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Venoco, Inc. v. Gulf Underwriters Insurance Co.

July 1, 2009

VENOCO, INC., PLAINTIFF AND APPELLANT,
v.
GULF UNDERWRITERS INSURANCE COMPANY, DEFENDANT AND RESPONDENT.



(Super. Ct. No. 1187769) (Santa Barbara County). James W. Brown, Judge.

The opinion of the court was delivered by: Gilbert, P.J.

CERTIFIED FOR PUBLICATION

An oil company has an insurance policy that excludes toxic pollution coverage. An exception to that exclusion applies under limited circumstances provided the oil company notifies the insurance company of a claim within 60 days of an occurrence. We conclude, among other things, this notice requirement does not violate public policy, nor is it barred by California's so-called "notice-prejudice" rule.

Plaintiff Venoco, Inc. (Venoco) appeals a summary judgment entered in favor of defendant Gulf Underwriters Insurance Company (Gulf). Former students and employees of Beverly Hills High School brought an action against Venoco for personal injuries allegedly caused by toxic pollution from Venoco's oil and gas operations. Venoco sued Gulf, its insurer, seeking declaratory relief to establish Gulf's obligation to defend these actions.

We also conclude: 1) the Gulf policy excludes the tort actions and alleged false claims filed against Venoco, 2) the 60-day reporting requirement is placed conspicuously in the policy, 3) the pollution exclusion supersedes inconsistent language in another portion of the policy. We affirm.

FACTS

In 1910, oil wells were drilled on a 22-acre site that later would become Beverly Hills High School. In 1959, the high school district entered into an oil and gas lease with oil production companies. In the early 1980's, the oil companies built a new "consolidated production site" (the new site) next to the high school.

In 1995, the oil and gas lease for the new site was assigned to Venoco. Venoco processes crude oil and natural gas. It pumps the oil into a pipeline that connects to refineries in Long Beach. It removes the impurities from natural gas before it is pumped into distribution lines for homes and businesses.

In 1996, Venoco purchased a liability insurance policy from Gulf. The policy period was for one year, April 1, 1996, to April 1, 1997.

In February 2003, Venoco's general counsel, Gisele Goetz, learned from media reports that lawyers were reporting that Venoco's oil and gas operations were the source of dangerous toxic chemical pollution. This prompted her to write Venoco's insurance broker. Goetz wrote: "The law firm of Masry & Vittoe . . . has claimed that it represents up to 40 or more persons who are graduates of the Beverly Hills High School and who suffer from various forms of cancer. Masry claims to have conducted tests on the High School premises which he asserts show high levels of some substances which he contends would also have existed throughout the 1980's when his plaintiffs were enrolled and which he speculates may have caused these cancers. . . . [¶] We currently own and operate an oil production facility near where these tests have been taken . . . ." (Italics added.)

Goetz said Masry informed Venoco that he intended to sue it, but Goetz noted that his claim for toxic contamination also extended to a period before Venoco operated the site. She said, "Although we did not own this facility during the time period in which [Masry's] clients would have gone to school, in an excess of caution, we wanted to alert you to the possibility of a toxic tort or personal injury or like claim by these plaintiffs against the facility/Venoco."

Several weeks later, numerous former students and employees of Beverly Hills High School filed lawsuits against Venoco. They alleged that they had been exposed to toxic chemicals from Venoco's well sites over extended periods while they were at the school. Plaintiff Ronald Zlotolow said he attended the high school from 1993 to 1997. Plaintiff Marlene Mish said she worked there from 1976 to 2000. The plaintiffs claimed Venoco had so negligently conducted its operations that it had contaminated the high school with toxins and caused the plaintiffs to develop cancer and other serious illnesses. They claimed Venoco knew its business activities were causing these toxic chemical exposures, but it did not warn the public.

The plaintiffs also alleged that as a result of Venoco's oil and gas "production, storage and processing": 1) toxic chemical emissions "continue to be generated . . . and vented onto the Campus"; 2) those emissions include such dangerous chemicals as arsenic, barium, cadmium, chromium, lead, selenium, benzene, and radioactive materials; and 3) Venoco deposits dangerous waste materials into "wells and pits" on campus and has contaminated the surrounding communities' "air, soil, water and environment."

Venoco requested Gulf to provide a defense to these actions. Gulf declined and stated that there was a pollution exclusion in its policy. It said there was an exception to this exclusion in a pollution "buy-back" provision that allowed coverage for accidents. But the litigation against Venoco fell outside the coverage requirements because Venoco had not proven: 1) the claims stemmed from an accident caused by an unexpected intervening act, 2) the accident occurred on a specific date, 3) it discovered the accident within seven days, and 4) it notified Gulf within 60 days of discovery of an accident. Therefore, Venoco's claim was untimely.

Venoco sued Gulf for breach of contract and breach of the implied covenant of good faith and fair dealing, and sought declaratory relief. Venoco alleged that the suit brought against it involved its "business activities" for which it had insurance coverage.

Venoco filed a motion for summary adjudication against Gulf. Michael Edwards, a Venoco vice president, declared that during Venoco's processing of oil and gas through various joints, values and flanges, there are occasional emissions of "small amounts" of natural gas called "fugitive emissions." But "[t]he production and processing system at the site is closed-meaning it is not intended to release chemicals or other compounds to the environment." He said that at least five of the actions filed against Venoco and other defendants contained injury claims alleged to have occurred "during the term of Gulf's insurance coverage" with Venoco.

In turn, Gulf filed a motion for summary judgment. It claimed it had no duty to defend or indemnify Venoco for the type of litigation commenced against it. It noted that in Edwards's deposition he conceded that Venoco did not report any accidents or emissions to Gulf during the policy period that ended in 1997. Venoco had reported, however, some emissions to the Air Quality Management District during that period. Gulf claimed, "Because it is undisputed that Venoco never gave any notice of any occurrence to Gulf during the effective period of the Gulf Policy or sixty days thereafter, Venoco has not satisfied the conditions of the Buy-Back Clause."

In Venoco's opposition, William Wineland, Venoco's former chief financial officer, declared, "I knew that 'pollution' exclusions were common in general liability policies at that time, but I understood that endorsements could be purchased from some insurers that would buy back pollution coverage." He said Venoco utilized two insurance brokers to negotiate with Gulf for the pollution buy-back provision. Wineland did not see the "actual policy documents" before he bought the coverage, but he expected it "would include pollution coverage." He noted that Venoco's previous insurer, St. Paul Surplus Lines Insurance Company, refused to extend coverage because of "the pollution risk associated with a crude oil pipeline . . . ."

The trial court denied Venoco's motion and granted Gulf's motion. The court ruled, "[I]t is undisputed that Venoco did not comply with the 60-day notice" requirement of the buy-back provision. The court found that the toxic contamination claims against Venoco were "alleged to have taken place over a period of years." Venoco did not report any accidents to Gulf within the 60-day period, it did not claim or prove that it was aware of any accidents as defined in the buy-back provision, and the 60-day requirement was not "unusual or unfair."

DISCUSSION

I. Introduction

The tort liability claims against Venoco fall outside the pollution coverage provisions in Gulf's insurance policy.

"[I]n interpreting an insurance policy, we seek to discern the mutual intention of the parties and, where possible, to infer this intent from the terms of the policy." (Haynes v. Farmers Ins. Exchange (2004) 32 Cal.4th 1198, 1204.) "When interpreting a policy provision, we give its words their ordinary and popular sense except where they are used by the parties in a technical or other special sense." (Ibid.)

On an appeal from a summary judgment, we conduct a de novo review of the record and the coverage provisions of the insurance policy. (Travelers Cas. & Surety Co. v. Transcontinental Ins. Co. (2004) 122 Cal.App.4th 949, 955.) "Issues concerning the proper interpretation and application ...


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