Spinx v. Federated Mutual Insurance Company, 310 S.C. 477; 427 S.E.2d 649 (1993) – decided February 16, 1993 - South Carolina Supreme Court – Robert E. Hoskins

I represented the plaintiff Spinx Oil Company, Inc.  This was a big decision at the time it was rendered.  I represented Spinx from the inception of the case through the issuance of the South Carolina Supreme Court’s decision.  Spinx Oil is a company headquartered in Greenville, South Carolina.  Spinx runs convenient stores/gas stations, but also has major real estate operations.  In the early 1990s, several of Spinx’s properties which it had purchased were thought to have ground pollution which needed to be “cleaned”.  Spinx had procured liability insurance through Federated Mutual Insurance Company.  Spinx made a claim to Federated for the cost of cleaning the sites and Federated denied the claim.  Federated asserted that the pollution had not “commenced” during a time period for which it provided coverage.  The issue, in the case, was whether pollution was deemed to have “commenced” (occurred) at the initial point of contamination or at the point of discovery of the pollution.  It was impossible to say when the contamination had actually occurred, but it was known when it was discovered.  If pollution was deemed to have “commenced” upon discovery then Federated would be bound to coverage.  The South Carolina Circuit Court ruled in Spinx favor.  Federated appealed and after oral argument, the South Carolina Supreme Court affirmed holding:

“In disallowing coverage, Federated relied upon Policy Endorsement CG-F-9 (7/87), which affords reimbursement to the insured for “clean-up costs” initiated at the “insured site” . . . provided “the insured gives us immediate notice of any actual or suspected ‘pollution incident’ that commences on or after the Retroactive date shown in the declarations . . .”  The policy defines “pollution incident” as the “emission, discharge, release or escape of pollutants into or upon land, [or] water, provided that such emission, discharge, release or escape results in ‘environmental damage’.” 

The master found that the terms of the policy were ambiguous with regard to the facts and circumstances of this case and relied upon evidence reflecting pre-contractual negotiations to discern the intent of the parties.  The master made a specific finding that Federated had waived its right to conduct inspections prior to insuring the sites.  Based upon the evidence, the master determined that the sites were deemed clean for insurance purposes at the inception of the policy period and that the parties intended coverage for any pollution discovered and reported during the policy period.

Ambiguous or conflicting terms in an insurance contract should be construed in favor of the insured and strictly construed against the insurer.  Edens v. South Carolina Farm Bureau Mut. Ins. Co., 279 S.C. 377, 308 S.E.2d 670 (1983), appeal after remand, 288 S.C. 435, 343 S.E.2d 49 (1986); Kraft v. Hartford Ins. Companies, 279 S.C. 257, 305 S.E.2d 243 (1983). 

With regard to the issue of when the “pollution incident” occurred, the Fourth Circuit Court of Appeals in Mraz v. Canadian Universal Ins. Co. LTD, 804 F.2d 1325 (4th Cir. 1986), held that in hazardous waste burial cases, “occurrence” is determined by the point in time leakage and damage were first discovered.  We are persuaded that in this situation, the words “commence” and “occur” are synonymous.  The Mraz Court reasoned:

Determining exactly when damage begins can be difficult, if not impossible.  In such cases, we believe that the better rule is that the occurrence is deemed to take place when the injuries first manifest themselves.  Therefore, we hold that in hazardous waste burial cases such as this one, the occurrence is judged by the time at which the leakage and damage are first discovered. 

Id. at 1328.

In view of the stipulated facts, the remainder of the record, and the circumstances of this case, we affirm the master’s construction of the policy of insurance to afford coverage of the contested sites.”  (Click here to see the entire Spinx opinion)