Ortega Rock Quarry v. Golden Eagle Ins.

• Citation: 46 Cal.Rptr.3d 517,141 Cal.App.4th 969
• Decision Date: 27 July 2006
• Docket Number: No. E037906.,E037906.
• Court: California Court of Appeals Court of Appeals
• Parties: ORTEGA ROCK QUARRY, et al., Plaintiffs and Appellants, v. GOLDEN EAGLE INSURANCE CORPORATION, et al., Defendants and Respondents.

46 Cal.Rptr.3d 517

141 Cal.App.4th 969

ORTEGA ROCK QUARRY, et al., Plaintiffs and Appellants, v. GOLDEN EAGLE INSURANCE CORPORATION, et al., Defendants and Respondents.

No. E037906.

Court of Appeal, Fourth District, Division 2.

July 27, 2006.

Thompson & Colegate, John A. Boyd and Susan Knock Brennecke, Riverside, for Plaintiffs and Appellants.

Koeller, Nebeker, Carlson & Haluck, William L. Haluck and Sonia Patel, Irvine, for Defendants and Respondents Golden Eagle Insurance Corporation and Liberty Mutual Insurance Company.

Colliau Elenius Murphy Carluccio Keener & Morrow, and Jeffrey T. Woodruff for Defendants and Respondents Continental Casualty Company and Valley Forge Insurance Company.

OPINION

HOLLENHORST, Acting P.J.

I. INTRODUCTION

Plaintiffs and Appellants Ortega Rock Quarry, Jay Hubbs, and John Schmutz (sometimes referred to collectively as "Ortega") appeal from judgment following the trial court's grant of summary judgment in favor of defendants and respondents Golden Eagle Insurance Corporation, Liberty Mutual Insurance Company, Continental Casualty Company, and Valley Forge Insurance Company (sometimes referred to collectively as "the insurers"). Ortega made claims against the insurers for a defense and indemnity for an Environmental Protection Agency (EPA) order and corresponding civil lawsuit. The insurers relied on pollution exclusions in the policies to deny coverage, and Ortega brought a lawsuit for breach of contract and other claims. The trial court granted summary judgment and summary adjudication in favor of the insurers, and Ortega has appealed. Ortega contends that the trial court erred in determining that (1) the insurers had no duty to defend Ortega because the EPA proceedings were not a "suit" within the scope of the policies; (2) the pollution exclusion endorsements in the insurance policies excluded coverage for Ortega's claims; and (3) Ortega's acts were willful and therefore uninsurable.

II. FACTS AND PROCEDURAL BACKGROUND

A. Underlying Facts

The underlying facts are essentially undisputed. Plaintiff and appellant Ortega Rock Quarry operated a rock quarry business in southern Orange County; Hubbs and Schmutz were principals of the corporation. Defendant Golden Eagle Insurance Company, a subsidiary of Liberty Mutual Insurance Company (collectively referred to as "GEIC"), had issued a general commercial liability policy and an excess insurance policy to Ortega with policy dates of February 1999 to February 2000. Ortega was also insured under a general commercial liability policy issued by Continental Casualty Company, provided through its company Valley Forge Insurance Company (collectively referred to as "CNA"), with policy dates of February 1998 to February 1999.

Lucas Canyon Creek, an intermittent water course, runs through the land that Ortega Rock Quarry leased for its business. The lessor of the property was the Santa Margarita Company. In February 1998, El Nino storms caused the creek to overflow and wash out an access road on the leased property. To maintain access to the quarry, Ortega placed fill dirt from the quarry along the road throughout 1998 and 1999.

B. EPA Administrative Orders

The Environmental Protection Agency ("EPA") issued an administrative order to Ortega in February 2000, alleging that Ortega's placement of fill along the road had resulted in an unauthorized discharge of fill material into Lucas Canyon Creek. The order required Ortega to:

"(1) Immediately cease discharge of fill material into Lucas Canyon Creek except as authorized by permit;

"(2) Submit an interim erosion control plan and site restoration plan;

"(3) Submit an interim erosion control plan to curtail erosion of the fill materials into the creek; and

"(4) Submit a restoration plan detailing the manner in which the impacted areas of the creek would be restored."

The order stated that on "`numerous days in 1999,'" Ortega had, without a permit, discharged fill material, consisting of dirt and rocks, along the northern embankment of Lucas Canyon Creek, causing substantial portions of the creek to fill. The order alleged a violation of section 1311(a) of title 33 of the United States Code, which makes it unlawful to discharge any pollutant from a point source into any water of the United States without a permit. The order stated that the fill materials, consisting of dirt and rocks, that Ortega placed into the creek bed "are dredged and fill material, hence pollutants within the meaning of sections 301(a) and 404" of the Clean Water Act (33 U.S.C.A. § 1251 et seq.)

In response to the order, Ortega assisted in the development of a removal/restoration plan that was accepted by the EPA in June 2000. In October 2000, the EPA issued a second order to Ortega directing it to implement and complete, by December 15, 2000, remedial acts outlined in the removal/restoration plan.

C. Civil Lawsuit

In June 2001, the Santa Margarita Company, Ortega's lessor, filed a civil lawsuit against Ortega alleging that Ortega had damaged the creek and surrounding property. The lawsuit sought damages and a judicial determination that Ortega owed the Santa Margarita Company indemnity for any property damage that was subject to the Clean Water Act.

D. Policy Provisions

The insurers had issued general liability and excess coverage policies to Ortega.

1. Definition of "Suit"

Both the GEIC and CNA policies defined "suit" as follows: "`Suit' means a civil proceeding in which damages because of `bodily injury,' `property damage,' `personal injury' or `advertising injury' to which this insurance applies are alleged. `Suit' includes: [¶] a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent or [¶] b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent."

2. Pollution Exclusion Endorsements

The GEIC policy contained a pollution exclusion endorsement that excluded from coverage:

"1) `Bodily injury,' `property damage,' or `personal injury' which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.

"2) Any loss, cost or expense arising out of any:

"a. Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize, or in any way respond to, or assess the effects of pollutants; or

"b. Claim or suit by or on behalf of any authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants; or

"c. Payment related to the investigation or defense for any loss, injury or damage, or any cost, fine or penalty, or for any expense or claim or suit related to 1) and 2) a. and b. above." The CNA policy included a substantially similar pollution exclusion endorsement.

Under both the GEIC and CNA policies, "pollutants" were defined as "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."

E. Ortega's Submission of Claims to Insurers

Ortega submitted claims to the insurers to defend it in the EPA administrative proceedings and in the civil lawsuit. The insurers summarily denied both claims, contending that coverage was barred under the pollution exclusions in the policies. The insurers also asserted that dirt and rocks were pollutants within the policy definitions and were thus subject to the pollution exclusion.

F. Ortega's Lawsuit

Ortega filed suit against the insurers for breach of the insurance contracts and breach of the covenant of good faith and fair dealing and for a declaration that its claims were covered under the insurance policies.

CNA filed a motion for summary judgment and/or summary adjudication. GEIC filed a motion for summary adjudication as to issues of duty and damages.

Following additional briefing and a hearing, the trial court granted summary adjudication in favor of GEIC and summary judgment in favor of CNA. The court held that the policy language did not trigger a duty to defend an EPA action. The court further held that the pollution exclusions in the policies excluded coverage for Ortega's claims. Finally, the court held that Ortega's acts were willful and therefore uninsurable. Judgment was entered in favor of CNA, and GEIC stipulated to judgment with the proviso that the stipulated judgment did not waive Ortega's right to appeal and that appeals against all the insurers could proceed together.

III. DISCUSSION

A. Standard of Review

This court applies a de novo standard of review to an appeal based on the granting of summary judgment when, as here, the underlying facts are undisputed and the sole issues involve interpretation or application of the terms of an insurance policy. (County of San Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406, 414, 33 Cal.Rptr.3d 583, 118 P.3d 607.) In conducting our review, we apply settled rules governing the interpretation of an insurance policy:

"`While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.' [Citations.] `The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.' [Citation.] `Such intent is to be inferred, if possible, solely from the written provisions of the contract.' [Citation.] `If contractual language is clear and explicit, it governs.' [Citation.]" [Citation.]

"`"`A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable.' [Citations.] The fact that a term is not defined in the policies does not...