Opinion ID: 1989584
Heading Depth: 3
Heading Rank: 1

Heading: Extrinsic Evidence is Relevant Only to Determine the Objective Meaning of the Language Used in the Pollution Exclusion

Text: 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.