Clendenin Bros. v. United States Fire Insurance

HARRELL, Judge. Pursuant to the Maryland Uniform Certification of Questions of Law Act, Maryland Code (1974, 2002 RephVol., 2005 Cum.Supp.), Courts and Judicial Proceedings Article, §§ 12-601 though 12-613, and Maryland Rule 8-305, the United States District Court for the District of Maryland (Garbis, J.) certified the following question for our consideration: ⁴⁵² Whether an insurance company has a duty to defend and/or indemnify its insured in underlying actions alleging injury from exposure to localized welding fumes a) Where the insurance policy contains a total pollution exclusion that denies coverage for “ ‘bodily injur/ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants at any time,” b) Where pollutants are defined as “any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste,” and c) Where waste is defined as “materials to be recycled, reconditioned or reclaimed.” We respond in the affirmative to the certified question. I. The District Court supplied the following factual background in its Certification Order: The instant case is a suit for declaratory relief pursuant to 28 U.S.C. § 2201 brought by United States Fire Insurance Company (“U.S. Fire” or “Insurer”) against Clendenin Brothers, Inc., et. al. (“Clendenin” or “Insureds”). U.S. Fire issued the Insureds a primary general liability policy as well as an umbrella policy for the period of July 1, 1995 to July 1, 1996 to provide coverage for claims brought against the Insureds alleging injuries sustained by use of the Insureds’ welding products.

Insureds presently seek insurance coverage under these policies for both the defense and indemnification of certain lawsuits that have been brought against them which allege bodily injury related to fumes caused by welding activity. [The District Court elaborated in a footnote: “The plaintiffs in the underlying suits are individuals who allege that proper use of the Insureds’ welding products produced harmful localized fumes containing manganese which caused bodily harm and ⁴⁵³ neurological damage.”] U.S. Fire presently seeks a declaration from this Court that it has no duty to defend or indemnify the Insureds in these welding related suits as the conditions and exclusions of the policies (specifically the total pollution exclusions) exclude such claims. Additionally, U.S. Fire seeks a determination that it has no duty to defend or indemnify the Insureds with respect to similar lawsuits filed in the future against the Insureds. The relevant provisions of the pollution exclusion in question, which U.S. Fire asserts relieves it of its duty to defend and duty to indemnify the Insureds against the welding related claims made against the Insureds, state as follows: 1 TOTAL POLLUTION EXCLUSION This Insurance does not apply to: f. (1) “Bodily Injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.

Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed. Each party filed a Motion for Summary Judgment in the District Court. Insurer argued that the language of the exclusions in the insurance policy is unambiguous, as a matter of law, and bars explicitly coverage of the claims against the Insureds.

Insureds asserted that the total pollution exclusion is ambiguous with regard to manganese welding fumes and thus does not bar coverage. Concurrently with its Motion for Summary Judgment, Insureds also filed the present Motion ⁴⁵⁴ for Certification requesting the District Court to ask this Court to address, under Maryland law, the scope of the total pollution exclusion with regard to manganese welding fumes. Consideration of the cross-motions for summary judgment was stayed by the District Court pending a response from this Court regarding the certified question.

II

We are presented here with an issue of first impression in Maryland (as well as other states): to determine whether a total pollution exclusion provision in an insurance policy relieves the policy issuer from its duty to defend and/or indemnify the policy’s holder where the alleged harm was caused by localized, workplace manganese welding fumes. Maryland appellate courts, however, previously encountered somewhat similar issues. In Bernhardt v. Hartford Fire Insurance Company, 102 Md.App. 45, 57 , 648 A.2d 1047, 1052 (1994), the Court of Special Appeals held that “the absolute pollution exclusion clause is clear and unambiguous in th[e] context” of carbon monoxide fumes that escaped from the central heating system of a residential apartment building and, therefore, the insurer, Hartford Fire Insurance Company (“Hartford”), was not obligated to defend or indemnify the insured, the landlord of the building. The underlying claim was initiated by tenants in the building for personal injury and damages caused by carbon monoxide fumes emitted from the central heating system.

Bernhardt, 102 Md.App. at 47 , 648 A.2d at 1047 . The insurer argued that it had no duty to defend or indemnify the insured as the exclusion applied “to bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants: a) at or from premises owned, rented or occupied by the named insured” where pollutants were defined as “any solid liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.” Bernhardt, 102 Md.App. at 48-49 , 648 A.2d at 1048 . Affirming the trial court’s grant of Hartford’s motion for summary judgment in ⁴⁵⁵ the declaratory relief action concerning the insurer’s duties under the insurance policy, the Court of Special Appeals determined that the pollution exclusion clause was dispositive and thus the insurer had no duty to defend or indemnify. Bernhardt, 102 Md.App. at 48, 57 , 648 A.2d at 1048, 1052 . 2 The intermediate appellate court rejected the landlord’s primary argument.

Conceding that carbon monoxide is a pollutant within the plain language of the pollution exclusion clause, the insured argued that “notwithstanding the literal language of the exclusion, the parties intended that it apply only to persistent industrial pollution of the environment, and not to an accident of the kind generally covered by a comprehensive business liability policy.” Bernhardt, 102 Md.App. at 50 , 648 A.2d at 1049 . After reviewing the historical development of the exclusion clause in the insurance industry, the intermediate appellate court focused on the landlord’s assertion that the pollution exclusion was ambiguous when applied to the specific facts of the case. Bernhardt, 102 Md.App. at 53-54 , 648 A.2d at 1050 . As a result of the landlord’s concession that carbon monoxide was included within the contractual definition of pollution, the court stated that “[t]he carbon monoxide gas in this case was a ‘gaseous ... irritant or contaminant’ and constituted ‘fumes’ and ‘chemicals’ within the clear language of the definition of ‘pollutant.’ ” Bernhardt, 102 Md.App. at 55 , 648 A.2d at 1051 .

While the court noted that the “pollution exclusion” title of the provision by itself is ambiguous and would not provide an insured with an understanding of the “breadth” of the exclusion, it also noted that “[t]he language of the contract between the parties is, however, quite specific.” Id. Thus, the court stated it was “unable to say a person of ordinary intelligence reading the language of this absolute pollution exclusion would conclude that it did not apply to the facts of this case.” Id. ⁴⁵⁶ One year after Bernhardt , this Court decided Sullins v. Allstate Insurance Company, 340 Md. 503 , 667 A.2d 617 (1995). Sullins also was a certified question case submitted by the United States District Court for the District of Maryland. Sullins, 340 Md. at 506 , 667 A.2d at 618 .

We were asked there to decide whether Allstate Insurance Company (“Allstate”), the insurer, had a duty to defend and/or indemnify Reverend D. Paul Sullins and Patricia H. Sullins, the insureds/landlords, in an action brought by their tenants alleging injury from lead paint exposure in the rented premises. Sullins, 340 Md. at 506-07 , 667 A.2d at 618-19 . Allstate argued that the insurance policy excluded coverage through the express language of the contract: “We do not cover bodily injury or property damage which results in any manner from the discharge, dispersal, release, or escape of: a) vapors, fumes, acids, toxic chemicals, toxic liquids or toxic gasses; b) waste materials or other irritants, contaminants or pollutants.” Sullins, 340 Md. at 506-07 , 667 A.2d at 618 . We concluded that an ambiguity existed regarding whether lead paint was encompassed by the language of the policy exclusion.

Sullins, 340 Md. at 509 , 667 A.2d at 620 . Applying the rules of insurance contract interpretation employed in Maryland state courts, we stated that where there is no extrinsic evidence to clarify the parties’ intentions regarding terms, following a finding of ambiguity, “the policy must be construed against Allstate as the drafter of the policy.” Sullins, 340 Md. at 509-10 , 667 A.2d at 620 . We concluded that “the pollution exclusion clause does not remove Allstate’s duty to defend the Sullinses in the underlying lead paint poisoning action,” and the pollution exclusion alone would not “insulate the insurer from indemnifying its insured.” Sullins, 340 Md. at 518 , 667 A.2d at 624 . In finding ambiguity in the language of the pollution exclusion, we stated that “[t]he terms in the exclusion, ‘contaminants’ and ‘pollutants,’ are susceptible of two interpretations by a reasonably prudent layperson.

By one interpretation, these terms encompass lead paint; by another interpretation, they apply only to cases of environmental pollution or contami ⁴⁵⁷ nation, and not to products such as lead paint.” Sullins, 840 Md. at 509, 667 A.2d at 620 . To support the determination of the existence of ambiguity with these terms as used in the exclusion clause of the insurance policy, the Court first analyzed dictionary definitions of the terms and concluded that a reasonable prudent layperson may consider lead paint to be a “contaminant” or “pollutant.” Sullins, 340 Md. at 510 , 667 A.2d at 620 . We also concluded, however, that a reasonably prudent layperson may interpret the terms as not including lead paint. Sullins, 340 Md. at 511 , 667 A.2d at 620 .

After noting conflicting interpretations by courts of our sister states of the term “pollutant” in the context of lead paint exposure, the Court also catalogued numerous foreign courts that found various other products not to be “pollutants” or “contaminants.” Sullins, 340 Md. at 511-13 , 667 A.2d at 620-21 . After a historical review of the evolution of pollution exclusions, the Court concluded ultimately that “the insurance industry intended the pollution exclusion to apply only to environmental pollution.” Sullins, 340 Md. at 515-16 , 667 A.2d at 623 . Citing St. Leger v. American Fire and Casualty Insurance Company, 870 F.Supp. 641 (E.D.Pa.1994), and Atlantic Mutual Insurance Company v. McFadden, 413 Mass. 90 , 595 N.E.2d 762 (1992), the Court recognized that “the conflict in judicial opinions regarding whether lead paint is a ‘pollutant’ under the pollution exclusion remains.” Sullins, 340 Md. at 516 , 667 A.2d at 623 . On this point, however, we held “that conflicting interpretations of policy language in judicial opinions is not determinative of, but is a factor to be considered in determining the existence of ambiguity.” Sullins, 340 Md. at 518 , 667 A.2d at 624 .

III. “The promise to defend the insured, as well as the promise to indemnify, is the consideration received by the insured for payment of the policy premiums.” Brohawn v. Transamerica Insurance Company, 276 Md. 396, 409 , 347 A.2d 842, 851 (1975). In Aetna Casualty & Surety Company v. Cochran, 337 Md. 98, 102 , 651 A.2d 859, 861 (1995) (citing ⁴⁵⁸ Brohawn, supra), we stated that “an insurance company has a duty to defend its insured for all claims which are potentially covered under an insurance policy.” See also Litz v. State Farm Fire & Casualty Company, 346 Md. 217, 231 , 695 A.2d 566, 572 (1997) (“If there is a possibility, even a remote one, that the plaintiffs claims could be covered by the policy, there is a duty to defend.”). To determine in a given instance whether an insurer has a duty to defend, we engage in a two-part inquiry, as articulated in St. Paul Fire & Marine Insurance Company v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282, 285 (1981): In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage?

The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit. Thus, in the present case, we shall determine first the intended scope and limitations of coverage under the primary general liability and umbrella policies at the time of execution. Next, we shall determine whether the allegations — that proper use of the Insureds’ welding products in the regular course of business produced harmful localized fumes containing manganese causing bodily harm and neurological damage — potentially would be covered under the insurance policies as written. When interpreting the meaning of an insurance policy under the first prong of our analytical paradigm, we construe the instrument as a whole to determine the intention of the parties.

Cheney v. Bell National Life Insurance Company, 315 Md. 761, 767 , 556 A.2d 1135, 1138 (1989); Pacific Indemnity Company v. Interstate Fire & Casualty Company, 302 Md. 383, 388 , 488 A.2d 486, 488 (1985) (citations omitted). We have stated that “[a]n insurance policy is a contract between the parties, the benefits and obligations of which are defined by the terms of the policy.” Kendall v. Nationwide ⁴⁵⁹ Insurance Company, 348 Md. 157, 165 , 702 A.2d 767, 770 (1997). Thus, “[w]e look first to the contract language employed by the parties to determine the scope and limitations of the insurance coverage.” Cole v. State Farm Mutual Insurance Company, 359 Md. 298, 305 , 753 A.2d 533, 537 (2000) (citing Chantel Associates v. Mount Vernon Fire Insurance Company, 338 Md. 131, 142 , 656 A.2d 779, 784 (1995), and Kendall, 348 Md. at 165 , 702 A.2d at 771 ). When interpreting the language of a contract, “we accord a word its usual, ordinary and accepted meaning unless there is evidence that the parties intended to employ it in a special or technical sense.” Cheney, 315 Md. at 766 , 556 A.2d at 1138 (citing Pacific Indemnity Company, 302 Md. at 389 , 488 A.2d at 488 , and Mutual Life Insurance Company v. Murray, 111 Md. 600, 605 , 75 A. 348 (1909)).

Additionally, Maryland state courts “examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.” Pacific Indemnity Company, 302 Md. at 388 , 488 A.2d at 488 (citations omitted). If an analysis of the language shows that the terms used in the insurance policy are plain and unambiguous, “we will determine the meaning of the terms of the contract as a matter of law,” Cole, 359 Md. at 305 , 753 A.2d at 537 ; however, “if the language is ambiguous, extrinsic evidence may be consulted.” Collier v. MD-Individual Practice Association, Inc., 327 Md. 1, 6 , 607 A.2d 537, 539 (1992). As we have stated on numerous occasions in the context of contract interpretation, “[a] term of a contract is ambiguous if, to a reasonably prudent person, the term is susceptible to more than one meaning.” Cole , 359 at 305-06, 753 A.2d at 537 (citing Pacific Indemnity Company, 302 Md. at 389 , 488 A.2d at 489 ; Pryseski, 292 Md. at 198 , 438 A.2d at 288 ; Truck Insurance Exchange v. Marks Rentals, Inc., 288 Md. 428, 433 , 418 A.2d 1187, 1190 (1980)). Maryland does not follow, as a matter of first resort, the view of construing an insurance policy most strongly against the insurer, Cheney, 315 Md. at 766 , 556 A.2d at 1138 ; however, if ambiguity is determined to remain after consideration of extrinsic evidence, “it will ordi ⁴⁶⁰ narily be resolved against the party who drafted the contract,” where no material evidentiary factual dispute exists.

Collier, 327 Md. at 6 , 607 A.2d at 539 ; see also Brownstein v. New York Life Insurance Company, 158 Md. 51, 59 , 148 A. 273, 276 (1930) (“[I]t is a rule common to the construction of all written instruments that it is to be taken, in cases of doubtful meaning, against the draftsman.”); Truck Insurance Exchange, 288 Md. at 435 , 418 A.2d at 1191 (“[I]t is a sound principle of contract construction that where one party is responsible for the drafting of an instrument, absent evidence indicating the intention of the parties, any ambiguity will be resolved against that party.”). Moreover, we have stated that “any doubt as to whether there is a potentiality of coverage under an insurance policy is to be resolved in favor of the insured.” Chantel Associates, 338 Md. at 145 , 656 A.2d at 786 (citing U.S. Fidelity & Guaranty Company v. National Paving & Contracting Company, 228 Md. 40, 55 , 178 A.2d 872, 879 (1962)).

IV

The issue of whether a total pollution exclusion clause bars coverage for injuries caused by various substances has been litigated heavily in state and federal courts in modern times. See Meridian Mutual Insurance Company v. Kellman, 197 F.3d 1178, 1181 (6th Cir.1999) (“State and federal courts are split on the issue of whether an insurance policy’s total pollution exclusion bars coverage for all injuries caused by contaminants, or whether the exclusion applies only to injuries caused by traditional environmental pollution.”); Center for Creative Studies v. Aetna Life & Casualty Company, 871 F.Supp. 941, 943 (E.D.Mich.1994) (quoting Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy for Insurers and Policyholders