Opinion ID: 1532996
Heading Depth: 1
Heading Rank: 2

Heading: Effect of the Pollution Exclusion on the Insurers' Duty to Defend

Text: The comparison test for determining an insurer's duty to defend has been discussed by this Court, in Marston v. Merchants Mutual Insurance Company, Me., 319 A.2d 111 (1974) and American Policyholders' Ins. Co. v. Cumberland Cold Storage, Me., 373 A.2d 247 (1977). In Cumberland Cold Storage, we held that the Superior Court justice had properly laid the underlying damage complaints alongside the insurance policy and then determined that the pleadings were adequate to encompass an occurrence within the coverage of the policy. 373 A.2d at 249. We emphasized in Cumberland Cold Storage that the pleading test for determination of the duty to defend is based exclusively on the facts as alleged rather than on the facts as they actually are. Lee v. Aetna Casualty & Surety Co., 178 F.2d 750 (2d Cir. 1949); see cases cited in 50 A.L.R. 458, § 18 at 498-99 (1956) (footnote omitted). ..... . . . [T]he duty to defend is broader than the duty to pay or indemnify.. . . [T]he duty to indemnify, i. e., ultimate liability, depends . . . upon the true facts. (Citations omitted.) 373 A.2d at 249-250. [3] In the present case, Dingwell concedes that Counts II and III of the class action complaint do not give rise to a duty to defend, because those counts allege intentional acts. The focus of this appeal is on the language of Count I. The allegations in Count I include the following: 9. That among the products processed by the Defendants or utilized in the business of the Defendant are products containing or producing the chemicals trichloroethane, trichloroethylene and dimethylsulfide.. . . ..... 14. That as a result of negligence on the part of the Defendant . . . products containing the aforesaid chemicals permeated the ground to the ground water table to the properties of the Plaintiffs resulting in the contamination of water in the Plaintiffs' wells . . .. 15. That in addition, the aforesaid contaminants have spread in the water table to lands surrounding the Defendant's processing facility to a radial distance of at least one mile and have contaminated at least one major surface watercourse (Collyer Brook) which flows into the Royal River thereby contaminating water present on properties in which members of the class have legal interest. The Superior Court, in applying the comparison test, found that these allegations describe an ongoing, deliberate process, and cannot be read reasonably as describing a sudden and accidental event. It added that [i]f the . . . complaint stated with any precision a claim which indicated that the pollution was sudden and accidental, the Court would be bound to find coverage. The court found no allegations of facts which would lead . . . [it] to conclude that the pollution was `sudden and accidental.' The court also found that the allegations that contaminants permeated the ground and spread in the water table are in direct contradiction to claims which support the conclusion that a sudden and accidental occurrence precipitated the alleged pollution. We find that the Superior Court failed to distinguish between the gradual permeation of the ground, by which the water table was ultimately polluted, and the initial release of the pollutants from Dingwell's facility. The class action plaintiffs, at this point, have no way of knowing how the toxic wastes entered the ground. There may have been either intentional dumping or burial or unintentional spills, leaks, or other accidents. The allegations in Count I encompass unintentional release into the ground, and do not necessarily describe a deliberate process. Instead of specifically alleging negligent spills, leaks, or, other negligent acts, the complaint uses a broad and conclusory allegation that the pollution was a result of negligence. Both pollution exclusions focus on the release of pollutants. The Chicago and API clause reads: This policy does not apply . . . to personal injury or damage . . . arising out of . . . discharge, dispersal, release or escape . . . unless sudden and accidental. (Emphasis added.) The Travelers clause reads: . . . if . . . emission, discharge, seepage, release escape . . . is either expected or intended. (Emphasis added.) The behavior of the pollutants in the environment, after release, is irrelevant to these provisions. The Superior Court erred in finding that the allegation of permeation of the ground necessarily took Count I out of Chicago and API's exception for sudden and accidental releases. It is possible that the releases could have been unexpected and unintended, and thus outside of Travelers' exclusion. [4] The insurers argue that even if the Superior Court had distinguished between initial release and subsequent gradual permeation, it could not have found a duty to defend, because the complaint did not specifically allege sudden and accidental releases. Relying on Marston and Cumberland Cold Storage, the insurers maintain that no duty to defend arises unless the complaint alleges specific facts which, if proved, would bring the action within the insurance coverage. The insurers have misinterpreted the comparison test. The rule they suggest, which would require the court to find that no duty to defend arises from a complaint which is broad and conclusory, ignores the reality of modern pleading. The plaintiffs in the underlying action are not subject to any requirement that every fact ultimately to be proved must be specifically alleged in their complaint. On the contrary, plaintiffs are only required to include in their complaint a short and plain statement of the claim showing that the pleader is entitled to relief. M.R.Civ.P. 8(a). As noted in 1 R. Field, V. McKusick, and L. Wroth, Maine Civil Practice § 8.2 at 194 (2d ed. 1970), the word `facts' is designedly omitted [from Rule 8(a)] . . . so that there will be no occasion to distinguish statements of `facts' or `ultimate facts' from `conclusions'. Under this rule, a complaint which does not allege in nonconclusory form the specific injury that will result . . . cannot be fatally defective on that basis alone. . . . A complaint is sufficient to withstand a . . . motion to dismiss if from a liberal construction of the pleadings and possible amendments thereto, the court can determine that a plaintiff can prove a set of facts to support his claim. (Citations omitted.) National Hearing Aid Centers, Inc. v. Smith, Me., 376 A.2d 456, 459 (1977). See also Gosselin v. Better Homes, Inc., Me., 256 A.2d 629, 633 (1969); R. Field, V. McKusick and L. Wroth, supra, at § 12.11. When, as in this case, the plaintiffs do not know all the facts, Rule 8(a) allows them to initiate the action by stating the facts that they do know. The plaintiffs are permitted to allege the harm they have suffered, along with broad conclusory allegations of negligence, and, in the alternative, intentional acts. In applying the comparison test to Count I, the Superior Court erred by requiring that the complaint must state with precision and allegation which, if proven, would establish liability within the coverage of the policies. Precision is not required in the complaint, and it is not necessary for determining a duty to defend. The correct test is whether a potential for liability within the coverage appears from whatever allegations are made. Arguing that the test requires that the complaint state specific facts which are unequivocally within the insurance coverage, the insurers rely on the following language from Marston : [T]he determination of the question whether the insurer has a duty to defend the action depends upon whether the complaint in the action states facts which appear to bring the claim of damage within the policy coverage. 319 A.2d at 114, quoted in Cumberland Cold Storage, 373 A.2d at 249. The insurers misconstrue the word appear in the above passage. Marston and Cumberland Cold Storage do not require that the facts alleged specifically and unequivocally make out a claim within the coverage. A defendant has no power to amend a complaint which contains an incomplete statement of facts. Whether he can obtain a defense from his insurer must depend not on the caprice of the plaintiff's draftmanship, nor the limits of his knowledge, but on a potential shown in the complaint that the facts ultimately proved may come within the coverage. Even a complaint which is legally insufficient to withstand a motion to dismiss gives rise to a duty to defend if it shows an intent to state a claim within the insurance coverage. Ruder & Finn, Inc. v. Seaboard Sur. Co., 71 A.D. 216, 221, 422 N.Y.S.2d 85, 88 (1979). We do not depart from Marston and Cumberland Cold Storage. Marston was not a declaratory judgment action, but a reach and apply suit brought against an insurer by a final judgment creditor of the insured, pursuant to 24-A M.R.S.A. § 2904. The original action against the insured resulted in a default judgment. We said that the judgment would be binding on the insurer if any allegation in the complaint would have established coverage if proved, even though there were other allegations outside the coverage of the policy. Looking to Marston's complaint, we found that there was no allegation within the coverage, thus no liability on the part of the insurer. Marston argued that one of the paragraphs in his complaint, which alleged a specific set of facts, constituted an allegation of negligence, but we found that the facts as alleged constituted a violation of the Dram Shop Act, which was outside the insurance coverage. 319 A.2d at 113-115. We had no occasion in Marston to consider the issue now before us, namely, whether a duty to defend arises from a broad, conclusory allegation, such as negligence, which does not include specific factual allegations. Marston dealt only with allegations which were necessarily outside the insurance coverage. In Cumberland Cold Storage, facts were alleged which we found to be clearly within the coverage of the insurance policy. 373 A.2d at 250. Again, we were not presented with the precise issue in the present case. The dominant rule in other jurisdictions is that the insured has a right to a defense whenever the allegations show a potential that liability will be established within the insurance coverage, even when the allegations are broad, and uncertain as to specific facts. See, e. g., Lee v. Aetna Casualty & Surety Co., 178 F.2d 750 (2d Cir. 1949); Annot., 50 A.L.R.2d 458, § 22 at 504, and § 26 at 511 (1956), and Later Case Service; see also 30 Me.L.Rev. 295 (1979). In Lee, Chief Judge Learned Hand wrote: Whether the insurer ought to defend such an action at least until it appears that the claim is not covered by the policy is not free from doubt; but it seems to us that we should resolve the doubt in favor of the insured. 178 F.2d at 752. Hand went on to discuss some of the possible consequences of requiring the insurer to defend the complaint. Although none of the situations he mentioned are presented in the case at bar, his conclusion is worth quoting as a general statement of the comparison test: When . . . the complaint comprehends an injury which may be within the policy, we hold that the promise to defend includes it. Finally, if there be an ambiguity in the language of the policy, since the choice is between imposing the burden of the defence upon the insurer or the insured, the canon contra proferentem must prevail, especially as the case involves construing an insurance policy. 178 F.2d 752-753 (emphasis added) (citation omitted). In a more recent case, Donnelly v. Transportation Ins. Co., 589 F.2d 761, 765 (4th Cir. 1978), the court said: [W]ith the great latitude with which pleadings are construed today, and the great latitude of amendment, an insured's right to a defense should not be foreclosed unless such a result is inescapably necessary. In Babcock & Wilcox v. Parsons, 430 F.2d 531 (8th Cir. 1970), the court noted that the comparison test developed when pleading was required to be more specific than it is now. Under modern notice pleading, the courts have generally placed the burden of uncertainty as to the policy's coverage on the insurer. 430 F.2d at 536. See also, e. g., C. Raymond Davis & Sons, Inc. v. Liberty Mut. Ins., 467 F.Supp. 17, 19 (E.D.Pa. 1979); Gray v. Zurich Ins. Co., 65 Cal.2d 263, 276, 419 P.2d 168, 176, 54 Cal.Rptr. 104, 112 (1966); Ruder & Finn v. Seaboard Sur. Co., supra; American Home Assurance Co. v. Port Authority of New York and New Jersey, 66 A.D.2d 269, 277-78, 412 N.Y.S.2d 605, 610 (1979); Alm v. Hartford Fire Ins. Co., Wyo., 369 P.2d 216, 219 (1963). In Cumberland Cold Storage we recognized that some jurisdictions permit a variance of the exclusive pleading test when the insurer has knowledge of actual facts different from those alleged in the underlying complaint. We said that the most logical rule is the one which predicates the duty to defend solely on the allegation in the complaint, even when the insurer has knowledge of facts to the contrary. See 373 A.2d at 250, note 1 and authorities cited therein. If we were to look beyond the complaint and engage in proof of actual facts, then the separate declaratory judgment actions, such as the case at bar, would become independent trials of the facts which the defendant would have to carry on at his expense. Moreover, once an inquiry begins into the actual facts, the insured will have already begun defending against liability, and the issue in respect to the insurer will be its ultimate duty to indemnify, not its duty to defend. We see no reason why the insured, whose insurer is obligated by contract to defend him, should have to try the facts in a suit against his insurer in order to obtain a defense. Of course the insurers' obligation to defend can lead to a serious dilemma for the insurer. In some cases, the parties may agree that the insurer hire independent counsel for the insured. See, e. g., Magoun v. Liberty Mutual Insurance Co., 346 Mass. 677, 195 N.E.2d 514 (1964). The difficulties which these cases may pose will have to be addressed as they arise. For the case at bar, it is sufficient for us to hold that the complaint here does generate a duty to defend, because it discloses a potential for liability within the coverage and contains no allegation of facts which would necessarily exclude coverage.