MacKinnon v. Truck Ins. Exchange

• Decision Date: 14 August 2003
• Docket Number: No. S104543.,S104543.
• Citation: 31 Cal.4th 635,3 Cal.Rptr.3d 228,73 P.3d 1205
• Court: California Supreme Court
• Parties: John R. MacKINNON et al., Plaintiffs and Appellants, v. TRUCK INSURANCE EXCHANGE, Defendant and Respondent.

3 Cal.Rptr.3d 228

73 P.3d 1205

31 Cal.4th 635

John R. MacKINNON et al., Plaintiffs and Appellants, v. TRUCK INSURANCE EXCHANGE, Defendant and Respondent.

No. S104543.

Supreme Court of California.

August 14, 2003.

As Modified on Denial of Rehearing September 17, 2003.

Law Offices of Arthur W. Francis, Jr., and Arthur W. Francis, Jr., Redondo Beach, for Plaintiffs and Appellants.M&gt Pahl & Gosselin, Stephen D. Pahl, San Jose, and Servando R. Sandoval for California Apartment Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Menter & Witkin, Timothy S. Menter and Gene M. Witkin, Newport Beach, as Amici Curiae on behalf of Plaintiffs and Appellants.

Zevnik Horton, Michel Y. Horton, Charles J. Malaret and Stanley H. Shure, Los Angeles, as Amici Curiae on behalf of Plaintiffs and Appellants.

Gordon & Rees, Christopher R. Wagner, Los Angeles; Ropers, Majeski, Kohn & Bentley, Michael J. Brady, Redwood City; Sedgwick, Detert, Moran & Arnold, Lawrence E. Picone, Frederick D. Baker and Kirk C. Jenkins, San Francisco, for Defendant and Respondent.

Hancock Rothert & Bunshoft, Paul J. Killion, San Francisco, Kathryn C. Ashton and Megan M. Griesbach, San Francisco, for London Market Insurers as Amicus Curiae on behalf of Defendant and Respondent.

Sinnott, Dito, Moura & Puebla, Randolph P. Sinnott; Wiley Rein & Fielding, Thomas W. Brunner and Theodore A. Howard for Steadfast Insurance Company as Amicus Curiae on behalf of Defendant and Respondent.

Wiley Rein & Fielding, Laura A. Foggan, John C. Yang, Elizabeth A. Eastwood; Bien & Summers and Elliot L. Bien, Novato, for Complex Insurance Claims Litigation Association as Amicus Curiae on behalf of Defendant and Respondent.

MORENO, J.

In this case, we consider the meaning of an exclusionary clause in a comprehensive general liability (CGL) insurance policy that excludes injuries caused by the "discharge, dispersal, release or escape of pollutants." Specifically, we are asked to determine whether that clause, a standard pollution exclusion clause, applies to exclude injury to a tenant resulting from a landlord's allegedly negligent use of pesticides on his property. We conclude that in order for an exclusionary clause to effectively exclude coverage, it "`must be conspicuous, plain and clear'" (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 271, 54 Cal.Rptr. 104, 419 P.2d 168), and that the pollution exclusion in question does not plainly and clearly exclude ordinary acts of negligence involving toxic chemicals such as pesticides. Accordingly, we reverse the contrary judgment of the Court of Appeal.

I. STATEMENT OF FACTS

The following facts are undisputed. Truck Insurance Exchange (Truck Insurance) issued a CGL insurance policy to MacKinnon, for the period of April 1996 to April 1997. That policy obligated the insurer to pay "all sums for which [the insured] become[s] legally obligated to pay as damages caused by bodily injury, property damage or personal injury." The insurer must "pay for damages up to the Limit of Liability when caused by an occurrence arising out of the business operations conducted at the insured location." Under "Exclusions" the policy states: "We do not cover Bodily Injury or Property Damage (2) Resulting from the actual, alleged, or threatened discharge, dispersal, release or escape of pollutants: (a) at or from the insured location." The terms "Pollution or Pollutants" are defined, in the definitions section at the beginning of the policy, as "mean[ing] any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste materials. Waste materials include materials which are intended to be or have been recycled, reconditioned or reclaimed."

Jennifer Denzin was a tenant in Mac-Kinnon's apartment building. She requested MacKinnon to spray to eradicate yellow jackets at the apartment building. MacKinnon hired a pest control company, Antimite Associates, Inc. (Antimite), to exterminate the yellow jackets. Antimite treated the apartment building for yellow jackets on several occasions in 1995 and 1996. On May 19, 1996, Denzin died in MacKinnon's apartment building.

Denzin's parents filed a wrongful death lawsuit against MacKinnon, Antimite, and other defendants. They alleged that on or about May 13, 1996, defendants negligently failed to inform Denzin that her apartment was to be sprayed with "dangerous chemicals," and failed to evacuate her, as a result of which she died from pesticide exposure. MacKinnon tendered his defense to Truck Insurance under the CGL insurance policy.

On November 10, 1997, Truck Insurance retained counsel and filed a responsive pleading to the complaint on behalf of MacKinnon. On December 23, 1997, Truck Insurance sent MacKinnon a letter advising him that, because an immediate response was necessary, Truck Insurance had referred the Denzin action to defense counsel in order to protect MacKinnon's interests. Truck Insurance added that it was still investigating the matter to determine if coverage existed. Truck Insurance added that it did not intend to waive any provisions of the insurance policy, and "Truck [Insurance] reserves all of its rights under the terms, exclusions, and conditions of any policies issued to you."

On June 3, 1998, Truck Insurance sent MacKinnon a letter advising that it had concluded that the pollution exclusion precluded coverage for the Denzin action and therefore Truck Insurance would be with-drawing its defense within 30 days. Truck Insurance later extended the withdrawal date to July 20,1998.

In June 1998, MacKinnon retained counsel to represent him in the Denzin action. MacKinnon, through his counsel, settled the Denzin action for $10,000 and then filed the instant insurance coverage action, claiming Truck Insurance owed MacKinnon a duty to defend and indemnify him in the Denzin action. MacKinnon's action asserted causes of action for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.

Truck Insurance moved for summary judgment on MacKinnon's coverage claims on the ground the pollution exclusion contained in the insurance policy issued by Truck Insurance to MacKinnon precluded coverage for the Denzin suit. MacKinnon opposed the motion. The trial court granted summary judgment based on the following findings: (1) the Denzin action alleged the decedent died as a result of exposure to a pesticide used to eradicate yellow jackets at her apartment building; (2) the pollution exclusion in the Truck Insurance policy was clear and unambiguous; (3) there was no potential for coverage for the Denzin action because the injuries alleged in the Denzin complaint are excluded from coverage by the pollution exclusion; and (4) because there was no potential for coverage, MacKinnon's breach of the good faith covenant cause of action also fails.

The Court of Appeal affirmed. It too found the clause unambiguous as applied to MacKinnon's claim, citing several cases from other jurisdictions giving the exclusion a broad reading. We granted review.

II. DISCUSSION

In determining whether a summary judgment motion was properly granted, "we review the trial court's decision de novo, applying the rule that `[a] defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiffs asserted causes of action can prevail'" (Flatt v. Superior Court (1994) 9 Cal.4th 275, 279, 36 Cal. Rptr.2d 537, 885 P.2d 950.) The trial court's principal ground for granting summary judgment, and the Court of Appeal's principal ground for affirming the trial court, was a determination that the pollution exclusion found in MacKinnon's policy excluded coverage of Denzin's wrongful death complaint. As discussed below, interpretation of policy language is a question of law. We therefore must determine, de novo, whether the pollution exclusion was properly interpreted by these courts.

The meaning of the current pollution exclusion has not received wide attention in this state.¹ However, the scope of the exclusion has been litigated extensively in other jurisdictions. To say there is a lack of unanimity as to how the clause should be interpreted is an understatement. Although the fragmentation of opinion defies strict categorization, courts are roughly divided into two camps. One camp maintains that the exclusion applies only to traditional environmental pollution into the air, water, and soil, but generally not to all injuries involving the negligent use or handling of toxic substances that occur in the normal course of business. These courts generally find ambiguity in the wording of the pollution exclusion when it is applied to such negligence and interpret such ambiguity against the insurance company in favor of coverage. The other camp maintains that the clause applies equally to negligence involving toxic substances and traditional environmental pollution, and that the clause is as unambiguous in excluding the former as the latter.²

A Historical Background of Pollution Exclusion

In order to understand the meaning of the pollution exclusion, some historical background is useful. The Illinois Supreme Court's comprehensive review of this history in Koloms, supra, 177 Ill.2d 473, 227 Ill.Dec. 149, 687 N.E.2d 72, merits extensive quotation: "The events leading up to the insurance industry's adoption of the pollution exclusion are `well-documented and relatively uncontroverted.' [Citation.] Prior to 1966, the standard-form CGL policy provided coverage for bodily injury or property damage caused by an 'accident.' [Citations.] The term `accident,' however, was not defined in the policy. As a result, courts throughout the country were called upon to define the term, which they often interpreted in a way as to encompass pollution-related injuries. In response, the insurance industry revised the CGL policy in 1966 and changed the former `accident'...