United States District Court, N.D. California
AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, et al., Plaintiffs,
TECHNICHEM, INC., et al., Defendants.
AMENDED ORDER ON SUMMARY JUDGMENT Re: Dkt. Nos. 123,
CHHABRIA UNITED STATES DISTRICT JUDGE
Commercial General Liability Policies
Court grants Zurich American summary judgment on the fourth
claim, concerning the Commercial General Liability Policies.
The plain language of the policies' Total Pollution
Exclusion - which bars coverage for claims "which would
not have occurred in whole or part but for the actual,
alleged or threatened discharge, dispersal, seepage,
migration, release or escape of pollutants at any time"
- means there's no possibility that those policies apply
to claims based on the alleged release of PCE. See Lewis
v. Hartford Cas. Ins. Co., No. 05-cv-2969-MHP, 2006 WL
249516, at *3-5 (N.D. Cal. Jan. 31, 2006); MacKinnon v.
Truck Ins. Exch., 73 P.3d 1205, 1208 n.1, 1216-17 (Cal.
2003); cf. Titan Corp. v. Aetna Cas. & Sur. Co.,
27 Cal.Rptr.2d 476, 482-83 (Ct. App. 1994).
Environmental Impairment Liability Policy
Court grants the defendants summary judgment on the first
claim, concerning the Environmental Impairment Liability
Policy's million-dollar liability limit. Two California
regulations (which the EIL Policy incorporates by reference
in Endorsement No. 1) provide that the million-dollar
liability limit is "exclusive of legal defense
costs." Cal. Code Regs. tit. 22, §§ 66264.147,
66265.147. These regulations apply in the event of
"sudden accidental occurrences, " and it's at
least possible that such "sudden accidental
occurrences" are exactly what caused the release of PCE
from the Technichem site. In the underlying action, DTSC has
not sought to prove how and when the PCE release occurred,
and the Court partially denied DTSC's motion for summary
judgment because, although there was proof that PCE was
released from the site, there was no proof about how or when
it was released. It's certainly possible that the release
was gradual or knowing - but it's also possible, at least
given the current state of the record, that the release was
sudden and accidental. In fact, DTSC complained that
Technichem had been "stacking drums in a manner that may
cause the drums to fall, rupture, or leak, " Dkt. 135-5
at 5 - in other words, a manner that might cause a sudden and
accidental release of PCE. In this light, it's at least
possible that sections 66264.147 and 66265.147 apply here -
and "a bare 'potential' or 'possibility'
of coverage" is enough to trigger Steadfast's duty
to defend. Montrose Chem. Corp. v. Superior Court,
861 P.2d 1153, 1160 (Cal. 1993).
keeping with DTSC's agnostic stance on how the PCE
release occurred, Steadfast notes that "[t]here are no
allegations in any of the underlying complaints of a
'sudden accidental occurrence.'" But a duty to
defend can be based on extrinsic facts, and not just the
allegations in the complaint. Montrose, 861 P.2d at
1157. And though the California Court of Appeal has stated
that "extrinsic facts which may create a duty to defend
must be known by the insurer at the
inception of the third party lawsuit, "
Gunderson v. Fire Ins. Exch., 44 Cal.Rptr.2d 272,
277 (Ct. App. 1995) (emphasis in original),  Steadfast
was aware of facts giving rise to a duty to defend
under the EIL Policy (in general) at the inception of the
underlying lawsuit. After that point, Steadfast could not end
its duty to defend unless it could "establish
conclusively that there is no potential for
coverage." Amato v. Mercury Cas. Co., 61
Cal.Rptr.2d 909, 913 (Ct. App. 1997) (emphasis in original).
To bear that burden, Steadfast would have needed to show that
the EIL Policy's million-dollar liability limit had been
exceeded - which, in turn, would have first required
Steadfast to show that defense costs counted towards that
limit (by showing that the release was not sudden or
fallback position, Steadfast cites Endorsement No. 1's
Condition O, which states that the insured "agree[s] to
reimburse [Steadfast] . . . for any payment that we would not
have been obligated to make under the provisions of the
Policy except for the agreements contained in this
Endorsement." But, to the extent this condition would
require the defendants to count defense costs towards their
million-dollar liability limit, and reimburse Steadfast for
defense costs over that limit, the condition is void as
contrary to the public policy embodied in the two regulations
(sections 66264.147 and 66265.147) at issue.
Steadfast argues that the EIL Policy doesn't cover the
underlying DTSC action at all: Steadfast notes that
the EIL Policy only covers "claims" that are made
and reported during a period defined by the policy, and the
DTSC action doesn't qualify. But Section VI.D.2
of the EIL Policy provides that "[t]wo or more
'claims' arising out of the same, interrelated,
associated, repeated or continuous 'pollution
event(s)' or a series of related 'pollution
events' shall be considered a single
'claim.'" At a minimum, the DTSC action
and the Pellegrini actions all arose out of
interrelated pollution events, so all three actions
constitute a single "claim" for purposes of the EIL
Policy. And the first Pellegrini action was both
filed and reported to Steadfast during the period covered by
the EIL Policy. Thus, the relevant "claim" here
(which includes both the DTSC action and the
Pellegrini actions) was timely.
Business Auto Policies
the Court grants the defendants summary judgment on the fifth
claim, concerning the potential for coverage under American
Guarantee's and Zurich American's Business Auto
Policies. Those policies cover "all sums an
'insured' legally must pay as damages because of
'bodily injury' or 'property damage' to which
this insurance applies, caused by an 'accident' and
resulting from the ownership, maintenance or use of a covered
'auto.'" "Contamination of the
environment" constitutes "property damage, "
and "reimbursement of response costs and the costs of
injunctive relief under CERCLA and related statutes are
incurred 'because of' property damage." AIU
Ins. Co. v. Superior Court, 799 P.2d 1253, 1279 (Cal.
1990). The policy's definition of "accident, "
meanwhile, is broad: it "includes continuous or repeated
exposure to the same conditions resulting in 'bodily
injury' or 'property damage.'" In light of
these two definitions, the release of PCE at the Technichem
site is an "accident" that caused "property
damage." And, based on the allegations in the underlying
complaint, there's a non-speculative possibility that the
"accident" at the Technichem site resulted from the
"use" of a covered auto. Under California law,
"use" of an automobile includes loading and
unloading. Cal. Ins. Code § 11580.06(g); Encompass
Ins. Co. v. Coast Nat'l Ins. Co., 764 F.3d 981,
984-87 (9th Cir. 2014). The underlying complaint alleges that
"Technichem transported hazardous substances to the
Technichem facility, " where "hazardous substances
were released to the environment." Based on these
allegations, it's easy to conceive of a theory under
which, for example, PCE was spilled while being unloaded from
covered automobiles that transported it to the Technichem
site. And an insurer has a duty to defend unless "the
third party complaint can by no conceivable theory raise
a single issue which could bring it within the policy
coverage." Montrose, 861 P.2d at 1160
(emphasis in original).
evidence - while not independently necessary to establish a
duty to defend under the Business Auto Policies - confirms
that this theory was more than speculation. Cf.
Gunderson, 44 Cal.Rptr.2d at 277-78. In fact,
there's evidence that some or all of the PCE released at
the Technichem site really was spilled while being unloaded
from vehicles. Test results "suggest that a release of
[PCE] likely occurred near the loading dock, " Dkt. No.
135-6 at 9 - a location "where trucks deliver and
offload drums and containers of solvents, " which could
be expected to cause "some spillage of PCE, " Dkt.
No. 135-9 at 5.
discussed at the June 21, 2016 case management conference,
this case is stayed pending resolution of the underlying