Opinion ID: 1588942
Heading Depth: 1
Heading Rank: 4

Heading: Summary Judgment on Duty to Defend

Text: Murphy Oil mounts a legion of arguments as to why summary judgment in favor of Unigard and ESLIC on their duty to defend was error. [3] We are persuaded, however, that Murphy Oil is correct that neither policy's Pollution Exclusion negates the duty to defend of the respective carrier. We first address the test for determining a liability carrier's duty to defend. In examining the duty to defend, this court has recognized the general rule that the allegations in the pleadings against the insured determine the insurer's duty to defend. See Mattson v. St. Paul Title Co. of the South, 277 Ark. 290, 641 S.W.2d 16 (1982); Fox Hills Country Club, Inc. v. American Ins. Co., 264 Ark. 239, 570 S.W.2d 275 (1978); Commercial Union Ins. Co. of America v. Henshall, 262 Ark. 117, 553 S.W.2d 274 (1977). Additionally, this court has recognized that the duty to defend is broader than the duty to indemnify. See Commercial Union Ins. Co. of America v. Henshall, supra . However, the duty to defend arises when there is a possibility that the injury or damage may fall within the policy coverage. See Home Indemnity Co. v. City of Marianna, 291 Ark. 610, 727 S.W.2d 375 (1987). Conversely, where there is no possibility that the damage alleged in the complaint may fall within the policy coverage, there would be no duty to defend. See C.T. Drechsler, Annotation, Allegations in Third Person's Action Against Insured as Determining Liability Insurer's Duty to Defend, 50 A.L.R.2d 458 (1956). The Home Indemnity Co . case summarizes much of this law: Home's secondary argument is that genuine issues of material fact remain. We are not persuaded that that is so. One fact assertedly undecided deals with the issue of whether damages will result in the federal suit. But the duty to defend is broader than the duty to pay damages and as we have seen, it is enough if the possibility of damages exists. If injury or damage within the policy coverage could result, the duty to defend arises. Commercial Union Ins. Co. v. Henshall, 262 Ark. 117, 553 S.W.2d 274 (1977). Home Indemnity Co., 291 Ark. at 618, 727 S.W.2d at 379. Accordingly, this court must examine whether the Blakely III complaint alleges facts which would come within the coverage of the Unigard and ESLIC liability policies. If so, their duty to defend arises. Unigard relies on its Pollution Exclusion in its liability policy for its argument that there is no possibility that Unigard will be called upon to indemnify Murphy Oil. It further relies on the two opinions by the hydrogeologists submitted with its motion for summary judgment that migration caused the damage to the Harrison Brothers' property. We turn then to that exclusion in the liability policy to assess the potential for Unigard's liability. That section reads: SEEPAGE, POLLUTION AND CONTAMINATION EXCLUSION CLAUSE IT IS UNDERSTOOD AND AGREED THAT EXCEPT INSOFAR AS COVERAGE IS AVAILABLE TO THE ASSURED IN THE UNDERLYING INSURANCES AS SET OUT IN THE SCHEDULE OF UNDERLYING POLICIES, THIS INSURANCE SHALL NOT APPLY TO ANY LOSS ARISING OUT OF CONTAMINATION OR POLLUTION. NOTWITHSTANDING THE FOREGOING, IT IS UNDERSTOOD AND AGREED THAT THIS INSURANCE DOES NOT APPLY TO PERSONAL INJURY OR PROPERTY DAMAGE ARISING OUT OF THE DISCHARGE, DISPERSAL, RELEASE OR ESCAPE OF: (1) 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 WATERCOURSE OR BODY OF WATER, BUT THIS EXCLUSION DOES NOT APPLY IF SUCH DISCHARGE, DISPERSAL, RELEASE OR ESCAPE IS SUDDEN AND ACCIDENTAL; (2) OIL OR OTHER PETROLEUM SUBSTANCE OR DERIVATIVE (INCLUDING ANY OIL REFUSE OR OIL MIXED WITH WASTES) INTO OR UPON ANY WATERCOURSE OR BODY OF WATER, WHETHER OR NOT SUCH DISCHARGE, DISPERSAL, RELEASE OR ESCAPE IS SUDDEN AND ACCIDENTAL. Thus, the Unigard Pollution Exclusion contains an exception, and it is that exception upon which the resolution of this case turns. The exception reads: but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental[.] Murphy Oil contends that the 1975 spill during Unigard's coverage qualifies as a sudden and accidental release and that this is what caused the alleged damage to Harrison Brothers in Blakely III. Specifically, Murphy Oil emphasizes that the Harrison Brothers complaint bases its causes of action on the release of polluting substances onto the ground or into the ground water of the Murphy Oil leased property. Hence, Murphy Oil contends, the release in question relates to the three sudden and accidental spills, and this triggers the exception to the Pollution Exclusion and Unigard's liability for coverage. Unigard, on the other hand, focuses on events after the three spills and the alleged migration of the polluting substances from the Blakely property to the Harrison Brothers property over a period of years. Truthfully, the Pollution Exclusion and its exception could be read either as Murphy Oil interprets it or in accordance with Unigard's reading. The test, however, is whether the mere possibility of coverage exists in this case. See Home Indemnity Co. v. City of Marianna, supra . We are mindful also of the principle that in testing the pleadings to determine if they state a claim within the policy coverage, we resolve any doubt in favor of the insured. See Mattson v. St. Paul Title Co. of the South, supra . We hold that there is a possibility that Unigard will be liable for coverage as a result of Blakely III based on the fact that the triggering spills may fall within the exception to the Pollution Exclusion. Accordingly, the duty to defend Murphy Oil comes into play. With regard to Unigard's contention that Murphy Oil failed to meet proof with proof because it did not counter the affidavits of the two hydrogeologists, we do not view those affidavits as determinative. Resolution of this case centers on the facts alleged and the policy language, and specifically on the Pollution Exclusion, and not on the fact that migration may have occurred. Our analysis is similar with respect to ESLIC. The applicable Pollution Exclusion in ESLIC's policy reads: Endorsement # 4 It is agreed that this policy does not cover any liability for: .... (3) Property damage caused by seepage, pollution or contamination, unless such seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this Insurance, but this paragraph (3) shall not be construed as excluding any liability which would otherwise be covered under this Insurance for property damage caused by a sudden, unintended and unexpected happening during the period of this Insurance arising out of seepage, pollution or contamination. Again, the exception to the exclusion is for damage caused by a sudden, unintended and unexpected happening during the period of this Insurance arising out of the pollution. In our opinion, this exception can be read as being broader than the exception in the Unigard policy. Regardless, Murphy Oil and ESLIC cross swords over whether the sudden happening refers to the initial spill in 1970 or to the alleged damage caused by the subsequent migration of the contaminants. For the same reasons stated above, we believe the language can be legitimately read either way. [4] Moreover, the doctrine of contra proferentem would lead towards an interpretation of the exception favorable to Murphy Oil. See, e.g., Elam v. First Unum Life Ins. Co., 346 Ark. 291, 57 S.W.3d 165 (2001). As a final point, we are not aware of a decision by the Alabama trial court in Blakely III concerning any applicable Alabama statute of limitations and the impact of that limitations statute on ESLIC's liability for coverage in the Harrison Brothers litigation. Once again, we hold that the possibility of liability coverage exists and that, as a result, ESLIC also has a duty to defend Murphy Oil in Blakely III. We note where the circuit court relied on the case of Bell Lumber & Pole Co. v. United States Fire Ins. Co., 60 F.3d 437 (8th Cir.1995), in reaching its decision. The Bell Lumber case involved an action for declaratory judgment regarding the liability of insurance carriers and a motion for summary judgment by those carriers. In that case, the Pollution Exclusion and exception in the affected policy were comparable to the language in Unigard's policy. There were fifteen polluting events which involved tank overfills and cracks and leaks in the containers. The damage to property occurred after the contaminants entered the groundwater of a third party, the State of Minnesota, which occurred gradually over many years. The debate centered on whether the release or escape of the contaminants was sudden and accidental so as to fit within the exception or a gradual event which would fall under the general Pollution Exclusion. The trial court entered summary judgment in favor of the insurance carriers. The Eighth Circuit affirmed and concluded that Bell Lumber's liability was triggered only when damage was done to the property of the third party, that is, when the contaminant entered the groundwater of the state of Minnesota. Thus, the release envisioned by the exception was when the damage to the state's groundwater occurred and not the initial events when the contaminant leaked or poured onto the ground. In holding as it did, the Eighth Circuit rejected as dicta an assumption by the Minnesota Court of Appeals in a previous case that the relevant release under the exception was the initial spill onto the ground. This court, of course, is not bound by the precedent of the Eighth Circuit Court of Appeals. See, e.g., Romine v. Arkansas Dept. of Env. Quality, 342 Ark. 380, 40 S.W.3d 731 (2000). But, in addition, the Bell Lumber case concerned only the ultimate issue of indemnity coverage and not the issue of an insurance carrier's obligation to defend. Plus, even in the Bell Lumber case, it was noted that different courts had voiced different opinions as to what was the relevant release. See also Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189 (Pa.2001) (proof of custom in the insurance industry may indicate that the sudden and accidental exception to the Pollution Exclusion meant unexpected and unintended and not a requirement of abruptness). Our focus in this appeal is on whether the possibility exists for indemnity by Unigard and ESLIC based upon the facts alleged. Using this liberal standard, we cannot conclude that that possibility does not exist. Nor do we believe that this court's decision in Murphy I resolves this issue in favor of Unigard and ESLIC, as the appellees would have it. The parties were different in the underlying case of Blakely I, and the rationale for reversal by this court was that the jury-awarded damages for breach of a lease, not property damage. At this stage, we can only speculate as to the basis for a jury award, if any, in Blakely III. Finally, we are cognizant of the case of Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 340 S.E.2d 374 (1986). In that case, the North Carolina Supreme Court concluded that the liability carriers had no duty to defend their insured, Trash Removal Services, Inc., against a third-party complaint that Trash Removal Services had delivered hazardous waste to a landfill over a six-year period that resulted in contamination of groundwater beneath the landfill. The policies of Peerless Insurance Company and Pennsylvania National Mutual Casualty Insurance Company had comparable language to that in the policies of Unigard and ESLIC. What distinguishes the Waste Mgmt . case, however, from the facts of the present case is that a sudden release of contaminants was not alleged in the Waste Mgmt . matter. On the other hand, as already stated in this opinion, Harrison Brothers did allege that Murphy Oil allowed polluting, contaminating or hazardous substances to be discharged and/or released onto and into the ground that Murphy Oil was leasing. That allegation certainly could embrace a sudden release such as occurred during the period of ESLIC's coverage in 1970 or during the course of Unigard's coverage in 1975. We reverse the circuit court on this point and hold that Unigard and ESLIC have a duty to defend Murphy Oil in Blakely III during their periods of respective coverage.