State of California v. Superior Court

• Decision Date: 01 March 2000
• Docket Number: No. E025472.,E025472.
• Citation: 78 Cal.App.4th 1019,93 Cal.Rptr.2d 276
• Court: California Court of Appeals
• Parties: STATE OF CALIFORNIA, Petitioner, v. The SUPERIOR COURT of Riverside County, Respondent; Underwriters at Lloyd's of London et al., Real Parties in Interest.

93 Cal.Rptr.2d 276

78 Cal.App.4th 1019

STATE OF CALIFORNIA, Petitioner, v. The SUPERIOR COURT of Riverside County, Respondent Underwriters at Lloyd's of London et al., Real Parties in Interest.

No. E025472.

Court of Appeal, Fourth District, Division 2.

March 1, 2000.

Review Denied June 2, 2000.^*

Bill Lockyer, Attorney General, Margaret A. Rodda, Senior Assistant Attorney General and Darryl L. Doke, Supervising Deputy Attorney General, Cotkin & Collins, Roger W. Simpson, Los Angeles, and M. Anne Jennings, San Francisco, Bergman & Wedner, Gregory M. Bergman, Robert M. Mason III, and Kristi Sjoholm-Sierchio, Los Angeles, for Petitioner.

Latham & Watkins and David L. Mulliken, David J. Barrett, and Patricia Guerrero, San Diego, for Pyrite Canyon Group, as Amici Curiae on behalf of Petitioner.

No appearance for Respondent.

Barger & Woven, John C. Holmes, Los Angeles, Mark C. Goodman, Misty A. Murray; Baker, Silberberg & Nahra and Steven T. Adams, Santa Monica, for Real Parties in Interest.

OPINION

McKINSTER, J.

In this matter we are asked to determine whether or not the State of California (hereinafter "State" or "petitioner") owns all of the groundwater present under the surface of the state. We conclude that it does, but that its "ownership" is not necessarily such as to trigger an "owned property" exclusion in a policy of liability insurance. Accordingly, we set aside the trial court's ruling that the "owned property" exclusion applies, and remand for further proceedings on the question.

This action has its genesis in the State's maintenance and/or operation of a toxic waste facility commonly known as the Stringfellow Acid Pits. In related litigation, the State has been found liable for massive damages related to environmental clean-up costs. In the hope of covering these enormous expenses, the State has turned to real parties, the issuers of various insurance policies arguably covering the State's liability. Real parties have balked. In the instant litigation, the State seeks declaratory relief with respect to the insurers' duties to defend and indemnify it in the related actions, and also seeks damages based on a number of versions of breach of the implied covenant of good faith and fair dealing.

Due to the complexity of the matter, the litigation has been divided into four parts. The first part, or Phase I, involved "policy prove-up issues." That phase is not involved here. In Phase II, the court was to address the "legal interpretation of key provisions of the policies, separate from the application of the facts of this claim." Phase III would consider the application of the facts of this case to the policies, and Phase IV, if necessary, would address, inter alia, issues of bad faith and damages. It is Phase II with which we are concerned here.

To be more specific, the particular policy provisions in question in this petition are what are customarily referred to as "owned property exclusions." By means of such exclusions, the insurer notifies the insured that the insurer will not pay for loss or damage to property owned by the insured.¹ By way of example, a policy of automobile liability insurance will commonly contain such an exclusion, which means that if the insured's own car is damaged, the insurer will not pay. If, in contrast, the owner also procures collision and comprehensive coverage, these coverages will apply to the insured's own vehicle and no "owned property" exclusion is appropriate.

In 1998, after hearing, the trial court proposed to issue an order in Phase II which would have found that the "owned property" exclusion did not apply because the groundwater, claimed to have been contaminated due to the operation of the Stringfellow Acid Pits, did not belong to the State. However, before the court finalized this tentative ruling, real parties sought leave to present additional argument and authorities on the issue, and a new round of hearings and briefing took place. In short, real parties this time convinced the trial court that the "owned property" exclusion was not ambiguous and did apply.² It is this ruling that the State assigns as error.³

Discussion

We will first consider the statutory and other authorities which tend to lead to a conclusion that the State does own the groundwater. We will then move to those authorities which might produce a contrary result. Finally, we will deal with the effect of recent pronouncements by our Supreme Court that, taken on their face, appear to dispose of the question.

The State Owns the Groundwater

Several statutes, one in the Water Code and two in the Civil Code, support the ruling of the trial court and the argument of real parties. First, Water Code section 102, enacted in 1943, provides that "All water within the State is the property of the people of the State, but the right to the use of water may be acquired by appropriation in the manner provided by law." Civil Code sections 669 and 670 together provide that "All property has an owner" and "[t]he State is the owner ... of all property of which there is no other owner." Thus, runs the argument proposed by real parties, the People of the State own the groundwater involved in this case under the Water Code; furthermore, even without this provision, the State must be held to be the owner by default, as individuals cannot own such water.

The latter part of the proposition is certainly correct, as there is no private ownership of ground or flowing water—a subject to which we will return. Furthermore, the language of the Water Code provision appears to be plain and unequivocal.

However, the matter is not as simple as it seems at first blush. The State responds to this apparently conclusive authority by arguing that the Civil Code concept of ownership does not apply to groundwater and that the Water Code provision quoted above does not establish a proprietary interest, but expresses more of a philosophical view. Authorities of substantial weight support this position.

The State Does Not Own the Groundwater

The first point to make is that modern water law focuses on the concept of water rights rather than water ownership. (1 Waters and Water Rights [1991 ed.; Robert E. Beck, ed.] § 4.01.)⁴ Most notably in the western states, water rights, in turn, are frequently tied to water use. Most commonly, a condition to the right to use⁵ is that the use be beneficial. Such an approach was essential for the economic and social development of regions where the natural rainfall was either unreliable or routinely inadequate to support the fertility and profitable agriculture otherwise promised by the climate and the soil. (See Katz v. Walkinshaw (1902) 141 Cal. 116, 124-127, 74 P. 766, for a discussion of the conditions that prompted the reasonable or beneficial use doctrine.)

This state initially recognized both riparian and appropriative rights with respect to both surface water and groundwater. (Lux v. Haggin (1886) 69 Cal. 255, 4 P. 919, passim; Katz v. Walkinshaw, supra, at p. 150, 74 P. 766.) Although the Supreme Court held in Herminghaus v. Southern California Edison Company (1926) 200 Cal. 81, 105, 252 P. 607 that a riparian owner was entitled to the entire flow as against an appropriator, without regard to reasonableness, two years later this was qualified by the predecessor to section 2 of article 10 of the California Constitution. That section, after setting forth a general policy against waste and in favor of beneficial use, provides that "The right to water or to the use or flow of water in or from any natural stream or water course in this State is and shall be limited to such water as shall be reasonably required for the beneficial use to be served ..." and even riparian rights are so limited. The general rules of priority— for example, between holders of riparian rights and appropriators—apply equally to surface and groundwaters. (See City of Pasadena v. City of Alhambra (1949) 33 Cal.2d 908, 925-926, 207 P.2d 17.)

Thus, the current state of the law is that a riparian (or overlying) owner, or an established appropriator, has the right to take and use water from e.g. a flowing stream, but the flowing water is not owned. On the other hand, a water right itself has been considered an interest in real property. (See e.g. Schimmel v. Martin (1923) 190 Cal. 429, 432, 213 P. 33.) It is also sometimes described as a right "appurtenant to" or "part and parcel of an interest in real property. (See e.g. Lux v. Hoggin, supra, 69 Cal. at pp. 390, 391-392, 4 P. 919.)

It may be true that, at least prior to the 1928 adoption of the predecessor to section 2 of article X, one could speak of "ownership" of water itself (Lux v. Haggin, supra at p. 392, 4 P. 919), and there obviously remains a sense in which discrete quantities of water can be "owned." For example, one who purchases a container of Arrowhead Puritas water then "owns" five gallons of California water. (See Lewis v. Scazighini (1933) 130 Cal. App. 722, 724, 20 P.2d 359, recognizing that water severed from the land becomes personal property which may be bought and sold like any other commodity.) But in its natural state, water is certainly not subject to ownership by an individual.⁶

But in what sense is it owned by the State?

"Ownership" and "Ownership"

Given the explicit provisions of Water Code section 102, the position that the State has no kind of ownership over the waters is not tenable. However, as petitioner points out, the Legislature did not enact that the State owns the water, but that the water is owned by the People of the State. In our view, although the difference is somewhat nebulous, it confirms the State's position in general.

In Civil Code section 670, quoted in part above, the Legislature also provided that "The State is the owner of all land below tide water, and below ordinary high-water mark...." (Emphasis added.) The State is considered to hold "title as trustee to such lands and waterways...." (National...