East Quincy Services Dist. v. Continental Ins. Co.

• Decision Date: 04 October 1994
• Docket Number: No. CIV-S-93-1163.,CIV-S-93-1163.
• Citation: 864 F. Supp. 976
• Parties: EAST QUINCY SERVICES DISTRICT, Plaintiff, v. CONTINENTAL INSURANCE CO., Defendant.
• Court: U.S. District Court — Eastern District of California

864 F. Supp. 976

EAST QUINCY SERVICES DISTRICT, Plaintiff, v. CONTINENTAL INSURANCE CO., Defendant.

No. CIV-S-93-1163.

United States District Court, E.D. California.

October 4, 1994.

Blane A. Smith, Thompson & Heller, P.C., Sacramento, CA, for plaintiff.

Kevin G. McCurdy, Ropers, Majeski, Kohn, Bentley, Wagner & Kane, Redwood City, CA, for defendant.

AMENDED MEMORANDUM OF OPINION AND ORDER

LEVI, District Judge.

Plaintiff East Quincy Services District ("the District") and defendant Continental Insurance Company ("Continental") bring cross-motions for summary judgment regarding Continental's duty to defend and indemnify the District under the terms of their insurance policies.

The District filed suit seeking a declaratory judgment that Continental must defend and indemnify the District in a Plumas County Superior Court action, Janet Laurie Joseph, et al. v. East Quincy Services District, Civ. No. 16034, and now moves for summary judgment on its claim. Continental denies coverage and seeks summary judgment in its favor.

For the reasons stated below, the court grants Continental's motion. The policy's Pollution Exclusion Endorsement bars coverage for claims of "bodily injury" and "property damage." "Personal injury" coverage is also barred by the pollution exclusion and because damage caused by pollution is not due to "eviction" or "wrongful entry."

I. Facts and Procedural History

This case involves a residential lot, previously owned by the District, that has been contaminated by E. coli and other bacteria, possibly from the septic tanks and leachfields of surrounding homes. The District first became aware of this problem on April 7, 1987, when the California Department of Health Services notified the District that the District's Well No. 6, which was located on the property, was contaminated with fecal coliform most likely originating from sewage. At that time, Health Services directed the District to cease using the well as a source of domestic water. (Sturm¹ Letter of 4/6/87, McCurdy Aff.Supp.D.'s Mot.Summ.J., Ex. E.) Regarding future use of the well, the District was told to consider that "soils in the area (and much of East Quincy) are known to be mostly sandy gravels that can allow contaminants to move readily. And, there are numerous homes in the immediate area which dispose of wastewater through septic tank/leachfield systems." (Id.)

In September 1988, the District's Board of Directors proposed rehabilitation of the well. Although Health Services did not direct the District to forego rehabilitation, the District was strongly advised against such a plan because:

(1) Well No. 6 is surrounded by high density development with individual septic tank and leachfield disposal systems;

(2) Well No. 6 is constructed in an area of unfavorable soil conditions, mostly sandy gravels, which can allow contaminants to move readily;

(3) Well No. 6 is over thirty (30) years old, with no satisfactory sanitary seal and unknown condition of casing;

(4) Well No. 6 has a history of total coliform contamination;

(5) Well No. 6 most recently tested positive for fecal coliforms.

(Sturm Letter of 9/19/88, Id., Ex. F.) Before Health Services would approve future use of the well, it would have to consider "how effectively the rehabilitation would exclude surface contaminants ..." (Id.) Based on this correspondence, the District abandoned its plan to rehabilitate the well, and the well was permanently sealed in February 1989.

The District sold the lot containing the sealed well to the Josephs on April 8, 1991. The Josephs placed a mobile home on the lot and installed a septic tank and leachfield system. They moved into their mobile home in July 1991. In their state court action, the Josephs allege that they became seriously ill in November 1991. After discovering that E. coli and other sewage-borne bacteria were the causes of their illnesses, the Josephs filed suit in Plumas County Superior Court.

The Josephs' complaint alleges causes of action for fraud (intentional or negligent misrepresentation); products liability (negligence and breach of implied and express warranty); intentional infliction of emotional distress; general negligence; and breach of contract. (See Joseph Summons & Compl., McCurdy Aff.Supp.D.'s Mot.Summ.J., Ex. A.)

The District purchased annual policies from Continental from July 1, 1988, through July 1, 1993. The District initially tendered its request for defense and indemnity in the Joseph matter in September 1992. Continental refused defense and indemnification on the grounds that the pollution exclusion applied and that personal injury was not covered. This action ensued.

II. The Policy

The cross motions address both the duty to defend and the duty to indemnify. "The duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages are ultimately awarded." Montrose Chemical Corp. of California v. Superior Court, 6 Cal.4th 287, 24 Cal.Rptr.2d 467, 471, 861 P.2d 1153, 1157 (1993) (citing Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076, 17 Cal.Rptr.2d 210, 213, 846 P.2d 792, 795 (1993)). Defense is required in any suit "which potentially seeks damages within the coverage of the policy." Montrose, 24 Cal. Rptr.2d at 471, 861 P.2d at 1157 (quoting Gray v. Zurich Ins. Co., 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168 (1966) (emphasis in original)).² Here, the District asserts that the claims brought against it by the Joseph family "potentially" seek damages covered by the policy. Continental argues that the District's claim is barred by the policy's pollution exclusion.³

Continental's policy provides coverage for bodily injury⁴ and property damage⁵ liability under Coverage A. There are a number of exclusions to coverage, including a "Pollution Exclusion Endorsement," which states:

This insurance does not apply to:

(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened emission, discharge, dispersal, seepage, migration, release or escape of "pollutants":

(a) At or from any premises, site or location which is or was at any time owned or occupied by ... any insured ...

As used in this insurance:

"Pollutants" mean any noise, solid, semisolid, liquid, gaseous or thermal irritant or contaminant, including.... biological and etiologic agents or materials, ... "waste" and any irritant or contaminant.

"Waste" includes any materials to be disposed, recycled, reconditioned or reclaimed.

At Coverage B, the policy provides coverage for "personal injury"⁶ caused by an "offense."⁷

III. Coverage A—"Pollution Exclusion Endorsement"

Continental contends that it has no duty to defend against the Josephs' bodily injury and property damage claims because coverage is barred by the policy's Pollution Exclusion Endorsement. Continental bears the burden of proving the application of a policy exclusion both on its motion for summary judgment and at trial. See Royal Globe Insurance Co. v. Whitaker, 181 Cal. App.3d 532, 226 Cal.Rptr. 435, 437 (1986). The District asserts that the exclusion is ambiguous and should be construed against the insurer, and that the exclusion does not apply on its terms.

The Pollution Exclusion Endorsement states that Continental will not cover bodily injury or property damage arising out of the "emission, discharge, dispersal, seepage, or migration ... of `pollutants' ... at or from any premises which is or was at any time owned or occupied by ... an insured." This language is clear and explicit, and expressly bars the Josephs' claims since they arise from pollution and contamination of the surface, the soil, or the groundwater by fecal coliform and other bacteria at the property.

Notwithstanding the clarity and expansiveness of the exclusion's language, the District contends that the language is ambiguous as applied to the circumstances here. First, the District suggests that the bacteria may not be "pollution" under the exclusion. But fecal coliform and other sewage-borne bacteria surely are "pollutants" under the policy because they are "solid, semi-solid, or liquid ... contaminants, including ... biologic and etiologic agents or materials ..."⁸ See p. 979, supra. See also Royal Ins. Co. v. Bithell, 1993 U.S.Dist. LEXIS 15103, *7 (E.D.Mich.1993) ("In this Court's view, raw sewage is clearly a contaminant ...").

Second, the District asserts that the exclusion does not clearly apply because the pollution originated off-site. But the exclusion applies when the pollution is "at" as well as "from" the site. There is no limiting language as to the origination of the pollution, and no one contests that the pollution here is "at" the site. The same argument advanced by the District has been resoundingly rejected as "sophistry" by the Fifth Circuit in Gregory v. Tennessee Gas Pipeline Co., 948 F.2d 203 (5th Cir.1991), and it is equally unpersuasive here.⁹ Cf. Northern Ins. Co. of New York v. Aardvark Assoc., Inc., 942 F.2d 189, 194 (3rd Cir.1991) ("We also reject the insured's argument that the pollution exclusion clause applies only to `active' polluters, i.e., those who `actually release pollutants,' ... and not `passive' polluters."). Accord United States Fidelity and Guar. Co. v. George W. Whitesides Co., Inc., 932 F.2d 1169, 1170 (6th Cir.1991); O'Brien Energy Sys., Inc. v. American Employers' Ins. Co., 427 Pa.Super. 456, 629 A.2d 957, 963 (1993); Powers Chemco, Inc. v. Federal Ins. Co., 74 N.Y.2d 910, 549 N.Y.S.2d 650, 651, 548 N.E.2d 1301, 1302 (1989).

Finally, the District argues that the pollution exclusion does not apply or is ambiguous because the Josephs' claims do not depend on the movement of bacteria on the surface, in the soil, and in the groundwater, while the language of the pollution exclusion refers to the movement of pollutants. This argument is also unpersuasive. To begin with, the terms of the exclusion —"emission, discharge, dispersal, seepage, migration,...