The opinion of the court was delivered by: FERN M. SMITH
This is an action for declaratory judgment as to whether an insurer has a duty to defend or indemnify its insured, a real estate broker, against claims predicated upon the insured's failure to disclose the existence of wastes discharged into or upon land where the policy excludes from coverage claims arising out of the discharge of wastes into or upon land.
Both plaintiff-insurer Homestead Insurance Company ("Homestead") and defendant-insureds The Ryness Company ("Ryness") and Helen Moore ("Moore") (collectively referred to as "the Ryness defendants") move for summary judgment.
For the reasons discussed below, Homestead's motion for summary judgment is GRANTED and the Ryness defendants' motion for summary judgment is DENIED.
Ryness is a Pennsylvania corporation licensed by the State of California as a real estate broker. Moore was a real estate agent for Ryness during the time at issue in this lawsuit. In the late 1980s, the Ryness defendants acted as brokers for the sale of condominium units at Peninsula Landing Condominiums in Redwood City, California.
On January 8, 1991, purchasers of the condominium units filed a class action complaint asserting various causes of action (including deceit, negligence and breach of fiduciary duty) against the Ryness defendants and other parties involved in the development, construction and marketing of Peninsula Landing Condominiums ("the underlying action").
The core factual allegations are as follows: (1) a parcel of land adjacent to condominium property was "subject to extensive . . . dumping of solid and liquid residential, municipal and industrial waste from the years 1945 to 1970," with waste material extending beneath condominium property; (2) the fact that the property was used as a dump site was within the actual or constructive knowledge of each defendant; and (3) defendants failed to disclose the existence of these wastes and dumping activities.
At the time of the suit, the Ryness defendants were covered by a "Special Errors and Omissions Liability Insurance Policy," Policy No. 0100516-90 ("Policy"), underwritten by Homestead. The Policy obligates Homestead to defend and indemnify the Ryness defendants for third party claims for damages caused by "a negligent act, error, or omission" of the Ryness defendants "in the performance of insured services for others."
The "insured services" covered by the Policy are specified on the declarations page of the Policy as "real estate sales and brokerage, mortgage loan origination and marketing consultation." The Policy excludes from coverage all claims "for or arising out of" a variety of things, including bodily injury, property damage, personal injury, contract claims, unfair competition/antitrust claims, fraud, pollution and nuclear reaction, radiation or radioactive contamination.
On or about February 4, 1991, Ryness tendered the defense of the underlying action to Homestead under the Policy. On March 7, 1991, Homestead reserved all of its rights under the Policy to deny coverage and advised Ryness of Homestead's preliminary opinion that the underlying action was not covered because Exclusion (m), the pollution exclusion, applies. Under Exclusion (m) the Policy does not apply to claims "for or arising out of: . . . (m) 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 watercourse or body of water."
On March 28, 1991, Homestead's agent sent Ryness a more detailed reservation of rights letter including all of the grounds for denial of coverage listed in the March 7, 1991 letter in addition to the ground that the underlying complaint alleged unfair competition and violation of the antitrust laws. The March 28, 1991 letter further advised Ryness that coverage for the suit may be excluded inter alia under Exclusion (m) of the Policy.
Homestead nonetheless offered to defend the Ryness defendants subject to a reservation of rights and subject to an agreement that Ryness would reimburse Homestead for defense costs incurred if a court declared that Homestead was correct in its position that, under Exclusion (m), it had no duty to defend or indemnify the Ryness defendants. By letters dated April 23, 1991 and June 19, 1991, Ryness objected and refused to enter into the proposed reimbursement agreement. Homestead filed this action on October 11, 1991 to determine its rights and obligations under the Policy.