**_______________________________** 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 C ORRIGAN**  **, 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 pe**  **riod 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 be tter 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 ambigu**  **ity 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, bat hwater 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 exclus ion 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 reaso nably 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 K ELLY**  **’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 th**  **at 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 Co 2 **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. F**  **ACTS & P**  **ROCEDURAL H**  **ISTORY 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 he**  **ld 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. S**  **TANDARD OF R**  **EVIEW**
**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. A**  **NALYSIS A.**  **I S**  **S EWAGE A**  **“P OLLUTANT**  **” UNDER THE**  **I NSURANCE**  **P OLICY**  **’ S**  **P OLLUTION**  **E XCLUSION**  **C LAUSE**  **? 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. T**  **HE R**  **OLE OF E**  **XTRINSIC E**  **VIDENCE IN I**  **LLUMINATING A L**  **ATENT A**  **MBIGUITY 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 2**  **d, 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 ab**  **ove, 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.**  **E QUITABLE**  **E STOPPEL**  **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. C**  **ONCLUSION 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**