Andersen v. Highland House Co.

757 N.E.2d 329, 93 Ohio St. 3d 547

• Court: Ohio Supreme Court
• Decided: November 14, 2001
• Docket: No. 00-1214
• Status: Published

Opinions

Alice Robie Resnick, J.

On March 7, 1997, Lisa Andersen died and Daniel Wojtala was injured after inhaling carbon monoxide fumes from a faulty heating unit inside the Highland House Apartments, a multiunit complex owned by appellant Highland House Company (“Highland House”) and managed by appellant Renaissance Management, Inc. (“RMI”). At the time of the accident, Highland House and RMI were covered by commercial insurance policies issued by appellee Indiana Insurance Company (“Indiana Insurance”). All of the policies contained pollution exclusions.

As a result of Andersen’s death, three lawsuits were filed. In the first action, Andersen’s estate sued Highland House and RMI for wrongful death. In the second action, Highland House and RMI sought a declaratory judgment that Indiana Insurance had a duty to defend and indemnify them in the wrongful death action. In the third action, Indiana Insurance sought a declaratory judgment that it did not have a duty to defend and indemnify Highland House and RMI. All three cases were consolidated and the underlying tort claims were settled. Thereafter, the trial court focused on the scope of policy coverage relative to the pollution exclusions.

Highland House and RMI moved for summary judgment, arguing that the pollution exclusion language was ambiguous and should only be construed as pertaining to environmental pollution. Conversely, Indiana Insurance contended that the policy language was unambiguous and clearly excluded claims for death and injuries related to residential carbon monoxide poisoning. The trial court ruled in favor of Highland House and RMI, and Indiana Insurance appealed. The Eighth District Court of Appeals reversed, finding that the policies precluded coverage. The cause is now before this court upon the allowance of a discretionary appeal.

The issue before us is whether the pollution exclusion language in the present case precludes coverage for death and injuries stemming from residential carbon monoxide poisoning. We hold today that Indiana Insurance does have a duty to defend and indemnify the insureds because the policy language in question does not clearly, specifically, and unambiguously state that coverage for residential carbon monoxide poisoning is excluded. We, therefore, reverse the judgment of the court of appeals.

A grant of summary judgment is reviewed under a de novo standard. Doe v. Shaffer (2000), 90 Ohio St.3d 388, 390, 738 N.E.2d 1243, 1245. In order to resolve the coverage question, we must first review the pollution exclusion policy language. In pertinent part, the exclusion states:

“2. Exclusions.

“This insurance does not apply to:

* *

“f. Pollution

“(1) ‘Bodily injury* or ‘property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants:

“(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;

(6* * ‡

“Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

In Dealers Dairy Products Co. v. Royal Ins. Co. (1960), 170 Ohio St. 336, 10 O.O.2d 424, 164 N.E.2d 745, paragraph one of the syllabus, the court established that “[a] policy of insurance is a contract and like any other contract is to be given a reasonable construction in conformity with the intention of the parties as gathered from the ordinary and commonly understood meaning of the language employed.” (Emphasis added.)

Indiana Insurance argues that carbon monoxide qualifies as a “pollutant” in the instant case because it is a “gaseous * * * irritant or contaminant” and that by definition, it is “a colorless odorless very toxic gas * * * formed as a product of the incomplete combustion of carbon * * Webster’s Third New International Dictionary (1986) 336. Indiana Insurance further contends that Highland House and RMI should have known that deaths and injuries caused by carbon monoxide poisoning would not be covered based on the general definition of “pollutants” provided in the policy. However, in Home Indemn. Co. of New York v. Plymouth (1945), 146 Ohio St. 96, 32 O.O. 30, 64 N.E.2d 248, paragraph two of the syllabus, this court stated that “[w]here exceptions * * * are introduced into an insurance contract, a general presumption arises to the effect that that which is not dearly exduded from the operation of such contract is included in the operation thereof.” (Emphasis added.) Thus, Plymouth reasons that if a policy does not plainly exclude a claim from coverage, then an insured may infer that the claim will be covered..

In the case at bar, the policy in question never clearly excludes claims for deaths or injuries caused by residential carbon monoxide poisoning. It is not the responsibility of the insured to guess whether certain occurrences will or will not be covered based on nonspecific and generic words or phrases that could be construed in a variety of ways. Thus, in order to defeat coverage, “the insurer must establish not merely that the policy is capable of the construction it favors, but rather that such an interpretation is the only one that can fairly be placed on the language in question.” Reiter, Strasser & Pohlman, The Pollution Exclusion Under Ohio Law: Staying The Course (1991), 59 U.Cin.L.Rev. 1165, 1179. See Lane v. Grange Mut. Cos. (1989), 45 Ohio St.3d 63, 65, 543 N.E.2d 488, 490 (“Where provisions of a contract of insurance are reasonably susceptible of more than one interpretation, they will be construed strictly against the insurer and liberally in favor of the insured”).

Furthermore, the genesis of the pollution exclusion does not support the notion that it was created to preclude the kind of claim involved in this case. In June 1970, the insurance industry “went on record as being ‘against’ intentional polluters and promulgated the qualified pollution exclusion for insertion in all comprehensive general liability (CGL) insurance policies.” (Footnotes omitted.) Reiter, Strasser & Pohlman, supra, 59 U.Cin.L.Rev. at 1168. The insurance industry explained that “[a]ccidental pollution continued to be insured under a CGL policy, but deliberate polluters would remain uncovered, unable to use insurance to avoid the financial consequences of their acts. On the basis of these representations, nearly every state, including Ohio, allowed the introduction of this new, qualified pollution exclusion.” (Footnotes omitted.) Id.

The exclusion disputed in the case at bar, the absolute pollution exclusion, “was drafted during the early 1980s and was incorporated into the standard form CGL [policies] in 1986.” Stempel, Reason and Pollution: Correctly Construing the “Absolute” Exclusion in Context and in Accord With Its Purpose and Party Expectations (1998), 34 Tort & Ins.L.J. 1, 5. The purpose of the new exclusion was “to replace the 1973 ‘sudden and accidental’ exclusion because insurers were distressed by judicial decisions holding that the 1973 exclusion did not preclude coverage for gradual but unintentional pollution.” Id. Further, “[t]he absolute exclusion was designed to bar coverage for gradual environmental degradation of any type and to preclude coverage responsibility for government-mandated cleanup[s].” Id.

Based on the history and original purposes for the pollution exclusion, it was reasonable for Highland House and RMI to believe that the policies purchased for their multiunit complex would not exclude claims for injuries due to carbon monoxide leaks. Thus, since insurance policies are interpreted strictly against the insurer, “[i]t will not suffice for [Indiana Insurance] to demonstrate that its interpretation is more reasonable than the policyholder’s.” Reiter, Strasser & Pohlman, supra, 59 U.Cin.L.Rev. at 1179. See Am. Fin. Corp. v. Fireman’s Fund Ins. Co. (1968), 15 Ohio St.2d 171, 174, 44 O.O.2d 147, 148, 239 N.E.2d 33, 35 (“[T]he insurer, being the one who selects the language, must be specific in its use, and an exclusion from liability must be clear and exact in order to be given effect”).

The legal effect of the reasonable belief on the part of Highland House and RMI is comparable to the effect of the reasonable-expectations doctrine.

The Restatement of the Law 2d, Contracts (1981), Section 211, Comment f, discusses the ambit of the reasonable-expectations doctrine:

“Terms excluded. * * * Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation. * * * Similarly, a party who adheres to the other party’s standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. * * * Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction.”

While we make no determination on the merits of the reasonable-expectations doctrine, this rationale could apply to the case at bar. Highland House and RMI are both involved in the rental property business. A major concern of these two entities, and many owners and managers of commercial and residential property, is deaths or injuries caused by carbon monoxide poisoning. To protect themselves from any potential claims based on that hazard, the two companies were covered by insurance policies. None of the policies identified carbon monoxide poisoning as a hazard excluded from coverage. Based on the information given in the policies, Highland and RMI reasonably believed that Indiana Insurance would defend and indemnify them against claims related to potential premises hazards and did not anticipate that such claims would be denied based on the pollution exclusion.

Other jurisdictions also recognize the importance of interpreting ambiguities in insurance contracts in favor of the insured. In Davis v. M.L.G. Corp. (Colo.1986), 712 P.2d 985, 989, the court, quoting Elliott Leases Cars, Inc. v. Quigley (1977), 118 R.I. 321, 325-326, 373 A.2d 810, 812, stated: “ ‘If there remains any doubt, the terms should be read in the sense which the insurer had reason to believe they would be interpreted by the ordinary reader and purchaser. The test to be applied is not what the insurer intended by his words, but what the ordinary reader and purchaser would have understood them to mean.’ ” (Emphasis added.) In Regional Bank of Colorado, N.A. v. St. Paul Fire & Marine Ins. Co. (C.A.10, 1994), 35 F.3d 494, 498, the court said that “[wjhile a reasonable person of ordinary intelligence might well understand [that] carbon monoxide is a pollutant when it is emitted in an industrial or environmental setting, an ordinary policyholder would not reasonably characterize carbon monoxide emitted from a residential heater which malfunctioned as ‘pollution.’ ” Although these cases are not controlling, they do provide persuasive support for the underlying notion that this particular policy language is ambiguous and therefore should be interpreted in favor of the insured. As the final authority on Ohio law, we must take the opportunity to prevent an absurd and unreasonable result — one that was never clearly intended by Highland House or RMI and one that was never clearly communicated by Indiana Insurance. The court in Am. States Ins. Co. v. Koloms (1997), 177 Ill.2d 473, 492-493, 227 Ill.Dec. 149, 158, 687 N.E.2d 72, 81, best described the real purpose of the pollution exclusion when it wrote: “Our review of the history of the pollution exclusion amply demonstrates that the predominate motivation in drafting an exclusion for pollution-related injuries was the avoidance of the ‘enormous expense and exposure resulting from the “explosion” of environmental litigation.’ (Emphasis added.) Weaver [v. Royal Ins. Co. of Am. (1996) ], 140 N.H. [780] at 783, 674 A.2d [975] at 977, quoting Vantage Development Corp. v. American Environment Technologies Corp., 251 N.J.Super. 516, 525, 598 A.2d 948, 953 (1991). * * * We would be remiss * * * if we were to simply look to the bare words of the exclusion, ignore its raison d’etre, and apply it to situations which do not remotely resemble traditional environmental contamination.” Based on this sound logic, and on other principles stated herein, we hold that carbon monoxide emitted from a malfunctioning residential heater is not a pollutant under the pollution exclusion of a comprehensive general liability policy unless specifically enumerated as such. We, therefore, reverse the judgment of the court of appeals and reinstate the judgment of the trial court.

Judgment reversed.

Douglas, F.E. Sweeney, Pfeifer and Lundberg Stratton, JJ., concur. Douglas, F.E. Sweeney and Lundberg Stratton, JJ., concur separately. Moyer, C.J., and Cook, J., dissent.