Opinion ID: 1989584
Heading Depth: 2
Heading Rank: 3

Heading: The Majority's Use of Extrinsic Evidence to Construe the Absolute Pollution Exclusion Is Improper, Incomplete, and Inaccurate

Text: For all its importance, the issue of whether the language of the absolute pollution exclusion is genuinely ambiguous is not the majority's primary focus. Rather, the majority starts out from the premise that the exclusion 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. Ante at 314. Accordingly, the majority undertakes to examine how the clause here at issue came into being. Ante at 314. The majority finds that the original pollution exclusion was revised in order to protect insurance companies from a potentially vast and unforeseen liability for major environmental disasters [16] and the staggering retroactive pollution cleanup costs imposed by CERCLA. [17] Given those purposes, the majority draws the conclusion that the exclusion was never intended to apply to a claim like Ms. Richardson's, or, indeed, to anyone other than an active polluter of the environment [18] (to quote yet another inscrutable formulation of which the majority approves). In light of these determinations, the majority deems the absolute pollution exclusion ambiguous and construes it to apply only to traditional industrial pollution of the environment. I have three main objections to the majority's exposition of the history and purposes of the absolute pollution exclusion. First, I think the majority misapplies the principle that permits limited consideration of extrinsic evidence of the circumstances surrounding the making of contract to ascertain what a reasonable person in the position of the parties would have thought the words meant. 1010 Potomac Assocs. v. Grocery Mfrs. of Am., Inc., 485 A.2d 199, 206 (D.C. 1984). The majority's approach, which is modeled on what courts in some (by no means all) other jurisdictions have done, is the antithesis of what this court has held is required in cases of this type. Second, this court is not in a position in the present case to examine and draw meaningful conclusions from the circumstances attending the development of the absolute pollution exclusion, for we have no detailed factual record before us to go on. Third, considered properly, the extrinsic evidence that is available to us indicates that the absolute pollution exclusion was drafted so as to preclude insurance coverage for claims arising out of indoor air pollution, and the regulatory history shows that the insurance industry did not mislead state regulators into thinking otherwise.
This court often has insisted that an unambiguous insurance contract speaks for itself and binds the parties without the necessity of extrinsic evidence. Cameron, 733 A.2d at 968 (quoting Corriea, 719 A.2d at 1239). If a policy [of insurance] is plain and unambiguous, the court will construe it without reference to any acts or conduct of the parties thereto which evince their interpretation of such contract. Bolle v. Hume, 619 A.2d 1192, 1197 (D.C. 1993) (citation and internal quotation marks omitted). These principles accord with generally accepted rules of contract interpretation. Extrinsic evidence of the parties' subjective intent may be resorted to only if the document is ambiguous. 1010 Potomac Assocs., 485 A.2d at 205. If the document is facially unambiguous, its language should be relied upon as providing the best objective manifestation of the parties' intent. Id. [I]ntent is properly an objective, not subjective, issue. Dodek v. CF 16 Corp., 537 A.2d 1086, 1093 (D.C.1988). On its face the absolute pollution exclusion unambiguously applies to Ms. Richardson's indoor air pollution claim. There is nothing absurd or contrary to law or public policy about such an application, which numerous courts in other jurisdictions have endorsed. [19] The foregoing principles of contract interpretation therefore counsel against consideration of extrinsic evidence of the subjective intent behind the exclusion. It is true that in construing a contract, the court looks to `what a reasonable person in the position of the parties would have thought the disputed language meant.' Christacos v. Blackie's House of Beef, Inc., 583 A.2d 191, 194 (D.C.1990) (quoting 1010 Potomac Assocs., 485 A.2d at 205). To support its investigation of the history of the pollution exclusion, the majority relies on the corollary principle that extrinsic evidence may be considered to determine the circumstances surrounding the making of the contract so that it may be ascertained what a reasonable person in the position of the parties would have thought the words meant. 1010 Potomac Assocs., 485 A.2d at 205-06 (citations omitted); accord, Christacos, 583 A.2d at 194; see also Intercounty Constr. Corp. v. District of Columbia, 443 A.2d 29, 32 (D.C. 1982). The principle is sound, but I think the majority misapplies it in this case. In the first place, this is a principle that is rarely applicable in the case of insurance contracts such as the one now before us, because the terms of those contracts are not negotiated between the insurer and the policyholders who purchase them. Whatever special meanings the words of the policy may be thought to have within the milieu of the insurance industry are unlikely to be known to policyholders from outside that milieu when they purchase the policy. That is one of the reasons why we presume that the words of an insurance policy are given the meaning they have in ordinary discourse rather than any technical meaning known only to the insurer. We would not invoke the surrounding circumstances principle to override this presumption if doing so led to an interpretation that disfavored the policyholder. The same should hold true regardless of whose ox is gored. As this court has long insisted, in construing insurance policies, [t]he clear meaning will be adopted whether favorable to the insured or not. Medical Serv. of the District of Columbia v. Llewellyn, 208 A.2d 734, 736 (D.C.1965). Secondly, the test of what a reasonable person in the position of the parties would have thought the contract language means remains an objective one. The surrounding circumstances are relevant only to determine how a reasonable person who knows all that the parties knew would read the language of the contract. In most cases, including the present one, evidence of surrounding circumstances will be relevant only when the words used in the contract had a meaning in the particular commercial context, trade milieu, or the like that differs from their meaning in common usage. Evidence of such a differing meaning may show that the words are ambiguous or may override the ordinary meaning of the words. But this is a principle of limited applicability. It authorizes a court to use extrinsic evidence of how the words used in a context were understood, objectively, in the context in which the contract was made. It does not authorize using extrinsic evidence of the parties' subjective intentions or purposes to override the objective meaning of those words in that context. A case that may serve to illustrate and clarify this somewhat subtle point is Carey Canada, Inc. v. Columbia Cas. Co., 291 U.S.App.D.C. 284, 940 F.2d 1548 (1991). [20] At issue in that case was whether an asbestosis exclusion in insurance policies excluded all asbestos-related disease claims from coverage. The district court found that asbestosis is a medical term that unambiguously refers to a single, specific disease caused by the inhalation of asbestos fibers. Id., 291 U.S.App.D.C. at 291, 940 F.2d at 1555 (citation omitted). This implied that the asbestosis exclusion did not bar coverage for other asbestos-related diseases. Countering this finding, however, the district court found from extrinsic evidence of the parties' negotiations that they intended to use the term asbestosis generically to exclude coverage for all asbestos-related diseases. Id. On appeal the D.C. Circuit held that basic contract interpretation principles did not permit this approach, because such extrinsic evidence is admissible only where the contract language is in fact ambiguous. Id., 291 U.S.App.D.C. at 293, 940 F.2d at 1557. Rejecting the insurance companies' contention that the court could find the term asbestosis ambiguous from evidence of the parties' negotiations or course of dealing, the court explained that objective evidencea showing that anyone who understood the context of the contract would know it could not mean what an unskilled reader would suppose it to meanis required. Id. (citations omitted). Such objective evidence of an ambiguity, the court said, would have to be found in the customs and usages of the insurance industry or the public record at the time the parties entered into their contract. To hold otherwise, the court added, without objective evidence of ambiguity, could defeat the intent of the parties to abide by the terms of the contract and to indemnify the insureds for asbestos-related claims other than those for the specific disease asbestosis, allowing one party to create ambiguity where none exists. Id., 291 U.S.App.D.C. at 294, 940 F.2d at 1558. Accordingly, the court remanded the case to the district court for that court to determine whether there was any evidence to establish that `asbestosis' was objectively susceptible to more than one fixed usage and hence was ambiguous in the insurance industry at the time of the making of the contracts. Id. at n. 4. The majority in this case does not present extrinsic evidence that the words of the absolute pollution exclusion had a different objective meaning in the insurance industry (or other relevant context) when the exclusion was adopted from their meaning in common usage today. So far as appears, those words had the same meaning there and then as they do here and now. The majority uses extrinsic evidence differently, to show what kinds of pollution claims led the insurance industry to revise the old exclusion and propose the new absolute one. At best this is simply evidence of the insurance companies' subjective purposes and intentions. The ambiguity that the majority then discovers is simply that the exclusion is broader than necessary to preclude coverage for the gargantuan pollution claims that motivated the insurance industry to adopt the exclusion. As a matter of logic, this does not show an ambiguity; it is not even surprising, for given their experience with judicial interpretations of the earlier, qualified pollution exclusion, see infra, insurers had powerful reasons to be over inclusive rather than under inclusive in their draftsmanship. Contract provisions are often drafted broadly in order to achieve simplicity of application and avoid disputes over close cases, and so that they address novel and unforeseen situations in addition to the specific circumstances that gave rise to them. The majority's assumption that the meaning of the absolute pollution exclusion is limited by the specific historical circumstances that gave rise to it thus embodies a logical fallacy. But the more fundamental point is that the principle that extrinsic evidence is relevant to show the circumstances under which a contract was made does not justify the majority's use of that evidence to show subjective intent on the insurance companies' part. Of special concern is the majority's broad suggestion that [s]tatements made by representatives of the insurance industry to obtain approval of proposed policy language can . . . be quite significant in construing the language. Ante at 316. In line with this premise, the majority supports its narrow construction of the absolute pollution exclusion by insinuating that the industry misled insurance regulators about the true scope of the exclusion. See ante at 334-35 (asserting that there is at least some indication that insurers sang a tune markedly different from their present position, and question[ing] whether [the exclusion] would have been approved by regulators in the District and in other jurisdictions without, at least, a clearer exposition of the effect of the exclusion). Without saying so explicitly, the majority is invoking the controversial regulatory estoppel doctrine that was introduced in Morton Int'l, Inc. v. Gen. Accident Ins. Co. of Am., 134 N.J. 1, 629 A.2d 831 (1993). In Morton, the New Jersey Supreme Court refused to construe the sudden and accidental language in the qualified pollution exclusion of 1973 ( not the present absolute exclusion) in accordance with its plain meaning because the court found that insurers had induced regulators to approve the exclusion by misrepresenting its import. Id. at 876. This court has never approved the regulatory estoppel doctrine. Although the majority fails to mention it, the overwhelming majority of state and federal courts . . . to have considered the issue have unequivocally rejected Morton and the regulatory estoppel argument, primarily on the basis that extrinsic evidence is not permitted to vary the terms of a clear and unambiguous pollution exclusion provision. Employers Ins. of Wausau v. Duplan Corp., No. 94 Civ. 3143 (CSH), 1999 WL 777976, , 1999 U.S. Dist. LEXIS 15368, at -49 (S.D.N.Y. September 30, 1999) (citations omitted). That, of course, is the general rule that this jurisdiction follows. Nonetheless, for myself, I am not so sure that I would reject the Morton approach in its entirety. It makes considerable sense to me that insurance policies should be construed consistently with any regulatory conditions under which they were approved for issuance. But I would reserve decision on whether to adopt some form of the regulatory estoppel doctrine as an exception to the general rule (and, if so, on the precise articulation of that doctrine in this jurisdiction) until we have a case that actually presents the question. This is not that case, for as I discuss infra, we have no evidence that the insurance industry misrepresented the current absolute pollution exclusion to any regulators in the District of Columbia or elsewhere. [21] The statements in the majority opinion that appear to endorse the regulatory estoppel doctrine are non-binding dicta.
Even if it were proper in this case to consider extrinsic evidence probative of the intent behind the absolute pollution exclusion, the record before us is deficient in such evidence. It does not contain, for example, sworn testimony or affidavits by the drafters or other parties involved in the development and approval of the exclusion. The record likewise is virtually devoid of potentially relevant documentary evidence, such as drafts and other internal ISO documents that might shed light on the intended scope of the exclusion, authoritative explanatory memoranda issued contemporaneously with the exception, or the records of regulatory proceedings in which the exception was approved. Lacking such evidence, the majority relies for the most part on second-hand sources: judicial opinions from other jurisdictions, articles in professional journals, and even the assertions in the briefs submitted by the parties and amici. These selective, interpretive, and often highly opinionated sources may agree on the broad outlines of the history of the absolute pollution exclusion, but they disagree on the all-important details. [22] As jurists we have an obligation to exercise considerable caution in relying on these often untested materials, for we are ill-equipped to evaluate the evidence they cite or whether they provide a complete and accurate historical picture. The following section may be taken to illustrate my point.
Setting aside my qualms about the admissibility and the adequacy of the extrinsic evidence that has been made available for our consideration, I think that the majority misinterprets that evidence when it concludes that the absolute pollution exclusion was intended to address only industrial or traditional environmental pollution. The drafting history of the exclusion rebuts that interpretation, and there is no evidence that District of Columbia or state regulators were led to believe otherwise. The original pollution exclusion, in widespread use between about 1973 and 1985, stated that: This insurance does not apply . . . (f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. Ballard & Manus, supra note 8, at 613 (citing ISO Form GL 00 02, Ed. 01-73). The Insurance Services Office (ISO) introduced the absolute pollution exclusion to replace the original exclusion in 1985. The ISO explained that the breadth of the new exclusion was intentional: Given that recent court interpretations of the sudden and accidental pollution exclusion have found a great degree of coverage that was never intended nor contemplated in the rates, the drafters of the new pollution exclusion consciously used broad terms to ensure that coverage intent would be upheld. The new exclusion is designed to exclude all pollution damages except those arising out of products, completed operations and certain other off-premises emissions. [23] Kimber Petroleum Corp. v. Travelers Indem. Co., 298 N.J.Super. 286, 689 A.2d 747, 753, cert. denied, 150 N.J. 26, 695 A.2d 669 (1997) (quoting attachment to February 6, 1986 letter from the ISO to insurance company members of its General Liability Committee). In another publication, the ISO emphasized that the new pollution exclusion is intended to be all inclusive and, therefore, does not contain any specific exceptions, per se, such as the `sudden and accidental' exception in the former exclusion which all but totally emasculated the intent of the exclusion. Id. [24] Importantly for present purposes, the drafters of the absolute pollution exclusion did not eliminate only the sudden and accidental language of its predecessor. In seeking to be all inclusive, the drafters also replaced the qualifying phrase into or upon land, the atmosphere or any water course or body of water, with broader language such as at or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. Numerous courts have held that the former phrase limited the original exclusion to pollution of the external natural environment as opposed to pollution of the interior of a building. The New York Court of Appeals, for example, held that the three places for discharge contemplated by the policy exclusioninto or upon land, the atmosphere, or any water course or body of waterread together support the conclusion that the clause was meant to deal with broadly dispersed environmental pollution and not pollution in a confined or indoor space. Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 593 N.Y.S.2d 966, 609 N.E.2d 506, 513 (1993); accord, Essex Ins. Co. v. Avondale Mills, 639 So.2d 1339, 1342 (Ala.1994); see also C.H. Heist Caribe Corp. v. American Home Assur. Co., 640 F.2d 479, 483 (3d Cir.1981). Similarly, the Supreme Court of Illinois reasoned that the original pollution exclusion did not apply to indoor air pollution because the atmosphere meant the external atmosphere which surrounds the earth, not the multiple, diverse internal environs or surroundings of individual buildings. United States Fid. & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926, 933 (1991); accord, Board of Regents of the Univ. of Minn. v. Royal Ins. Co. of Am., 517 N.W.2d 888, 892-93 (Minn.1994); see also National Standard Ins. Co. v. Continental Ins. Co., No. CA-3-81-1015-D, 1983 WL 407975, , 1983 U.S. Dist. LEXIS 13111, at  (N.D.Tex.1983). The deliberate removal of the phrase into or upon land, the atmosphere or any water course or body of water signifies that the exclusion now does apply to indoor air pollution. See Board of Regents, 517 N.W.2d at 893 ([M]ost importantly, in defining what is being polluted, the exclusion does not use language descriptive of the natural environment only.); accord, Moessner, 121 F.3d at 902; Shalimar Contractors, 975 F.Supp. at 1456; Band & Desenberg, 925 F.Supp. at 762. [25] I am aware of no evidence that insurance regulators in the District of Columbia or elsewhere were misled into thinking that the absolute pollution exclusion is inapplicable to indoor air pollution or is otherwise narrower than its plain language states. In Kimber Petroleum, the New Jersey intermediate appellate court reviewed insurance industry pronouncements contemporaneous with the introduction of the exclusion and found to the contrary: Here, unlike in Morton, the insurance industry candidly acknowledged that the absolute pollution exclusion would totally prohibit coverage for pollution-related damages, allowing only for very narrow exceptions. We find no evidence that the insurance industry misled regulators. Rather, they consistently maintained that the absolute pollution exclusion clause excluded all pollution-related damages except for those falling within the completed operations and products hazards coverage [26] if such coverage was purchased by the insured. 689 A.2d at 754. The court accordingly rejected the effort to apply the regulatory estoppel doctrine of Morton to the absolute pollution exclusion. The New Jersey Supreme Court denied review. See Kimber Petroleum Corp. v. Travelers Indem. Co., 150 N.J. 26, 695 A.2d 669 (1997). It is particularly noteworthy that the Commissioner of Insurance for the District of Columbia does not contend that the Department of Insurance was misled in any way when it approved the absolute pollution exclusion for use in the District. The Complex Insurance Claims Litigation Association (CICLA), an insurance industry organization participating in this appeal as an amicus, has attached as exhibits to its brief what it represents was the 1985 correspondence from the ISO submitting the exclusion to the District's then-Superintendent of Insurance for approval. CICLA points out that nothing in the correspondence suggested that the exclusion was inapplicable to indoor air pollution claims or was limited to industrial or what the majority calls traditional environmental pollution. The Commissioner does not dispute this point. According to the Commissioner's brief, the Insurance Department staff that reviewed the proposed absolute pollution exclusion was trained and experienced in insurance business practice and procedure. This trained and experienced staff was authorized to disapprove the exclusion if its terms were inequitable or contrary to legal requirements. See D.C.Code § 35-1531 (1981), recodified as amended at D.C.Code § 31-2502.27 (2001). Especially given the close scrutiny then being paid to pollution insurance by the insurance industry and insurance regulatory bodies, it is significant that the staff approved the absolute pollution exclusion without objection or qualification. Evidently the staff did not find the broad language of the exclusion ambiguous or misleading to the common reader. The fact that, in the District of Columbia and elsewhere, expert insurance regulators approved the language of the absolute pollution exclusion without change is a strong reason for this court to accord that language its plain meaning and a strong reason for us not to indulge in our own open-ended exploration of the history and intent of that language. We are not the insurance regulators in this jurisdiction. I reemphasize my view that we have no cause in this case to examine extrinsic evidence to interpret the insurers' intent behind the absolute pollution exclusion, and that we do not have a proper record on which to do so in any case. But if such examination is to be made, I think a fair reading of the available extrinsic evidence shows that the pollution exclusion was intended to apply to all forms of pollution, including indoor air pollution.