Opinion ID: 1448289
Heading Depth: 1
Heading Rank: 7

Heading: Pollution Exclusion Analysis

Text: NPIC argues that the rule of strict construction against the insurer should not apply because the coverage dispute is primarily between insurance companies. We do not agree that we should abandon strict construction. Although some plaintiffs are subrogated insurers, they bring their claims in the shoes of Americold under the settlement agreement assignment. NPIC challenges the applicability of the reasonable expectations doctrine, arguing that it applies only if the policy is first determined to be ambiguous. NPIC also disputes the district court's common sense interpretation of the pollution exclusion, reasoning that if the meaning of the policy language is clear, the reasonable expectations doctrine does not apply, citing Penalosa Co-op. Exchange v. Farmland Mut. Ins. Co., 14 Kan. App.2d 321, 324, 789 P.2d 1196, rev. denied 246 Kan. 768 (1990) (see Penalosa Coop. Exchange, 14 Kan. App.2d at 323-24, for a summary of the rules of construction applicable to insurance policies). NPIC asserts that the district court adopted reasoning rejected in Crescent Oil Co. v. Federated Mut. Ins. Co., 20 Kan. App.2d 428, 433, 888 P.2d 869 (1995), that the pollution exclusion applies only to active intentional industrial pollution. The district court did not so limit application of the NPIC pollution exclusion. It found that the exclusion language was ambiguous when applied to a hostile fire situation, stating: This Court cannot comprehend how a reasonable person, insuring his dwelling or building, would knowingly agree to buy insurance protection for damage by fire while fully realizant that any damage from smoke from that fire, such as to curtains, upholstery, etc., would not be covered. NPIC points out that here, language in a third-party general liability policy, not a first-party fire insurance policy, is at issue. Yet the same question is raised in either context: Why would anyone seeking general liability insurance for commercial property knowingly purchase a policy that covered liability for hostile fire damage but excluded smoke damage from the fire? NPIC disputes application of the National Union hostile fire amendment to NPIC coverage. The NPIC policy provides that terms and conditions of the National Union policy are part of the NPIC policy as to Coverage A, except for the items listed in subparts a and b. Subpart a includes the duty to investigate and defend, the limits of liability, premium, cancellation, other insurance, NPIC's right to recover payment, and the extended reporting periods. Subpart b includes any renewal agreement, and any exclusion or limitation attached to [the NPIC] policy by endorsement or included in the Exclusions applicable under Coverage A ... of [the NPIC] policy. With respect to subparts a and b, the provisions of [the NPIC] policy will apply. Ambiguity surrounds the question of whether the hostile fire amendment was deleted from the NPIC coverage. The term except for could mean not including. Thus, the hostile fire amendment which is a term or condition of National Union's policy is part of NPIC's coverage agreement unless it is found in subparts a or b. Subpart a lists specific portions of the National Union policy deleted from NPIC's excess follow form coverage, but the hostile fire amendment is not on that list. Subpart b, which unlike subpart a does not refer to the National Union policy, also does not refer to the hostile fire amendment. National Union's hostile fire amendment is not a renewal agreement, is not an exclusion or limitation (since it serves only to clarify the scope of an exclusion or limitation, not to exclude or limit anything new), and is not attached to [NPIC's] policy. NPIC contends that its pollution exclusion controls over the National Union pollution exclusion and hostile fire amendment, citing Home Ins. Co. v. American Home Products Corp., 902 F.2d 1111 (2d Cir. 1990). Home Ins. Co. decided that the terms, conditions, and exclusions in the second-level excess following form policy controlled over any conflicting provisions in the first-level excess policy. The NPIC policy does not contain language saying that the NPIC terms, conditions, and exclusions control over conflicting or inconsistent National Union policy provisions. The NPIC Coverage A language does not clearly disclaim, delete, or override the National Union hostile fire amendment. An insurer assumes a duty to define any limitations on ... coverage in clear and explicit terms. Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 698, 840 P.2d 456 (1992). NPIC could have used language to clarify that the hostile fire amendment would not apply (i.e., the terms of the National Union policy are included unless they are inconsistent with other provisions in the NPIC policy, or the NPIC policy will not apply to certain items such as pollution, despite coverage afforded in the National Union policy). See Coleman Co., Inc. v. California Union Ins. Co., 960 F.2d 1529, 1534 n.9 (10th Cir. 1992) (We note that the `following form' provision at issue here, as modified, contains no [exception similar to Home Ins., 902 F.2d at 1113,] for terms and conditions that are inconsistent with the umbrella policy.). NPIC also argues that even if the hostile fire amendment in the National Union policy applied to the NPIC policy, the burden of proof shifted to plaintiffs to establish that the exception to the pollution exclusion applied. NPIC contends plaintiffs failed to meet this burden because the hostile fire amendment was limited only to damage from heat, smoke or fumes, and consequently is not broad enough to include damages from any pollutants from a hostile fire. No one disputes that the contamination of plaintiffs' products came from anything other than the smoke. NPIC's attempt to draw a distinction between smoke and the toxic materials contained in the smoke is not persuasive. We agree with the district court that the release or escape of pollutants language in NPIC's pollution exclusion is also ambiguous. The reasonable expectations doctrine applies. See Farm Bur. Mut. Ins. Co. v. Winters, 248 Kan. 295, 300, 806 P.2d 993 (1991) ([T]he test to determine whether an insurance contract is ambiguous is not what the insurer intends the language to mean, but what a reasonably prudent insured would understand the language to mean.). See Regional Bank of Colo. v. St. Paul Fire & Marine, 35 F.3d 494, 498 (10th Cir. 1994) (Insurer unsuccessfully raised the pollution exclusion as a coverage defense against an apartment tenant's injury claim from carbon monoxide poisoning caused by a faulty heater. The court noted the unreasonableness of a policy interpretation that would provide coverage for injury caused by fire from the faulty heater but not to a victim injured by carbon monoxide emissions from the same heater.). The NPIC policy followed form to the National Union policy and did not clearly delete National Union's hostile fire amendment. The pollution exclusion language in the NPIC policy is ambiguous when applied to these facts. NPIC's policy is interpreted to include coverage for damage caused by smoke from a hostile fire. We do not find the pollution exclusion cases cited by NPIC convincing: In Employers Cas. v. St. Paul Fire and Marine, 52 Cal. Rptr.2d 17 (Cal. App. 1996) the California Supreme Court, on July 17, 1996, ordered the opinion withdrawn from publication and that it not be cited as authority. In Beahm v. Pautsch, 180 Wis.2d 574, 510 N.W.2d 702 (Ct. App. 1993), smoke from the insured's pasture burn-off became uncontrollable, obscuring motorists' vision. The insurer raised the pollution exclusion, but the court decided coverage existed, reasoning that the harm caused by the smoke was not from the toxicity of the smoke as an irritant, contaminant, or pollutant. 180 Wis.2d at 584-85. We acknowledge the harm in Beahm resulted from smoke as a semi-opaque substance, not from toxic properties. Beahm held the pollution exclusion did not apply. The toxicity language is dicta. In Reliance Ins. Co. v. Kent Corp., Inc., 896 F.2d 501, opinion vacated by settlement 909 F.2d 424 (11th Cir. 1990), the insurer asserted it had no obligation to defend the insured for liability from injuries sustained by firemen because of a dumpster fire on the insured's premises. Hazardous waste containers (including a 5-gallon can of Toluol) were found in the dumpster after the fire. The Court of Appeals reversed the district court's summary judgment for the insurer, holding that the absolute pollution exclusion would exclude coverage for emissions from hazardous waste containers during a dumpster fire. If the firemen were in fact injured by the release of hazardous gases from the dumpster containers, coverage would be excluded. 896 F.2d at 503. However, the evidence was conflicting about whether any hazardous gases were actually released during the fire. Here, the Americold Portal A fire did not involve the release of any known hazardous materials from containers, as in Reliance Ins. Co. Smoke from Portal A spread throughout the facility, and the toxic chemicals were part of the smoke. Donaldson v. Urban Land Interests, Inc., 205 Wis.2d 404, 556 N.W.2d 100 (Ct. App. 1996), and Cook v. Evanson, 83 Wash. App. 149, 920 P.2d 1223 (1996), are cases in which courts have found the pollution exclusion unambiguous in the applicable factual context. Neither involved hostile fire smoke damage situations. The pollution exclusion cases cited by amicus curiae Insurance Environmental Litigation Association are in the same category. We need not reach plaintiffs' argument that coverage should exist under the waiver and estoppel doctrines.