_______________________________ 

 

 

Michigan Supreme Court 

Lansing, Michigan 

Chief Justice:	 Justices: 

Clifford W. Taylor Michael F. Cavanagh 

Elizabeth A. Weaver Opinion Marilyn Kelly 

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 AutoOwners 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 crossmotions 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-andtake 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