Court Opinion

ID: 9530897
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:04:56.470872+00
Date Added: 2024-06-11T13:28:16.912662
License: Public Domain

GILBERTSON, Justice
(dissenting).
[¶ 32.] Wausau did not meet its burden of proving that the cement dust released by SDCP constitutes a pollutant within the meaning of Wausau’s policy-pollution exclusion clause. I agree with the circuit court’s analysis and rationale in refusing Wausau’s broad construction of the words “contaminant” and “irritant” so as to preclude coverage. To accept-Wausau’s all encompassing definition is to assume that SDCP paid for a comprehensive policy that provided almost no coverage. Thus, I disagree with the majority opinion and dissent.
[¶ 33.] Wausau, as the insurer in this case, has the burden of showing that no duty to defend exists. State Farm Mut. Auto. Ins. Co. v. Wertz, 540 N.W.2d 636, 638 (S.D.1995) (citing North Star Mut. Ins. Co. v. Kneen, 484 N.W.2d 908, 912 (S.D.1992)). The insurer must prove that the insured’s claim “dearly falls outside of policy coverage” to satisfy this burden. Id. (quoting Kneen, 484 N.W.2d at 912 (citing City of Fort Pierre v. United Fire & Cas. Co., 463 N.W.2d 845, 847 (S.D.1990); Bayer v. Employers Reinsurance Corp., 383 N.W.2d 858, 861 (S.D.1986); Hawkeye-Sec. Ins. Co. v. Clifford, 366 N.W.2d 489, 490 (S.D.1985))). “Limits to coverage, whether in exclusions, limitations, riders, or endorsements, should be set forth clearly and explicitly.” Mid-Century Ins. Co. v. Lyon, 1997 SD 50, ¶ 9 n.4, 562 N.W.2d 888, 891 (citing Essex Ins. Co. v. Field-house, Inc., 506 N.W.2d 772, 776 (Iowa 1993) (other citations omitted)). “This rule of construction applies with particular force to provisions which attempt to exclude liability coverage under certain conditions.” Westchester Fire Ins. Co. v. City of Pittsburg, Kan., 768 F.Supp. 1463, 1467 (D.Kan.1991).
[¶ 34.] If after reviewing the complaint and the record “doubt exists whether the claim against the insured arguably falls within the policy coverage, such doubts must be resolved in favor of the insured.” Wertz, 540 N.W.2d at 638 (quoting City of Fort Pierre, 463 N.W.2d at 847 (citing Hawkeye, 366 N.W.2d at 492)).6
*409[¶ 35.] While Wausau urges this Court to adopt the literal, dictionary meanings of these terms, this is not appropriate because it isolates the terms, and takes them out of context. The circuit court was correct when it concluded that taking the terms out of context and construing them broadly in effect “renderfe] the [pollution] exclusion meaningless since any substance could conceivably irritate or contaminate.” In reaching this conclusion the circuit court relied upon Guilford Industries Inc. v. Liberty Mut. Ins. Co., 688 F.Supp. 792 (D.Me.1988). The court in Guilford noted that if adopted, a broad construction of the meaning of the terms “contamination” or “irritants” would render a pollution exclusion meaningless, since any substance could conceivably irritate or contaminate. Id. at 794.
[¶ 86.] Many other courts follow this rationale. See In re Hub Recycling, 106 B.R. 372, 375 (D.N.J.1989); Sullins v. Allstate Ins. Co., 340 Md. 503, 667 A.2d 617, 621 (1995); Certain Underwriters at Lloyd’s London v. C.A. Turner Constr. Co. Inc., 112 F.3d 184, 188 (5th Cir.1997); Regional Bank of Colorado, N.A. v. St. Paul Fire & Marine Ins. Co., 35 F.3d 494, 498 (10th Cir.1994); Westchester, 768 F.Supp. at 1470. The circuit court was correct in concluding that because a broad interpretation of pollution exclusion clauses could potentially eliminate coverage in virtually all situations, courts must distinguish between harmful and relatively benign substances. ■
[¶ 37.] While the Court correctly points out that the court in Guilford granted the insurer’s motion for summary judgment on the coverage issue, the court stated that the policy provision in that case was “far from all-inclusive or meaningless” because to “fall within the exclusion, ... it can only do so in certain very precisely drawn circumstances: if it is an irritant or contaminant.” Guilford, 688 F.Supp. at 794. In Guilford, the court noted that the substance charged as the contaminant or irritant was oil, which clearly has been recognized as a pollutant. The court stated “[plaintiff’s argument that it could not reasonably have expected oil to be considered a pollutant is disingenuous.” Id. n. 1.
[¶ 38.] Such is not the case here. The alleged pollutant in this case is cement dust, a substance which has not been so clearly defined as a “pollutant,” let alone a “contaminant.”7 The substance must gen*410erally “occur in a setting such that they would be recognized as a toxic or particularly harmful substance in industry or by governmental regulators.” Regional Bank of Colorado, 35 F.3d at 498 (citing Westchester, 768 F.Supp. at 1470 (stating that a ‘pollutant’ is not merely any substance that may cause harm to the ‘egg shell plaintiff,’ but rather it is a toxic or particularly harmful material which is recognized as such in industry or by governmental regulators.”)); see also In re Hub, 106 B.R. at 376 (concluding recycled materials were not “inherently toxic,” in contrast to dioxin-tainted waste oil or oil discharged into rivers and other bodies of water to bring the plaintiffs cause of action within the pollution exclusion clause); Molton, Allen & Williams, Inc. v. St. Paul Fire & Marine Ins. Co., 347 So.2d 95, 98 (Ala.1977)(stating that a pollution exclusion does not apply to natural substances such as sand merely because they are deposited on another’s property).
[¶ 39.] Courts have concluded that a pollution exclusion clause is not intended to exclude all substances merely because a substance may irritate or contaminate. Thus, a number of courts have chosen to distinguish between relatively benign substances and substances that cause degradation to the environment. The terms used in Wausau’s exclusion clause, such as “discharge,” “dispersal,” “release” and “escape,” are terms of art in environmental law and are generally used to refer to damage or injury resulting from environmental pollution.8 Sullins, 667 A.2d at 617 (citing Atlantic Mut. Ins. Co. v. McFadden, 413 Mass. 90, 595 N.E.2d 762, 764 (1992) (stating “[t]he terms used in the pollution exclusion such as ‘discharge,’ ‘dispersal,’ ‘release,’ and ‘escape’ are terms of art in environmental law which generally are used with reference to damage or injury caused by improper disposal or containment of hazardous waste.”); West American Ins. Co. v. Tufco Flooring East, Inc., *411104 N.C.App. 312, 409 S.E.2d 692, 699 (1991) (noting that the terms “discharge” and “release” are terms of art in environmental law)). “[A]n ordinarily intelligent insured could reasonably interpret the pollution exclusion clause as applying only to environmental pollution,” as opposed to personal injury claims brought by private landowners. Nautilus Insurance Co. v. Jabar, 188 F.3d 27, 30 (1st Cir.1999); see also Stoney Run Co. v. Prudential-LMI Commercial Ins. Co., 47 F.3d 34, 38 (2d Cir.1995) (stating the pollution exclusion clause can be reasonably interpreted as applying only to environmental pollution); Regional Bank of Colorado, N.A., 35 F.3d at 498 (stating “[i]t seems far more reasonable that a policyholder would understand the exclusion as being limited to irritants and contaminants commonly thought of as [environmental] pollution and not as applying to every possible irritant or contaminant imaginable.”); American States Ins. Co. v. Koloms, 177 Ill.2d 473, 227 Ill.Dec. 149, 687 N.E.2d 72, 82 (1997) (stating “we hold that the exclusion applies only to those injuries caused by traditional environmental pollution.”)).
[¶ 40.] A limiting principle of some kind must be applied to pollution exclusion clauses such as Wausau’s, for otherwise “the pollution exclusion clause would extend far beyond its intended scope, and lead to some absurd results.” Jabar, 188 F.3d at 31 (citing Pipefitters Welfare Educational Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1043 (7th Cir.1992)); see also Westchester, 768 F.Supp. at 1470 (concluding that the insurance company’s broad reading of “irritant or contaminant” to include a fogging mixture as a pollutant “stretch[es] the definition of ‘pollutant’ beyond “what a reasonable person placed in the position of the insured would have understood the word to mean.’). The Seventh Circuit Court of Appeals in Pipefit-ters provided two examples of how a pollution exclusion clause might be extended beyond its intended scope:
To take but two simple examples, reading the clause broadly would bar coverage for bodily injuries suffered by one who slips and falls on the spilled contents of a bottle of Drano, and for bodily injury caused by an allergic reaction to chlorine in a public pool. Although Drano and chlorine are both irritants or contaminants that cause, under certain conditions, bodily injury or property damage, one would not ordinarily characterize these events as pollution.
976 F.2d at 1043. In this case, under Wausau’s suggested broad interpretation of the pollution exclusion clause, “almost any function undertaken by [the government] could be characterized as ‘polluting’ under the [clause].” Westchester, 768 F.Supp. at 1470.
[¶ 41.] Admittedly, it is not “crystal clear” under the pollution exclusion clause whether cement dust can be considered a “pollutant,” “contaminant,” or “irritant.” However, it is for that very reason the parties in this case have gone through extensive litigation - the terms as used in Wausau’s pollution exclusion clause are susceptible to different interpretations. The fact that the parties are contesting what is meant by the terms “pollutant,” “contaminant,” or “irritant” and can mount a valid argument on their behalf is supportive of the conclusion that the pollution exclusion clause is ambiguous. Therefore, the policy should be construed in favor of SDCP. “Where an insurance policy is susceptible to different interpretations, the interpretation most favorable to the insured must be adopted.” Colonial Ins. Co. of Cal. v. Lundquist, 539 N.W.2d 871, 873 (S.D.1995); see also Christensen v. Royal Insurance Co. of Liverpool, 65 S.D. 246, 272 N.W. 820 (1937) (stating that an exclusionary clause is strictly construed and doubts as to its construction are resolved in favor of the insured); Tokley v. State Farm Ins. Co., 782 F.Supp. 1375 (D.S.D. 1992) (stating exclusionary clauses are interpreted strictly in favor of coverage for the insured).
*412[¶ 42.] For these reasons I would affirm the circuit court’s refusal to grant Wau-sau’s motion for summary judgment, as the pollution exclusion clause is ambiguous as a matter of law.
[¶43.] I would also affirm the circuit court’s settlement award to SDCP, because there has been no showing that its finding the $200,000 naturally flowed from Wausau’s refusal to defend is clearly erroneous.
[¶ 44.] SABERS, Justice, joins this dissent.

. I further part company with the Court in its erroneous use of the complaint as the sole pleading for determining the coverage issue. In Wertz we specifically stated such a determination is to be made "after considering the complaint, and when appropriate, other record evidence ..." 540 N.W.2d at 638. (emphasis added). It is clear throughout the Wyoming litigation and subsequently this case that SDCP has taken the position that the cement dust is not a pollutant and thus is not subject to the "absolute pollution exclusion" of the policy. The unfairness of solely considering the allegations of the plaintiff's complaint to determine whether the defendant is entitled to insurance coverage and a defense is obvious. Trusting a hostile plaintiff to look out for the best interests of the defendant concerning the defendant’s rights under an insurance policy is illogical. A well-drafted complaint may strip the defendant of its coverage in expensive litigation thus limiting the defense the defendant can put forth or force an outright capitulation for economic reasons. The Court in Allstate Ins. v. Novak, 210 Neb. 184, 313 N.W.2d 636, 641 (1981) addressed this very issue:
Allstate would argue that it has no duty to defend because the petition filed by Steward against Nóvale shows on its face that it is a suit based upon assault and battery and therefore outside the terms of the policy. There are cases that can be found, including cases within our own jurisdiction, which say that the insurer may look only to the petition or complaint to determine whether it has an obligation to defend, and if the complaint or petition on its face alleges facts which bring the action within an *409exclusion of the policy there is no obligation to defend. We believe that those cases are not based upon sound reasoning nor recognize the reality of today's litigation. A plaintiff may plead anything he desires. Should we then leave the insured to his own defense based upon what the suing party claims, or should we require the carrier to examine all the facts to determine whether there is the possibility of coverage under the policy? We believe that the better reasoned cases support the latter view and are correct.
See also Aetna v. Cochran, 337 Md. 98, 651 A.2d 859, 864-65 (1995); Alabama Farm Bur. Mut. Cas. Ins. Co. v. Moore, 349 So.2d 1113, 1116 n. 4 (Ala.1977) (citing Ladner and Co. v. Southern Guaranty Ins. Co., 347 So.2d 100 (Ala.1977)) (stating "[i]n determining whether an insurance company has breached its duty to defend, a judge or jury may look beyond the complaint."). In Ladner, the court stated "in deciding whether a complaint alleged such injury, the court is not limited to the bare allegations of the complaint in the action against [the] insured but may also look to facts which may be proved by admissible evidence.” 347 So.2d at 103 (citing Pacific Indemnity Co. v. Run-A-Ford Co., 276 Ala. 311, 161 So.2d 789, 795 (1964)).

. I do not agree with the Court's statement in Footnote 4. Because the underlying case in this matter was settled, no finding was ever made below determining whether cement dust is a pollutant. However, the circuit court determined that Wausau breached its duty to defend "because a Wyoming jury could have decided that cement dust of SDCP was not a "pollutant[.]” I agree with the circuit court, since testimony offered at the court trial strongly suggested that cement dust is not inherently dangerous in the sense of an irritant or contaminant, and thus not subject to the policy’s exclusion. Testimony was offered that established cement is not listed as a hazardous air pollutant under the terms of the Clean Air Act. The circuit court also heard evidence that calcium carbonate, the major component of cement, is classified only as a "nuisance dust,” does not possess *410any hazardous ingredients according to SDCP’s material safety data sheets, and is not a toxic chemical or indisputedly harmful substance. Material safety data sheets are provided to both employees of SDCP and its customers. The sheets describe what a certain material is, any health hazards associated with the material, and any precautions the employee or user of the material may need to take.
In Footnote 5, the Court essentially states that this case is controlled by the fact SDCP "specifically declared the pollutant removed would be "cement dust” ” on its permit application to the Wyoming Department of Environmental Quality. This 1983 permit includes one line for indicating what "pollutant” is to be removed for purposes of air contaminant control equipment. A review of the permit offers no other information, such as criteria for determining what constitutes a "pollutant” for purposes of the permit or environmental standards. Thus, without more, SDCP’s placement of the words "Cement dust” within the column of "Pollutant Removed^' should not be treated as a dispositive admission on the part of SDCP, as the Court seemingly purports to do. Again, a great deal of evidence was presented at trial that suggests cement dust is not a pollutant per se or inherently toxic. Expert testimony at trial alluded to the example that if an individual were to swallow a bucket-full of Portland cement, calcium carbonate or calcium oxide, it could harm the individual. Likewise, cement dust, if placed directly in the eyes may irritate, but it is not a toxic substance and does not harm the environment in a way that would normally allow one to characterize the event as "pollution.” See Westchester, 768 F.Supp. at 1470; Pipefitters Welfare Educational Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1043 (7th Cir.1992). While I am in no way reviewing the merits of the underlying case, I am of the opinion that Wausau has not established that cement dust is recognized as an environmental hazard of such significance as to constitute a “pollutant” per se.

. Pollution exclusion clauses have become very common in insurance liability policies as a result of "Congress' enactment of broad, sweeping legislation directed at cleaning up and protecting the limited resources of the United States.” Westchester, 768 F.Supp. at 1469 n. 8. The Clean Air Act Amendments were passed in 1970, which "imposed greater potential economic burdens on insurance underwriters of comprehensive general liability policies.” Id. Congress mandated an amendment to the Clean Air Act to include a hazardous air pollutant list in 1990.