Builders Mutual Insurance v. Parallel Design & Development LLCBuilders Mutual Insurance v. Parallel Design & Development LLC
OPINION AND ORDER
On December 17, 2009, Plaintiff, Builders Mutual Insurance Company (“Builders Mutual”), filed a Complaint in the Richmond Division of this Court, seeking a declaratory judgment on three separate issues. In Count I, Builders Mutual seeks a declaration that it has no obligation under the applicable insurance contracts to defend or indemnify Parallel Design and Development LLC (“Parallel”), with respect to a lawsuit filed in state court against Parallel by Defendant Ricky L. Edmonds (“Edmonds”), because such coverage is excluded by the insurance contract’s Total Pollution Exclusion. In Count II, Builders Mutual seeks a specific declaration that it has no obligation to defend or indemnify Parallel for any medical monitoring sought by Edmonds in his underlying state lawsuit because such coverage is also excluded by the insurance contract’s Total Pollution Exclusion. In Count III, Builders Mutual seeks a declaration that the “Your Work” exclusion in the applicable insurance policy also excludes coverage for the claims alleged in the Edmonds state lawsuit. The case was transferred to this Division on June 1, 2010 and Builders Mutual filed the motion for summary judgment currently pending before the Court. After considering the Complaint, the briefs submitted by the parties, and the arguments made by counsel at the hearing on this motion, for the reasons set forth below, the Court DENIES IN PART Builders Mutual’s motion for summary judgment and therefore concludes that Builders Mutual does have a duty to defend Parallel in Edmonds’ underlying state court action. However, the Court HOLDS IN ABEYANCE Builders Mutual’s motion on the issue of indemnity until the underlying action is resolved.
I. Facts and Procedural History
A. Facts
Edmonds owns a home located on Holly Street in Richmond, Virginia. Compl. Ex. 2, at ¶ 1. This home was built by both The Overlook, L.L.C., which is not a party to this action, and Parallel.
Id.
Allegedly, when constructing this home, Parallel used “defective drywall” imported from China.
Id.
On September 3, 2009, Edmonds filed suit in the Circuit
Although Builders Mutual is not a party to the underlying state lawsuit, it has interests intertwined in the action because it has previously issued, to the Court’s knowledge, at least three insurance contracts to Parallel. As a result, Builders Mutual is providing Parallel with a defense in state court against Edmonds’ claims, subject to a reservation of rights. These insurance policies provide Parallel with coverage for the periods of June 2006 to June 2007, June 2007 to June 2008, and June 2008 to June 2009. Although there are three potentially applicable insurance policies, Builders Mutual has submitted evidence stating that “[bjecause the Certificate of Occupancy for Edmonds’ property ... was issued on July 25, 2006,” the policy spanning from June 2006 to June 2007 (“Applicable Policy”) “is the applicable policy with regard to the Edmonds’ claim.” Warbington Aff., at ¶ 3. Edmonds agrees that the June 2006 to June 2007 policy is controlling.
According to the Applicable Policy, Builders Mutual “will pay those sums that the insured [Parallel] becomes legally obligated to pay as damages because of ‘bodily injury 1 or ‘property damage’ to which this insurance applies.” Compl. Ex. 1, at p. 38 of 67. The insurance applies only if the “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory.” Id. However, the Applicable Policy also includes several relevant exclusions. In particular, Builders Mutual argues that the “Total Pollution Exclusion” and the “Your Work” exclusions are applicable here and bar coverage for the Edmonds claims.
1. Total Pollution Exclusion
According to the Applicable Policy’s Total Pollution Exclusion, the “insurance does not apply to:”
(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.
(2) Any loss, cost or expense arising out of any:
(a) Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “pollutants ”....
Insurance policies like the Applicable Policy are generally composed of a collection of basic form contracts, which are then supplemented with additional endorsements that either add terms to or modify terms in those basic form contracts. One such form contract included in the Applicable Policy is the Commercial General Liability coverage form. This Commercial General Liability coverage form contained a Pollution Exclusion, referred to as “Exclusion (f),” which included a definition of the word “pollutants.” However, the separate Total Pollution Exclusion endorsement modified portions of this Commercial General Liability policy, specifically, Exclusion (f). Of critical importance, the parties do not dispute that the Total Pollution Exclusion endorsement replaced Exclusion (f) in its entirety. While Exclusion (f) defined the term “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste,” id. at p. 39 of 67, the Total Pollution Exclusion, does not contain a definition of “pollutants.” As a result, the term “pollutants” in the Total Pollution Exclusion is left undefined in the Applicable Policy. 1
2. “Your Work” Exclusion
The Policy also includes an exclusion entitled “Damage to Work Performed by Subcontractors on Your Behalf.” Id. at p. 14 of 67. This exclusion, which replaces exclusion “1” in the basic Commercial General Liability policy, states that the “insurance does not apply to ... ‘property damage’ to ‘your work’ arising out of it or any part of it and included in the products-completed operations hazard.” Id. While there are several different components to this exclusion that involve complex definitions, the most significant aspect of the “Your Work” exclusion for purposes of this Opinion and Order is that it only has a bearing on coverage for “property damage.” Since that aspect of the exclusion proves dispositive in the Court’s ‘Tour Work” analysis, the Court need not delve into further detail with respect to this exclusion.
B. Procedural History
Builders Mutual’s Complaint seeks a declaratory judgment on several issues. In Count I, the Complaint seeks a declaratory judgment stating that Builders Mutual has no obligation to defend or indemnify Parallel, with respect to the Edmonds suit, because Edmonds’ claims are excluded under the Total Pollution Exclusion. Compl. ¶¶ 28-31. In Count II, Builders Mutual seeks a declaration that the portion of the Total Pollution Exclusion excluding coverage for any loss arising out of any “[r]e-quest, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of ‘pollutants’ ” relieves Builders Mutual of any obligation to defend or indemnify Parallel with respect to Edmonds’ requests for
After the Complaint was filed, the case was transferred to this Division of the Court. Docket No. 27. Subsequently Builders Mutual filed the motion for summary judgment addressed in this Opinion and Order. Docket No. 54. Builders Mutual argues that the Total Pollution Exclusion unambiguously excludes coverage for the claims in Edmonds’ underlying lawsuit, despite the fact that the term “pollutants” is undefined in the Applicable Policy. Further, Builders Mutual argues that coverage is also excluded under the “Your Work” exclusion.
Edmonds 2 presents an alternate view of the meaning of the terms in the Applicable Policy. According to Edmonds, the term “pollutants” can be interpreted by reasonable people in different ways. For example, Edmonds contends that the term can be reasonably read as only applying to traditional environmental pollutants, and therefore it would not apply to substances that cause damage in a localized, indoor setting, like the defective drywall in the present case. Further, Edmonds argues that the “Your Work” exclusion does not bar coverage here because determining its applicability requires analyzing materials outside of Edmonds’ underlying complaint and the Applicable Policy. Each of these arguments are addressed in turn below.
II. Standard of Review
A. Applicable Law
This case was brought before this Court under diversity of citizenship jurisdiction. Compl. ¶4. In suits filed in federal court under diversity jurisdiction, questions of procedural law are governed by federal law, e.g.,
Gasperini v. Ctr. for Humanities, Inc.,
“Summary judgment is particularly well-suited for resolution of insurance coverage disputes because the construction of insurance contracts is a legal question.”
Mount Vernon Fire Ins. Co. v. Adamson,
Case No. 3:09cv817,
Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute of fact exists.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
C. Virginia Law of Insurance Contracts
1. Duty to Defend and Duty to Indemnify
Since Builders Mutual has requested declaratory judgments on the issues of both its “duty to defend” and “duty to indemnify” Parallel, the Court will briefly address the rules of decision with respect to those two duties, before addressing general principles of Virginia insurance contract interpretation. “Under Virginia law, an insurer’s duty to defend arises ‘whenever the complaint against the insured alleges facts and circumstances, some of which, if proved, would fall within the risk covered by the policy.’ ”
Penn-America Ins. Co. v. Coffey,
The duty to indemnify, on the other hand, is different than the duty to defend. It is a narrower obligation.
Minn. Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP,
In order to make this indemnification determination, where there is an underlying state suit, the court considering the duty to indemnify question must generally analyze the ultimate findings of fact in the underlying state suit once it is concluded, rather than making its own evidentiary findings in the first instance.
Pa. Nat’l Mut. Cas. Ins. Co. v. Block Roofing Corp.,
2. General Principles of Virginia Insurance Contract Interpretation
“Courts interpret insurance policies, like other contracts, in accordance with the intention of the parties gleaned from the words they have used in the document.”
Seals v. Erie Ins. Exch.,
However, “[bjecause insurance companies typically draft their policies without the input of the insured, the companies bear the burden of making their contracts clear.”
Res. Bankshares Corp.,
“An ambiguity, if one exists, must be found on the face of the policy.”
Id.
“[L]anguage is ambiguous
3
when it may be understood in more than one way or when it refers to two or more things at the same time.”
Id.
“As with other contracts, when interpreting a policy courts must not strain to find ambiguities.”
Res. Bankshares Corp.,
When ultimately determining whether coverage exists, courts impose separate burdens on each party. “A policyholder bears the burden of proving that the policyholder’s conduct is covered by the policy.”
Res. Bankshares Corp.,
III. Discussion
Since the parties do not dispute the fact that damage from defective drywall falls within the Applicable Policy’s general coverage provisions, but rather only argue over whether several relevant exclusions bar coverage if the policy was to otherwise apply, this Court will only address the issues regarding the exclusions.
4
As a re-
A. The Total Pollution Exclusion
In analyzing the specific language in the Total Pollution Exclusion, the Court would typically analyze the meaning of the clause by examining the words contained within it in the order in which they appear. Therefore, the Court would ordinarily determine, in the following order, whether Edmonds’ complaint has alleged (1) “bodily injury” or “property damage,” which would (2) not have occurred but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape, of (3) “pollutants” at any time. However, since the lion’s share of the parties’ arguments revolve around whether the term “pollutants” is ambiguous in the context of the Applicable Policy, the Court will address that issue at the outset. If the Court concludes that the term is unambiguous in this context, it will then address the first two issues mentioned above regarding the applicability of the Total Pollution Exclusion to the present case.
1. Pollutants
Edmonds argues that his underlying state court complaint does not allege damage from a substance that can unambiguously be classified as a pollutant because a reasonable person could conclude that “pollutants” is limited to substances that cause “traditional pollution events that impact the environment” and therefore does not include damage caused by gases which are released in a home, create damage indoors, and originate from materials intentionally brought into that home. See Mem. Opp’n Summ. J. 2. Builders Mutual counters that such an interpretation “requires the Court to read into the Exclusion language nowhere found therein....” Mem. Supp. Summ. J. 10. As a result, according to Builders Mutual, “Edmonds simply cannot seriously dispute that the gases are pollutants” and such arguments “belie common sense.” Reply Mem. Supp. Summ. J. 6, 3.
“The word ‘pollutant’ has received a great deal of scrutiny by the courts” and has been the subject of intense litigation.
Firemen’s Ins. Co.,
While the Court is cognizant of the positions of courts in other jurisdictions, there are several reasons why many of those decisions lend little assistance to the Court in this case when determining whether the term “pollutants” is ambiguous. First, in the vast majority of the cases where courts are tasked with determining the meaning of a Pollution Exclusion, the term “pollutants” is defined. Here, the Applicable Policy contains no such definition. Second, this Court’s principal task is to try “to determine how the highest state court would interpret the law,” and in doing so, it “should not create or expand that State’s public policy.”
Wade v. Danek Med., Inc.,
In
City of Chesapeake v. States Self-Insurers Risk Retention Grp., Inc.,
In heeding
City of Chesapeake’s
direction, this Court would ordinarily look to the decisions of Virginia courts, and other courts applying Virginia law, to examine their stance on the issue of whether similar Pollution Exclusions are ambiguous. However, as mentioned above, relying on the outcome of such cases here is of limited utility because in the typical Pollution Exclusion case the word “pollutants” is defined.
See, e.g., Firemen’s Ins. Co.,
As to these alternate sources, the Court will first look to dictionary definitions to determine the manner in which “pollutants” is ordinarily used in everyday parlance — thus informing the Court of reasonable uses of the term when it is undefined in a contract.
Schwartz & Schwartz of Va., LLC,
a. Alternate Sources
i. Dictionary Definitions
In order to determine the usual, ordinary, and popular meaning of the term “pollutant,” the Court will first look to reputable dictionaries for the manner or manners in which the term “pollutants” is ordinarily used.
See Centennial Broad., LLC v. Burns,
Case No. 6:06cv00006,
This gloss is also borne out in other dictionary definitions of the term. For example, Black’s Law Dictionary defines the term “pollute” as “[t]o corrupt or defile; esp., to contaminate the soil, air, water with noxious substances,” Black’s Law Dictionary 1277 (9th ed. 2009), and the Oxford English Dictionary defines “pollutant” as “[a] polluting agent;
esp.
a noxious or poisonous substance which pollutes the environment.” Oxford English Dictionary Online (3d ed. 2006, online version updated Mar. 2011). While it is certainly plausible that the term could be used in a
ii Definition in the Context of the Policy as a Whole
As explained above, while the Court has noted that the term “pollutants” often carries with it a connotation of traditional environmental harm, in determining whether such a term is ambiguous, a court should look to the surrounding context of the policy because the Court cannot determine if a term is subject to multiple reasonable interpretations in a vacuum.
Res. Bankshares Corp.,
At best, language in the policy is conflicting as to the intended reach of the term “pollutants.” As evidence that the Pollution Exclusion was intended to apply to both traditional environmental pollution and damage occurring indoors (non-traditional environmental pollution), Builders Mutual highlights endorsement CG 26 47 05 98 (Exception for Building Heating Equipment). This endorsement states that subparagraph (l)(a) of Exclusion (f), which, of course, no longer exists in light of the Total Pollution Exclusion, “does not apply to ‘bodily injury’ if sustained within a building and caused by smoke, fumes, vapor or soot from equipment used to heat that building.” Compl. Ex. 1, at p. 51 of 67. According to Builders Mutual, if the exclusion was not intended to apply to indoor harm, the exception would be unnecessary. Although the heating equipment exception specifically says that it modifies Exclusion (f), which is no longer part of the policy, and thus this endorsement is of questionable applicability, Builders Mutual’s point is certainly one that supports its position. However, other endorsements to the policy militate in the opposite direction.
In addition to the Total Pollution Exclusion, the Applicable Policy contains exclusions such as an “Absolute Asbestos Exclusion,” a “Hazardous Properties of Lead Exclusion,” and a “Silica or Silica-Related Dust Exclusion.” If the definition of “pollutant” in the Applicable Policy were to sweep as broadly as Builders Mutual contends, these additional exclusions could arguably be redundant because damage caused by the substances that these exclu
Having determined by reference to dictionary definitions that the meaning of the undefined policy term “pollutants” can be understood in more than one way, and having determined that the language and context of the Applicable Policy fails to clarify this ambiguity, the reader is left asking what the term means. While the term may have more than one reasonable meaning, it is not for the Court to decide which meaning is “correct,” provided all meanings are reasonable. Therefore, as a result of the analysis above, the Court concludes, as an initial matter, that the term “pollutants” is ambiguous. However, before conclusively determining that the term is ambiguous in this context, the Court must address several countervailing considerations urged by Builders Mutual.
b. Countervailing Considerations
i. Definition in Subsequent Policies
The Court recognizes that the term “pollutant,” while not defined in the Applicable Policy, is defined in subsequent insurance policies issued to Parallel. Since those insurance policies are extrinsic to the Applicable Policy, the definition contained therein is considered parol evidence if the Court were to use it to clarify the meaning of the term “pollutant” in the Applicable Policy.
See Birmingham, Fire Ins. Co. v. Am. Nat’l Fire Ins. Co.,
The permissibility of considering parol evidence to clarify an ambiguity in an insurance contract turns on the type of am
With these different types of ambiguities in mind, the general rule in Virginia is “that insurance contracts, like other contracts, generally are to be construed according to their terms and without reference to parol evidence.”
S. Ins. Co. v. Williams,
In the present case, the term “pollutants,” when undefined, is patently ambiguous because, as discussed above, it can reasonably be interpreted in more than one way. It is not the type of term that appears “perfectly clear” at first, with the ambiguity only coming to light when viewed through the lens of subsequently discovered facts. Therefore, because the use of the term “pollutants” in the context of the Applicable Policy, without further definition, reflects a patent ambiguity, it cannot be explained by parol evidence. Accordingly, the Court will not consider the definition of “pollutants” provided in subsequent policies in order to clarify its meaning in the Applicable Policy.
See Birmingham Fire Ins. Co.,
ii. Opinions from Other Jurisdictions
In addition to highlighting the fact that “pollutants” is defined in subsequent policies, to guide the Court’s analysis Builders Mutual also points to cases from other
For example, Builders Mutual cites
Certain Underwriters at Lloyd’s London v. C.A. Turner Construction Co.,
Builders Mutual also relies upon
Florida Farm Bureau Insurance Co. v. Birge,
c. “Pollutants” is Ambiguous in this Context
Having concluded that the Court cannot consider the subsequent insurance policies, and having concluded that the case law urged by Builders Mutual is unpersuasive, such asserted countervailing considerations urged by Builders Mutual do not sway the Court from its initial conclusion that the term “pollutant,” in the Total Pollution Exclusion of the Applicable Policy, “may be understood in more than one way.”
Granite State Ins. Co.,
2. “Your Work” Exclusion
Builders Mutual contends that the Edmonds
property
damage claims are excluded from coverage because of the Applicable Policy's “Your Work” exclusion. While such assertion may or may not be accurate, an exclusion that applies solely to Edmonds’ property damage claims would not eliminate Builders Mutual’s duty to defend Parallel in the pending state court action. The law in Virginia provides that “[w]hen an initial pleading ‘alleges facts and circumstances,
some of which would, if proved,
fall within the risk covered by the policy,’ the insurance company is obliged to defend its insured.”
Parker v. Hartford Fire Ins. Co.,
Edmonds’ state court complaint alleges that chemicals released from the defective drywall “cause and have caused dangerous health consequences including, among other things ... headaches suffered by [Edmonds].” Compl. Ex. 2, at ¶ 12. Additionally, in at least three counts of his complaint, Edmonds contends that he has incurred “personal injury.”
See, e.g., id.
at ¶ 26. Moreover, in the damages section of his complaint, Edmonds alleges that the “inherently defective drywall [ ] has caused damage to ... their health.”
Id.
at ¶ 90. Therefore, even if the Court were to conclude that the “Your Work” exclusion relieved Builders Mutual of a duty to defend the
property
claims, that exclusion has no effect on Edmonds’ personal injury allegations. As a result, since
some
of the claims would not be affected by the “Your Work” exclusion and thus would still “fall within the risk covered by the policy, the insurance company is obliged to defend its insured.”
Parker,
IV. Conclusion
Based on the analysis above, the Court finds that the term “pollutants,” when undefined, and in the context of the Applicable Policy, does not unambiguously apply to “sulfide gases” emitted from defective drywall, as pled in Edmonds’ complaint. As a result, since “doubtful, ambiguous language in an insurance policy will be given an interpretation which grants coverage, rather than one which withholds it,”
Granite State Ins. Co.,
The Clerk is DIRECTED to send a copy of this Order to all counsel of record.
IT IS SO ORDERED.
Notes
. The term "pollutants” is defined in the two subsequent policies (2007-2008 and 2008-2009), with the definition matching the one in Exclusion (f) of the 2006-2007 Applicable Policy's Commercial General Liability coverage form. Unlike the 2006-2007 policy, the subsequent policies define the term "pollutants” in the "definitions” section of the Commercial General Liability Coverage form. Because the term is found in the “definitions” section, and not Exclusion (f), the Total Pollution Exclusions’ replacement of Exclusion (f) in the subsequent policies does not remove the definition from the policy. As a result, even after the Total Pollution Exclusion endorsement was added to the subsequent policies, the term remains defined.
. Parallel has not filed a memorandum in opposition to the motion for summary judgment. By Order of the Court, pursuant to an agreement among the parties, "Parallel is not required to actively participate in the case pending further order of the Court.” Docket No. 31, at 5.
. The Court notes that ambiguity can be found in two different forms — patent ambiguity and latent ambiguity.
See SunTrust Mortg., Inc. v. AIG United Guar. Corp.,
No. 3:09cv529,
. Builders Mutual briefly argues in its memorandum that Edmonds' claims for medical monitoring are not covered by the Applicable Policy, regardless of any exclusion. However, in light of the Court's decision below, whether or not a narrow portion of Edmonds’ complaint falls within the policy’s coverage provisions ultimately has no bearing on whether Builders Mutual has a duty to defend Parallel in the entire state court action. That is because the duty to defend exists if any of the claims pled would fall within the policy's provisions — regardless of whether a select few are excluded from coverage.
. In a similar case before this Court, which also involves the application of a Pollution Exclusion to defective drywall (albeit where the term "pollutants” is defined), this Court recently entered an Order of Certification to the Supreme Court of Virginia. Nationwide Mut. Ins. Co. v. Overlook, LLC, 4:10cv69, Docket No. 121. In that Order of Certification, the Court posed the following question to the Supreme Court:
In the pollution exclusion clause of the relevant insurance contracts, is the definition of “pollutant,” as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste,” ambiguous, 1) because it could be interpreted to apply only to traditional environmental pollutants, 2) because it is so broad that it could cover virtually any substance and potentially lead to absurd results, or 3) because it is substantively unreasonable?
By Order of April 22, 2011, the Supreme Court of Virginia "declined to accept this certified question of law.” Nationwide, 4:10cv69; Docket No. 129.
. "The term 'belt and suspenders' is sometimes used to describe the common tendency of lawyers to use redundant terms to make sure that every possibility is covered. 'That some wear a belt and suspenders does not prove the inadequacy of either to hold up the pants, but only the cautious nature of the person wearing the pants.’ ”
United States v. Carona,
. That form defines "pollutants” almost identically to the original Exclusion (f).
.The Court recognizes that the absence of a definition in the Total Pollution Exclusion or the Commercial General Liability coverage form may have been an inadvertent omission on the part of Builders Mutual and thus not a product of considered judgment. However, "it is incumbent upon the insurer to employ exclusionary language that is clear and unambiguous.”
Granite State Ins. Co.,
. "While