DAVID J. WAXSE, United States Magistrate Judge.
Plaintiffs brought this declaratory judgment and breach of contract action against Defendant American Family Mutual Insurance Company. This matter is before the Court on the parties' cross-motions for partial summary judgment on Plaintiffs' claim for declaratory judgment: Plaintiffs' Motion for Partial Summary Judgment (doc. 33) and Defendant's Motion for Partial Summary Judgment (doc. 46). The motions are fully briefed and are therefore ripe for consideration. For the reasons set forth below, Plaintiffs' Motion is denied and Defendant's Motion is granted.
The following facts are uncontroverted.
1. Plaintiffs purchased insurance policy no. 15DU-0910-01 entitled "KANSAS HOMEOWNERS POLICY—GOLD STAR SPECIAL DELUXE FORM (ED 06/94) KS" (the "Policy") from Defendant for the Plaintiffs' two-story home located at 6618 Overhill Road, Mission Hills, Kansas (the "Home").
2. Defendant drafted the Policy.
3. Plaintiffs paid the premium necessary to purchase the Policy.
4. The Policy was in effect on August 27, 2008.
5. On August 27, 2008, a fire broke out in the Home.
6. The fire was contained in the basement, but the first and second floors suffered smoke and soot damage from the fire.
7. Plaintiff Dr. Roger Gerdes practiced as a dentist from 1976 to 1989.
8. After Plaintiff Dr. Gerdes sold his dental practice, he had approximately 2 tablespoons of mercury stored in the basement of the Home in a heavy duty plastic "hiker's" bottle with water over it, as he was trained in dental school.
9. After an investigation, the American Family Investigation Report concluded that the cause of the fire was "accidental."
10. The American Family Investigation Report describes the fire damage to include smoke and soot damage.
11. The American Family Investigation Report concluded that the mercury "was in the direct fire and the mercury spread throughout the house—contaminating a large portion of the home."
12. After the fire, the Home was found to have been contaminated with mercury.
13. The Policy provides coverage for "risks of accidental direct physical loss to property described in Coverage A—Dwelling and Dwelling Extension, unless the loss is excluded in this policy."
14. The Exclusions-Section I of the Policy states, in part, as follows:
16. Mercury is listed as a hazardous substance by the Environmental Protection Agency.
17. The last exclusion found in Part A of the Exclusions—Section I of the Policy states, with original formatting intact:
18. Apex Environmental Consultants, Inc. ("Apex"), hired by Defendant, summarized that its "work was initiated as a result of a recent house fire that reportedly impacted a container of stored mercury."
19. Apex also stated "that mercury contamination was being tracked through the house by first responders, adjusters, contractors, occupants, and others responding to the fire loss."
20. Apex also confirmed that "[t]he highest levels of mercury contamination were found on those surfaces containing heavy soot."
21. According to the Apex investigation, the "[s]amples collected from soot-affected surfaces contained more than 150 times higher mercury content than samples collected from visibly unaffected surfaces."
22. On September 18, 2008, Defendant sent Plaintiffs a letter that stated, in part, "[w]e are advising you at this time that there is a question whether coverage under the policy mentioned above [the Policy] will apply to this loss for pollution damages."
23. Defendant agreed to pay Plaintiffs for some of the fire damage, including payment to repair the fire, smoke and soot damages to the Home, as well as certain amounts for personal property and pollution cleanup.
24. The amount that Defendant agreed to pay Plaintiffs did not include any amounts related to the mercury damage to the Home.
25. Plaintiff Dr. Gerdes did not accept the payment Defendant offered, in part, because he "thought that the mercury damage would be covered under the policy because it was a direct result of the fire."
26. The Building Inspector for Mission Hills sent Plaintiffs an April 13, 2009 letter informing them that "the City of Mission Hills hereby orders the demolition of" the Home by July 13, 2009.
28. The Home was demolished in May 2009.
29. The Declarations page of the Policy states "Latest Building Cost Index is 184."
30. In response to Plaintiffs' request for "the `Building Cost Index 184' referenced in Declarations page of the Policy," Defendant responded as follows:
31. The Supplementary Coverages— Section I of the Policy states, in part, as follows in Paragraph 7: "Increased Building Replacement Coverage. We will settle covered losses to the dwelling under Coverage A—Dwelling . . . at replacement cost without regard to the limit, subject to the following provisions: a. You have insured your dwelling . . . to 100% of their replacement cost as determined by our Residential Building Cost Guide."
32. In response to Plaintiffs' request for "a copy of `our Residential Building Cost Guide' referenced in the Supplemental Coverages—Section I section of the Policy," Defendant responded as follows:
Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to judgment as a matter of law."
Because jurisdiction over this matter is based on diversity of citizenship between the parties, the court will apply the substantive law of the forum state.
Plaintiffs seek declaratory judgment that: (1) the Policy is ambiguous because (i) the definition of pollutant is ambiguous, (ii) the pollution exclusion is ambiguous, and (iii) Defendant was confused as to which portion of the Policy it should rely upon to agree to pay Plaintiffs $10,000.00 for pollution cleanup; (2) all damage directly resulting from the fire, including mercury contamination, is a covered loss under the Policy; and (3) Plaintiffs are not confined by the Policy limits because the phrase "Latest Building Cost Index is 184" is ambiguous. Plaintiffs argue they are entitled to summary judgment on their claim for declaratory judgment because the uncontroverted facts demonstrate that Plaintiffs are entitled to their requested relief.
Defendant, on the other hand, argues that the definition of pollutant and the pollution exclusion in the Policy clearly and unambiguously exclude from coverage any damages caused by the mercury contamination. Defendant further argues that the phrase "Latest Building Cost Index is 184" is not ambiguous and, therefore, Plaintiffs are bound by the Policy limits. Defendant contends that Plaintiffs are attempting to create ambiguity in the Policy where none exists. Defendant therefore argues that the Court should grant summary judgment in its favor and against Plaintiffs on Plaintiff's claim for declaratory judgment.
Before examining the Policy, the Court must review the general rules for construction of insurance policies under Kansas law.
"As a general rule, the construction and effect of a written contract of insurance is a matter of law to be determined by the court. If the facts are admitted,. . . then it is for the court to decide whether they come within the terms of the policy."
An insurance policy "must be construed according to the sense and meaning of the terms used, and if the language is clear and unambiguous, it must be taken in its plain, ordinary and popular sense."
The insurer, as the drafter of the insurance policy, has a duty to make the meaning of the terms of that policy clear.
"To be ambiguous, a contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language."
With these rules of construction in mind, the Court turns to the parties' arguments regarding construction of the Policy.
Plaintiffs, as the insureds, have the burden of showing that the loss claimed is covered by the Policy.
Defendant, as the insurer, has the burden to show that Plaintiffs' claimed loss is excluded by a specific provision of the Policy.
The Policy defines "pollutant" as follows:
Mercury is listed as a hazardous substance by the Environmental Protection Agency.
Defendant argues that the pollution exclusion in the Policy clearly excludes coverage for damages caused by any "substance listed as a hazardous substance by any governmental agency," which includes mercury, "regardless of any other cause or event contributing concurrently or in any sequence to the loss," namely, the fire. Defendant therefore argues that the Policy unambiguously excludes coverage for the mercury contamination and there is no need to examine the Policy further in order to create ambiguity where none exists.
Plaintiffs disagree and argue that the Policy does not exclude its claimed loss because the Policy is ambiguous. Plaintiffs contend that the Policy is ambiguous
The Court will examine the parties' respective arguments on each of these issues raised by Plaintiffs, keeping in mind that Defendant has the burden to demonstrate that the pollution exclusion applies.
Plaintiffs argue that the definition of pollutant in the Policy is ambiguous because other courts have found similar definitions of pollutant to be ambiguous. Plaintiffs point the Court to the decision in Regent Insurance Company v. Holmes.
The insurance policy in Regent provided coverage for liability arising from bodily injury.
The Regent court concluded that the policy was ambiguous because its definition of pollutant used the terms "irritant" and "contaminant" without defining them.
Defendant argues that Plaintiffs' reliance on Regent is misplaced because the Regent case is distinguishable from this action. The Court agrees. As Plaintiffs point out, the facts of the case determine whether a provision is ambiguous.
Under the facts of this case, it is clear that the term pollutant includes any "substance listed as a hazardous substance by any governmental agency." It is also clear that mercury is listed as a hazardous substance by the Environmental Protection Agency. The Court therefore concludes that it need not search for a definition of pollutant because the Policy makes it clear that mercury is considered a pollutant. The Court will not strain to create an ambiguity where none exists.
In so concluding, the Court relies on two cases identified by Defendant where the Kansas Court Appeals found a similar definition of pollutant unambiguous as applied to the specific facts of the case. In Atlantic Avenue Associates v. Central Solutions, Inc.,
The insurance policy in Atlantic Avenue contained a pollution exclusion, which excluded from coverage property damage arising out of the actual release or seepage of pollutants.
The Kansas Court of Appeals found that the trial court erred in concluding that the pollution exclusion was ambiguous. The court explained that "[w]here the language of a contract is clear, the court must enforce the terms as written and not look for meanings that do not appear on the instrument's face."
The Kansas Court of Appeals also dealt with a pollution exclusion in Crescent Oil Company v. Federated Mutual Insurance Company.
The insurance policy at issue in Crescent contained a pollution exclusion, which excluded coverage for property damage caused by the release or escape of pollutants.
The Kansas Court of Appeals dismissed Crescent's arguments, concluding, "Cases in some jurisdictions may have limited the scope of the definition of pollutant under the exclusion in a number of ways, but we are not constrained to do so."
The Court finds that the reasoning applied by the Kansas Court of Appeals in Atlantic Avenue and Crescent Oil is equally applicable in this case. The Court need not search for a definition of pollutant or find ambiguity where none exists. The Court holds that the definition of pollutant in the Policy, as applied to the facts of this case, is not ambiguous. The term pollutant clearly includes mercury, which is listed as a hazardous substance by the Environmental Protection Agency. Finding no ambiguity, the Court will give the definition of pollutant its plain and ordinary meaning and there is no need for judicial interpretation. Rather, the Court must enforce the definition of pollutant according to its terms, which demonstrate that mercury is a pollutant under the Policy.
Plaintiffs argue that the pollution exclusion in the Policy is ambiguous because (i) Defendant has inconsistently applied the exclusion and (ii) the last sentence in the Exclusions—Section I, Part A of the Policy makes the pollution exclusion ambiguous. The Court will address each of these arguments in turn.
According to Plaintiffs, Defendant has not consistently applied the pollution exclusion, thereby creating an ambiguity in the Policy. It is uncontroverted that Defendant agreed to pay Plaintiffs for fire, smoke and soot damages to the Home. Plaintiffs argue that Defendant's agreement to pay for damages caused by smoke and soot is inconsistent with Defendant's refusal to pay for the mercury contamination In support of this argument, Plaintiffs point out that the pollution exclusion in the Policy excludes from coverage loss caused directly or indirectly from the actual discharge, dispersal and release "of pollutants from any source." The definition of pollutants includes smoke and soot. Thus, Plaintiffs argue that when the definition of pollutant is read together with the pollution exclusion, the Policy excludes coverage for smoke or soot "from any source," including the fire. Plaintiffs conclude that Defendant has inconsistently applied the pollution exclusion because the exclusion supports a refusal to pay for damages from smoke and soot caused by the fire, but Defendant has agreed to pay for those
Defendant argues that the pollution exclusion is unambiguous on its face and that its actions are entirely consistent with the Policy. Defendant points to the definition of pollutant and argues that when read as a whole the term pollutant includes "smoke" and "soot" resulting from a substance listed as a pollutant. Defendant also argues that the Policy is an "all risk" policy, meaning that damages from any cause are covered unless specifically excluded by the policy's terms. Defendant therefore reasons that because the Policy does not exclude smoke and soot damage caused by a fire, those damages are covered by the Policy.
The Court has looked at the pollution exclusion and the definition of pollutant and finds that given its natural and reasonable meaning, the Policy is unambiguous-it does not exclude damages from smoke and soot caused by the fire. The Court need not strain to create an ambiguity. In reading the Policy as a whole, it appears that the parties never intended to exclude smoke and soot damages caused by a fire. Indeed, it is hard to find that an insured would be willing to pay for a policy that covered damages caused by a fire, but not the damages caused by the smoke and soot from the fire.
Even if the Court were to be persuaded by Plaintiffs' argument and conclude that the pollution exclusion is ambiguous because of Defendant's application of the exclusion, it would only be with respect to whether the Policy excludes from coverage those damages caused by smoke and soot from a fire. In finding such an ambiguity, the Court would construe the Policy in the light most favorable to the Plaintiffs and would conclude that damages caused by smoke and soot from the fire are covered by the Policy. Since Defendant has already agreed to pay for damages caused by the smoke and soot from the fire, such a conclusion would be unnecessary. However, any ambiguity as to whether the pollution exclusion excludes from coverage the smoke and soot damage caused by the fire does not create a question of whether the pollution exclusion excludes from coverage those damages caused by the pollutant mercury. The Court has already concluded that the term pollutant unambiguous includes mercury.
Plaintiffs argue that the last sentence in the Exclusions—Section I, Part A of the Policy, which contains the pollution exclusion, creates an ambiguity in the pollution exclusion. The last sentence in the Exclusions—Section I, Part A is: "We do cover direct loss that follows, caused by Fire or Explosion." Plaintiffs claim that this sentence applies to each of the exclusions contained within the Exclusions— Section I, Part A, including the pollution
Defendant argues that Plaintiffs' interpretation of the exclusions section distorts the Policy to create an ambiguity where none exists. Defendant points out that the sentence relied upon by Plaintiffs appears after the last paragraph in the Exclusions—Section I, Part A of the Policy, which reads as follows with the formatting intact:
Defendant argues that the sentence relied upon by Plaintiffs is the last sentence in paragraph 9 and that the sentence only applies to paragraph 9, the water damage exclusion, and does not apply to every exclusion identified in the Exclusions— Section I, Part A. In support of this argument, Defendant points out that the sentence is indented so as to fall under the numbering for paragraph 9 and that the sentence is attached to paragraph 9. Defendant argues that it is clear that the sentence only applies to paragraph 9.
The Court has reviewed the Policy as a whole, including the Exclusions—Section I, Part A. The Court notes that the sentence relied upon by Plaintiffs is indented so as to fall under the numbering for paragraph 9 and the sentence is attached to paragraph 9 (there is no space between paragraph 9 and the sentence). In addition, several of the other exclusion paragraphs found in the Exclusions—Section I, Part A are similarly structured and formatted. For example, paragraph 1 excludes loss caused by earth movement and lists those causes specifically excluded. The paragraph ends with the following sentence, which is indented so as to fall under the numbering for paragraph 1 and is attached to the paragraph: "We do cover only direct resulting loss when caused by: a. fire; b. explosion other than the explosion of a volcano; or c. if an insured period, breakage of glass or safety glazing material which is part of a building." In addition, Paragraph 5 in the exclusions section also ends with a sentence which is indented to fall under the numbering for paragraph 5 and is attached to the paragraph, which states: "We do cover loss caused by actions of civil authorities to prevent the spread of a fire caused by an insured peril." The pollution exclusion found in paragraph 6 is not followed by a similar sentence.
The Court concludes that a plain, natural, and reasonable interpretation of the Policy demonstrates that the sentence relied upon by Plaintiffs applies only to paragraph 9, the water damage exclusion. The formatting of paragraph 9 and the structure of the Exclusions—Section I, Part A as a whole support this interpretation. If the Court were to adopt Plaintiffs' interpretation
Plaintiffs argue that the Policy is ambiguous because Defendant was confused as to which portion of the Policy it should rely upon to agree to pay Plaintiffs $10,000.00 for pollution cleanup. Plaintiffs argue that during Plaintiff Dr. Roger Gerdes' November 2009 deposition and in Defendant's original response to Plaintiffs' motion for summary judgment, Defendant relied upon the pollution endorsement to the Policy as its basis for agreeing to pay Plaintiffs $10,000.00 for pollution cleanup. Plaintiffs point out that after the testimony of one of Defendant's representatives on January 20, 2010 that the endorsement was not relevant, Defendant amended its summary judgment response to remove all references to the endorsement and to insert references to a different provision in the Policy—paragraph 13 in the Supplementary Coverages—Section I. Plaintiffs argue that Defendant's confusion over which section of the Policy it should rely upon to agree to pay Plaintiffs for pollution cleanup demonstrates that the Policy is ambiguous.
The Court is not at all persuaded that the pollution exclusion relied upon by Defendant to deny coverage for the mercury contamination is somehow rendered ambiguous by Defendant's counsel's mistake as to which portion of the Policy was being relied upon to provide coverage for pollution cleanup. Defendant argues that statements of counsel are not evidence and any drafting error in the pleadings on the part of Defendant's counsel cannot be used to support a claim that the Policy is ambiguous. The Court agrees.
Furthermore, even if Defendant's change in reliance from the pollution endorsement to paragraph 13 in the Supplementary Coverages—Section I of the Policy creates an ambiguity, the Court is not persuaded that the pollution exclusion is thus rendered ambiguous. To be clear, the pollution cleanup provision is not the same as the pollution exclusion. Defendant does not rely on the pollution cleanup provision to deny coverage for the mercury contamination, but rather relies on this provision to agree to pay Plaintiffs' $10,000.00 for pollution cleanup. Defendant relies on the pollution exclusion to deny coverage for the mercury contamination. Thus, any ambiguity in the Policy as to which provision should be relied on to pay for pollution cleanup does not thereby create an ambiguity in the pollution exclusion. The Court will not create ambiguity in the pollution exclusion where none exists.
Having considered the parties' arguments concerning the Policy's coverage and exclusions, the Court holds that Defendant has satisfied its burden of demonstrating that the Policy excludes coverage for the mercury contamination.
Finally, Plaintiffs argue that they should not be held to the Policy's limits because the phrase "Latest Building Cost Index is 184," which appears on the Declarations page of the Policy, is ambiguous. The Court concludes, however, that it need not address this last argument because the Court has already concluded that the Policy is not ambiguous and that damages for
For the reasons set forth above, Plaintiffs' Motion is denied and Defendant's Motion is granted. The Court hereby enters summary judgment in favor of Defendant and against Plaintiffs on Plaintiffs' declaratory judgment action. The Court holds that the Policy clearly and unambiguously excludes damages for the mercury contamination from coverage.
