 
At the beginning of the underlying litigation, 
the pool notified the city that it would provide a defense 
in the underlying litigation, “but will not pay any damages 
not covered by our contract. 
In legal terms, we are 
reserving our rights to restrict payments to those owed 
under the coverage contract.” The pool timely notified the 
city that if any judgment was entered against the city for 
the discharge of pollutants into Fox Creek, the pool was 
reserving the right to not indemnify, specifically quoting 
the pollution exclusion clause. 
We find the pool’s 
reservation of rights particularly damaging to the city’s 
estoppel theory. 
22  
 
 
 
 
 
“[W]hen an insurance company undertakes the defense of 
its insured, it has a duty to give reasonable notice to the 
insured that it is proceeding under a reservation of 
rights, or the insurance company will be estopped from 
denying its liability.” 
Kirschner v Process Design Assoc, 
Inc, 459 Mich 587, 593; 592 NW2d 707 (1999).  Here, the 
pool duly reserved its rights, and the city was aware of 
the reservation. 
Accordingly, the city was on notice that 
the pool might not indemnify it. 
Moreover, by the city’s 
own account, the pool had never before reserved its right 
to contest coverage under the auspices of the pollution 
exclusion clause. 
Yet the city claims that it was 
justified in believing that the pool would indemnify it. 
We believe, however, that these facts, when viewed in the 
light most favorable to the city, weigh against a finding 
of estoppel. 
The city was clearly on notice that the pool might not 
provide coverage under the pollution exclusion clause. 
While the city was aware that the pool had never sought to 
enforce 
the 
pollution 
exclusion 
clause 
before 
the 
underlying litigation, this Court had not been presented 
with any evidence that the pool reserved its rights on the 
basis of the pollution exclusion clause with regard to any 
other claim. 
Because the pool timely notified the city at 
23  
 
 
 
 
 
                                                 
 
 
the start of the underlying litigation that it was 
reserving its rights, the pool specifically invoked the 
pollution exclusion clause, the pool had done neither 
before, and, arguably, the nature of the discharges 
differed from the nature of the basement backups, we fail 
to see how the city was justified in believing that 
indemnification would be provided in this particular case.12 
12 We disagree with Justice Young’s expansive reading
of Kirschner, supra. 
Relying on that decision, Justice
Young posits that even if Grosse Pointe Park could prove
all the elements for the application of estoppel, the city
will still be unprotected because estoppel can never be
applied to extend coverage, period. 
In our view, Justice
Young misreads Kirschner. Kirschner does not set forth the 
inflexible rule that Justice Young prefers. 
Indeed,
Justice Weaver’s Kirschner opinion was careful to avoid
making sweeping generalizations or extending Ruddock v 
Detroit Life Ins Co, 209 Mich 638; 177 NW 242 (1920),
beyond its 
intended bounds. 
Further, Kirschner, supra at 
594-595, prudently observed that in some instances, courts
have applied the doctrine of estoppel to bring within
coverage risks not covered by the policy. 
Kirschner then 
provided a few examples–examples that we believe are not
exhaustive 
nor 
could 
reasonably 
be 
inferred 
to 
be 
exhaustive. 
Justice Young further laments that we do not
give credence to the “prominent language” from Kirschner 
that emphasizes that “[t]he application of . . . estoppel
is limited . . . .” 
Post at 21 n 35, quoting Kirschner, 
supra at 593-594. 
We respectfully disagree. 
Rather, we
believe that our evenhanded reading of Kirschner considers 
all of the opinion’s “prominent language.” 
For example,
this Court observed that the “application of waiver and
estoppel is limited, and, usually, the doctrines will not
be applied to broaden the coverage of a policy . . . .”
Kirschner, supra at 594 (emphasis added). 
(continued…) 
24  
 
 
 
                                                 
In sum, we find the city’s position untenable. 
No 
reasonable trier of fact could conclude that the city was 
justified in believing that indemnification was certainly 
going to be provided in this case when the pool reasonably 
notified the city to the contrary. 
Because we find that 
the city’s reliance was unjustified, the estoppel claim 
fails and it is unnecessary for us to consider whether the 
city was prejudiced by its reliance. 
Moreover, we believe 
that the manner in which the pool provided a defense in 
this 
particular 
case 
was 
not 
inconsistent 
with 
the 
reservation of rights or the pool’s practice of paying 
basement backup claims. 
Thus, the pool is not estopped 
from enforcing the pollution exclusion clause, and the 
trial court erred in concluding otherwise.13 
(…continued) 
In any event, because Grosse Pointe Park’s estoppel 
claim fails and the discharges fall under the purview of
the pollution exclusion clause-as Justice Young likewise
concludes-it is unnecessary to determine whether estoppel
could be used to bring the discharges within coverage. 
In 
other words, because Grosse Pointe Park’s estoppel claim
fails, it is unnecessary to adopt Justice Young’s preferred
rule, decide whether coverage in this case should be 
expanded, or depart from this Court’s prior precedent. 
13 In Kirschner, supra, I joined Justice KELLY’s 
concurrence. 
I do not retreat from the view expressed in
that opinion. 
Our state would be well-served by a rule
that requires an insurer to timely notify the court, the
insured, and other parties that it is reserving its rights
(continued…) 
25  
 
 
 
                                                 
Accordingly, the decision of the Court of Appeals is 
reversed and we remand this case to the trial court for 
entry of an order of summary disposition in favor of the 
pool. MCR 7.302(G)(1). 
III. Conclusion 
Under the facts of this case, we hold that the city’s 
discharges fell within the purview of the pollution 
exclusion clause. 
This pollution exclusion clause is not 
ambiguous; therefore, consideration of extrinsic evidence 
as 
aid 
in 
the 
construction 
of 
the 
policy 
is 
not 
appropriate. 
Further, we hold that under these facts, the 
pool is not estopped from enforcing the pollution exclusion 
clause. Therefore, the decision of the Court of Appeals is 
reversed and we remand this case to the trial court for 
entry of an order of summary disposition in favor of the 
pool. 
Michael F. Cavanagh
Elizabeth A. Weaver 
Marilyn Kelly 
(…continued)
under the policy. 
Further, a court should be empowered to
refuse to effectuate an untimely reservation of rights when
the court determines that the insured was prejudiced. 
In 
this case, however, the pool timely reserved its rights and
the city was made aware of the reservation of rights. 
26  
 
 
 
 
 
 
 
 
 
 
_______________________________ 
 
 
 
 
 
v 
S T A T E O F M I C H I G A N  
SUPREME COURT  
CITY OF GROSSE POINTE PARK, 
Plaintiff-Appellee, 
No. 125630 
MICHIGAN MUNICIPAL LIABILITY 
& PROPERTY POOL, 
Defendant-Appellant. 
BEFORE THE ENTIRE BENCH (except CORRIGAN, J.). 
YOUNG, J.  
Although 
this 
Court 
is 
equally 
divided 
on 
the 
appropriate 
legal 
analysis, 
this 
Court 
is 
unanimous 
regarding the proper result. 
All members of this Court 
agree that the insurance policy at issue is not latently 
ambiguous and that it must therefore be enforced as 
written. 
According to the plain language of the policy’s 
pollution exclusion clause, it is clear that sewage is a 
“pollutant.” 
Moreover, 
this 
Court 
is 
in 
unanimous 
agreement that equitable estoppel is not applicable. 
Accordingly, all members of this Court agree that the 
judgment of the Court of Appeals must be reversed and this 
case remanded to the trial court for entry of an order 
 
 
 
                                                 
 
 
granting the Michigan Municipal Liability and Property 
Pool’s motion for summary disposition.1 
While 
all 
justices 
conclude 
that 
sewage 
is 
a 
“pollutant” under the clear and unambiguous language of the 
policy’s pollution exclusion clause, the justices joining 
this 
opinion 
believe 
that 
principles 
of 
contract 
enforcement require special proofs when a contracting party 
seeks to vary the terms of a written agreement by alleging 
latent ambiguity. Thus, while extrinsic evidence generally 
may be introduced to demonstrate the existence of a latent 
ambiguity, we conclude that a court must presume that the 
contracting parties’ intent is manifested in the actual 
language used in the contract itself unless the party 
alleging the existence of the latent ambiguity rebuts this 
presumption by proving with clear and convincing evidence 
1
 It is important to note that neither Justice
Cavanagh’s opinion nor ours has garnered a majority.
Therefore neither establishes binding precedent. As we 
stated in People v Anderson, 389 Mich 155, 170; 205 NW2d
461 (1973), overruled in part on other grounds by People v
Hickman, 470 Mich 602 (2004),“The clear rule in Michigan is
that a majority of the Court must agree on a ground for 
decision in order to make that binding precedent for future 
cases. If there is merely a majority for a particular
result, then the parties to the case are bound by the
judgment but the case is not authority beyond the immediate
parties.” 
2  
 
 
 
 
 
 
 
 
 
                                                 
that such an ambiguity does indeed exist. 
Here, we 
conclude that the city of Grosse Pointe Park has not 
presented clear and convincing evidence to demonstrate that 
a latent ambiguity actually exits. 
We further conclude 
that the Pool is not equitably estopped from denying 
coverage 
because, 
under 
the 
well-established 
rule 
articulated by this Court in Ruddock v Detroit Life Ins Co2 
and reiterated in Kirschner v Process Design Assoc, Inc,3 
estoppel will not be applied to expand coverage beyond the 
particular risks covered by the actual insurance policy 
itself. 
I. FACTS & PROCEDURAL HISTORY 
In 1938, Grosse Pointe Park and the city of Detroit 
entered into an agreement under which Grosse Pointe Park 
was permitted to discharge overflow sewage into Fox Creek, 
a tributary near the Grosse Pointe Park-Detroit border. 
Release of excess sewage into Fox Creek was necessary 
because Grosse Pointe Park’s “combined” sewer system—a 
single sewer line used to transport both sewage (e.g., from 
toilets) and storm water runoff—would become overtaxed 
during periods of heavy rainfall. 
If Grosse Pointe Park 
2 209 Mich 638; 177 NW 242 (1920).  
3 459 Mich 587; 592 NW2d 707 (1999).  
3  
 
 
  
                                                 
did not use Fox Creek as a release valve during such 
periods, sewage would back up into the basements of homes 
and businesses. 
It is undisputed that from 1940 to 1995, 
Grosse Pointe Park released overflow rainwater and sewage 
into Fox Creek hundreds of times.4 
Each year from 1985 to 1998, Grosse Pointe Park 
purchased 
annual 
“occurrence-based” 
commercial 
general 
liability policies from the Pool, a self-insurance pool 
comprised of local governments.5  During this period, under 
4 Grosse Pointe Park has built and now operates a
“separate” sewer system, which uses different lines for
sewage and rainwater runoff. 
As such, Grosse Pointe Park
no longer releases overflow sewage into Fox Creek. 
5 Municipal insurance pools are statutorily authorized
under MCL 124.5, which provides: 
(1) Notwithstanding any other provision of
law to the contrary, any 2 or more municipal
corporations, by intergovernmental contract,
may form a group self-insurance pool to 
provide 
for 
joint 
or 
cooperative 
action 
relative 
to 
their 
financial 
and 
administrative resources for the purpose of
providing 
to 
the 
participating 
municipal
corporations risk management and coverage for
pool members and employees of pool members,
for acts or omissions arising out of the
scope of their employment, including any or
all of the following: 
(a) Casualty insurance, including general
and professional liability coverage. 
(continued…) 
4  
 
 
                                                 
 
successive 
annual 
policies, 
the 
Pool 
paid 
numerous 
insurance claims submitted by Grosse Pointe Park residents 
for sewage backups that occurred in their basements. 
It 
did so without issuing reservation of rights letters based 
on the policies’ pollution exclusion clauses, unlike in the 
present case. 
The particular insurance policy at issue 
covers the period from August 1, 1994, to August 1, 1995. 
The current dispute derives from an underlying class 
action (the Etheridge litigation) brought by Grosse Pointe 
Park residents against the city for discharges made into 
Fox Creek in July 1995. 
In the Etheridge complaint, filed 
on September 14, 1995, the class action plaintiffs sued 
(…continued)
(b) Property insurance, including marine
insurance 
and 
inland 
navigation 
and 
transportation insurance coverage. 
(c) Automobile insurance, including motor
vehicle 
liability 
insurance 
coverage 
and 
security 
for 
motor 
vehicles 
owned 
or 
operated, as required by section 3101 of the
insurance code of 1956, 1956 PA 218, MCL
500.3101, 
and 
protection 
against 
other 
liability 
and 
loss 
associated 
ownership of motor vehicles. 
with 
the 
(d) 
Surety
coverage. 
and 
fidelity 
insurance 
(e) 
Umbrella 
coverages. 
and 
excess 
insurance 
5  
 
 
 
 
 
Grosse Pointe Park under various trespass, nuisance, and 
negligence theories for sewage backups that occurred in 
their homes and businesses. In addition to basement backup 
claims, the Etheridge plaintiffs also submitted insurance 
claims for alleged damage caused to boats, docks, seawalls, 
garages, lawns, shrubbery, and outdoor furniture resulting 
from the city's release of sewage into Fox Creek. 
On October 6, 1995, three weeks after the Etheridge 
suit was filed, the Pool provided the city a defense under 
a reservation of rights letter. 
In the letter, the Pool 
specifically 
quoted 
the 
insurance 
policy’s 
pollution 
exclusion clause and warned the city that it had not yet 
determined whether it would cover any liability arising 
from the Etheridge suit. The letter concluded by stating: 
Please be advised that if there is any
judgment against the City of Grosse Pointe
Park for eminent domain, a discharge of any
pollutants, 
or 
an 
intentional 
act, 
the 
Michigan Municipal Liability & Property Pool
reserves the right not to indemnify Grosse 
Pointe 
Park 
for 
said 
damages. 
[Emphasis
added.] 
The Pool subsequently assigned an outside adjusting 
firm to monitor the Etheridge lawsuit. 
During the course 
of the Etheridge litigation, the Pool’s adjuster received 
copies of all pleadings and attended meetings with the 
litigants. 
The Pool also paid in-house sewage backup 
6  
 
 
 
                                                 
claims involving residences and businesses unrelated to the 
Etheridge 
suit 
while 
the 
Etheridge 
litigation 
was 
proceeding. After several facilitation sessions, in August 
1997, the Etheridge plaintiffs agreed to settle with Grosse 
Pointe Park for $1.9 million.6 
Before 
the 
Etheridge 
settlement 
was 
finalized, 
however, the Pool informed the city that the Pool's outside 
counsel did not believe that the Pool was obligated to 
indemnify the city given the policy’s pollution exclusion 
clause. 
Subsequently, the Pool formally notified the city 
that coverage would be denied. 
Nevertheless, the city 
proceeded to approve the $1.9 million settlement with the 
Etheridge plaintiffs a few months later. 
The city then filed suit in the Wayne Circuit Court 
seeking a declaratory judgment that the Pool was obligated 
to indemnify the city for the Etheridge settlement. 
After 
lengthy discovery, both the Pool and the city filed cross­
motions 
for 
summary 
disposition 
pursuant 
to 
MCR 
2.116(C)(10). Ruling in favor of the city, the trial court 
held that the Pool was equitably estopped from denying 
coverage under the pollution exclusion clause because the 
6 A similar settlement was reached with the city of
Detroit, which was also named as a defendant in the class
action, for $1.9 million. 
7  
 
 
       
                                                 
 
 
Pool had paid prior backup claims made by Grosse Pointe 
Park residents.7 
In a two-to-one decision, the Court of Appeals 
reversed the trial court’s holding that the Pool was 
equitably estopped from invoking the pollution exclusion 
clause.8  The Court of Appeals held that a question of fact 
existed with regard to the estoppel claim and therefore 
remanded 
the 
case 
to 
the 
trial 
court 
for 
further 
proceedings. It also held that the Pool’s payment of prior 
backup claims was “extrinsic evidence” of ambiguity in the 
insurance policy and remanded the case to the trial court 
to determine “the parties’ intent as to the exclusion’s 
applicability . . . .” 
Judge O’Connell dissented, arguing 
7 Ruling from the bench, Judge Amy P. Hathaway stated: 
It’s clearly an issue of equity, which I’m
not sure is going to necessarily trump the
contract claim, at least in front of the
Court of Appeals. But in this case we have a 
contract that was paid and paid and paid
again under this pollutant, this sewage, and
now there’s a reservation of rights issue.
I’ve got a big problem. 
To the point where
I’m going to deny the motion, the Defendant’s
motion, and grant the inapplicability of the
pollution exclusion based on estoppel. 
8 Unpublished opinion per curiam of the Court of
Appeals, issued October 30, 2003 (Docket No. 228347). 
8  
 
 
  
 
 
   
 
 
 
 
 
 
                                                 
 
 
that extrinsic evidence should not be considered because 
the insurance policy was clear and unambiguous. He further 
argued that equitable estoppel was not applicable because 
the Pool timely provided the city a reservation of rights 
letter. 
We granted the Pool’s application for leave to 
appeal.9 
II. 
STANDARD OF REVIEW 
A 
motion 
for 
summary 
disposition 
under 
MCR 
2.116(C)(10), which tests the factual support of a claim, 
is reviewed by this Court de novo.10
 Similarly, the 
interpretation of an insurance policy is also a question of 
law that is reviewed by this Court de novo.11 
III. 
ANALYSIS 
A.  
IS SEWAGE A “POLLUTANT” UNDER THE INSURANCE POLICY’S POLLUTION 
EXCLUSION CLAUSE? 
The insurance policy at issue provides: 
Section V – General Exclusions 
In addition to the specific exclusions in
SECTION I – COVERAGES A – BODILY INJURY AND 
PROPERTY DAMAGE LIABILITY, B – PERSONAL AND 
9 471 Mich 915 (2004). 
10 Oade v Jackson Nat’l Life Ins Co, 465 Mich 244, 250­
251; 632 NW2d 126 (2001); Smith v Globe Life Ins Co, 460
Mich 446, 454; 597 NW2d 28 (1999). 
11 Klapp v United Ins Group Agency, Inc, 468 Mich 459,
463; 663 NW2d 447 (2003); Archambo v Lawyers Title Ins
Corp, 466 Mich 402, 408; 646 NW2d 170 (2002). 
9  
      
      
 
      
      
 
 
 
 
 
 
 
 
 
                                                 
 
 
 
ADVERTISING INJURY LIABILITY, C – MEDICAL 
PAYMENTS, D – PUBLIC OFFICIALS ERRORS AND
OMISSIONS, AND E – AUTO, this coverage also 
does not apply to:
 * 
* 
* 
d. 
Bodily Injury or Property Damage
arising 
out 
of 
the 
actual, 
alleged 
or 
threatened 
discharge, 
dispersal, 
seepage, 
migration, release or escape of 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. [Emphasis added.] 
As this Court has previously held, “The principles of 
construction governing other contracts apply to insurance 
policies.”12
 As such, the foremost duty of a court in 
construing an insurance policy is to determine the intent 
of the contracting parties.13
 In doing so, a court must 
always begin with the actual language used by the parties 
in the insurance policy itself.14
 If the text of the 
insurance policy is clear and unambiguous, the contract 
12 Farm Bureau Mut Ins Co v Nikkel, 460 Mich 558, 566;
596 NW2d 915 (1999). 
13 Quality Products & Concepts Co v Nagel Precision,
Inc, 469 Mich 362, 375; 666 NW2d 251 (2003); see also
Nikkel, supra at 566; Morley v Automobile Club of Michigan,
458 Mich 459, 465; 581 NW2d 237 (1998). 
14 Quality Products, supra at 375. 
10  
 
 
   
 
 
                                                 
 
 
must 
be 
enforced 
as 
written.15
 
“[A]n 
unambiguous 
contractual provision is reflective of the parties’ intent 
as a matter of law.”16 
It is difficult to imagine an insurance policy that is 
clearer or more explicit than the one found in the present 
case. 
The pollution exclusion clause defines “pollutant” 
as “any solid, liquid, gaseous or thermal irritant or 
contaminant . . . .” 
The word “contaminant,” given its 
plain 
and 
ordinary 
meaning,17 
is 
“something 
that 
contaminates,” and “contaminate” is defined as “to make 
impure or unsuitable by contact or mixture with something 
unclean, bad, etc.; pollute; taint . . . .”18  It is  
undeniable that Fox Creek was “made impure” and “tainted” 
by the sewage that the city released. The record indicates 
that the sewage contained dirt, debris, garbage, condoms, 
feminine hygiene products, urine, feces, dishwater, toilet 
paper, cleaning fluids, and compounds containing E.coli. 
15 Id.; Wilkie v Auto-Owners Ins Co, 469 Mich 41, 51;
664 NW2d 776 (2003); Nikkel, supra at 566. 
16 Quality Products, supra at 375. 
17 In Frankenmuth Mut Ins Co v Masters, 460 Mich 105,
112; 595 NW2d 832 (1999), this Court unanimously held that
courts are to “interpret [undefined] terms of an insurance
contract in accordance with their ‘commonly used meaning.’”
(Citations omitted.) 
18 Random House Webster’s College Dictionary (1995). 
11  
 
 
 
 
 
Therefore, because these “solid” and “liquid” materials are 
“contaminants,” the sewage the city released is necessarily 
a “pollutant” under the plain terms of the insurance 
policy. 
This conclusion is bolstered by the fact that the 
pollution exclusion clause also provides specific examples 
of “pollutants,” such as “smoke, vapor, soot, fumes, acids, 
alkalis, chemicals and waste.” 
Given the composition of 
the sewage described above, it is clear that most, if not 
all, of these specific examples of “pollutants” were found 
in Fox Creek. 
We conclude, therefore, that the sewage 
released by the city into Fox Creek is within the scope of 
the policy’s pollution exclusion clause. 
B. THE ROLE OF EXTRINSIC EVIDENCE IN ILLUMINATING A LATENT AMBIGUITY 
The city argues that the word “pollutant” is latently 
ambiguous and that extrinsic evidence must be introduced to 
give the word the true meaning that the parties intended. 
According to the city, the Pool’s payment of prior basement 
backup claims demonstrates that the parties intended the 
word “pollutant” to have a meaning different than the one 
used in the insurance policy itself. 
We find the city's argument unpersuasive. 
The 
argument that the city is advancing is actually one of 
equitable estoppel, not contract interpretation. 
The city 
12  
 
 
 
 
 
                                                 
 
is attempting to rely on the Pool’s payment of similar 
basement sewer backup claims as a way to require the Pool 
to cover the present claim. 
Accordingly, the city's 
argument sounds more in equity than in the law of 
contracts. 
For the reasons discussed in part III(C) of 
this opinion, we are unpersuaded by the city's equitable 
estoppel argument. 
Nonetheless, to the extent that the 
city argues that a latent ambiguity exits, we disagree. 
There are generally two categories of ambiguity that 
may arise in a contract: 
patent and latent.19
 A patent 
ambiguity is one that is “apparent upon the face of the 
instrument, arising by reason of inconsistency, obscurity 
or an inherent uncertainty of the language adopted, such 
that the effect of the words in the connection used is 
either to convey no definite meaning or a double one.”20  In 
contrast, a latent ambiguity “‘arises not upon the words of 
the will, deed, or other instrument, as looked at in 
19 See 11 Williston, Contracts (4th ed), § 33:40, p
816. 
20 Zilwaukee Twp v Saginaw-Bay City R Co, 213 Mich 61,
69; 181 NW 37 (1921); 11 Williston, Contracts (4th ed), §
33:40, p 816 
(“Patent ambiguities are those that are
apparent on the face of the document . . . .”). 
13  
 
 
 
 
 
   
                                                 
 
 
 
themselves, but upon those words when applied to the object 
or to the subject which they describe.’”21 
By asserting the existence of a latent ambiguity, the 
city illustrates an inherent tension found in contract law. 
On the one hand, it is well-settled law that when a 
contract is clear and unambiguous on its face, a court will 
not consult extrinsic evidence and will enforce the 
contract as written.22  On the other hand, a party generally 
is permitted to introduce extrinsic evidence to demonstrate 
the existence of a latent ambiguity—one that is not 
apparent on the face of the contract.23 
21 Zilwaukee Twp, supra at 69 (citation omitted); 11
Williston, Contracts (4th ed), § 33:40, p 816 
(“[L]atent
ambiguities are those which appear only as the result of
extrinsic or collateral evidence showing that a word,
thought to have but one meaning, actually has two or more
meanings.”). 
The classic example of a latent ambiguity is found in
the traditional first-year law school case of Raffles v 
Wichelhaus, 2 Hurl & C 906; 159 Eng Rep 375 (1864). 
In 
Raffles, two parties contracted for a shipment of cotton
“to arrive ex Peerless” from Bombay. However, as it turned
out, there were two ships sailing from Bombay under the
name “Peerless.” 
Thus, even though the contract was 
unambiguous on its face, there was a latent ambiguity
regarding the ship to which the contract referred. 
22 Quality Products, supra at 375; Cruz v State Farm 
Mut Automobile Ins Co, 466 Mich 588, 594; 648 NW2d 591
(2002); Nikkel, supra at 566; Morley, supra at 465. 
23 Hall v Equitable Life Assurance Society of the
United States, 295 Mich 404, 408; 295 NW 204 (1940) (“It is
(continued…) 
14  
 
 
                                                 
  
 
 
 
In 
balancing 
these 
two 
seemingly 
conflicting 
principles of contract law, a court must never cross the 
point at which the written contract is altered under the 
guise of contract interpretation.24
 Indeed, it is during 
litigation that a party’s motivations are the most suspect 
and the party’s incentives the greatest to attempt to 
achieve that which the party could not during the give-and­
take of the contract negotiation process. 
As this Court 
stated in Nikkel, a "court may not read ambiguity into a 
policy where none exists.”25
 Therefore, in clarifying the 
proper role of extrinsic evidence in illuminating a latent 
ambiguity, it is helpful to turn to basic principles of 
contract law. 
As stated, the primary goal of contract interpretation 
is 
to 
ascertain 
and 
effectuate 
the 
intent 
of 
the 
contracting 
parties.26
 
The 
law 
presumes 
that 
the 
(…continued) 
a well-settled rule that extrinsic evidence is admissible  
to show that a latent ambiguity exists.”).  
24 Wilkie, supra at 51 (“This approach, where judges
. . . rewrite the contract . . . is contrary to the bedrock 
principle of American contract law that parties are free to
contract as they see fit, and the courts are to enforce the
agreement as written . . . .”). 
25 Nikkel, supra at 568. 
26 Quality Products, supra at 375 (“In interpreting a
contract, our obligation is to determine the intent of the
(continued…) 
15  
 
 
                                                 
 
 
 
contracting parties’ intent is embodied in the actual words 
used in the contract itself.27  A rule to the contrary would 
reward imprecision in the drafting of contracts. 
More 
significant, it would create an incentive for an aggrieved 
party to enlist the judiciary in an attempt to achieve a 
benefit that the party itself was unable to secure in 
negotiating the original contract—a proposition this Court 
flatly rejected in Wilkie.28  These principles require that, 
(…continued)
contracting parties.”); McIntosh v Groomes, 227 Mich 215,
218; 198 NW 954 (1924) (“The cardinal rule in the 
interpretation of contracts is to ascertain the intention
of the parties. To this rule all others are subordinate.”);
Mills v Spencer, 3 Mich 127, 135 (1854) (“In the 
construction of a contract, we are to look at the intention
of the parties.”); 17A CJS, Contracts, § 308, p 321 
(“The
primary and overriding purpose of contract law is to 
ascertain and give effect to the intentions of the parties
. . . .”); 17A Am Jur 2d, Contracts, § 345, p 332 (“[T]he 
fundamental and cardinal rule in the construction or 
interpretation of contracts is that the intention of the
parties is to be ascertained, and effect is to be given to
that intention . . . .”); 1 Restatement Contracts, 2d,
§201(1), p 83 (“Where the parties have attached the same
meaning to a promise or agreement or a term thereof, it is
interpreted in accordance with that meaning.”). 
27 Michigan Chandelier Co v Morse, 297 Mich 41, 49; 297
NW 64 (1941)(“‘The law presumes that the parties understood
the import of their contract and that they had the 
intention which its terms manifest.’” [citation omitted]);
see also United States ex rel Int'l Contracting Co v
Lamont, 155 US 303, 310; 15 S Ct 97; 39 L Ed 160 (1894);
17A Am Jur 2d, Contracts, § 348, p 336 (“[T]he parties are
presumed to have intended what the terms clearly state.”). 
28 Wilkie, supra at 51. 
16  
 
 
 
                                                 
 
 
when a party asserts that a latent ambiguity exists, a 
court presume that the contracting parties’ intent is 
manifested in the actual language used in the contract. 
The party alleging the existence of the latent ambiguity 
may rebut this presumption only by proving, through clear 
and convincing evidence, that such an ambiguity does indeed 
exist. 
This Court emphasized these same bedrock principles of 
contract 
law 
in 
Quality 
Products, 
which 
held 
that 
contracting parties are free, with mutual assent, to modify 
a contract notwithstanding a written anti-modification or 
anti-waiver clause present in the original agreement.29  We 
recognized that the anti-modification clause contained in 
the written contract was presumptive of the parties’ intent 
as a matter of law, but also that “the parties possess, and 
never cease to possess, the freedom to contract even after 
the original contract has been executed.”30
 We held, 
therefore, that contracting parties are always entitled 
mutually to modify the underlying contract, but the party 
29 Quality Products, supra at 372-373.  
30 Id. at 372.  
17  
 
 
       
     
                                                 
 
 
asserting that a modification has occurred must present 
clear and convincing evidence to that effect.31 
Although 
Quality 
Products 
involved 
contract 
modification, not contract interpretation, the same core 
principles of contract law apply in the present case. 
It 
must be presumed that the city and the Pool intended the 
actual language that they used in the insurance policy. We 
conclude, therefore, that the city, in asserting the 
existence of a latent ambiguity, bears the burden of 
proving by clear and convincing evidence that such an 
ambiguity actually exists.32 
31 Id. at 373. 
32 Justice Cavanagh asserts that we are relying on a
“broad reading” of Quality Products and that the principles
adopted by this Court in Quality Products should be limited 
to cases involving contract modification or waiver and not
to cases when one party asserts the existence of a latent
ambiguity. Ante at 18 n 11. 
There is no principled basis
for the distinction Justice Cavanagh draws. In both cases— 
a claimed contract modification/waiver and the claimed 
existence of a latent ambiguity—a party to a contract is
asserting that the written terms of the contract should not
be enforced. 
This Court has gone to great lengths in the
past few terms to clarify the law so that contracts will be
enforced as written. 
See Wilkie v Auto Owners Ins Co, 469
Mich 41; 664 NW2d 776 (2003); Klapp v United Ins Group
Agency, Inc, 468 Mich 459; 663 NW2d 447 (2003). 
By
applying a clear and convincing standard of proof for
latent ambiguities, this Court would simply be adhering to
the common theme we articulated in Quality Products and all 
our other recent contract cases: 
that contracts will be 
(continued…) 
18  
 
 
 
                                                 
 
The city has failed to satisfy that burden of proof. 
The reality is that none of the parties to this insurance 
contract asserts that the term “pollutant” contained in the 
exclusion clause means something different when city sewage 
is discharged into Fox Creek or when it backs up into 
individual Grosse Pointe Park residences. Indeed, the Pool 
has conceded that the source of the pollution in both cases 
is the same.33  Thus, the record reflects no evidence that 
one 
party 
contends 
that 
“pollutant” 
means 
something 
different from how that term is defined in the policy. 
(…continued) 
enforced as written unless substantial evidence to the  
contrary is presented.  
Justice Cavanagh also states that we do not cite
decisions other than Quality Products for the clear and 
convincing rule discussed above. 
We are unaware of the 
bedrock jurisprudential rule on which Justice Cavanagh
relies: 
that a legal principle duly adopted by this Court
is not binding unless there are other related cases with
the same holding. 
Quality Products is a binding decision
of this Court and the doctrinal underpinnings of that case
are applicable here. As such, it must be given due regard.
Nevertheless, 
as 
we 
indicate 
above, 
the 
clear 
and 
convincing rule regarding latent ambiguities is not a new
concept, 
but 
an 
embodiment 
of 
the 
precise 
contract 
principle to which this Court has steadfastly adhered in
our recent contract jurisprudence: 
that contracts will be 
enforced as written unless compelling evidence to the 
contrary is offered. 
See Schmalfeldt v North Pointe Ins 
Co, 469 Mich 422, 428; 670 NW2d 651 (2003); Klapp, supra at 
467; Wilkie, supra at 51-52, 62-63; Rednour v Hastings Mut 
Ins Co, 468 Mich 241, 251; 661 NW2d 562 (2003); Nikkel, 
supra at 566-568. 
33 Pool reply brief at 4. 
19  
 
 
 
 
That being the case, there is no “latent ambiguity” 
requiring the introduction of extrinsic evidence to show 
that “pollutant” means something other than how it is 
defined in the contract. Rather, the city is attempting to 
bootstrap its estoppel argument—that the Pool paid similar 
claims involving pollutants so it is precluded from denying 
indemnification on this claim—to manufacture a latent 
ambiguity claim. 
Such a tactic violates basic contract 
construction principles and should be rejected for that 
reason. 
C. EQUITABLE ESTOPPEL 
The city argues that, even if sewage is a “pollutant” 
under the policy’s pollution exclusion clause, the Pool 
should nonetheless be equitably estopped from denying 
coverage. 
It asserts that the Pool’s payment of prior 
basement backup claims and the Pool’s involvement in 
monitoring the Etheridge litigation led the city to believe 
that the Pool would indemnify any eventual settlement that 
was reached. 
According to the city, it would have altered 
its strategy in the Etheridge litigation had it known that 
the Pool would not cover the settlement and, therefore, it 
was prejudiced by the Pool’s actions. 
In general, “[t]he principle of estoppel is an 
equitable defense that prevents one party to a contract 
20  
 
 
   
                                                 
 
 
from enforcing a specific provision contained in the 
contract.”34
 Although equitable estoppel appears to be 
broad in theory, the doctrine is rather limited in 
practice. 
As then-Chief Justice Weaver stated in writing 
for the Court in Kirschner, “The application of . . . 
estoppel is limited, and, usually, the doctrine[] will not 
be applied to broaden the coverage of a policy to protect 
the insured against risks that were not included in the 
policy or that were expressly excluded from the policy.”35 
Indeed, the rule discussed in Kirschner is well 
established in Michigan law. 
In Ruddock, the beneficiary 
of a life insurance policy sought to estop the insurer from 
invoking the policy’s “military service” exclusion clause 
as a basis for denying payment. 
This Court expressly 
rejected the beneficiary’s equitable estoppel argument, 
holding that estoppel will not be applied to broaden 
34 Morales v Auto-Owners Ins Co, 458 Mich 288, 295; 582
NW2d 776 (1998). 
35 Kirschner, supra at 593-594 (emphasis added). While 
Justice Cavanagh cites Kirschner for the proposition that
an insurer may be equitably estopped from denying coverage
if the insurer does not timely reserve its rights, Justice
Cavanagh omits the prominent language from Kirschner that 
emphasizes that “[t]he application of . . . estoppel is
limited . . . ." Ante at 23. 
21  
 
 
 
 
 
 
                                                 
 
coverage beyond the specific risks covered by the policy 
itself. This Court stated: 
To apply the doctrine of estoppel and
waiver here would make this contract of 
insurance cover a loss it never covered by
its terms, to create a liability not created
by the contract and never assumed by the
defendant under the terms of the policy. In 
other words, by invoking the doctrine of 
estoppel and waiver it is sought to bring
into existence a contract not made by the
parties, to create a liability contrary to
the express provisions of the contract the
parties did make.[36] 
By asking this Court to hold that the Pool is 
equitably estopped from denying coverage for the Etheridge 
settlement, the city is essentially requesting this Court 
to ignore the policy’s pollution exclusion clause that the 
Pool specifically invoked in its reservation of rights 
letter. To do so, however, would be to alter fundamentally 
the nature of the bargain struck between the city and the 
Pool and to protect the city “against risks that were . . . 
expressly 
excluded 
from 
the 
policy.”37
 
This 
Court 
explicitly rejected this argument in Ruddock and Kirschner. 
We do so again today. 
Equitable estoppel must not be 
applied to expand coverage beyond the scope originally 
36 Ruddock, supra at 654.  
37 See Kirschner, supra at 594.  
22  
 
 
  
 
  
                                                 
 
 
contemplated by the parties in the insurance policy as 
written. 
A court must not bestow under the veil of equity 
that which the aggrieved party itself failed to achieve in 
negotiating the contract.38 
Because we believe that Kirschner and Ruddock are 
fatal 
to 
the 
city's 
estoppel 
claim, 
unlike 
Justice 
Cavanagh, we would not apply the test articulated in 
Morales.  Nevertheless, to the extent that the city relies 
on the principles in Morales, its reliance is misplaced. 
In Morales, this Court applied a three-part test to 
determine whether equitable estoppel should apply: (1) the 
defendant's acts or representations induced the plaintiff’s 
belief, (2) the plaintiff justifiably relied on its belief, 
38 Justice Cavanagh states that we are giving Kirschner and 
Ruddcok an “expansive reading” and setting forth an 
“inflexible rule” regarding the application of estoppel.
Ante at 24 n 12. 
To the contrary, we are merely applying
the well-established rule this Court adopted in Ruddock and 
reiterated in Kirschner that estoppel will not be applied
to give the insured a benefit that was never negotiated in
the first place. Ruddock, supra at 654; Kirschner, supra at 
594. 
Indeed, in our view, it is Justice Cavanagh who is
unduly limiting the holding of Kirschner by implying 
exceptions to the Kirschner rule beyond the two explicitly
recognized: (1) misrepresentation by the insurer and (2) 
the insurer’s failure to provide a timely reservation of
rights. Id. at 594-595. 
23  
 
 
 
   
 
  
                                                 
 
and (3) the plaintiff was prejudiced as a result of its 
belief.39 
Even assuming, arguendo, that the Pool’s payment of 
prior basement backup claims and its involvement in 
monitoring the Etheridge suit led the city to hope that the 
settlement would be covered, and that the city actually 
relied on its mistaken belief, the city's equitable 
estoppel claim must fail because its reliance was not 
justifiable. 
Three weeks after the Etheridge suit was 
filed, the Pool sent the city a reservation of rights 
letter that specifically quoted the policy’s pollution 
exclusion clause. The letter concluded by stating, “Please 
be advised that if there is any judgment against the City 
of Grosse Pointe Park for . . . a discharge of any 
pollutants, . . . the Michigan Municipal Liability & 
Property Pool reserves the right not to indemnify Grosse 
Pointe Park for said damages.” 
Moreover, the Pool 
frequently 
reminded 
the 
city 
during 
the 
Etheridge 
litigation 
that 
“serious 
coverage 
issues” 
remained. 
Despite all this, and after being notified by the Pool that 
coverage was formally denied, the city still proceeded to 
39 Morales, supra at 296-297. 
24  
 
 
  
 
 
 
 
                                                 
finalize the settlement with the Etheridge plaintiffs.40 
Any reliance on the part of the city, therefore, was 
unjustified.41
 Because there was no justifiable reliance, 
we need not consider whether the city suffered any 
prejudice on the basis of its reliance; the city's 
estoppel claim fails as a matter of law. 
IV. CONCLUSION 
Sewage is clearly a “pollutant” under the plain 
language of the policy’s pollution exclusion clause. 
Moreover, 
while 
extrinsic 
evidence 
may 
generally 
be 
introduced to demonstrate the existence of a latent 
40 The City Attorney for Grosse Pointe Park testified
in his deposition that “a decision [was made] by the city
that it was in the best interests of the city if there was
to be no coverage to proceed with a settlement because we
were where we were.” 
41 Since at least 1911, in the case of Sargent Mfg Co v
Travelers’ Ins Co, 165 Mich 87; 130 NW 211 (1911), this
Court has adhered to the rule that a timely reservation of
rights letter will protect an insurer against an insured’s
claims of estoppel. This Court reiterated this fundamental 
rule of insurance law in Kirschner by noting that an
insurer who complies with its “duty to give reasonable
notice . . . that it is proceeding under a reservation of
rights” will be shielded from subsequent claims of estoppel
or waiver. 
Kirschner, supra at 593. 
Accordingly, if an
insurer timely reserves its rights, an insured will 
generally not be able to sustain a claim of estoppel on the
basis that it altered its litigation strategy in reliance
on the insurer’s payment of previous claims. 
To conclude 
otherwise would be to emasculate completely the entire
purpose of the reservation of rights process. 
25  
 
 
 
 
 
ambiguity, we 
conclude that a court must presume that the 
contracting parties’ intent is manifested in the actual 
language used in the contract itself and that the party 
alleging the existence of the latent ambiguity may rebut 
this presumption only by proving, through clear and 
convincing evidence, that such an ambiguity does actually 
exist. 
The city has failed to meet this burden of proof. 
Moreover, any reliance on Morales is misplaced. 
Under 
Ruddock and Kirschner, the Pool is not equitably estopped 
from denying coverage because estoppel will not be applied 
to 
broaden 
coverage 
beyond 
the 
particular 
risks 
specifically covered by the policy itself. 
The judgment of the Court of Appeals is reversed, and 
this matter is remanded to the trial court for entry of an 
order granting the Pool’s motion for summary disposition. 
Robert P. Young, Jr.
Clifford W. Taylor
Stephen J. Markman 
26