Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-98-00013-CV

Gulf Metals Industries, Inc., Gulf Reduction Corporation, and Gulf Reduction

Corporation as a Successor to Southern Zinc Company, Appellants

v.

Chicago Insurance Company, Interstate Fire & Casualty Company, Delta Lloyds

Insurance Company, First State Insurance Company, Insurance Company of

North America, Continental Casualty Company, Transcontinental Insurance

Company, CNA Lloyds of Texas, Transportation Insurance Company,

Fidelity & Casualty Insurance Company of New York and

Glen Falls Insurance Company , Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT

NO. 96-04673A, HONORABLE F. SCOTT McCOWN, JUDGE PRESIDING

DISSENTING OPINION

I agree that the majority's interpretation of the phrase "sudden and accidental" in

the qualified pollution exclusion is eminently reasonable, perhaps more reasonable than the

insured's definition. Indeed, I would have joined the majority had this opinion been handed down

before the supreme court issued its decision in Balandran v. Safeco Insurance Co. of America , 972

S.W.2d 738 (Tex. 1998). Because I find that Balandran compels a finding that the insured's

reading of "sudden and accidental" is also reasonable, I would hold that the trial court erred in

granting summary judgment in favor of CIC. (1) I respectfully dissent.

Significance of Balandran

Balandran involved a simple issue: whether a standard homeowner's policy

covered damage to a foundation caused by an underground plumbing leak. One year earlier, the

Fifth Circuit had addressed the identical question and held that under its reading of Texas law the

policy provision unambiguously excluded damage to a foundation caused by a plumbing leak. See

Sharp v. State Farm Fire & Cas. Ins. Co. , 115 F.3d 1258 (5th Cir. 1997). The court held that

the insured's interpretation was not reasonable; therefore, the exclusion was unambiguous, and

the insured was not entitled to the benefit of the ambiguity. See id. at 1262-63 .

In Balandran the supreme court examined the same provision and reached a

different result, essentially holding that the Fifth Circuit misapplied Texas law in Sharp .

Furthermore, the court gave a generous reading of what can be considered a "reasonable

interpretation" of a coverage exclusion by an insured. Courts "must adopt the construction . . .

urged by the insured as long as that construction is not unreasonable, even if the construction

urged by the insurer appears to be more reasonable or a more accurate reflection of the parties'

intent. " Balandran , 972 S.W.2d at 741 (quoting National Union Fire Ins. Co. v. Hudson Energy

Co. , 811 S.W.2d 552, 555 (Tex. 1991) (emphasis added)). The policy at issue in Balandran

excluded water damage to the dwelling; the insureds conceded that the damage to their foundation

fell under this exclusion unless language in the personal property section created an exception to

the exclusion when the structural damage resulted from a plumbing leak. The exclusion repeal

that the insureds relied on covered personal property against accidental discharge or leakage or

overflow of water or steam from within a plumbing system. This part of the policy further

provided that "Exclusions 1.a through l.h under Section I Exclusions do not apply to loss caused

by this peril." Exclusion 1.h excluded structural damage resulting from a plumbing leak. The

Balandrans did not suffer any personal property loss, but relied on this sentence to argue that

exclusion 1.h did not apply to the loss damage to their home caused by a plumbing leak. The

insurer insisted, relying on the Fifth Circuit's earlier opinion in Sharp , that an exception found

in the personal property coverage section of the policy could not be used to avoid the exclusion

found in the dwelling coverage section. In that case, the circuit court had concluded:

We are sympathetic to the Sharps' situation, but we cannot agree that text

specifically included in Coverage B, which applies only to personal property, may

be imported into Coverage A, which applies to the dwelling or house, in order to

create coverage for a loss that does not involve personal property damage. The

Sharps' policy clearly and unambiguously divides dwelling losses and personal

property losses into two separate 'coverages.' It therefore would appear to be

nonsensical, and a rejection of the obvious structure of the policy, to reach into text

that applies solely to [personal property losses] to determine the extent of coverage

under [the dwelling section].

Sharp , 115 F.3d at 1262 .

To find the insured's interpretation "reasonable" and the policy provision

ambiguous, the supreme court in Balandran applied standard rules of contract construction: (1)

insurance contracts are subject to the same rules of construction as other contracts, (2) the primary

goal is to give effect to the written expression of the parties intent, and (3) the court will strive to

give meaning to every sentence, clause and word to avoid rendering any portion inoperative. See

Balandran , 972 S.W.2d at 741 . The court went on to add: "While parol evidence of the parties'

intent is not admissible to create an ambiguity, the contract may be read in light of the surrounding

circumstances to determine whether an ambiguity exists. " Id. (emphasis added, citations omitted).

Furthermore, the court thought it proper to consider the circumstances surrounding the

promulgation of the policy form in determining whether the Balandrans' interpretation was

reasonable. Noting that insurers must use forms adopted by the State Board of Insurance, that an

earlier version of the form contained exclusion-repeal language that unquestionably applied to

dwelling coverage as well as personal property loss, and that the revision of the form was intended

to simplify the policy language and not to restrict any coverage previously available, the court

concluded that "the Balandrans' interpretation becomes even more reasonable when we consider

the circumstances surrounding the promulgation of this policy form." Id.

Balandran recognizes that insurance is a regulated industry and that the regulatory

entity that promulgates mandatory policy forms is a silent party to a contract that must be written

on such forms. The surrounding circumstance evidence that the supreme court reviewed in

Balandran went to the intent of this silent party in promulgating the form. While parol evidence

of what an individual insured and an individual insurer intended is not admissible to create an

ambiguity, Balandran held that evidence of what the Department of Insurance intended in revising

the policy form could be considered in determining whether either party's interpretation of the

policy was reasonable.

Gulf Metals asked the trial court to consider similar circumstances surrounding the

promulgation of the form at issue in this dispute. Gulf Metals argues that prior to the inclusion

of the qualified polluter's exclusion clause in liability insurance policies, these policies clearly

covered the gradual but unintentional release of contamination. It sought to discover and have the

court consider historical drafting and regulatory evidence concerning the adoption of the pollution

exclusion clause at issue. Gulf Metals argued that the circumstances surrounding the promulgation

of the pollution exclusion clause would reveal that the "sudden and accidental" language was not

meant to restrict then-existing coverage of unintentional pollution. CIC responded that the State

Board of Insurance, now the Department of Insurance, intended to ensure that occurrence-based

policies would not be construed to cover claims such as those presented here. Without the benefit

of Balandran , the trial court followed the mistaken view of the Fifth Circuit in Mustang Tractor

& Equipment Co. v. Liberty Mutual Insurance Co. , 76 F.3d 89 (5th Cir. 1996), and refused to

consider surrounding circumstance evidence regarding the promulgation of the "sudden and

accidental" exception to the pollution exclusion to determine whether the insured's interpretation

was reasonable. Under Balandran , such evidence is admissible to determine ambiguity, which

exists when both parties' interpretations are reasonable. I would hold that the trial court in the

present case erred in granting summary judgment without considering this evidence of surrounding

circumstances.

The majority points to footnote three as justification for ignoring this significant

rule of construction set forth in Balandran , and instead reaches back to the earlier language in

National Union Fire Insurance Co. v. CBI Industries, Inc. , 907 S.W.2d 517 (Tex. 1995), stating

that the parties' interpretation of a contract can be considered only after the court has found the

contract to be ambiguous. Indeed, Balandran agrees that parol evidence of the parties' intent

cannot be considered unless the policy is first found to be ambiguous. See Balandran , 972 S.W.2d

at 741 . However, Balandran specifically holds that surrounding circumstance evidence regarding

promulgation of the policy form is not "extrinsic evidence" and may be considered in determining

whether a party's interpretation of the policy is reasonable . As the dissent in Balandran points

out, this rule is at odds with the Fifth Circuit's holding in Sharp that the insured "may not point

to the revision process to create an ambiguity." See Balandran , 972 S.W.2d at 745 (Owen, J.,

dissenting) (quoting Sharp , 115 F.3d at 1262 ). In the present case, the majority follows the view

expressed by Justice Owen in the Balandran dissent and by the Fifth Circuit in Sharp , that

evidence of what the former policy form stated and the intent of those who revised its language

is extrinsic evidence that may not be considered until the court determines that an ambiguity exists

on the face of the policy. The apparent contradiction between footnote three and the holding that

"the contract may be read in light of the surrounding circumstances to determine whether an

ambiguity exists," 972 S.W.2d at 741 , can be harmonized if we consider the regulated nature of

insurance contracts. Can Gulf Metals rely on representations allegedly made by the insurance

industry to the Department that the language "sudden and accidental" in the revised form would

not restrict existing coverage of unintentional pollution? I think Balandran holds that it may. (2) We

don't know whether the surrounding circumstance evidence here will make Gulf Metals'

interpretation of this pollution exclusion clause more reasonable or not because the trial court

refused to consider it. I would reverse the summary judgment and remand for the trial court to

read the present contract in light of such evidence.

"Sudden" Can Reasonably be Interpreted To Mean "Unexpected"

I disagree with the majority's claim that dictionaries "provide no significant help

in determining whether a term has two reasonable meanings." It is true that courts must determine

the meaning of words in a particular context; I also agree that dictionaries alone provide an

inadequate test for ambiguity. However, dictionary definitions may provide guidance when the

context does not. Nothing about the phrase "sudden and accidental" requires "sudden" to contain

a temporal element. The context in which the phrase is used simply does not mandate such a

construction.

When the majority asserts that "sudden" is never used in ordinary conversation

without a temporal aspect, what it is really saying is that "sudden" can never mean only

"unexpected." This notion is not supported by any dictionary usage, caselaw, or any other

authority. I believe that it is reasonable to read "sudden" to mean "unexpected." As the Georgia

Supreme Court observed:

[E]ven in its popular usage, "sudden" does not usually describe the duration of an

event, but rather its unexpectedness: a sudden storm, a sudden turn in the road,

sudden death. Even when used to describe the onset of an event, the word has an

elastic temporal connotation that varies with expectations: Suddenly, it's spring.

Claussen v. Aetna Cas. & Sur. Co. , 380 S.E.2d 686, 688 (Ga. 1989). Accordingly, leading

dictionaries provide "unexpected" or "without previous notice" as primary definitions of

"sudden." (3)

In arriving at the conclusion that "sudden and accidental" cannot mean "unexpected

and unintended," the majority relies on the Fifth Circuit's opinion in Mustang Tractor &

Equipment Co. v. Liberty Mutual Insurance Co. , 76 F.3d 89 (5th Cir. 1996). As the majority

observes, the Mustang Tractor court stated that "Texas courts agree that 'accidental' generally

describes an unforeseen or unexpected event . . . ." Id. at 92 . The Fifth Circuit reasoned that the

insured's interpretation of "sudden" as meaning unexpected created a redundancy because

"accidental" already conveyed unexpected. Therefore, it concluded, "[t]o define sudden as

meaning only unexpected or unintended, and therefore a mere restatement of accidental, would

render the suddenness requirement mere surplusage." Id.

The flaw in Mustang Tractor 's reasoning is the court's assumption that "accidental"

means unforeseen or unexpected under Texas law, for which proposition the court cited Republic

National Life Insurance Co. v. Heyward , 536 S.W.2d 549, 554 (Tex. 1976). However, that case

is inapposite. (4) Texas courts generally interpret the word "accidental" to mean "unintended" in

the insurance context, (5) and cases from other jurisdictions support the view that "accidental" adds

an element of intent that is missing from "sudden" or "unexpected." See, e.g., Queen City

Farms, Inc. v. Central Nat'l Ins. Co. , 882 P.2d 703, 721 (Wash. 1994) (citing New Castle County

v. Hartford Accident & Indem. Co. , 933 F.2d 1162 , 1194 (3d Cir. 1991)). In addition, leading

dictionaries primarily define "accidental" as unintended, without an element of foreseeability. (6)

While many also define "accident" as an unforeseeable occurrence, these definitions are often

secondary. (7) Finally, insurance policies often use words that have similar meanings, such as in the

qualified pollution exclusion where the words "discharge, dispersal, release or escape" are all used

to describe potentially polluting events. See New Castle County , 933 F.2d at 1194.

As Gulf Metals points out in its brief, it is not redundant to describe an event as

both "unexpected" and "unintended," since the latter term describes subjective hopes or desires,

while the former addresses the more objective concept of what is foreseeable or foreseen. Thus,

winning a lottery jackpot could be described as unexpected but not unintended, while receiving

a speeding ticket for driving far above the posted speed limit would be unintended but probably

not unexpected. While the terms "sudden" and "accidental" can overlap to some degree, nothing

about the present context makes Gulf Metals' interpretation unreasonable; this is particularly so

in light of the well-settled rule that exceptions or limitations on liability are strictly construed

against the insurer and in favor of the insured. See National Union Fire Ins. Co. v. Hudson

Energy Co. , 811 S.W.2d 552, 555 (Tex. 1991); Ramsay v. Maryland Am. Gen. Ins. Co., 533

S.W.2d 344, 349 (Tex. 1976). Reading "sudden and accidental" to mean "unexpected and

unintended" is reasonable. Because Mustang Tractor 's contrary conclusion rests upon a flawed

assumption, I believe the majority's reliance on that case to be misplaced.

The redundancy relied upon by the Mustang Tractor court is created only if one

begins with the assumption that "accidental" necessarily connotes "unforeseen" in addition to its

natural meaning of "unintended." As discussed above, this interpretation is largely unsupported

by relevant Texas authority. Nor is "sudden" required to contain a temporal element by either

Texas caselaw or authoritative dictionaries. Thus, reading "sudden and accidental" to mean

unexpected and unintended is reasonable, and the ambiguous exception must be interpreted in

favor of the insured.

In Balandran , the supreme court proclaimed that surrounding circumstances

evidence is admissible to determine whether an ambiguity exists. Balandran also sets a new and

generous standard as to what can be considered a "reasonable interpretation" of an exception to

a policy exclusion. Without the benefit of the supreme court's decision, the trial court granted

summary judgment against the insured, holding that Gulf Metals' interpretation of "sudden and

accidental" is unreasonable. I would reverse the summary judgment and remand the cause to the

trial court to allow further discovery of evidence that agents of the appellee insurance companies

represented to state insurance boards that the "sudden and accidental" exception to the pollution

exclusion would not eliminate coverage as long as the pollution was not expected or intended from

the standpoint of the insured.

Bea Ann Smith, Justice

Before Justices Jones, B. A. Smith and Yeakel

Filed: May 13, 1999

Publish

1. Because Balandran had not been decided at the time of the summary judgment hearing, the

trial court did not have the benefit of the supreme court's most recent analysis.

2. In this regard I think the majority got it backwards when it held that "the 'surrounding

circumstances' that may be considered in determining ambiguity are those surrounding the making

of the contract, not those present when a regulatory body promulgates the form of the contract."

3. See Webster's Third New International Dictionary 2284 (Philip B. Gove ed., 1986) (defining

"sudden" as: " 1a . happening without previous notice or with very brief notice; coming or

occurring unexpectedly: not seen or prepared for [usage examples omitted]"; The American

Heritage Dictionary of the English Language 1286 (William Morris ed., 1973) (defining "sudden"

as: " 1. Happening without warning; unforeseen."); Black's Law Dictionary 1432 (6th ed. 1990)

(defining "sudden" as: "Happening without previous notice or with very brief notice; coming or

occurring unexpectedly; unforeseen; unprepared for."). Even in the Random House definition

quoted by the majority, a temporal element exists in only one of the three meanings provided. See

Random House Dictionary of the English Language 1900 (Stuart B. Flexner ed., 1987) (defining

"sudden" as "happening, coming, made, or done quickly, without warning, or unexpectedly ")

(emphasis added).

4.

Heyward held that whether a killing is "accidental" within the terms of a life insurance policy

is determined from the viewpoint of the insured, not the viewpoint of the one who does the killing;

the test is whether the insured should have reasonably anticipated that his conduct would bring

about his own death. See Heyward , 536 S.W.2d at 552-54. Heyward thus does not control the

definition of "accidental" as that word is used in the "sudden and accidental" exception to the

pollution exclusion.

5.

See Trinity Universal Ins. Co. v. Cowan , 945 S.W.2d 819, 827-28 (Tex. 1997) (insured's

conduct not an "accident" for purposes of insurance policy because insured acted intentionally and

purposefully in copying photographs of plaintiff and showing them to friends); Argonaut Southwest

Ins. Co. v. Maupin , 500 S.W.2d 633, 635 (Tex. 1973) ("Where acts are voluntary and intentional

and the injury is the natural result of the act, the result was not caused by accident") (quoting

Thomason v. United States Fidelity & Guar. Co. , 248 F.2d 417 (5th Cir. 1957)); Wessinger v.

Fire Ins. Exch. , 949 S.W.2d 834, 837 (Tex. App.--Dallas 1997, no pet.) (if acts producing

alleged injuries were committed involuntarily and unintentionally, results of acts are accidental);

but see Mesa Operating Co. v. California Union Ins. Co. , No. 5-96-986-CV, 1999 WL 42027 *5

(Tex. App.--Dallas Feb. 2, 1999, no pet. h.) ("The term "accidental" already encompasses the

concepts of being unexpected and unintended.") (citing Mustang Tractor , 76 F.3d at 92 ).

6.

See Webster's Third New International Dictionary 11 (Philip B. Gove ed., 1986) (defining

"accidental" as: " 2b. happening or ensuing without design, intent, or obvious motivation or

through inattention or carelessness <~ collision> <~ shooting> <~ loss>."); A Dictionary

of Modern Legal Usage 13 (Bryan A. Garner ed. 1995) ("In law, the usual distinction is that an

accident occurs without the willful purpose of the person who causes it.") (contrasting "accident"

with "mistake") (emphasis original).

7.

See, e.g., The Random House Dictionary of the English Language 12 (Stuart B. Flexner ed.,

1987) (defining "accident" as: 1. an undesirable or unfortunate happening that occurs

unintentionally and usually results in harm, injury, damage, or loss; casualty; mishap; automobile

accidents . 2. Law such a happening resulting in injury that is in no way the fault of the injured

person for which compensation or indemnity is legally sought. 3. any event that happens

unexpectedly, without a deliberate plan or cause.") .

of the supreme court's most recent analysis.

2. In this regard I think the majority got it backwards when it held that "the 'surrounding

circumstances' that may be considered in determining ambiguity are those surrounding the making

of the contract, not those present when a regulatory body promulgates the form of the contract."

3. See Webster's Third New International Dictionary 2284 (Philip B. Gove ed., 1986) (defining

"sudden" as: " 1a . happening without previous notice or with very brief notice; coming or

occurring unexpectedly: not seen or prepared for [usage examples omitted]"; The American

Heritage Dictionary of the English Language 1286 (William Morris ed., 1973) (defining "sudden"

as: " 1. Happening without warning; unforeseen."); Black's Law Dictionary 1432 (6th ed. 1990)

(defining "sudden" as: "Happening without previous notice or with very brief notice; coming or

occurring unexpectedly; unforeseen; unprepared for."). Even in the Random House definition

quoted by the majority, a temporal element exists in only one of the three meanings provided. See

Random House Dictionary of the English Language 1900 (Stuart B. Flexner ed., 1987) (defining

"sudden" as "happening, coming, made, or done quickly, without warning, or unexpectedly ")

(emphasis added).

4.

Heyward held that whether a killing is "accidental" within the terms of a life insurance policy

is determined from the viewpoint of the insured, not the viewpoint of the one who does the killing;

the test is whether the insured should have reasonably anticipated that his conduct would bring

about his own death. See Heyward , 536 S.W.2d at 552-54. Heyward thus does not control the

definition of "accidental" as that word is used in the "sudden and accidental" exception to the

pollution exclusion.

5.

See Trinity Universal Ins. Co. v. Cowan , 945 S.W.2d 819, 827-28 (Tex. 1997) (insured's

conduct not an "accident" for purposes of insurance policy because insured acted intentionally and

purposefully in copying photographs of plaintiff and showing them to friends); Argonaut Southwest

Ins. Co. v. Maupin , 500 S.W.2d 633, 635 (Tex. 1973) ("Where acts are voluntary and intentional

and the injury is the natural result of the act, the result was not caused by accident")