Cnty. of Stanislaus v. Travelers Indem. Co.

• Decision Date: 05 November 2015
• Docket Number: CIV. NO. 1:14-00666 WBS SMS
• Citation: 142 F.Supp.3d 1065
• Parties: County of Stanislaus, Plaintiff, v. Travelers Indemnity Company; and Does 1 Through 50, Inclusive, Defendant.
• Court: U.S. District Court — Eastern District of California

142 F.Supp.3d 1065

County of Stanislaus, Plaintiff,

v.Travelers Indemnity Company; and Does 1 Through 50, Inclusive, Defendant.

CIV. NO. 1:14-00666 WBS SMS

United States District Court, E.D. California.

Signed November 5, 2015

Benjamin Perkins Syz, Janet Menacher, Brown & Winters, Cardiff, CA, for Plaintiff.

Lori A. Schweitzer, Scott M. Bloom, Linda I. Yen, Becherer Kannett & Schweitzer, Emeryville, CA, for Defendant.

MEMORANDUM AND ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT

WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE

This action seeks to resolve disputes regarding the coverage due under a comprehensive general liability policy issued to plaintiff County of Stanislaus by the Insurance Company of the Pacific Coast, which was a former entity of defendant Travelers Indemnity Company. Pursuant to Federal Rule of Civil Procedure 56, both parties move for summary judgment to resolve defendant's obligations under the policy.

I. Factual and Procedural Background

From 1970 until 1990, plaintiff operated the Greer Landfill in the eastern edge of the San Joaquin Valley adjacent to the Tuolumne River. (Docket No. 28-13.) The Greer Landfill, which closed in 1995, contains approximately 4.5 million tons of residential, commercial, industrial, construction, and demolition waste that was deposited into excavated cells in the ground. (Id. ) The policy at issue in this case was in effect from only October 13, 1972 to October 13, 1975. (Docket No. 28-8.) The policy excludes coverage for contamination, but reinstates coverage for "sudden and accidental" discharges. (Id. )

In 1985, groundwater degradation was identified at the landfill and efforts have been undertaken to remediate the groundwater contamination since at least 1991. (Docket No. 28-13.) In 2009, the California Regional Water Quality Control Board ("CRWQCB") issued an order identifying plaintiff's "Waste Discharge Requirements." (Id. ) Finding that the "extent of the groundwater contamination has not been defined" and that the existing "landfill gas and groundwater extraction systems are not adequate," the CRWQCB issued a Cease and Desist Order in 2011. (Docket No. 32-3 at STATRAV2316-STATRAV2318.)

On August 5, 2011, plaintiff initiated an action in state court against the City of Modesto (the "City") seeking damages against the City based on contamination at the Greer Landfill. On August 24, 2011, the City filed a Cross-Complaint against plaintiff seeking indemnity and damages incurred as a result of the contamination. Plaintiff informed defendant of its lawsuit against the City five months after filing it and then tendered the defense of the City's Cross-Complaint on January 27, 2012. (Barillari Decl. ¶¶ 3, 5 (Docket No. 28-7).) Defendant accepted the tender subject to a complete reservation of rights and informed plaintiff that the "defense may be conducted by appropriately qualified counsel of the County of Stanislaus's choice, in any manner deemed appropriate to protect the interests of the County." (Docket No. 28-15.)

While defendant has paid legal fees incurred in defending against the City's Cross-Complaint, it has not paid any of the non-legal environmental consultant invoices plaintiff submitted. Plaintiff initiated this action in state court seeking declaratory relief to resolve defendant's obligations under the policy and alleging claims for breach of contract and breach of the implied covenant of good faith and fair dealing. (Docket No. 1.) Defendant removed the action to federal court, and the parties now seek summary judgment resolving whether defendant has a duty to defend plaintiff and, if so, whether the non-legal environmental consultant costs are defense costs.

III. Analysis

A. Legal Standard

Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A material fact is one that could affect the outcome of the suit, and a genuine issue is one that could permit a reasonable jury to enter a verdict in the non-moving party's favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party moving for summary judgment bears the initial burden of establishing the absence of a genuine issue of material fact and can satisfy this burden by presenting evidence that negates an essential element of the non-moving party's case. Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Alternatively, the moving party can demonstrate that the non-moving party cannot produce evidence to support an essential element upon which it will bear the burden of proof at trial. Id.

Once the moving party meets its initial burden, the burden shifts to the non-moving party to "designate ‘specific facts showing that there is a genuine issue for trial.’ " Id. at 324, 106 S.Ct. 2548 (quoting then-Fed. R. Civ. P. 56(e) ). To carry this burden, the non-moving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "The mere existence of a scintilla of evidence...will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.

In deciding a summary judgment motion, the court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in its favor. Id. at 255, 106 S.Ct. 2505. "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge...ruling on a motion for summary judgment...." Id. On cross-motions for summary judgment, the court "must review the evidence submitted in support of each cross-motion [in a light most favorable to the non-moving party] and consider each party's motions on their own merits." Corbis Corp. v. Amazon.com, Inc. , 351 F.Supp.2d 1090, 1097 (W.D.Wash.2004).

B. Duty to Defend and the Pollution Exclusion

An insurer's duty to defend "runs to claims that are merely potentially covered, in light of facts alleged or otherwise disclosed" and "extends to all specified harm that may possibly have been caused by an included occurrence." Aerojet – Gen. Corp. v. Transp. Indem. Co. , 17 Cal.4th 38, 58, 70 Cal.Rptr.2d 118, 948 P.2d 909 (1997) ("Aerojet "). "[T]he insurer must defend in some lawsuits where liability under the policy ultimately fails to materialize; this is one reason why it is often said that the duty to defend is broader than the duty to indemnify." Montrose Chem. Corp. v. Superior Court , 6 Cal.4th 287, 299, 24 Cal.Rptr.2d 467, 861 P.2d 1153 (1993). "Any doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured's favor." Id. at 299–300, 24 Cal.Rptr.2d 467, 861 P.2d 1153.

The duty to defend "arises as soon as tender is made" and is "discharged when the action is concluded" unless it is "extinguished earlier" because the insurer shows "that no claim can in fact be covered." Aerojet , 17 Cal.4th at 58, 70 Cal.Rptr.2d 118, 948 P.2d 909. "[I]n an action wherein none of the claims is even potentially covered because it does not even possibly embrace any triggering harm of the specified sort within the policy period caused by an included occurrence, the insurer does not have a duty to defend." Id. at 59, 70 Cal.Rptr.2d 118, 948 P.2d 909.

"An insurer is entitled to limit its coverage to defined risks, and if it does so in clear language, [the court] will not impose coverage where none was intended." Am. States Ins. Co. v. Sacramento Plating, Inc. , 861 F.Supp. 964, 968 (E.D.Cal.1994) (quoting Titan Corp. v. Aetna Casualty & Sur. Co. , 22 Cal.App.4th 457, 469, 27 Cal.Rptr.2d 476 (4th Dist.1994) ) (alteration in original). Here, the policy excluded coverage for contamination, but reinstated coverage if the contamination was "sudden and accidental":

It is agreed that the insurance does not apply to 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 watercourse or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

(Docket No. 28-8.)

When addressing similar exclusions, California appellate courts have held that the insured "establishes that [the insurer] is obligated to defend... if there is any potential that the release or escape of at least some of the pollutants was ‘sudden and accidental.’ " Vann v. Travelers Cos. , 39 Cal.App.4th 1610, 1616, 46 Cal.Rptr.2d 617 (1st Dist.1995) ; A – H Plating, Inc. v. Am. Nat'l Fire Ins. Co. , 57 Cal.App.4th 427, 437, 67 Cal.Rptr.2d 113 (1997) ; accord Arrowood Indem. Co. v. Bel Air Mart , No. 2:11–CV–00976 JAM–AC, 2014 WL 841314, at *5 (E.D.Cal. Mar. 4, 2014) ; Bolton v. Lumbermans Mut. Cas. Co. , No. 05–1109 SC, 2006 WL 193519, at *4 (N.D.Cal. Jan. 23, 2006) ("[S]o long as [the insurer] is unable to conclusively establish that the underlying claim cannot fall within the ambit of the policies, it will be bound to defend Plaintiff."). As the California Supreme Court has more generally explained in the context of a dispute about the duty to defend, "the insured must prove the existence of a potential for coverage , while the insurer must establish the absence of any such potential ." Montrose Chem. Corp. , 6 Cal.4th at 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153.¹

"[I]n the phrase, ‘sudden and accidental,’ ‘accidental’ conveys the sense of an unexpected and unintended event, while ‘sudden’ conveys the sense of an unexpected event that is abrupt or immediate in nature." Shell Oil Co. v. Winterthur Swiss Ins. Co. , 12...