The Motion For Rehearing is overruled. Our opinion of March 2, 1995, is withdrawn and the following opinion is substituted.
In this action for damages, injunctive relief, and a declaration of coverage, the issue is whether so-called "absolute pollution exclusions" in insurance policies unambiguously apply to exclude damage coverage from an accidental explosion producing a toxic hydrofluoric acid cloud over a city. The trial court granted summary judgment in favor of the defendant insurance companies. The court
CBI Industries, Inc. ("CBI") brought this action against various insurance companies which insured CBI under general liability policies. The insurers fall into three groups providing successive "layers" of coverage: (1) National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union"); (2) Anglo American Insurance Company, Ltd. and others (collectively "Anglo American"); and (3) Rome and Companies (collectively "Rome"). Each of the policies issued to CBI by these companies contained a version of what is known in the industry as an "absolute pollution exclusion." The National Union policy contained the following exclusion:
The Anglo American and Rome policies contained this exclusion:
In October of 1987, CBI, through its wholly owned subsidiary CBI Na-Con, Inc.
In numerous lawsuits brought against CBI and others in connection with the accident, residents of Texas City and others alleged that they were injured when a large cloud of hydrofluoric acid was released as a result of the accident. CBI tendered these claims to National Union, Anglo American and Rome. All of the companies denied coverage and CBI filed this suit.
The insurance companies moved for summary judgment on the ground that the "absolute pollution exclusions" in their policies precluded coverage as a matter of law. CBI argued in response that the policies, by virtue of these exclusions, contained both patent and latent ambiguities. The trial court granted summary judgment for the insurance companies before CBI had the opportunity to obtain any documents through the discovery process. However, the trial court did accept for the record certain insurance industry documents which, CBI contends, indicate that "absolute pollution exclusions" such as those involved in this case are ambiguous and will not be read literally to exclude coverage for every situation involving the discharge of pollutants.
If, however, the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous. See Glover v. National Insurance Underwriters, 545 S.W.2d 755, 761 (Tex.1977); see also Coker, 650 S.W.2d at 393; Universal, 243 S.W.2d at 157. Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered. See Coker, 650 S.W.2d at 394; R & P Enterprises v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). Only where a contract is first determined to be ambiguous may the courts consider the parties' interpretation, see Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726, 732 (Tex.1981), and admit extraneous evidence to determine the true meaning of the instrument. See R & P Enterprises, 596 S.W.2d at 518.
An ambiguity in a contract may be said to be "patent" or "latent." A patent ambiguity is evident on the face of the contract. See Universal Home Builders, Inc. v. Farmer, 375 S.W.2d 737, 742 (Tex.Civ.App.— Tyler 1964, no writ). A latent ambiguity arises when a contract which is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some collateral matter.
In this case, the court of appeals did not decide that the contract was either patently or latently ambiguous. Rather, the court held that the trial court abused its discretion when it rendered summary judgment before allowing discovery. 860 S.W.2d at 666. On that basis alone, the court of appeals reversed and remanded to the trial court "without deciding whether there are ambiguities in the exclusions." 860 S.W.2d at 664. The court reasoned that "CBI was not given sufficient time to make reasonable attempts to discover evidence on the issue of `applying the contract to the subject matter with which it deals,' and thereby raise a fact issue on latent ambiguity." Id. at 666. In support of its holding, the court summarized the industry-wide evidence in the record. Id. These items of evidence, the court opined, should have indicated to the trial court that with more time for discovery, CBI "might have raised a fact issue on latent ambiguity." Id. The discovery sought by CBI is of evidence that its insurers "knew and approved" of industry-wide discussions concerning the breadth of the absolute pollution exclusion and "understood that the pollution exclusions
The court of appeals relies on the Bache decision, which held that if a latent ambiguity is discovered when "applying the contract to the subject matter with which it deals," then the proponent of the ambiguity may introduce parol evidence to establish the parties' intent. Bache, 611 S.W.2d at 708. The ambiguity must become evident when the contract is read in context of the surrounding circumstances, not after parol evidence of intent is admitted to create an ambiguity. Neither the court of appeals' opinion nor the parties' briefs have raised any need for additional facts to apply the insurance policies to the subject matter with which they deal. The facts relating to the accident, the release of hydrofluoric acid as a result of that accident, and the personal injury and property damage claims allegedly resulting from that release appear to be fully developed. The surrounding circumstances present when the contract was entered into were amply established for the purpose of determining whether an ambiguity exists in this case on these facts. The discovery sought by CBI is not necessary for the application of the contract to its subject matter, but rather goes to the issue of the parties' interpretation of the "absolute pollution exclusion." The court of appeals erred in holding, in effect, that CBI must be allowed an opportunity to discover parol evidence going to the parties' intentions in order to create a latent ambiguity.
The question to be decided here is whether these insurance policies, by virtue of their "absolute pollution exclusions," are patently or latently ambiguous. On its face, the language of the policies is clear and not patently ambiguous. Nor are the policies latently ambiguous. Applying the policies' language to the context of the claim here does not produce an uncertain or ambiguous result, but leads only to one reasonable conclusion: the loss was caused by a cloud of hydrofluoric acid, a substance which is clearly a "pollutant" for which coverage is precluded.
CBI correctly contends that the language of the policies must be interpreted with reference to both the facts of the claim and the facts within the contemplation of the parties at the signing of the policies. See Coker, 650 S.W.2d at 394. CBI argues that extrinsic evidence (such as trade usage, prior dealings, and prior negotiations) is relevant in interpreting the policies and must be considered to ascertain whether a latent ambiguity exists. Specifically, CBI argues that extrinsic evidence concerning industry-wide discussions of the exclusion at issue here shows that the parties shared a mutual, yet unstated, intent that the exclusions would not encompass "accidental" releases of pollutants.
Extrinsic evidence may, indeed, be admissible to give the words of a contract a meaning consistent with that to which they are reasonably susceptible, i.e., to "interpret" contractual terms.
Courts usually strive for uniformity in construing insurance provisions, especially where, as here, the contract provisions at issue are identical across the jurisdictions. Most courts which have examined the same or substantially similar absolute pollution exclusions have concluded that they are clear and unambiguous.
CBI also contends that one of the inferences that should be made in its favor on summary judgment is that "the policies contain patent ambiguities that preclude summary judgment and cry out for discovery." Whether the policies contain ambiguities is a matter of law for the court, see Coker, 650 S.W.2d at 394; R & P Enterprises, 596 S.W.2d at 518, not an inference it must make for the purpose of deciding a summary judgment motion.