the Hudson property, Staefa could be found liable for such third party pollution. Second, Staefa contends that this exclusion precludes coverage only for bodily injury and property damage, not pollution-related liabilities based upon personal injury, such as the nuisance and trespass claims alleged in Hudson. Finally, Staefa contends that this exclusion is inapplicable because Staefa may be held liable in Hudson for the clean-up of substances which are not pollutants as defined in the exclusion, such as petroleum products.
The absolute pollution exclusion in Policy #3 contains broad language that precludes coverage for damages caused by work performed by or for Staefa or at its work site. Staefa's first argument, that this exclusion doesn't preclude coverage for potential liability from third party work sites, relies solely on the argument that Staefa could be held liable for third party pollution based on the joint and several liability allegation in the Hudson action. Staefa cites no case law to support this proposition, and its attempt to circumvent the pollution exclusion via the back door fails. An allegation of joint and several liability relates to the apportionment of damages once a party has been found liable; it does not raise the potential for liability in the first instance absent specific allegations of liability against a party. That is, unless Staefa could itself be held liable for pollution from its own site, which it cannot under Policy #3, there is no way the joint and several liability allegation could hold them responsible for pollutants from third party work sites. Staefa's first argument is thus without merit.
Staefa's second argument rests on the fact that the pollution exclusion precludes coverage only for allegations of bodily injury and property damage. Staefa contends that the allegations of trespass and nuisance in the Hudson action qualify as neither bodily injury nor property damage, such that the pollution exclusion does not bar coverage.
Applying the standards of insurance contract interpretation articulated above, it is clear that Staefa's second argument has merit. The term "property damage" is fairly broad, and capable of conflicting interpretations. While the exclusion could be read as St. Paul argues to preclude coverage for allegations of any damage to property or its use, it is equally plausible to read the exclusion to preclude coverage only for property damage claims that directly affect the right to possess the property, as opposed to claims such as the instant ones for trespass and nuisance, which also implicate the right to use and enjoy the property. Because exclusions in insurance policies must be read narrowly and, where ambiguous, in favor of coverage for the insured, the court finds that the absolute pollution exclusion does not bar coverage for Staefa under Policy #3 for the trespass and nuisance claims in Hudson.
Staefa finally argues that it is possible that the substances which caused the damage alleged in Hudson are not pollutants as defined by Policy #3, such that the absolute exclusion does not apply. Specifically, Staefa contends that some of the damage to the Hudson property may have been caused by petroleum products, which Staefa argues do not qualify as pollutants.
While there is no controlling case law on this point, the court finds that Staefa's argument lacks merit. Policy #3 defines pollutant to include "any solid, liquid, gaseous or thermal irritant or contaminant . . . ." Policy #2 at 75. Staefa's contention that petroleum is not a pollutant within this definition is belied both by science and common sense. Petroleum, either as a liquid or a gas, has been found to be an environmental contaminant or irritant by both courts and legislatures. See, e.g. Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121-23 (2d Cir. 1990) (holding absolute pollution exclusion nearly identical to instant exclusion precludes coverage for release of fuel oil); Tug Ocean Prince, Inc. v. U.S., 584 F.2d 1151, 1161-62 (2d Cir. 1978), cert. denied, 440 U.S. 959, 59 L. Ed. 2d 772, 99 S. Ct. 1499 (1979) (noting that oil pollution has long been a concern in this country, and tracing history of congressional legislation in this area); see also 33 U.S.C. § 1321 (the federal Clean Water Act) (prohibiting discharge of petroleum into waterways); 40 C.F.R. § 110 et seq. (the federal regulations relating to "oil pollution" promulgated pursuant to the Clean Water Act). There being no genuine ambiguity in the definition of pollutant in the exclusion, the court finds that petroleum is a pollutant within the meaning of Policy #3.
Accordingly, Staefa's contention that the absolute pollution exclusion in Policy #3 is inapplicable because there may have been petroleum contamination of the Hudson property fails.
Having concluded that none of the pollution exclusions precludes Staefa's entitlement to defense in Hudson under the three policies, the court must next determine whether there was an "occurrence" within the time period covered by the policies. St. Paul contends that coverage is only triggered if the damage alleged in Hudson was discovered while the policy was in effect, while Staefa argues that coverage is triggered if the damage occurred while the policy was in effect, regardless of when it was discovered.
The relevant provisions of all three policies are almost identical. Policy #1 provides coverage, inter alia, for property damage that results from "an accidental event" that "take[s] place while this agreement is in effect. . . ." Policy #1 at 1. Policies #2 & #3 have identical language, providing coverage, inter alia, for "property damage claim[s] resulting from an accidental event" where property damage "means any damage to tangible property that happens while this agreement is in effect." Policy #2 at 105; Policy #3 at 65.
Once again, the case law on this point is in conflict, and there has been no definitive ruling by the California Supreme Court. In support of its position, St. Paul cites several cases in which it contends courts applying California have adopted the so-called "manifestation trigger" for determining when an occurrence takes place. See Pines of La Jolla Homeowners Assn. v. Industrial Indem., 5 Cal. App. 4th 714, 721-22 (1992); Chemstar Inc. v. Liberty Mut. Ins. Co., 797 F. Supp. 1541, 1550-51 (C.D. Cal. 1992) (Hupp, J.); Truck Ins. Exchange v. Pozzuoli, 17 Cal. App. 4th 856, rev. denied (1993); County Sanitation Dist. v. Harbor Ins. Co., 17 Cal. App. 4th 1622, 1629-33, reh'g granted (1993).
However, each of the cases cited by St. Paul in support of a manifestation trigger can be distinguished from the instant action. Pines of La Jolla is inapposite because it involved a dispute between two insurers, and thus the standards of contract interpretation that must be applied in the instant action were not employed. Pozzuoli does not discuss the trigger issue at all. In Chemstar, Judge Hupp held that a manifestation trigger is proper in circumstances where no damage actually occurs until the problem manifests -- in that case, disfiguring of plaster -- and carefully distinguished that situation from "toxic property damage cases" like the instant case "where damage allegedly occurred upon first exposure to the [pollutants]" but did not manifest until some time later. 797 F. Supp. at 1551. The court's analysis in Harbor Insurance is similar -- i.e., the relevant inquiry is not solely a determination of when the causal event occurred, but rather when the injured party was damaged. In Harbor Insurance, as in Chemstar, the causal event (a progressive landslide) did not in and of itself damage the injured parties; rather, as the court held, the damage only occurred upon manifestation -- once cracks developed in the houses as a result of the slide. 17 Cal. App. 4th at 1629-33. Those circumstances are quite distinct from the instant action, where the damage to the Hudson property occurred immediately upon the pollutants entering the property, which may well have been long before anyone discovered the problem. This crucial distinction finds support in several recent cases applying California law. See TBG, Inc. v. Commercial Union Ins. Co., 806 F. Supp. 1444, 1453 (N.D. Cal. 1990) (Smith, J.) (adopting an "exposure trigger" in a chemical contamination case because "each time such a release occurred, the property was immediately damaged"); Garriott Crop Dusting Co. v. Superior Court, 221 Cal. App. 3d 783, 794, 270 Cal. Rptr. 678, rev. denied (1990) (discussing distinction "between a wrongful act (not an occurrence) and the injurious result of that act (an occurrence)"); American Empire Surplus Lines Ins. Co. v. G.E. Leach Const. Co., 223 Cal. App. 3d 226, 229, 272 Cal. Rptr. 704, rev. denied (1990) (distinguishing cases where event and damage were simultaneous from those where damage occurred only upon manifestation at later date).
Under California law, there is no single trigger theory appropriate for application in all property damage actions. See TBG, Inc., 806 F. Supp. at 1452. Rather, applying the standards for insurance contract interpretation articulated above, the court must look to the language of the policies and the nature of the damage alleged in the underlying action to determine the proper "trigger." The relevant policy language is somewhat ambiguous. While it is clear that Staefa was covered for accidental events that cause damage, it is not readily apparent whether just the accidental event must occur during the policy period or whether the damage itself must also occur during that time. Given the ambiguity, this court must read the policies in favor of coverage. However, even were this not the case, there is nothing in any of the policies to indicate that damage must be discovered during the lifetime of the policies for them to apply. Thus, the court concludes that the proper triggering "occurrence" under the policies is not the discovery of the damage, but rather the date the Hudson plaintiffs were allegedly injured. Accord TBG, Inc., 806 F. Supp. at 1453.
If there is any possibility that the pollutants migrated onto the Hudson property during the time the St. Paul policies were in effect, Staefa is entitled to defense.
There is no conclusive evidence in the record establishing the date the pollutants allegedly migrated onto the Hudson property.
Because it is possible that the migration occurred during the time St. Paul's policies were in effect, St. Paul has failed to satisfy its burden of proof. Accordingly, the court finds that St. Paul must defend Staefa in the underlying action.
3. Personal Injury Provisions
Staefa's final argument is that it is entitled to defense in the Hudson action based on the personal injury provisions of the policies. While it is unnecessary to decide this issue given the conclusions reached above, the court nonetheless will address this contention in the interest of a full and final resolution of this motion.
Staefa contends that it is entitled to defense under the personal injury provisions of the policies. With minor variations in language, those provisions provide, in relevant part, that St. Paul will defend Staefa from liability for damages resulting from personal injury claims, with personal injury defined to include "wrongful entry, wrongful eviction, or other invasion of the right of private occupancy." Policy #1 at 6; Policy #2 at 3; Policy #3 at 77. Staefa argues that the allegations of trespass and nuisance in Hudson trigger St. Paul's duty to defend under the "other invasion of the right of private occupancy" clause.
St. Paul makes four arguments in response. St. Paul first contends that property damage is by definition not personal injury, such that any duty to defend in Hudson would have to arise under the property damage provisions, not the personal injury provisions. Second, St. Paul argues that under California law personal injury coverage is limited to specified offenses enumerated in the policy, and that because the policies did not specify trespass and nuisance, they are not covered. Third, St. Paul argues that a distinction must be drawn between a mere physical invasion of property, which it argues is the allegation in Hudson, and invasion of a person's right to possess real property, which it contends is the claim its policies cover. Finally, St. Paul argues that in all three policies the property damage exclusions are incorporated into the personal injury provisions. Because St. Paul's third argument is dispositive, the court declines to address the remaining three.
St. Paul's third argument is that its policies provide coverage only for interference with the right to possess property, not the "mere" physical invasion of that property. In response, Staefa has directed the attention of the court to several cases from other jurisdictions that have held language similar to that at issue here to be ambiguous, and thus found that property damage can be covered by personal injury provisions because trespass and nuisance can be characterized as an "other invasion of the right of private occupancy." See Hirschberg, 798 F. Supp. at 604-05 (holding that claims of nuisance and trespass based on pollution can be covered by personal injury provisions); Pipefitters Welfare Educational Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1040-42 (7th Cir. 1992), reh'g en banc denied (1993) (holding that the phrase "other invasion of the right to private occupancy" covers physical invasions and does not require an interference with the right to possess the property); Titan Holdings Syndicate, Inc. v. City of Keene, 898 F.2d 265, 273 (1st Cir. 1990) (holding that allegations of trespass and nuisance are covered by personal injury provisions identical to the instant provisions).
However, in a well-reasoned opinion released just last month, a California appellate court ruled that language identical to that in the St. Paul policies was unambiguous, and therefore held that property damage claims of the sort alleged in Hudson were not covered by personal injury provisions. See Titan Corp. v. Aetna Cas. & Sur. Co., 22 Cal. App. 4th 457, 27 Cal. Rptr. 2d 476, (1994). By precluding an insured from recovering under the personal injury provision what is expressly excluded under the property damage provision, this holding is consistent with the general rule of contract interpretation that a contract must be interpreted as a whole, with each clause giving meaning to the others. See Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 916, 226 Cal. Rptr. 558, 718 P.2d 920 (1986). Furthermore, this holding is consistent with the principle of insurance contract interpretation that an insured is entitled to coverage only if it has an objectively reasonable expectation of coverage. See Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1265, 833 P.2d 545 (1992). As the court in Titan Corp. held, it is simply not objectively reasonable for an insured to expect that pollution damage specifically excluded from coverage by its property damage provision would be covered under its personal injury provision. 27 Cal. Rptr. 2d at .
Following the holding and reasoning in Titan Corp., this court concludes that the language in the personal injury provisions is unambiguous, and that Staefa is not entitled to defense for claims of property damage under those provisions.
II. Breach of Covenant of Good Faith
Having found that St. Paul has a duty to defend Staefa in the Hudson action, the court must now turn to Staefa's motion for summary judgment that St. Paul's failure to defend constitutes a breach of the covenant of good faith and fair dealing as a matter of law.
Under California law, a covenant of good faith and fair dealing is implied in every contract, and an insured may maintain an action in tort against its insurer for breach of that covenant. See Seaman's Direct Buying Service, Inc. v. Standard Oil Co., 36 Cal. 3d 752, 768, 206 Cal. Rptr. 354, 686 P.2d 1158 (1984). This cause of action has two requirements: (1) benefits due under the policy must have been withheld, and (2) the reason for withholding benefits must have been unreasonable, in bad faith, or without proper cause. See Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 1151, 271 Cal. Rptr. 246 rev. denied (1990).
The first requirement has clearly been satisfied -- as explained in great detail above, St. Paul had a duty to defend Staefa in the Hudson action and has refused to do so. However, Staefa has not met its burden of showing that St. Paul's refusal to defend Staefa was in bad faith. Staefa's only "evidence" of bad faith is that in refusing the defense, St. Paul "chose to ignore the express allegations being made in the Hudson action and three decades of California insurance law." Staefa's Mem. of P. & A. in Supp. of S.J., at 12. In addition, Staefa points to St. Paul's second refusal to defend despite Staefa's request to reconsider following the California Supreme Court's decision in Montrose, supra. Id. at 13.
These allegations are insufficient to warrant summary judgment against St. Paul on the breach of the covenant of good faith issue. While this court has ultimately concluded that St. Paul owes a duty to defend Staefa in Hudson, it should be clear from the lengthy and intricate discussion required to reach that result that, at the very least, the applicable California insurance law is conflicted. A court can conclude as a matter of law that an insurer's denial of a claim is not unreasonable, so long as there existed a genuine issue as to the insurer's liability. Franceschi v. American Motorists Ins. Co., 852 F.2d 1217, 1220 (9th Cir. 1988). While this court is inclined to believe that insurers should, as a general matter, defend their insureds under a reservation of rights if there is any doubt as to the propriety of defense, such inclination does not substitute for evidence of unreasonableness or bad faith on the part of St. Paul. Accordingly, there being a genuine factual dispute as to whether St. Paul's refusal to defend Staefa constitutes breach of the implied covenant of good faith and fair dealing, Staefa's motion for summary judgment on this claim must be denied.
For the foregoing reasons, Staefa's motion for summary judgment that St. Paul has a duty to defend Staefa in the Hudson action is hereby GRANTED; St. Paul's cross-motion for summary judgment that it has no duty to defend Staefa is hereby DENIED; and Staefa's motion for summary judgment that St. Paul breached the implied covenant of good faith and fair dealing is hereby DENIED.
IT IS SO ORDERED.
MARILYN HALL PATEL
United States District Judge