Opinion ID: 848627
Heading Depth: 2
Heading Rank: 2

Heading: the role of extrinsic evidence in illuminating a latent ambiguity

Text: 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 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 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] 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 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, 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 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] 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. 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.