United Nuclear Corp. v. Allstate Ins. Co.

285 P.3d 644

2012 -NMSC- 032

UNITED NUCLEAR CORPORATION, Plaintiff–Petitioner,

v.ALLSTATE INSURANCE COMPANY, Defendant–Respondent.

No. 32,939.

Supreme Court of New Mexico.

Aug. 23, 2012.

Comeau, Maldegen, Templeman & Indall, L.L.P., Michael R. Comeau, Jon J. Indall, Stephen J. Lauer, Santa Fe, NM, McCarter & English, L.L.P., Arnold L. Natali, Jr., J. Wylie Donald, Newark, NJ, for Petitioner.

Civerolo, Gralow, Hill & Curtis, P.A., William P. Gralow, Lisa Entress Pullen, Albuquerque, NM, Troutman Sanders LLP, Louise M. McCabe, San Diego, CA, Troutman Sanders LLP, Charles I. Hadden, Stephanie T. Schmelz, Washington, DC, for Respondent.

Montgomery & Andrews, P.A., J. Brent Moore, Lara Katz, Santa Fe, NM, Wiley Rein LLP, Laura A. Foggan, Santa Fe, NM, for Amicus Curiae Complex Insurance Claims Litigation Association.

Sawtell, Wirth & Biedscheid, P.C., W. Anthony Sawtell, Santa Fe, NM, for Amici Curiae County of Doña Ana, City of Las Cruces and The Association of Commerce & Industry of New Mexico.

OPINION

SERNA, Justice.

{1} This appeal turns on our construction of a single word, “sudden,” within a pollution exclusion clause in a series of liability insurance policies barring coverage for certain damages unless the events causing those damages were “sudden and accidental”—an issue of first impression in New Mexico, although one already considered by numerous courts in other jurisdictions. Concluding that “sudden” lacks a single clear meaning, we reverse the Court of Appeals' holding that the word unambiguously signifies “quick, abrupt, or a temporarily short period of time.” United Nuclear Corp. v. Allstate Ins. Co., 2011–NMCA–039, ¶ 20, 149 N.M. 574, 252 P.3d 798. Under well-established principles of insurance law, we construe this ambiguity in favor of the insured, Petitioner United Nuclear Corporation (United Nuclear), and interpret the term “sudden” in the insurance policies at issue in this dispute to mean “unexpected.” We remand to the district court for further proceedings consistent with this Opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

{2} United Nuclear operated several uranium mines in New Mexico from the 1960s through the early 1980s, one of which was the Northeast Church Rock Mine (Church Rock Mine) in McKinley County. Although the parties do not mention this fact in their briefs, in July 1979, a breach opened in a dam at the Church Rock Mine and about 94 million gallons of radioactive liquid escaped from a tailings pond and poured into the nearby Rio Puerco. See United Nuclear Corp. v. Allendale Mut. Ins. Co., 103 N.M. 480, 482, 709 P.2d 649, 651 (1985). This spill was “the largest accidental release of radioactive material in U.S. history.” Judy Pasternak, Yellow Dirt: An American Story of a Poisoned Land and a People Betrayed 150 (Free Press 2010). Remediation of the area around the Church Rock Mine continues to this day. See U.S. Envtl. Prot. Agency, EPA Seeks Comment on the Surface Soil Proposed Plan for the United Nuclear Corporation Superfund Site, 4–5, July 2012, available at http:// www. epa. gov/ region 6/ 6 sf/ pdffiles/ unc_ pplan_ fs_ 7– 16– 2012. pdf (last visited August 20, 2012). Although these facts do not affect the narrow issue of insurance policy interpretation presented here, they help make tangible the dispute underlying this appeal.

{3} To insure its mining operations, United Nuclear obtained commercial general liability and umbrella liability insurance policies from a number of carriers, including the polices relevant to this dispute (the Policies), which were issued by two predecessor corporations of Respondent Allstate Insurance Company (Allstate). Together, the Policies were in effect between August 1, 1977 and June 1, 1981.

{4} United Nuclear either incurred actual costs or was exposed to potential liability for environmental contamination resulting from its mining operations through several different proceedings. Those proceedings included a 1996 lawsuit filed by the New Mexico Mining Commission ultimately requiring United Nuclear to remediate three of its mines (including the Church Rock Mine), see N.M. Mining Comm'n v. United Nuclear Corp., 2002–NMCA–108, ¶ 1, 133 N.M. 8, 57 P.3d 862; a 1997 lawsuit that the mineral lessor at the Church Rock Mine filed in state district court over environmental damage caused by United Nuclear's “mining and disposal practices”; notices in 2002 and 2004 from the New Mexico Environment Department requiring United Nuclear to abate excess use of water at two of its mines (including the Church Rock Mine); notices of claim from the United States Forest Service in 2001 holding United Nuclear responsible for environmental remediation at two of the sites; and an investigation by the Environmental Protection Agency into “alleged radiation claims on Indian lands adjacent to the [Church Rock] mine.” United Nuclear tendered the defense and indemnity of the two lawsuits to Allstate in 1997, and notified Allstate about the administrative notices and determinations in 2002 and 2004. Allstate denied any duty to United Nuclear with respect to the tendered claims.

{5} United Nuclear ultimately filed a third-party complaint in the 1997 lawsuit filed by the mineral lessor, seeking a declaration that Allstate and various other insurers are required to defend and indemnify United Nuclear in the underlying suit. By April 2005, United Nuclear had amended the third-party complaint to seek declaratory relief against Allstate and the other insurers for all of its actual and potential liabilities mentioned above.

{6} In February 2006, Allstate moved for summary judgment on the sole ground that the Policies contain an exclusion clause removing from coverage all claims for damages caused by pollution or contamination unless the underlying discharges were “sudden and accidental.” Allstate further asserted that the term “sudden” as used in the Policies connotes an abrupt event or events, and because the discharges that lead to the contamination at United Nuclear's mines occurred over a period of years, those events were not “sudden” and thus are excluded from coverage.

{7} In October 2008, the district court granted Allstate's motion. The court found “the word ‘sudden’ and the word ‘accidental’ ... [to be] clear and unambiguous.... The word ‘sudden’ means quick, abrupt or otherwise a temporarily short period of time.... The word ‘accidental’ means unintended, unexpected or by chance.” United Nuclear appealed the district court's determination to the Court of Appeals. In its opinion, a divided panel upheld the district court's grant of summary judgment to Allstate on the meaning of “sudden” as used in the Policies' pollution exclusion clause. United Nuclear, 2011–NMCA–039, ¶¶ 1, 14, 21, 28, 149 N.M. 574, 252 P.3d 798.

{8} As the district court had done, the Court of Appeals relied heavily on the reasoning and holding of Mesa Oil, Inc. v. Insurance Co. of North America, 123 F.3d 1333, 1339–41 (10th Cir.1997). United Nuclear, 2011–NMCA–039, ¶¶ 7, 12–14, 149 N.M. 574, 252 P.3d 798. In Mesa Oil, the Tenth Circuit acknowledged an absence of New Mexico case law interpreting the term “sudden,” but surmised that New Mexico courts “would likely honor the plain meaning of the word ‘sudden’ and conclude that the term encompasses a temporal component.” Mesa Oil, 123 F.3d at 1340. The court concluded that “[t]he word ‘sudden’ clearly expresses a meaning of quickness or abruptness, particularly in light of the fact that it would be entirely redundant when paired with the word ‘accidental’ if it merely meant ‘unexpected.’ ” Id.

II. STANDARD OF REVIEW

{9} This Court reviews de novo an order granting or denying summary judgment. See Romero v. Philip Morris Inc., 2010–NMSC–035, ¶ 7, 148 N.M. 713, 242 P.3d 280. Summary judgment should be granted “only when there are no issues of material fact, with the facts viewed in the light most favorable to the non-moving party.” Summers v. Ardent Health Servs., L.L.C., 2011–NMSC–017, ¶ 10, 150 N.M. 123, 257 P.3d 943. Similarly, the interpretation of terms within an insurance policy is “a matter of law about which the court has the final word,” Rummel v. Lexington Ins. Co., 1997–NMSC–041, ¶ 60, 123 N.M. 752, 945 P.2d 970, and is subject to de novo review, Battishill v. Farmers Alliance Ins. Co., 2006–NMSC–004, ¶ 6, 139 N.M. 24, 127 P.3d 1111.

III. DISCUSSIONA. Analytical Principles

1. Ambiguities Construed Against The Insurer

{10} As with other contracts, where an insurance policy's terms “have a common and ordinary meaning, that meaning controls in determining the intent of the parties.” Id. ¶ 13. Reviewing courts should not “create ambiguity where none exists, and an ambiguity does not exist merely because the parties hold competing interpretations” about the meaning of a policy provision. City of Santa Rosa v. Twin City Fire Ins. Co., 2006–NMCA–118, ¶ 7, 140 N.M. 434, 143 P.3d 196 (citing Battishill, 2006–NMSC–004, ¶ 17, 139 N.M. 24, 127 P.3d 1111). But where a policy term is “reasonably and fairly susceptible of different constructions,” it is deemed ambiguous and “must be construed against the insurance company as the drafter of the policy.” Knowles v. United Servs. Auto. Ass'n, 113 N.M. 703, 705, 832 P.2d 394, 396 (1992). Insurance policies almost always are contracts of adhesion, meaning that “the insurance company controls the language” and “the insured has no bargaining power.” Cal. Cas. Ins. Co. v. Garcia–Price, 2003–NMCA–044, ¶ 20, 133 N.M. 439, 63 P.3d 1159;accord Padilla v. State Farm Mut. Auto. Ins. Co., 2003–NMSC–011, ¶ 14 n. 3, 133 N.M. 661, 68 P.3d 901. As this Court explained in Sanchez v. Herrera,

[t]he typical insured does not bargain for individual terms within policy clauses; the insured makes only broad choices regarding general concepts of coverage, risk, and cost. Not only does the insurance company draft the documents, but it does so with far more knowledge than the typical insured of the consequences of...