Legarra v. Federated Mutual Ins. Co., C019224

• Citation: 42 Cal.Rptr.2d 101,35 Cal.App.4th 1472
• Decision Date: 25 May 1995
• Docket Number: No. C019224,C019224
• Court: California Court of Appeals
• Parties: Domingo LEGARRA et al., Plaintiffs and Appellants, v. FEDERATED MUTUAL INSURANCE COMPANY, Defendant and Respondent.

Page 101

42 Cal.Rptr.2d 101

35 Cal.App.4th 1472

Domingo LEGARRA et al., Plaintiffs and Appellants, v. FEDERATED MUTUAL INSURANCE COMPANY, Defendant and Respondent.

No. C019224.

Court of Appeal, Third District, California.

May 25, 1995.

Review Denied Aug. 16, 1995.

Barr, Sinclair and Hill and John D. Barr, Redding, Paul A. Roller and Frank V. Aiello, Mount Shasta, for plaintiffs and appellants.

Meagher & Geer and Jeffrey M. Thompson, Minneapolis, MN, for defendant and respondent.

Elliot L. Bien, San Francisco, Wiley, Rein & Fielding and Daniel E. Troy, Washington, DC, amicus curiae, for defendant and respondent.

MORRISON, Associate Justice.

Plaintiffs Domingo and Katherine Legarra brought a declaratory action seeking to establish defendant Federated Mutual Insurance Company's duty to defend and indemnify them in connection with a demand by the California Regional Water Quality Control Board for certain response costs for groundwater contamination on their property. Defendant successfully moved for summary judgment on the basis there was no potential for coverage under the policy. Plaintiffs appeal, contending the pollution exclusion in the policy does not apply and there is separate coverage under the personal injury provisions of the policy. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The Legarras acquired a property in Weaverville through a judicial foreclosure in 1986. The property had been used as a petroleum bulk plant. The Legarras entered into negotiations to sell the property to Glenn Robinson. During the negotiations, Federated Mutual issued a liability policy to Robinson covering the property. Mr. Legarra was named as an additional insured under the policy. The sale to Robinson did not go through.

The policy issued by Federated Mutual to Robinson provided coverage for bodily injury liability and property damage liability and agreed to defend any suit seeking damages on account of bodily injury or property damage. Among the exclusions to which the insurance did not apply was one for "bodily injury or property damage arising out of 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 water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental."

This exclusion was replaced by a pollution exclusion endorsement. The pollution exclusion stated the insurance did not apply:

"(1) to bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, release or escape of pollutants:

"(a) at or from premises owned, rented or occupied by the named insured;

"(b) at or from any site or location used by or for the named insured or others for the handling, storage, disposal, processing or treatment of waste;

"(c) which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for the named insured or any person or organization for whom the named insured may be legally responsible; or

"(d) at or from any site or location on which the named insured or any contractors or subcontractors working directly or indirectly on behalf of the named insured are performing operations:

"(i) if the pollutants are brought on or to the site or location in connection with such operations; or

"(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants.

"(2) to any loss, cost or expense arising out of any governmental direction or request that the named insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.

"Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

The pollution exclusion itself was amended to exclude pollution from any tank filled with a liquid product or from any piping or pumps connected to the tank.

The policy also contained a multi-cover liability endorsement which amended the insurance to include additions and extensions of coverage. This endorsement provided coverage and a duty to defend suits for damages because of personal injury and advertising injury. Personal injury was defined as injury arising out of one or more certain enumerated offenses, including "wrongful entry or eviction or other invasion of the right of private occupancy."

Effective July 15, 1986, the named insured under the policy was amended to include Mr. Legarra. The additional insured endorsement provided that the coverage for the additional insured could be limited to (1) buildings and (2) bodily injury and property damage liability and premises medical payments with respect to the premises designated. The limitation was accomplished by checking the appropriate box or boxes. On the version of the additional insured endorsement provided by the Legarras, neither box limiting coverage was checked. On the version provided by Federated Mutual, both boxes were checked.

In September of 1991, the Legarras received a letter from the California Regional Water Quality Control Board (the Board) demanding a workplan for investigation and monitoring of the property pursuant to Water Code section 13267. ¹ The letter referenced an earlier letter of February 1990. In the February letter the Board stated fuel releases had likely occurred at the Legarras' property. The groundwater in the area flowed north to south; monitoring wells north of the property showed lower concentrations of gasoline than those south of the The Legarras tendered defense of the Board's demand (and prosecution of a suit they instituted against the previous owner of the property) to Federated Mutual. Federated Mutual declined coverage or defense for the claim involving the property, citing the pollution exclusion. The Legarras brought suit for declaratory relief, seeking to establish coverage and a duty to defend.

property. In addition, gasoline-stained soils were observed at the property. The Legarras denied receiving this letter. A subsequent letter from the Board advised the Legarras they might be responsible for reimbursing the Board for oversight expenses.

Federated Mutual moved for summary judgment on the basis that it owed no duty of defense or indemnification. The trial court granted Federated Mutual's motion and entered judgment for defendant.

DISCUSSION

I. Pollution Exclusion

A liability insurer owes a broad duty to defend its insured against any claims that create a potential for indemnity. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.) The determination of whether the duty to defend arises is made by comparing the allegations of the complaint, as well as extrinsic facts, with the terms of the policy. Any doubt as to whether the facts give rise to a duty to defend is resolved in favor of the insured. (Ibid.)

An insurer may move for summary adjudication that no potential for liability exists and thus no duty to defend where the evidence establishes as a matter of law there is no coverage. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 298, 24 Cal.Rptr.2d 467, 861 P.2d 1153.) In an action seeking declaratory relief on the issue of a duty to defend, different showings are required of the insured and the insurer. "To prevail, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot." (Id. at p. 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153, italics in original.)

The trial court found Federated Mutual met its burden by establishing the claim of the Board was excluded from coverage by the pollution exclusion. ² Part 1 of the exclusion applies to pollution discharged or released at or from the property. Part 2 of the exclusion applies to any costs or expenses arising from government directed monitoring or clean up.

An insurer may select the risks it will insure and those it will not and a clear exclusion will be respected. (Howell v. State Farm Fire & Casualty Co. (1990) 218 Cal.App.3d 1446, 1467, 267 Cal.Rptr. 708.) "Courts may not rewrite the insurance contract or force a conclusion to exact liability where none was contemplated. [Citations.]" (Blumberg v. Guarantee Ins. Co. (1987) 192 Cal.App.3d 1286, 1296, 238 Cal.Rptr. 36.) The pollution exclusion at issue here is known as an "absolute pollution exclusion." (Lathrop, Insurance Coverage for Environmental Claims (1995) § 3.07, p. 3-102.10; see Alcolac Inc. v. California Union Ins. Co. (D.Md.1989) 716 F.Supp. 1546, 1549 ["This pollution exclusion is just what it purports to be--absolute--and the Court perceives no reason why [the insurer] should be denied the benefit of its bargain with [the insured], as reflected in the insurance contract".].) As the trial court found, it clearly and unambiguously excluded coverage for the Board's claim. (See Titan Corp. v. Aetna Casualty & Surety Co. (1994) 22 Cal.App.4th 457, 469-470, 27 Cal.Rptr.2d 476 and cases cited therein.)

The Legarras advance several reasons why the pollution exclusion does not apply in this case. Part 1 of the pollution exclusion applies only to pollution "at or from" the insured's premises. They read this language to mean the exclusion applies only if the pollution originates on the insured's property. They contend the groundwater contamination cited by the Board was caused by sources off of their property. In support of this assertion and in opposition to the motion for summary judgment, they provided the declaration of a licensed engineer who gave the opinion "there...