Case Name: ARCO INDUSTRIES CORPORATION v. AMERICAN MOTORISTS INSURANCE COMPANY
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1995-04-18
Citations: 448 Mich. 395
Docket Number: Docket Nos. 96782-96784
Parties: ARCO INDUSTRIES CORPORATION v AMERICAN MOTORISTS INSURANCE COMPANY
Judges: Brickley, C.J., and Levin and Cavanagh, JJ., concurred with Mallett, J.
Reporter: Michigan Reports
Volume: 448
Pages: 395–441

Head Matter:
ARCO INDUSTRIES CORPORATION v AMERICAN MOTORISTS INSURANCE COMPANY
Docket Nos. 96782-96784.
Argued November 1, 1994
(Calendar No. 4).
Decided April 18, 1995.
Arco Industries Corporation and others brought an action in the Kalamazoo Circuit Court against American Motorists Insurance Company (amico) and other Arco insurers, seeking a declaration of amico’s duty to defend and indemnify Arco for costs incurred in defending an underlying action brought by the Department of Natural Resources against Arco to remedy chemical contamination at Arco’s manufacturing plant. Following a bench trial, the court, William G. Schma, J., ordered amico to indemnify Arco, finding that Arco had not expected or intended to harm the environment. The Court of Appeals, Michael J. Kelly, P.J., and Mackenzie and Brennan, JJ., reversed, holding that Arco did so expect or intend (Docket Nos. 133908, 135893, 136612). The plaintiffs appeal.
In an opinion by Justice Mallett, joined by Chief Justice Brickley, and Justices Levin and Cavanagh, the Supreme Court held:
The Court of Appeals failed to apply the correct legal standard in determining whether Arco expected or intended contamination of the environment. It should have applied a subjective, rather than an objective, standard of review. Furthermore, the Court erred in reversing the trial court’s findings of fact and wholly ignored the trial court’s evaluation of evidence presented at trial. On the basis of the trial court’s evaluation of the evidence and review on this appeal, Arco and its employees did not intend or expect to contaminate the environment. Because the Court of Appeals did not reach the duty to defend issues raised by Arco in its cross appeal, remand is required for further proceedings.
1. According to the plain meaning of the applicable amico comprehensive general liability policy, coverage clearly and unambiguously exists only where there has been an occurrence, defined as an accident, including injurious exposure to conditions, that results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured. Thus, amico is required to indemnify Arco in situations in which an accident occurred that was neither expected nor intended from the standpoint of Arco. Although the term "accident” is not defined in the amico policy, according to the common meaning of the term, case law has held that an accident is an undesigned contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected. Case law has also held that the definition of accident should be viewed from the standpoint of the insured, in this case, Arco. The trial court found that there were definitely unintentional, accidental releases of contaminants, and this finding was fully supported by the evidence presented.
2. Case law has further held that in determining whether an insurer has a duty to defend or indemnify an insured the proper standard of review is subjective, not objective. The Court of Appeals erred when it applied an objective standard. The language "should have known” is a purely objective test that was previously rejected by the Supreme Court, and should not have been used by the Court of Appeals in this case. Such language implies that, regardless of actual intent, Arco could be denied coverage if it objectively "should have known” that harm was substantially likely to result from its actions. The Court should have analyzed whether Arco’s conduct, from Arco’s perspective, evidenced an intent to cause contamination to the environment, and whether Arco had the awareness that harm was likely to follow from its actions. So analyzed, Arco and its employees did not intend or expect to contaminate the environment.
Justice Boyle, concurring, stated that a two-step inquiry into whether there was an "accident” and whether damages were "intended or expected” when evaluating incidents under the standard terms of the policy at issue is unnecessarily duplicative. In the context of such a policy, the only analysis necessary should be whether the damages were intended or expected from the standpoint of the, insured. That inquiry sufficiently encompasses the threshold determination of "accident” and properly places the burden of proof regarding coverage on the insured.
Where a comprehensive general liability policy that includes within its definition of a covered occurrence the requirement that there be an accident and that damage be neither intended nor expected from the standpoint of the insured, the only issue in determining if coverage exists, other than whether damage occurred during the policy period, is whether the insured has fulfilled the burden of proving that it neither subjectively expected nor intended the damage. When the insureds are commercial parties, this analysis normally will focus on the insureds’ expectation of damage. In this case, there was insufficient evidence to question the trial court’s finding that the insureds neither expected nor intended property damage during the entire period covered by the policies issued by Arco.
Reversed in part and remanded.
Justice Riley, dissenting, stated that the dispositive issue in this case is whether Arco intended or expected to contaminate the environment through its actions during 1968 through 1974, when amico insured it. Because Arco did not intend or expect to harm the environment from 1968 until 1972, amico should be held liable for the damages that occurred during those years. However, from 1972 through 1974, Arco knew that volatile organic compounds deliberately were being placed into the drainage ditches that led to its lagoon. It also knew that these vocs posed a danger to the environment and that its actions would cause serious environmental harm. As a result, the damage that occurred from 1972 until 1974 was expected by Arco and was not an accident. Thus, an occurrence within the definition of the insurance policy never happened, and amico’s liability never arose.
Justice Weaver took no part in the decision of this case.
198 Mich App 347; 497 NW2d 190 (1993) reversed in part.
Honigman, Miller, Schwartz & Cohn (by Jay E. Brant, Philip A. Grashoff, Jr., Mark A. Goldsmith, and Daniel G. Helton), and Butler, Durham & Svikis (by Sidney D. Durham and Andis Svikis) for the plaintiffs.
Miller, Canñeld, Paddock & Stone (by Kevin J. Moody and Clifford T. Flood), and Drinker, Biddle & Reath (by T. Andrew Culbert and Paul H. Saint-Antoine) for the defendant.
Amici Curiae:
Harwood, Lloyd (by Edward Zampino, Peter E. Mueller, and Victor C. Harwood, III), and Vandeveer, Garzia (by Charles W. Browning, and Alison L. Thorburn) for Aetna Casualty & Surety Company.
Richard Halprin; Anderson, Kill, Olick & Oshinsky, P.C., of counsel (by Eugene R. Anderson, Bennett Ellenbogen, and Sarah B. Hechtman), and Martha Churchill, General Counsel, for Mid-America Legal Foundation.
Warner, Norcross & Judd (by Paul T. Sorensen) and Covington & Burling (by Gregg H. Levy, Eric C. Bosset, and Stacey L. Dogan) for Masco Corporation, Dow Corning Corporation, Dow Chemical Company, and the Upjohn Company.
Stephen M. Kelley; Wiley, Rein & Fielding, of counsel (by Laura A. Foggan, John E. Barry, and William A. McGrath), for Insurance Environmental Litigation Association.

Opinion:
Mallett, J.
We granted leave in this case to determine whether an insurance company, American Motorists Insurance Company (amico), has the duty to indemnify its insureds, Arco Industries Corporation and Frederick C. Matthaei, Jr., for costs it incurred in defending an action brought by the Department of Natural Resources to compel Arco to remedy chemical contamination at its manufacturing plant. Specifically, we must determine whether the chemical contamination at Ar-co's plant between 1968 and 1974 was "expected or intended from the standpoint" of the insured.
At the conclusion of a bench trial before Kalamazoo Circuit Court Judge William Schma, amico was ordered to indemnify Arco. The circuit court found that the insurance company was liable because Arco had not expected or intended to harm the environment as a result of its manufacturing process. Amico appealed, and the Court of Appeals reversed holding that Arco expected or intended to contaminate the environment. 198 Mich App 347; 497 NW2d 190 (1993).
We hold that the Court of Appeals failed to apply the correct legal standard in determining whether Arco expected or intended the contamination. The Court of Appeals should have applied a subjective, rather than an objective, standard of review. Furthermore, we hold that the Court of Appeals erred in reversing the trial court's findings of fact. The Court of Appeals wrongly disregarded the trial court's evaluation of evidence presented at trial. Lastly, we remand the duty to defend issues to the Court of Appeals for further consideration. Accordingly, we reverse in part, and remand for further proceedings, in favor of Arco. We do not retain jurisdiction.
i
Plaintiff Arco Industries Corporation is a small automotive parts manufacturer that has operated a manufacturing plant in Schoolcraft, Michigan, since 1967. As part of the manufacturing process, the automotive parts are dipped into liquid plastisol or vinyl. Volatile organic compounds (vocs) such as perchloroethylene, trichloroethylene, 1-2 dichloroethylene and vinyl chloride, were used to clean the parts during the manufacturing process and to remove plastisol from the plant floors. The plant floor was designed with a trench drain system that drained waste from the plant floor into an unlined seepage lagoon located in the back of the plant. As a result, vocs contaminated the seepage lagoon and ground water.
In November, 1985, the Department of Natural Resources notified Arco that the seepage lagoon was contaminated with vocs, and records indicated that Arco was the source of the contamination. After Arco's failure to resolve the problem, the dnr filed suit against Arco in federal court in an attempt to compel Arco to remedy the voc contamination and collect claimed response costs. Subsequently, the State of Michigan and Arco entered into a consent decree whereby Arco agreed to pay the state $450,000 in response costs together with attorney fees. Arco also agreed to develop and implement a multimillion dollar ground water and soil remediation program.
Arco's insurer, amico, refused to defend or indemnify in the underlying litigation alleging that the insurance contract did not cover this type of incident. As a result, on February 4, 1987, Arco filed suit against amico, seeking to compel the insurer to honor its contractual obligations. In response to the suit, amigo's defense was that this type of incident was not a covered "occurrence" within the meaning of the applicable comprehensive liability policies because Arco either expected or intended the pollution that resulted from its manufacturing process.
The trial court found that the contamination was not anticipated by Arco, and that there was no "showing that there was an intention by anyone to contaminate." Thus, on September 28, 1990, a judgment was entered compelling amico to pay its allocated share (68.63 percent) of all indemnifiable losses up to the aggregate limits of amico's coverage of $3.5 million.
The Court of Appeals, however, reversed the trial court's decision and held that amico did not have the responsibility to defend or indemnify Arco. The Court held that there were clearly intentional discharges of vocs by Arco employees and Arco either should have foreseen the result of the intentional acts, knew, or should have known that such practices would result in a substantial probability that vocs would contaminate the soil and ground water. 198 Mich App 352-353.
This conclusion was based on the following:
Defendant presented the testimony of numerous former Arco employees who testified that they had intentionally dumped or squeegeed vocs into the drains that led to the seepage lagoon. Several of these former employees also testified that they had observed other Arco employees doing the same. One of plaintiffs' witnesses testified that he observed an Arco employee deliberately dump 150 to 165 gallons of vocs directly onto the bare ground behind the plant. This witness also testified that he observed an Arco employee deliberately dumping vocs into the drains. Former Arco employees also testified that vocs were used to mop the plant floors from at least 1964 to 1979. The mopping was often performed on and around the drains that led directly to the unlined lagoons. Given the frequency and volume of mopping required to clean the plant floors, some of the vocs would invariably go into the drains and be washed into the lagoons. Furthermore, plaintiffs' expert testified that during the manufacturing process, vocs were discharged into the lagoon during defendant's coverage period. Additionally, Arco's plant chemist testified that he knew at the time he began employment with Arco in 1972 that vocs should not be discharged into the unlined lagoon because they would degrade the environment. [Id. at 352.]
We hold that the Court of Appeals applied an incorrect legal standard in determining whether Arco intended or expected to contaminate the environment. The trial court properly found that Arco's employees did not intentionally release vocs with the subjective intent or expectation to harm the environment. The Court of Appeals erred in ignoring the trial court's findings of fact with respect to this issue. Because the Court of Appeals did not reach the duty to defend issues, we remand these issues to the Court of Appeals for consideration. Accordingly, we reverse in part, and remand for further proceedings.
ii
Initially, in determining whether amico must indemnify Arco, we must look to the language of the insurance policy and interpret the terms in accordance with the well-established Michigan principles of construction. Michigan Millers Mutual Ins Co v Bronson Plating Co, 445 Mich 558, 567; 519 NW2d 864 (1994).
First, an insurance policy must be enforced in accordance with its terms. Upjohn Co v New Hampshire Ins Co, 438 Mich 197, 207; 476 NW2d 392 (1991). We will not hold an insurance company liable for a risk it did not assume. Auto-Owners Ins Co v Churchman, 440 Mich 560, 567; 489 NW2d 431 (1991); Kaczmarck v La Perriere, 337 Mich 500; 60 NW2d 327 (1953).
Second, we cannot create ambiguity where the terms of the contract are clear. Churchman, supra at 567; Metropolitan Property & Liability Ins Co v DiCicco, 432 Mich 656, 666; 443 NW2d 734 (1989), reh den with addenda to opinion 433 Mich 1202; 446 NW2d 291, (1989), citing Edgar's Warehouse, Inc v United States Fidelity & Guaranty Co, 375 Mich 598; 134 NW2d 746 (1965); Patek v Aetna Life Ins Co, 362 Mich 292; 106 NW2d 828 (1961); Dimambro-Northend Associates v United Construction, Inc, 154 Mich App 306, 313; 397 NW2d 547 (1986); Farm Bureau Mutual Ins Co v Hoag, 136 Mich App 326, 332; 356 NW2d 630 (1984). Where there is no ambiguity, we will enforce the terms of the contract as written. Stine v Continental Casualty Co, 419 Mich 89, 114; 349 NW2d 127 (1984); Murphy v Seed-Roberts Agency, Inc, 79 Mich App 1, 7-9; 261 NW2d 198 (1977). However, where an ambiguity exists, this Court will construe the policy in favor of the insured. Auto Club Ins Ass'n v DeLaGarza, 433 Mich 208, 214; 444 NW2d 803 (1989); Powers v DAIIE, 427 Mich 602, 624; 398 NW2d 411 (1986).
Furthermore, this Court must interpret the terms of the contract in accordance with their "commonly used meaning," Group Ins Co of Michigan v Czopek, 440 Mich 590, 596; 489 NW2d 444 (1992); Fireman's Fund Ins Cos v Ex-Cell-O Corp, 702 F Supp 1317, 1323, n 7 (ED Mich, 1988), and must take into account the reasonable expectations of the parties. Vanguard Ins Co v Clarke, 438 Mich 463, 472; 475 NW2d 48 (1991).
According to the plain meaning of the applicable amico comprehensive general liability policy, coverage only exists where an occurrence has taken place. The relevant portion of the policy provides:
[Amico] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages . . . caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the' company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements. [Emphasis added.]
The term "occurrence" is defined as follows:
[An] accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured. [Emphasis added.]
We find that this policy language is clear and unambiguous, Jones v Farm Bureau Mutual Ins Co, 172 Mich App 24; 431 NW2d 242 (1988), insofar as amico is required to indemnify Arco in situations where an accident occurred that was "neither expected nor intended from the standpoint" of Arco. To this extent, we will enforce the policy as written. Eghotz v Creech, 365 Mich 527, 530; 113 NW2d 815 (1962). However, whether there was an "accident" and whether Arco "expected or intended" the contamination remain in dispute. This is where we next turn our attention.
in
In recent times, there has been controversy over interpreting the term "accident." "Accident" has been difficult to interpret because it is sometimes not defined in insurance policies. See also Auto Club Group Ins Co v Marzonie, 447 Mich 624; 527 NW2d 760 (1994). When the meaning of a term is not obvious from the policy language, the "commonly used meaning" controls. Czopek, supra at 596.
In the instant case, the term "accident" is not defined by the amico policy. However, according to the common meaning of the term, it has been stated in DiCicco at 670, and Marzonie at 631-632, that " 'an accident is an undesigned contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected.' " This definition is not disputed in the instant case. What is disputed is whether the definition of accident should be viewed from the standpoint of the insured or the injured party.
This Court has debated this issue in a number of previous cases. See Frankenmuth Mutual Ins Co v Piccard, 440 Mich 539; 489 NW2d 422 (1992), Czopek, and Marzonie, supra. In Marzonie, this Court finally formed a majority on this issue holding that "accidents" are evaluated from the standpoint of the insured, not the injured person. See opinions of Justices Levin, Brickley, and Griffin, and Chief Justice Cavanagh.
Thus, in the instant case, we evaluate the accident from the standpoint of Arco, not the state. The trial court found that there were definitely unintentional, accidental releases of vocs, and we hold that this was fully supported by the evidence presented. The trial court found:
It was clear that there were accidents occurring throughout the period of the policies at issue. There were accidental spills, according to the testimony, which resulted in discharges into the drains in the plant, as well as unintentional overflows into the drains in the plant. The evidence supports finding that the voc's which were released, entered the soil in all three areas described on the exhibits, that they entered the aquifer and contributed to the plume._
This finding was on the basis of numerous facts including the following:
1. Arco's laborer, James Stout, testified that throughout the 1967-72 period, there were several accidental spills of mop buckets containing four to five gallons of solvents, most of which went into the drain system leading to the seepage pond.
2. Mr. Stout also testified that sometime between 1969 and 1971, he observed a forklift operator accidentally puncture a drum of solvents, most of which ran off onto the ground.
3. An Arco maintenance supervisor, Wesley Tomsheck, testified that between 1974 and 1984, he witnessed ten to twenty spills within the Arco plant when drums accidentally tipped over as they were being transported, resulting in several gallons going into the drain on at least half of the occasions.
4. Mr. Tomsheck also testified that in 1974, he found five or six drums leaking in back of the Arco plant that had been punctured by forklifts or shot by hunters.
5. Mr. Tomsheck further testified that in 1974, he witnessed a spill of five or six gallons of solvent when solvents were being transferred from a drum to a holding tank.
6. An amico witness, Ruth Kelly, testified that she saw an accidental spill in 1970 when a drum of solvent was being transported in the plant. The drum was full and most of the contents went into the drain.
These incidences indicate that the spills were unintentional and constituted accidents. There is ample evidence establishing that they were an undesigned contingency, not anticipated, and not naturally to be expected. DiCicco at 670; Marzonie at 631-632. Each of these facts is fully supported by the record.
iv
Upon finding that there were "accidents," we next turn to the issue whether Arco intended or expected to contaminate the environment.
The standard of review used in determining whether an insurance policy provides coverage was fully debated and decided in Metropolitan Property & Liability Ins Co v DiCicco, supra. In DiCicco, this Court held that the proper standard of review was subjective, not objective, when determining whether an insurer has a duty to defend or indemnify an insured under the provision of a homeowner's policy.
DiCicco involved whether there was coverage for an assault where the policy excluded coverage for " '[bjodily injury or property damage which is either expected or intended from the standpoint of the insured.' " Id. at 708. This language is very similar to that found in the instant case. In DiCicco, the defendant, David DiCicco, stabbed James Gravenmier, which resulted in Gravenmier bringing an action seeking damages for his injuries. DiCicco was an insured under a homeowner's policy issued to his father by Metropolitan Property and Liability Insurance Company. Metropolitan filed suit, seeking a declaration that the policy did not cover the stabbing incident because DiCicco either intended or expected to injure Gravenmier.
In DiCicco, the Court held that the policy language required application of a subjective standard to determine whether the insured intended the harm, in the absence of explicit policy language to the contrary. Justice Boyle, writing the lead opinion, stated:
I do not believe that a fair reading of the Metropolitan exclusion would support an objective standard and therefore conclude that the policy language is unambiguously subjective. . To apply the exclusion in its plain and easily understood sense, we need only determine whether Gravenmier's injury was either expected or intended from the standpoint of DiCicco. [Id. at 709-710.]
Chief Justice Riley, joined by Justice Griffin, on the other hand, dissented, stating that the proper standard was objective or, rather, whether the insured "knew or should have known that there was a substantial probability that certain consequences will result from his actions." 432 Mich 675 (emphasis provided). Although both the majority and dissent in DiCicco offered persuasive arguments, our task in the instant case is not to reargue the issue, but to apply the rule espoused by the majority.
It is apparent that the Court of Appeals did not consider this Court's holdings in DiCicco, supra. The Court of Appeals clearly applied an objective standard when it used binding language such as "knew or should have known." Id. The language "should have known" is a purely objective test that was rejected by this Court in DiCicco and should not have been used by the Court of Appeals in the instant case. Such language implies that regardless of actual intent, Arco could be denied coverage if it objectively "should have known" that harm was substantially likely to result from its actions.
The Court of Appeals stated that information that the plant chemist, Ed Koperdak, had regarding the dangers of vocs illustrates that Arco "should have known" of the potential harm to the environment. However, merely because Arco may have had the knowledge that vocs were dangerous to the environment does not prove that Arco had the "awareness that harm was likely to follow from the performance of [its] intentional acts." Piccard, supra at 550. Mere knowledge of potential danger does not equal knowledge of actual, intentional, expected harm. Further, the Court of Appeals erred when it ignored the trial court's finding of fact that Arco and its employees did not intend to harm the environment. We hold that the Court of Appeals analysis focused on a purely objective standard failing to properly apply the subjective standard mandated by this Court. DiCicco, supra.
Thus, two conclusions may be made regarding the analysis of this case. First, the Court of Ap peals should have analyzed whether Arco's conduct, from the perspective of Arco, evidenced an intent to cause the contamination to the environment. Second, the Court of Appeals should have analyzed whether Arco had the awareness that harm was likely to follow from the performance of its actions. Piccard, supra at 550-551. We now review the evidence in the context of the proper standard of review.
v
It is well established that an appellate court is not to substitute its own judgment for that of the trial court unless the facts "clearly preponderate in the opposite direction." Ins Co of North America v Schuneman, 373 Mich 394, 397; 129 NW2d 403 (1964).
Pursuant to MCR 2.613(C):
Findings of fact by the trial court may not be set aside unless clearly erroneous. In the application of this principle, regard shall be given to the special opportunity of the trial court to judge the credibility of the witnesses who appeared before it.
With respect to reviewing the credibility of witnesses,
appellate courts should give special deference to the trial court's findings when they are based upon its assessment of the witnesses' credibility. [Schultes Real Estate Co v Curis, 169 Mich App 378, 385-386; 425 NW2d 559 (1988).]
See also MCR 2.614(C).
Reversal is permitted only if the appellate court is left with a "definite and firm conviction that a mistake has been committed" by the lower court. Balwinski v Bay City, 168 Mich App 766, 769-770; 425 NW2d 218 (1988).
After a two and a half week trial, the trial court found that (1) there was no evidence of any intent to harm the environment, and (2) there were numerous unintentional releases of vocs over the seven years of amico coverage. These findings were based on an evaluation of the evidence presented and the trial court's evaluation of the credibility of the witnesses. The Court of Appeals misapplied these findings made by the trial court and, therefore, erred in reversing the determination that neither Arco nor its employees expected or intended to harm the environment. A review of the evidence presented at trial illustrates that the Court of Appeals erred in substituting its judg ment for that of the trial court, because the facts clearly did not "preponderate in the opposite direction." Schuneman, supra at 397.
The trial court found as a matter of fact that "the voc contamination was not anticipated by the insured" and that there was no "intention by anyone to contaminate." The facts from the trial record include the following:
1. The dnr's critical materials list did not list vocs as a material of concern before 1978.
2. The Water Quality Division of Michigan collected water samples from Arco's seepage lagoon as late as 1978 and found no evidence of voc contamination.
3. Arco's chairman of the board, Mr. Matthaei, did not become aware of any voc contamination until 1985.
4. Arco's president, Robert Ferguson, did not become aware of any voc contamination until 1985.
5. There were no Arco employees who testified that they intended or expected to harm the environment.
6. Arco's plant chemist, Ed Koperdak, did not know of any voc contamination at the Arco facility as late as 1978.
These facts developed by the trial court show that although there may have been some seepage of vocs, Arco employees did not intend or expect to contaminate the environment. Furthermore, these facts do not prove that there was "awareness that harm was likely to follow from the performance of . . . intentional act[s]." Piccard, supra at 550. The Court of Appeals did not address these findings of facts, and instead relied on a single statement made by Arco's chemist, Ed Koperdak. The Court stated:
Arco's plant chemist testified that he knew at the time he began employment with Arco in 1972 that vocs should not be discharged into the unlined lagoon because they would degrade the environment. [198 Mich App 352.]
Thus, the testimony on which the Court focused is not relevant for the four years before 1972. Arco was covered by numerous insurance policies throughout its existence in the manufacturing business. Amico covered Arco between the years 1968 through 1974. Thus, even if the Court of Appeals found that Mr. Koperdak knew of the dangers of releasing vocs into the environment, this knowledge would only be relevant for the years between 1972 and 1974.
However, Mr. Koperdak testified that when he joined Arco in 1972, he only knew that the vocs should not be discharged into the lagoon because of possible contamination. Certainly, a man with the education of Mr. Koperdak would know that vocs harm the environment. However, Mr. Koperdak never testified that he knew that discharges of vocs were going into the lagoon. He did not testify that he knew that employees of Arco were intending or expecting to harm the environment.
Mr. Koperdak wrote a memorandum dated July 28, 1981, which was essentially a safety procedure guideline. During the testimony regarding this memorandum, Mr. Koperdak unequivocally stated that he knew of the harmful nature of vocs. However, this testimony also unequivocally shows that as late as 1981, Mr. Koperdak was not aware that vocs were being discharged into the environment. As late as 1981, Mr. Koperdak had never heard from anyone or had any knowledge that employees were dumping vocs deliberately into the drains with the intent or expectation to harm the environment.
Mr. Koperdak's statements only show that he theoretically knew that voc seepage could harm the environment, not that Arco was actually doing so. Thus, regardless of when Mr. Koperdak started his employment with Arco, his statements do not prove that Arco or its employees had the intent or expectation to harm the environment.
The facts also do not prove that Mr. Koperdak's awareness of the dangers of vocs would lead him to know or expect that harm was likely to follow from certain actions. Piccard, supra at 549-550. Without the knowledge of the intentional acts, there could not have been an intent to harm the environment. Although it is tempting to infer intention or an awareness of the dangers of vocs, there simply was no testimony that any of Arco's employees released vocs into the environment with the intention to harm the environment. Furthermore, there was no testimony that anyone should have" expected that harm would result from their actions. We will not make such inferential leaps._
Lastly, the Court of Appeals erroneously found that Arco had intentionally caused releases of vocs at the plant site, holding that "there were intentional discharges of vocs by Arco employees, which eventually migrated into the ground water . . . 198 Mich App 352. Because the trial court found that there was no intention or expectation to harm the environment, and because this Court has affirmed that ruling, the issue whether there were intentional releases of vocs is irrelevant.
Intentional releases of vocs without an intent to harm the environment does not establish the lack of an "occurrence." As stated in Piecard, supra at 548-549, there may be an "occurrence" even though the insured committed intentional acts.
[I]t is possible to have a cause of action where the intentional conduct will result in unintended and unexpected injury thus constituting an "accident" under the policy language.
In Piccard, the insured intentionally set fire to his building. As a result, the building was destroyed and a fireman was injured. This Court held that the intentional act of setting the fire could still be defined as an "occurrence" as long as the act was not committed with the intention or expectation that the injury to the fireman would occur. Id. at 553. Similarly, in the instant case, even though the act of introducing vocs into the environment may have been intentional, there was no evidentiary support establishing that the acts were intended or expected to harm the environment.
Thus, regardless of whether the Court of Appeals found that there were intentional discharges of vocs by Arco employees, there was no evidence presented establishing that the intentional dis charges were intended or expected to harm the environment Accordingly, we reverse.
vi
Arco has raised additional issues concerning the duty to defend. More specifically, Arco claims that the Court of Appeals overlooked several duty to defend issues including the following:
[1. Whether Arco was] entitled to be reimbursed for defense costs from the date of the mdnr demand letter.
[2. Whether Arco] was entitled to be reimbursed fully for the fees charged by its counsel, rather than at the substantially lower rates awarded by the lower court.
[3. Whether Arco was entitled to a] reversal of the lower court's denial of relief for amico's bad faith breach of its duty to defend and for interest.
Arco speculates that the Court of Appeals mistakenly believed that its disposition of the first two issues in this action mooted these duty to defend issues. Arco believes that this alleged determination by the Court of Appeals would have violated the rule of law that states that "the duty to defend is broader than the duty to indemnify . . . ." Polkow v Citizens Ins Co of America, 438 Mich 174, 180; 476 NW2d 382 (1991). See also DiCicco, supra at 701-704. In other words, Arco argues that it is possible for amico to have a duty to defend, but, in the same instance, may not have a duty to indemnify Arco in the event that Arco requested reimbursement at the end of the suit.
The Court of Appeals did not reach these issues, and we refuse to speculate why the Court of Appeals failed to do so. Therefore, we remand these issues to the Court of Appeals for consideration. We do not retain jurisdiction.
CONCLUSION
We conclude that the Court of Appeals failed to apply the correct legal standard in determining whether Arco expected or intended contamination of the environment. The Court of Appeals should have applied a subjective, rather than an objective, standard of review in accordance with DiCicco, supra.
Furthermore, we hold that the Court of Appeals erred in reversing the trial court's findings of fact and wholly ignored the trial court's evaluation of evidence presented at trial. On the basis of the trial court's evaluation of the evidence and our review of that evidence, we find that Arco and its employees did not intend or expect to contaminate the environment.
Lastly, because the Court of Appeals did not reach the duty to defend issues raised by Arco in its cross appeal, we remand this issue to the Court of Appeals for consideration.
Accordingly, we reverse in part, and remand for further proceedings. We do not retain jurisdiction.
Brickley, C.J., and Levin and Cavanagh, JJ., concurred with Mallett, J.
Frederick C. Matthaei, Jr., is Arco's majority shareholder and chairman of its board.
Attorney General ex rel Dep't of Natural Resources v Arco Industries Corp, No. K87-372-CA4 (WD Mich, 1987).
In Piccard, Justice Riley, joined by Justices Brickley and Mallett, held that an "accident" should be analyzed from the standpoint of the injured party. Although Justice Levin concurred only in the result, he has recently opined that "accidents" should be viewed from the standpoint of the insured. See Marzonie, supra at 651-652 (Levin, J., dissenting).
Although the issue of "accidents" did not arise in Czopek as it does here, Justice Boyle stated that where the policy language does not specify the perspective to be applied when determining if there was an accident, the accident must be viewed from the perspective of the injured party. Czopek, supra at 608-612.
The policy language in Allstate Ins Co v Freeman, decided with DiCicco, supra, however, contained different language. In fact, the Freeman policy did not contain an "occurrence" definition, but only included an exclusionary clause for intentional acts. The Allstate policy provided:
"Exclusions — Losses We Do Not Cover
"1. We do not cover any bodily injury or property damage which may reasonably be expected to result from the intentional or criminal acts of an insured person or which is in fact intended by an insured person." [Id. at 685. Emphasis added.]
This Court interpreted the inclusion of the language "may reasonably be expected," to permit the inference of an objective standard of review. See also Buczkowski v Allstate Ins Co, 447 Mich 669; 526 NW2d 589 (1994). Unlike the language in the policies at issue in Freeman and Buczkowski, the language in the instant policy does not include the phrase "may reasonably be expected."
Justices Levin, Cavanagh and Archer, concurred with Justices Boyle and Brickley. Chief Justice Riley and Justice Griffin dissented.
Judge Schma stated:
Significantly, there's been, I don't believe from the evidence, any showing that there was an intention by anyone to contaminate. I don't believe that the, even deliberate acts'of releasing a contaminate [sic] is sufficient to impose liability on the party who is responsible for the discharge. In other words, a showing of the intent to contaminate is required, and that awareness doesn't exist .
[A] sudden discharge is one which is unexpected and an accident; is an event which is unintended; and there's been no showing, as I have suggested here, that it was otherwise than that. In fact, the testimony is specific, I believe, from every witness who mentioned that point, that the result was not intended and it was not expected.
Judge Schma further stated:
It was clear that there were accidents occurring throughout the period of the policies at issue. There were accidental spills, according to the testimony, which resulted in discharges into the drains in the plant, as well as unintentional overflows into the drains in the plant. The evidence supports finding that the voc's which were released, entered the soil in all three areas described on the exhibits, that they entered the aquifer and contributed to the plume.
Judge Schma stated:
There simply is no proof that the significant testimony that contamination was not expected or intended, and that the extent of contamination was unknown with respect to vocs during the periods in question. There is no testimony that that was false or that any of these witnesses' lied.
Q. You understood, did you not, when you came to Arco that it was important that volatile organic compounds not be discharged in the seepage lagoon, correct?
A. Yes.
Q. And you knew that . if those volatile organic compounds were discharged into the seepage lagoon they could degrade the environment; isn't that correct?
A. Yes.
Mr. Koperdak received a Bachelor of Science in Chemistry from Youngstown University, Youngstown, Ohio, and has myriad experiences as a corporate consultant. Mr. Koperdak has conferred with corporations regarding rubber and plastics, industrial health and safety, and general environmental matters. He is also a part-time instructor at Kalamazoo Valley Community College.
Q. To you, the purpose of this memorandum was to insure, was it not, that particular compounds didn't make their way into the Arco pond; is that correct?
A. Yes.
Q. It wasn't because you were worried about — this wasn't primarily designed out of a concern for accidents within the plant that might harm employees; is that correct?
A. Yes.
Q. So your concern about ammonia was also — or your primary, key concern with ammonia was it getting into the drains and getting into the pond?
A. One of the concerns, yes.
Q. And your concern with solvents was solvents getting into the drains and getting to the pond?
A. Yes,
Q. In other words, when you came out with this memorandum you had never heard from anyone or had any knowledge of employees dumping any of these compounds in the drains?
A. No.
• Q. Did you also send around memos telling employees not to break windows or tip over machines, even though that had never occurred in the past?
A. No.
Q. But you did here, didn't you. Something that never occurred in the past, according to you or pursuant to your belief, you sent around a memo telling them not to do it?
A. That's taking it out of context. This was a safety procedure that I wrote.
Q. Wasn't there a procedure in effect throughout the time you were at Arco indicating employees shouldn't dump solvents into the drains?
A. Not in writing.
Q. It was not in writing but wasn't there one?
A. Yes.
Q. How was that communicated to the employees?
A. Through the foremen.
See n 2.
Because we have found that Arco's employees did not intend or expect to harm the environment, we need not discuss imputation of an employee's knowledge to the corporation in accordance with Upjohn Co v New Hampshire Ins Co, supra.
15 This Court has recently addressed this issue in Michigan Millers Mutual Ins Co v Bronson Plating Co, supra. We held that receipt of a demand letter "constitute[s] the initiation of a 'suit' that the insurers [are] obliged to defend under the terms of their insurance policies." Id. at 575. Although we decline to formally address this issue in the instant case, we expect that Bronson Plating will lend guidance to the Court of Appeals on remand.