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State Farm Fire & Casualty Co. v. Acuity3/15/2005
. Dr. K Excavating, LLC and David Krause appeal a judgment declaring that Acuity has no duty under its business liability policy with Krause to defend or indemnify Krause for damages to Gayle and Steven Kagen's home. Those damages occurred when Krause was attempting to remove two fuel oil tanks and the oil they contained. During the removal, oil escaped onto the Kagens' property. Krause argues that Acuity has a duty to defend because (1) the residual smell of fuel oil in the Kagens' home caused "property damage" covered by Krause's policy with Acuity; (2) the policy's pollution exclusion does not unambiguously exclude property damage arising from smells or odors; and (3) the pollution exclusion does not allow Acuity to avoid coverage for damage caused by the non-toxic properties of a known contaminant. Because Acuity's pollution exclusion unambiguously excludes damages "arising from" the escape, dispersal, discharge, or release of fuel oil, we affirm the judgment.
Background
. Sometime in 2001, the Kagens contacted Allen Lembcke of Cliff & Al's Heating Company about removing two fuel oil tanks from their property. Lembcke in turn arranged for Krause to siphon out any fuel oil remaining in the tanks and take them away. On September 26, while Krause was removing the oil, one of the tanks ruptured or was otherwise damaged and fuel oil began escaping from the tank onto the Kagens' property. The Kagens had a homeowner's policy with State Farm Insurance Company and State Farm eventually paid them $351,390 for damages to their house caused by the escaping oil.
. In April 2003, State Farm sued Krause, Lembcke, and their respective insurers, Acuity and American Family Mutual Insurance Company, to recover all sums it paid to the Kagens as well as costs, disbursements, and attorney fees. State Farm argued that Krause's negligence caused the oil spill and that Lembcke was liable, under respondeat superior, for that negligence. In February 2004, State Farm amended its complaint to allege that a portion of its settlement with the Kagens went to pay living expenses incurred when the family had to leave its home because of an overwhelming smell or odor of fuel oil in the living areas.
. Acuity responded by requesting a declaratory judgment that its policy with Krause did not cover the kinds of damages sought and, therefore, it had no duty to defend. Krause cross-claimed for contribution or indemnification against Lembcke. West Bend Mutual Insurance Company, which had a homeowner's policy with Krause and his wife, moved to intervene and to bifurcate the proceedings.
. After a hearing on Acuity's motion for summary judgment, the circuit court issued an oral decision that Acuity's business liability policy with Krause did not provide coverage for the Kagens' claims. The circuit court concluded that Acuity therefore had no duty to defend or indemnify and dismissed the claims against Acuity with prejudice, granting costs and disbursements. A written judgment and order to that effect were filed on May 10, 2004. Krause now appeals.
Discussion
Standard of Review
. Whether to grant a declaratory judgment is addressed to the circuit court's discretion. Bellile v. American Fam. Mut. Ins. Co., 2004 WI App 72, , 272 Wis. 2d 324, 679 N.W.2d 827. But when the exercise of that discretion turns on the interpretation of an insurance policy, a question of law, we review the question without deference, applying the same rules of construction we apply to contracts generally. See id.; see also Wisconsin Label Corp. v. Northbrook Prop. & Cas. Ins. Co.,2000 WI 26, -23, 233 Wis. 2d 314, 607 N.W.2d 276.
. In this decl
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