Opinion
No. CX-97-175.
Filed September 2, 1997.
Appeal from the District Court, Ramsey County, File No. C69413051.
Robert J. McGuire, Jo Ann Strauss, Cousineau, McGuire Anderson, (for appellant)
Fred R. Jacobberger, Lisa R. Micallef, Jacobberger, Micallef Associates, P.A., (for respondents)
Considered and decided by Schumacher, Presiding Judge, Randall, Judge, and Kalitowski, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
Appellant-plaintiff Horace Mann Insurance Company (Horace Mann) challenges a declaratory judgment that it has an obligation to indemnify and defend respondent Jack Olwell in connection with a lawsuit commenced by respondents Jerome Jackson, Jamal Jackson, Herbert Jackson, and Mentoria Jackson. In the underlying action, the Jacksons seek compensation for Jerome Jackson's and Jamal Jackson's injuries allegedly caused by ingestion of paint containing high concentrations of lead. Horace Mann contends the trial court erred by determining that the pre-1991 pollution exclusion does not preclude coverage for lead paint poisoning. In the alternative, Horace Mann contends that adequate notice requirements were complied with so that 1991 policy clarifications, explicitly excluding coverage for lead paint poisoning, apply to bar coverage. We affirm.
FACTS
At all times relevant, Olwell owned rental property, the Jacksons were tenants, and Olwell carried homeowners' insurance through Horace Mann. A standard pollution exclusion "with sudden and accidental exception" (the pre-1991 exclusion) was in effect from 1977 until January 3, 1991. That pre-1991 exclusion states the following:
This coverage does not apply to liability:
* * * *
f. resulting from the discharge, dispersal, release or escape of solid, liquid or gaseous waste materials or other pollutants into or upon land, the atmosphere or any watercourse or body of water. (This exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.)
The pre-1991 policy was replaced in 1991 by the HM-3 policy, which contained a pollution exclusion, known in the industry as the "absolute pollution exclusion," and a specific lead exclusion. The new exclusions state:
This policy does not apply to bodily injury or property damage which results directly or indirectly from:
* * * *
11. the discharge, dispersal, release or the escape of pollutants into or upon land, water or air. However, this exclusion does not apply to bodily injury or property damage that arises from the heat, smoke or fumes of hostile fire on the insured premises.
* * * *
13. asbestos, or paint containing lead or lead compounds.
Horace Mann prepared a "stuffer" to introduce the HM-3 policy. The stuffer was a mauve-colored 8" x 11" a tri-folded brochure that was mailed to each policyholder approximately 45 days prior to renewal. Along with the stuffer, Horace Mann sent each policyholder a copy of the new policy, the declaration sheet, a renewal notice, and any appropriate endorsements. Although Olwell does not recall receiving the stuffer, he does not dispute its receipt.
The front of the stuffer stated: "Enclosed is your new homeowner policy." Inside the stuffer, the first column read in part:
You should know this information. Please take a few minutes to read about the improvements to your homeowners coverage. You'll see we've increased limits of coverage, expanded definitions, added some new coverages and improved service.
The first, second, and most of the third columns then discussed the specific enhancements and improvements in the new policy. At the bottom of the third column the stuffer read:
These policy changes clarify the coverage. By making these changes, we can help control the costs of your policy.
On the back of the stuffer the various "clarifications" were stated, including:
Injury or damage from asbestos or lead paint is not covered.
Finally, a toll-free phone number was provided in case the insured had any questions.
DECISION I.
The interpretation of language in an insurance contract is a question of law, subject to de novo review on appeal. Heideman v. Northwestern Nat'l Life Ins. , 546 N.W.2d 760, 762 (Minn.App. 1996), review denied (Minn. June 7, 1996). An insurer bears the burden of proving that a policy exclusion applies to bar coverage. Henning Nelson Constr. Co. v. Fireman's Fund Am. Life Ins. Co. , 383 N.W.2d 645, 652 (Minn. 1986). In interpreting a policy exclusion, any policy language ambiguity is construed in favor of the insured. Id.
Horace Mann claims that its pre-1991 standard pollution exclusion excluded coverage for injuries caused by ingestion of lead paint debris released inside a building. We disagree. The supreme court has concluded that a pollution exclusion which excluded
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
did not preclude claims for injuries caused by asbestos contamination within a building. Board of Regents v. Royal Ins. Co. of Am. , 517 N.W.2d 888, 890-94 (Minn. 1994). Of particular significance was use of the following terms: (1) the phrase "any watercourse or body of water" rather than the generic term "water"; and (2) use of the term "land" instead of "property," whether real or personal. Id. at 893. Within this context, the supreme court concluded that "atmosphere" referred to ambient air and the pollution exclusion, as a whole, clearly was directed at claims involving pollution of the natural environment. Id. at 892-93. Likewise, we conclude that Horace Mann's pre-1991 pollution exclusion, which excluded coverage for the pollution of "land, the atmosphere or any watercourse or body of water," was directed at claims involving pollution of the natural environment. The Jacksons claim that their children were injured by ingestion of lead paint debris contaminating the interior of their home. Thus, coverage is not precluded under the pre-1991 exclusion, which was directed at claims involving pollution of the natural environment.
II.
"When an insurer substantially reduces a policyholder's coverage, it has an affirmative duty to notify the policyholder in writing." Benton v. Mutual of Omaha Ins. Co. , 500 N.W.2d 158, 160 (Minn.App. 1993), review denied (Minn. June 19, 1993). If proper notice is not given, any reduction in coverage is void and the terms of the prior policy apply. Canadian Universal Ins. Co. v. Fire Watch, Inc. , 258 N.W.2d 570, 575 (Minn. 1977).
The insurer must bring the changes to the policyholder's attention by sending a cover letter or by placing a conspicuous heading on the amendatory endorsement. To be fair to the policyholder, any limitation on coverage must be prominently placed and clearly stated.
Benton , 500 N.W.2d at 160 (citations omitted). Written notice is insufficient if it does "little to apprise a reasonable recipient that primary benefits were being decreased significantly." Id. at 161. "On appeal, this court will review the adequacy of notice as an issue of law." Id. at 160.
Horace Mann contends that its HM-3 policy exclusions preclude coverage for bodily injury or property damage that results directly or indirectly from lead paint contamination and, furthermore, adequate notice of the "clarification" in coverage was provided to its policyholders. Horace Mann points out the following: (1) it mailed the stuffer and a complete copy of the policy more than 30 days before the renewal date; (2) the policyholder was directed to read the entire policy and to notice changes in the policy; (3) major changes and clarifications to the policy, including the lead paint exclusion, were listed in the stuffer; (4) a toll free number was provided; and (5) the policyholder was directed to call his agent or use the toll free number for answers to any questions. Respondents contend that the Jacksons' claims are not precluded because the stuffer sent by Horace Mann provided insufficient notice to Olwell of the significant decrease in his primary benefits. We agree, rejecting Horace Mann's assertion that a substantial limitation on coverage sandwiched between various clarifications to a policy on the back page of a tri-folded stuffer under the heading "Major Clarifications" is "prominently placed." See id. (limitations on coverage must be prominently placed and clearly stated). Horace Mann was required to bring the changes to the policyholder's attention by sending a cover letter or by placing a conspicuous heading on the amendatory endorsement. See id. (stating that policy changes must be made by sending a cover letter or by placing a conspicuous heading on the amendatory endorsement). It rejected both options. Although the stuffer suggested that the policyholder "take a few minutes to read about the improvements to [his] homeowners coverage," the front and inside of the stuffer did not suggest, much less clearly state, that the HM-3 policy, in any way reduced coverage. Rather, to the contrary, part of the heading stated, "You'll see we've increased limits of coverage, expanded definitions, added some new coverage and improved service." That gives the reader absolutely no inference that a substantial lessening of coverage is now in force because of the change.
We reject Horace Mann's claim that its intent was to "clarify" coverage not to reduce coverage. Coverage under the HM-3 policy was contracted or limited as compared to the pre-1991 policy. Horace Mann had a right to limit or contract coverage. But to do so, it was required to provide sufficient notice. The trial court did not err when it concluded that proper notice was not given. Thus, as to these policyholders, the reduction in coverage is void.