Opinion ID: 1989584
Heading Depth: 1
Heading Rank: 1

Heading: the business and regulatory context

Text: The pollution exclusion clause relied upon by Nationwide in this case and quoted in footnote 1 of this opinion cannot be construed in the abstract, i.e., without an understanding of the business and regulatory context in which the policy of which it is a part was written. [6] We therefore begin with a brief description of the procedures by which insurance policies are prepared, and, in particular, we explain how the clause here at issue came into being. In our view, this background illuminates the question whether, as Nationwide contends, the exclusion unambiguously bars coverage, or whether, as Ms. Richardson argues, a proper construction of the policy establishes that the exclusion does not apply. The relevant context has been well described in the very helpful brief of the Commissioner of the District's Department of Insurance and Securities Regulation as amicus curiae: A contract of insurance is in its fundamentals simple. In exchange for a certain sum of money, the insurer agrees to perform if some uncertain future event comes about. The sum paid in advance is called the premium. The subject matter of the contract is called the risk. The contract itself is called a policy. If the policy is limited to only certain hazards or dangers, those are called perils. Several aspects of the organization of the business of insurance flow from its nature. To fix a premium, the insurer must calculate the expected cost of its performance. To do that successfully, it is generally necessary to aggregate and analyze past claims experience. Most insurers, however, do not acquire from their own operations sufficient experience from which to make a reliable calculation. Furthermore, information concerning such matters as local conditions and applicants' claims experience may also be important factors in fixing premiums. Consequently, insurers have historically combined to pool their claims experience as well as to acquire and share other information. . . . Another aspect of the business of insurance is the use of form contracts. The use of forms is not a mere matter of convenience. Form policies ensure consistency and comparability between contracts. Premiums are more easily and routinely calculated. Experience gained under one form of policy can be more readily aggregated. Administration of many policies based on a single form is more efficient and readily routinized. The language used in the forms acquires particular meaning, based on repeated application to various circumstances. All of that tends toward achieving the great public office of insurance: to render certain and predictable in financial terms things which are uncertain and unpredictable in their nature. The close relation between premium rates and forms of policies means that the same associations that aggregate and analyze claims experience also draft and license the use of policy forms. Such cooperation is expressly authorized by District law. [Citation omitted.] In the area of commercial liability insurance, the largest United States association is the Insurance Services Office (ISO). [Footnote omitted.] The policy at issue in this case is written on an ISO form. Brief for Commissioner at 4-6 (emphasis in original). The foregoing passage reflects the reality that although the policy here at issue is an agreement between Nationwide and REO, its content, which is a part of a form prepared by the insurance industry, reflects the experiences of insurers generally. Moreover, as noted by the Commissioner, the business of insurance is closely regulated. Id. at 7. Statements made by representatives of the insurance industry to obtain approval of proposed policy language can therefore be quite significant. See, e.g., Doerr v. Mobil Oil Corp., 774 So.2d 119, 132-34 (La.2000) (chronicling inaccurate statements by representatives of the insurance industry regarding the meaning of earlier pollution exclusion clauses), opinion corrected on unrelated grounds, 782 So.2d 573 (La. 2001) (per curiam); Morton Int'l, Inc. v. Gen. Accident Ins. Co. of Am., 134 N.J. 1, 629 A.2d 831, 848-55, 868-70 (1993) (same), cert. denied, 512 U.S. 1245, 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994); 9 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE § 127:8, at 127-24, § 127:14, at 127-37 (3d ed.1997) (hereinafter COUCH). As the Supreme Court of New Jersey has recognized, the typical commercial insured rarely sees the policy form until after the premium has been paid. Morton Int'l, 629 A.2d at 852 (citations omitted). Moreover, insurance policies are written by the insurers, who are equipped with able counsel and other experts in the field, while the policy-holders, who generally play no role in the drafting of such contracts are, in vast majority, not informed in the obscurities of insurance expertise and not equipped to understand other than plain language. Cameron v. USAA Prop. & Cas. Ins. Co., 733 A.2d 965, 968 (D.C.1999) (quoting Hayes v. Home Life Ins. Co., 83 U.S.App. D.C. 110, 112, 168 F.2d 152, 154 (1948) (Prettyman, J.)) (internal quotation marks omitted); see also Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123, 1127 (D.C. 2001). Thus, to the extent that the pollution-exclusion clause ever was subjected to arms-length evaluation by interests adverse to the insurance industry, that evaluation occurred only when the clause was submitted to and reviewed by state regulatory authorities. Morton Int'l, 629 A.2d at 852. It is therefore important to consider the meaning of the form absolute pollution exclusion clause at issue in this case at the time that it was introduced by the insurance industry and reviewed by state regulators.