Midwest Family Mutual Insurance Co. v. Wolters

ANDERSON, Justice Paul H.

(dissenting).

I respectfully dissent. I disagree with the majority’s conclusion that carbon mo *640 noxide released from the negligently installed boiler in the home of appellants Charles E. Bartz and Catherine M. Brewster is a “pollutant” under the plain language of the pollution exclusion in respondent Michael D. Wolters’s general liability insurance policy with Midwest Family Mutual Insurance Company. I conclude that the pollution exclusion at issue is ambiguous when applied to the claims of Bartz and Brewster because it is reasonable to interpret the exclusion as applying only to traditional environmental pollution. Accordingly, I would hold that the Beltrami County District Court got it right when it found that the pollution exclusion in the Midwest policy does not exclude coverage for injuries caused by carbon monoxide. Therefore, I would reverse the court of appeals.

Charles Bartz and Catherine Brewster each claim that Michael Wolters: (1) negligently connected the boiler to a propane fuel source despite the manufacturer’s warning to the contrary; (2) failed to inspect the work of the subcontractor who installed the boiler; and (3) failed to convert the boiler to operate on propane. The majority concludes that Bartz’s and Brewster’s claims are not covered under the Midwest policy carried by their contractor, Wolters, because of a provision in the policy that excludes coverage for damages for bodily injury “arising wholly or partially out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants.” It is on this key point that I disagree with the majority.

Insurance policies are contracts, and general principles of contract law apply to their interpretation absent statutory provisions to the contrary. Goodyear Tire & Rubber Co. v. Dynamic Air, Inc., 702 N.W.2d 237, 244 (Minn.2005). We construe the terms of an insurance policy “according to what a reasonable person in the position of the insured would have understood the words to mean.” Canadian Universal Ins. Co. v. Fire Watch, Inc., 258 N.W.2d 570, 572 (Minn.1977). In doing so, we interpret exclusions narrowly. American Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn.2001). While unambiguous language in an insurance policy must be given its “plain, ordinary, and popular meaning,” we construe ambiguous language in an insurance policy against the insurer. Gen. Cas. Co. of Wisc. v. Wozniak Travel, Inc., 762 N.W.2d 572, 575 (2009) (citation omitted) (internal quotation marks omitted). Language in an insurance policy is ambiguous if it is reasonably susceptible to more than one interpretation. Am. Commerce Ins. Brokers, Inc. v. Minn. Mut. Fire & Cas. Co., 551 N.W.2d 224, 227 (Minn.1996). Significantly, a word or phrase in an insurance policy may be ambiguous in one context but unambiguous in another context. See Bd. of Regents of Univ. of Minn. v. Royal Ins. Co. of Am., 517 N.W.2d 888, 892 (Minn.1994).

It is undisputed that, in the absence of an applicable exclusion, the claims of Bartz and Brewster would be covered under the Midwest policy and Midwest Family would be obligated to defend Wolters against those claims. 1 Thus, the primary issue before us is whether the claims asserted by Bartz and Brewster are unambiguously excluded from coverage under the language of the pollution exclusion in the *641 Midwest policy. The pollution exclusion provides, in relevant part: ...

9. We do not pay for bodily injury or property damage:

a. arising wholly or partially out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

⅜ ⅜ ⅜ ⅜

4) at or from any premises where you or any contractor or subcontractor, directly or indirectly under your control, are working or have completed work:

a) if the pollutant is on the premises in connection with such work, unless the bodily injury or property damages arise from the heat, smoke or fumes of a fire which becomes uncontrollable or breaks out from where it was intended to be; or

b) if the work in any way involves testing, monitoring, clean-up, containing, treating or removal of pollutants.

“Pollutant” is defined in the policy to include “any solid, liquid, gaseous, thermal, electrical emission (visible or invisible) or sound emission pollutant, irritant or contaminant.”

The majority concludes that, under a “non-technical, plain-meaning approach,” carbon monoxide released from a negligently installed boiler is unambiguously a “pollutant” that is subject to the pollution exclusion in the Midwest policy. I disagree. I reach this different conclusion in light of the purposes for which the pollution exclusion was adopted, and because our court’s longstanding case law requires us to construe words of exclusion in an insurance policy narrowly. Unlike the majority, I conclude that the question of whether the indoor release of carbon monoxide from a negligently installed boiler is a “pollutant” within the meaning of the Midwest policy is susceptible to more than one reasonable interpretation.

I reach this conclusion by considering the genesis of the pollution exclusion. It is a bedrock principle of contract interpretation that our court’s primary goal is to “determine and enforce the intent of the parties.” Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn.2003). We ascertain the intent of the contracting parties “not by a process of dissection in which words or phrases are isolated from their context, but rather from a process of synthesis in which the words and phrases are given a meaning in accordance with the obvious purpose of the insurance contract as a whole.” Marshall Produce Co. v. St. Paul Fire & Marine Ins. Co., 256 Minn. 404, 426 , 98 N.W.2d 280, 295 (1959) (emphasis added). Accordingly, we must consider the “obvious purpose” of the pollution exclusion in order to determine whether the exclusion applies to preclude coverage. Id.

The events that “led the insurance industry to adopt the standard pollution-exclusion clause are well-documented and relatively uncontroverted.” Morton Int’l, Inc. v. Gen. Accident Ins. Co. of Am., 134 N.J. 1 , 629 A.2d 831, 848 (1993). The insurance industry adopted the pollution exclusion in response to one primary concern: “avoidance of the enormous expense from ... environmental litigation.” Am. States Ins. Co. v. Koloms, 177 Ill.2d 473 , 227 Ill.Dec. 149 , 687 N.E.2d 72, 81 (1997) (citation omitted) (internal quotation marks omitted). More specifically, the pollution exclusion was “designed to bar coverage for gradual environmental degradation of any type and to preclude coverage responsibility for government-mandated cleanup such as Superfund, which was enacted in 1980.” Jeffrey W. Stempel, Reason and Pollution: Correctly Constru *642 ing the “Absolute” Exclusion in Context and in Accord with its Purpose and Party Expectations, 34 Tort & Ins. L.J. 1 , 5 (1998).

The pollution exclusion was not designed to preclude coverage for torts only because they happen to involve a “pollutant.” E.g., W. Alliance Ins. Co. v. Gill, 426 Mass. 115 , 686 N.E.2d 997, 998-99 (1997). This misunderstanding of the “obvious purpose” of the pollution exclusion is the fatal defect in the majority’s “non-technical, plain-meaning approach.” The pollution exclusion in the Midwest Policy “cannot be read literally as it would negate virtually all coverage.” Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 948 (Ind.1996). Indeed, as Judge Richard Posner, writing for a unanimous panel of the Seventh Circuit, recently observed: “a literal reading of the pollution exclusion would exclude coverage for acts remote from the ordinary understanding of pollution harms and unrelated to the concerns that gave rise to the exclusion.” Scottsdale Indem. Co. v. Vil. of Crestwood, 673 F.3d 715, 717 (7th Cir.2012). Judge Posner and the Seventh Circuit specifically cited a case involving a furnace that leaked carbon monoxide and injured several workers in the building that contained the furnace as an example of the type of harm “unrelated to the concerns that gave rise to the exclusion.” Id. (citing Koloms, 687 N.E.2d at 82 ). Judge Posner and the Seventh Circuit would sensibly limit the exclusion to “pollution harms as ordinarily understood,” because it would be “a misuse of language ... to say that the workers [in Koloms ] had been injured by pollution.” Id. Judge Posner and the Seventh Circuit concluded with a rhetorical question that drives the point home: “If one commits suicide by breathing in exhaust fumes, is that death by pollution?” Id.

I would conclude that the answer to Judge Posner’s question is “no.” Similarly, if a person suffers an injury from the indoor release of carbon monoxide from a negligently installed boiler, I would conclude that the injury is not from “pollution.” The majority disagrees with that interpretation. But the key point is that both interpretations of the pollution exclusion are reasonable. Indeed, “a reasonable person in the position of the insured” could have understood the pollution exclusion to be applicable only to traditional environmental pollution, and therefore inapplicable to the indoor release of carbon monoxide from a negligently installed boiler. 2 Canadian Universal Ins. Co., 258 N.W.2d at 572 ; see also Stoney Run Co. v. Prudential-LMI Commercial Ins. Co., 47 F.3d 34 , 38 (2d Cir.1995) (holding that “a reasonable interpretation of the pollution exclusion clause is that it applies only to environmental pollution, and not to all contact with substances that can be classified as pollutants”). Given this reasonable interpretation of the policy’s language, I conclude that the pollution exclusion clause incorporated into the Midwest policy is ambiguous as applied to the Bartz and Brewster claims.

It was reasonable for Wolters to believe that he had purchased insurance coverage for any carbon monoxide poisoning that may result from his negligent installation of the propane-fueled boiler that was purchased by Bartz. As previously noted, ambiguous words in an insurance policy— especially ambiguous words in an exclusionary clause — are to be construed *643 against the insurer. Wozniak Travel, 762 N.W.2d at 575 . Under our long-standing canons of construction, the Midwest policy must be construed against the insurer, and when the policy is construed narrowly, the type of injury suffered by Bartz and Brewster falls outside the pollution exclusion.

The majority asserts that “[wjhile there may be substances that are difficult to establish as ‘pollutants’ for purposes of the pollution exclusion, carbon monoxide is not one of them.” Supra at 16. I am doubtful about this assertion: courts that have considered the specific issue of whether the pollution exclusion bars coverage of negligence claims arising from carbon monoxide poisoning are about evenly split. 3 Moreover, beyond the relatively rare context of carbon monoxide poisoning, the majority acknowledges that a “non-technical, plain-meaning” approach to the pollution exclusion is the minority view among jurisdictions to consider the question. That point alone counsels in favor of finding ambiguity. See Minn. Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175, 180 (Minn.1990) (explaining that the “ambiguity inherent” in a term of an insurance policy was “exemplified by the sharp division in case authority from other jurisdictions”); see also 22 Britton D. Weimer et al., Minnesota Practice — Insurance Law and Practice § 2.3 (2d ed.2010) (noting that one factor to consider in determining whether a provision of an insurance policy is ambiguous is whether a term has received contradictory interpretations in other jurisdictions). At the very least, the irrefutable fragmentation of authority on the scope of the pollution exclusion weighs heavily in favor of concluding that the language in the pollution exclusion is susceptible of more than one reasonable interpretation. Indeed, unless the majority views the weight of authority limiting the pollution exclusion to traditional environmental pollution as inherently unreasonable, I find it difficult to understand how the majority can conclude that the policy is unambiguous on the facts of this case.

For all of the foregoing reasons, I conclude that the exclusion in Midwest Family’s insurance policy for bodily injury arising from “pollutants” does not encompass elevated levels of carbon monoxide in a single-family residence caused by the negligent installation of a boiler. Therefore, I would reverse the court of appeals and affirm the district court.

. The policy requires Midwest Family to “pay all sums which an insured becomes legally obligated to pay as damages due to bodily injury or property damage arising out of the Products/Completed Work Hazard to which this insurance applies.” The claims of Bartz and Brewster are covered under this provision because Bartz and Brewster both allege bodily injury arising out of the work performed by Wolters or on Wolters's behalf by subcontractors.

. To be clear, my interpretation is not based on the “reasonable expectations doctrine.” As the majority points out, the “reasonable expectations doctrine” is distinct from our longstanding principle that we construe the terms of an insurance policy “according to what a reasonable person in the position of the insured would have understood the words to mean.” Canadian Universal Ins. Co., 258 N.W.2d 570 at 572 .

. See, e.g., Koloms, 687 N.E.2d at 79-82 (concluding that pollution exclusion was limited to traditional environmental pollutants based on drafting history and retention of environmental terms of art and did not apply to carbon monoxide); Kiger, 662 N.E.2d at 948-49 (finding ambiguity based on expansive scope of exclusion and construing against drafter); Doerr v. Mobil Oil Corp., 774 So.2d 119, 126-28, 135 (La.2000) (finding ambiguity and limiting exclusion to traditional environmental pollution based on history of provision); Gill, 686 N.E.2d at 999-1000 (limiting exclusion to traditional environmental pollutants); Andersen v. Highland House Co., 93 Ohio St.3d 547 , 757 N.E.2d 329, 334 (2001) (holding that carbon monoxide from residential space heater was not "pollution” so as to be excluded by pollution exclusion). But see, e.g., Nautilus Ins. Co. v. Country Oaks Apartments Ltd., 566 F.3d 452, 455-56 (5th Cir.2009) (applying Texas law to bar coverage under pollution exclusion for carbon monoxide release from furnace); Bituminous Cas. Corp. v. Sand Livestock Sys., Inc., 728 N.W.2d 216, 221-22 (Iowa 2007) (concluding that carbon monoxide released from power washer was pollutant subject to pollution exclusion); Reed v. Auto-Owners Ins. Co., 284 Ga. 286 , 667 S.E.2d 90, 92 (2008) (concluding that carbon monoxide release inside rental house was pollutant subject to pollution exclusion).