Masonite Corp. v. Great American Surplus Lines Ins. Co

• Citation: 224 Cal.App.3d 912,274 Cal.Rptr. 206
• Decision Date: 19 October 1990
• Docket Number: No. A041180,A041180
• Court: California Court of Appeals
• Parties: MASONITE CORPORATION et al., Plaintiffs and Appellants, v. GREAT AMERICAN SURPLUS LINES INSURANCE COMPANY et al., Defendants and Cross-appellants.

Page 206

274 Cal.Rptr. 206

224 Cal.App.3d 912

MASONITE CORPORATION et al., Plaintiffs and Appellants, v. GREAT AMERICAN SURPLUS LINES INSURANCE COMPANY et al., Defendants and Cross-appellants.

No. A041180.

Court of Appeal, First District, Division 1, California.

Oct. 19, 1990.

Review Denied Jan. 4, 1991.

Jared G. Carter, Cindee F. Mayfield, Rawles, Hinkle, Carter, Behnke & Oglesby, Ukiah, for plaintiffs and appellants.

Ray L. Wong, Patricia Shuler Schimbor, Ernest J. Beffel, Jr., Paul J. Killion, Hancock, Rothert & Bunshoft, San Francisco, for defendants and cross-appellants.

Michael J. Breining, California Mfrs. Ass'n, Sacramento, Thomas M. Peterson, Carol B. Sharp, Brobeck, Phleger & Harrison STEIN, Associate Justice.

Moses Lasky, John E. Munter, Scott P. DeVries, Lasky, Haas, Cohler & Munter, San Francisco, William L. Berry, Jr., Aerojet-General Corp., Sacramento, for amici curiae in support of appellants.

INTRODUCTION

Great American Surplus Lines Insurance Company (GASLIC) issued an environmental impairment liability insurance policy to Masonite Corporation (Masonite). ¹ The California Regional Water Quality Control Board (RWQCB) subsequently discovered that there was soil and water contamination at the site of one of Masonite's operations and issued a cleanup and abatement order. GASLIC denied coverage and Masonite brought an action against GASLIC, and others. The complaint, among other things, sought a declaration that the GASLIC policy covered Masonite's claim. This portion of the complaint was severed from the remainder of the action. The matter was submitted to a jury, which found no coverage.

Masonite contends on appeal that the jury was misled to Masonite's detriment by certain jury instructions and by a verdict form. There is no argument that the evidence does not support the verdict; rather, the argument is that the jury probably would have reached a different verdict had it been instructed properly. Accordingly, it is irrelevant that there was substantial evidence supporting the jury's verdict on the instructions actually given. " ' "[I]n determining whether a verdict is supported by the evidence, we must assume that the jury accepted the view most favorable to the respondent. However, in determining whether or not the instructions given are correct, we must assume that the jury might have believed the evidence upon which the [cause of action or defense of] the losing party was predicated, and that if the correct instruction had been given upon that subject the jury might have rendered a verdict in favor of the losing party." ' " (Clement v. State Reclamation Board (1950) 35 Cal.2d 628, 643-644, 220 P.2d 897.) Therefore, the question is whether the instructions, if improper, led to a miscarriage of justice. (Seaman's Direct Buying Service, Inc. v. Standard Oil, Co. (1984) 36 Cal.3d 752, 770, 206 Cal.Rptr. 354, 686 P.2d 1158.)

FACTS

In 1970 Masonite purchased a wood preserving plant, established in 1960, from Pacific Wood Preserving. The operations of both Pacific Wood Preserving and Masonite included the discharge of chemical wastes into the ground at or around the site. The RWQCB, which had inspected the site throughout its operation, in 1975 demanded that Masonite take corrective action to "eliminate and abate the discharge in compliance with the waste water discharge requirements." In response, Masonite took some corrective measures but soon closed the plant. The RWQCB required Masonite to monitor the waters in the vicinity of the plant for presence of chemicals and for fish survival. The RWQCB was at that time satisfied with Masonite's actions and, in 1981, lifted the monitoring requirements, apparently finding that because the monitoring had disclosed acceptable limits of contamination and because no additional discharges of chemicals had occurred at that site, there was no further need to continue the monitoring.

In 1982, Masonite purchased the policy of environmental impairment liability insurance here at issue. In 1983 the RWQCB, which had become aware that wood treatment plants and other sources of chemical discharges created more serious problems than were originally understood (i.e., that waters could be affected not just by surface run-off but by chemicals present in the underlying soils), drilled several test wells at the Cloverdale site. The wells disclosed that the ground water and soils were contaminated; the RWQCB issued a cleanup and abatement order.

Masonite called upon GASLIC to pay for the cleanup and abatement; GASLIC refused on the grounds that its policy did not cover the claim, and the present litigation followed.

DISCUSSION

I.

The Instructions Properly Informed the Jury That Coverage Existed Only if the Act, Rather Than the Damage, Was Gradual and Fortuitous and Neither Expected Nor Intended

Although Masonite's contentions relate to jury instructions and a special verdict form, the underlying question is one of interpretation of the insurance policy. ² The interpretation of an insurance policy, like that of any contract, is primarily a judicial function; and where there is no conflict in the extrinsic evidence, a reviewing court makes its own independent determination of the contract's meaning. (Hackenthal v. National Casualty Co. (1987) 189 Cal.App.3d 1102, 1108-1109, 234 Cal.Rptr. 853; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 866, 44 Cal.Rptr. 767, 402 P.2d 839.) In the present case, the trial court did not expressly interpret the policy's provision; however, the instructions and verdict form necessarily reflect an interpretation of the policy. Masonite contends that interpretation is incorrect and, further, that it improperly left issues of interpretation to the jury.

An environmental impairment liability insurance policy, such as that at issue here, is fairly uncommon and rarely discussed in case law. Prior to the availability of environmental impairment insurance, companies such as Masonite sought to protect themselves by purchasing comprehensive general liability insurance. These policies usually specifically excluded damage caused by pollution by providing: "This policy 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." (See, e.g., Jackson TP., Etc. v. Hartford Acc. & Indem. (1982) 186 N.J.Super. 156, 451 A.2d 990, 991-992; Molton, Allen & Williams, Inc. v. St. Paul F. & M. Ins. (1977) 347 So.2d 95.) The evident purpose of this exclusion was to protect the insurer against claims arising from pollution resulting from a gradual and/or continuous exposure to contaminants.

A number of courts ultimately found the usual ambiguities in the phrase "sudden and accidental," holding that the exclusion applied only where the damage which occurred was in fact intended, whether or not the act causing the damage was itself intended and whether or not the act causing the damage was gradual. (Jackson TP., Etc. v. Hartford Acc. & Indem., supra, 451 A.2d at p. 994, and see cases discussed there.) In the meantime, however, there was the potential of a gap in insurance; a company such as Masonite might not be protected from liability for damage caused by gradual pollution. GASLIC apparently determined to step into this gap and created its environmental impairment liability policy. ³

GASLIC's policy contains an exclusion that "This insurance does not apply to LOSS: A. arising from ENVIRONMENTAL IMPAIRMENT which is sudden and accidental"--loss which traditionally was excepted from the pollution exclusion to a comprehensive general liability insurance policy.

Further, rather than repeat the language used in the standard comprehensive general liability insurance policies providing coverage for occurrences, i.e., "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured," GASLIC's environmental impairment liability insurance policy provided coverage for "environmental impairment," defined as, "damage to the environment caused by:

"1. the emission, discharge, disposal, dispersal, release, seepage, 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, or

"2. the generation or odor, noises, vibrations, light, electricity, radiation, changes in temperature, or any other sensory phenomena arising out of or in the course of the INSURED'S operations provided (1) and (2) are gradual and fortuitous and neither expected nor intended by the INSURED."

The jury was instructed ⁴ that they could find coverage only if the "emission, discharge, disposal, dispersal, release, seepage, or escape" of the pollutants was "gradual and fortuitous and neither expected nor intended." The verdict form required the jury to answer "yes" or "no" to a like-phrased question. Masonite contends that the instruction is improper as it precludes a finding of coverage if the insured intended the act causing the harm but not the harm itself. If the policy at issue contained a coverage clause similar to that set forth in standard comprehensive general liability insurance policies, this contention might have merit. As discussed, infra, those policies either specify that coverage is provided for unintended damage, or that coverage is provided for "accidents," a word which has been construed judicially to mean unintended damage. (See, e.g., Meyer v. Pacific Employers Ins. Co. (1965) 233 Cal.App.2d 321, 43...