Polkow v. Citizens Insurance Co. of America

We granted leave in this case to consider an insurance contract with a pollution-exclusion clause and an exception to that exclusion where the discharge is sudden and accidental. In applying the definition of the "sudden and accidental” exception to this case, we recognize that the insurance contract contains a duty-to-defend clause. Thus, the insurer has a duty to defend against any claim where coverage is even arguable, even where the claim may be groundless or frivolous. The posture of the case is one of summary disposition; there has been no fact finding, and there is, at the very least, a question of fact regarding whether coverage is "arguable.” Accordingly, we reverse the decision of the Court of Appeals and remand for further proceedings. To avoid redundancy, we adopt the statement of facts as set out in Justice Riley’s dissent and direct our focus to the resolution of the appeal.

Polkow testified in his deposition that there was frequent spillage during the transfer process from the tanker truck to the underground tanks. These "mini-spills” spanned many years and apparently resulted from ongoing, regular business activity. Admittedly, this could constitute grounds for a trier of fact to conclude that Polkow "expected” the release of contaminants. The difficulty is that there was some evidence that the contaminants at issue were not from these oil leaks and indeed may be entirely unrelated to Polkow’s operation. In addition, the contamination may have resulted from a discharge from the underground tanks. In any event, there are factual disputes regarding the cause of the contamination. Therefore, resolution of whether the sudden and accidental exception applies is impossible, given the current state of factual development. The resolution of this question requires an examination of whether the discharge of pollutants was sudden and accidental. On a record where it is unclear even what the discharge was, how can we, absent some form of augury, possibly declare that this unknown form of discharge was not sudden and accidental? The dissent criticizes the lower court for focusing upon whether the damage was "sudden and accidental” rather than on whether the release was "sudden and accidental.” Post, p 189. The dissent, however, declares that the release was not "sudden and accidental” without any determination of exactly what the release was in this case. It was the "duty of [the insurer] to undertake the defense until it could confine the claim to a recovery that the policy did not cover.” Jonesville Products, Inc v Transamerica Ins Group, 156 Mich App 508, 513; 402 NW2d 46 (1986), cited with approval by the majority in Protective Nat'l Ins Co of Omaha v City of Woodhaven, 438 Mich 154; 476 NW2d 374 (1991), a companion to this case.

The grant of summary disposition was inappropriate in light of the factual dispute. The dissent would reverse the grant of summary disposition in favor of the plaintiff and impliedly grant summary disposition in favor of the defendant: "[Defendant would have no duty to defend or indemnify. Finally, we decline to address the remaining issues because our disposition of the pollution exclusion would dispose of this case.” Post, pp 195-196. (Emphasis added.) We accept the proposition that the pollution exclusion is dispositive and that the issue is whether the discharge was sudden and accidental. We note, however, that there has been a lack of factual resolution regarding exactly where the release of the pollution occurred. The insurer’s duty to provide a defense extends to allegations which even arguably come within the policy coverage. Allstate Ins Co v Freeman, 432 Mich 656; 443 NW2d 734 (1989). Fairness requires that there be a duty to defend at least until there is sufficient factual development to determine what caused the pollution so that a determination can be made regarding whether the discharge was sudden and accidental. Until that time, the allegations must be seen as "arguably” within the comprehensive liability policy, resulting in a duty to defend.

The dissent concedes that "the duty to defend is broader than the duty to indemnify and is properly invoked when claims are even arguably within coverage.” Post, p 185. In addition, the dissent, citing Guerdon Industries, Inc v Fidelity & Casualty Co of New York, 371 Mich 12; 123 NW2d 143 (1963), correctly states, "any doubt pertaining to application of the duty to defend is to be resolved in favor of the insured.” Post, p 185. But without proof of the source of the discharge, the court cannot determine whether the discharge falls within the pollution-exclusion clause or whether the unknown discharge falls within the sudden and accidental exception to the exclusion clause. This uncertainty creates doubt regarding coverage. Summary disposition was inappropriate.

A remand is needed in this case because application of the pollution-exclusion clause and of the exception to that exclusion depend upon the facts of each case. See Grant-Southern Iron & Metal Co v CNA Ins Co, 905 F2d 954 (CA 6, 1990) (summary judgment was reversed on the basis of the existence of a genuine issue of fact regarding how the discharge of contaminants occurred). The circuit court, despite its unsuccessful attempt to get the parties to stipulate facts, resolved the factual disputes itself, thus depriving the parties of the right to an evidentiary hearing. Well-established summary disposition procedures require this Court to reverse the grant of summary disposition and remand the case for factual determinations.

Levin, Brickley, and Boyle, JJ., concurred with Cavanagh, C.J.

The exclusion applies:

(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

The policy defines the obligation of Citizens Insurance Company as follows:

[To] pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such .bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent .... [Emphasis added.]

This obligation hinges upon the presence of a "suit” to defend against; this Court has elected not to address this threshold issue whether a "suit” exists on these facts.

Indeed, the dissent states that "[b]ecause the pollutants were released in the ordinary course of business, and occurred over a period of years, plaintiff must have expected that spillage would result from his transfer operations.” Post, p 192.

The contaminants found in the downgrade wells were chlorinated solvents, not any type of oil. One expert, Aqua-Tech, suggested that the contamination of nearby wells may have been caused by a nearby electrical substation located upgrade of the affected wells and not by the Polkow facility.

While the court rules permit a grant of summary disposition to the nonmoving party, even the defendant in this case continues to argue that there are genuine issues of material fact precluding summary disposition.