Coverage Analysis
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POLLUTION EXCLUSION

In MacKinnon v. Truck Insurance Exchange, the Supreme Court concluded 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), and that the pollution exclusion in question did not plainly and clearly exclude ordinary acts of negligence involving toxic chemicals such as pesticides. 

Lower court authority construing the exclusion have tended to find that (1) the exclusion is unambiguous; (2) that the exclusion focuses on the cause of contamination and (3) that sudden is the opposite of gradual. See  FMC Corp. v. Plaistead & Companies, 72 Cal. Rptr.2d 467, 480 (1998), review denied, No. S045520 (Cal. May 27, 1998);  Syntex Corp.  v.  Lowsley-Williams & Companies, A076964 (Cal.  App.  July 31, 1998)(unpublished);  Service Control Corp. v. Liberty Mutual Ins. Co., 46 Cal. App.4th 1047, 54 Cal. Rptr.2d 74 (4th Dist. 1996), review denied (Cal. August 21, 1996)(depublished); ACL Technologies, Inc. v. Northbrook Property & Cas. Ins. Co., 22 Cal. Rptr.2d 206 (Cal. App. 1993), rev. denied (Cal. November 17, 1993)(leaking tank); Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal. App. 4th 715, 15 Cal. Rptr.2d 815 (1st District 1993), further review denied (Cal. May 13, 1993)(waste site); Truck Ins. Exchange v. Pozzuoli, 17 Cal. App. 4th 856, 21 Cal. Rptr.2d 680 (1993), rev. denied (Cal. November 17, 1993)(LUST claims); Westfield Ins. Co. v. Pashayan, No. 93-16310 (9th Cir. January 5, 1995);  Aeroquip Corp. v. Aetna Cas. & Surety Co., 26 F.3d 893 (9th Cir. 1994); Smith v. Hughes Aircraft, 783 F.Supp. 1222 (D. Ariz. 1991), aff'd 10 F.3d 1448 (9th Cir. 1993); Pacific Scientific Co. v. General Accident Ins. Co., 1996 U.S. Dist. LEXIS 13194 (C.D. Cal. August 2, 1996); Trico Industries, Inc. v. Travelers Ind. Co., 853 F.Supp. 1190 (N.D. Cal. 1994), appeal docketed, No. 94-55651 (9th Cir. May 19, 1994); Cooper Development Co. v. Employers Ins. of Wausau, 765 F.Supp. 1429 (N.D. Cal. 1991); Quemetco, Inc. v. Pacific Automobile Ins. Co., Los Angeles No. BC 012529 (Cal. Super. November 29, 1993).

A "secondary discharge" argument was rejected in Standun, Inc. v. Firemans Fund Ins. Co., 73 Cal. Rptr.2d 116 (1998); Maryland Cas. Co. v. Sesi, No. 95-0484 (S.D. Cal. June 14, 1996); Union Oil Co. v. Allianz, No. B081127 (Cal. App. November 14, 1994);Tosco Corp.  v.  Hartford Accident & Indemnity Co., San Francisco No.  952681 (Cal.  Super.  March 1, 1999); Pacific Gas and Electric Company v. Lexington Insurance Company, San Francisco No. 948209 (Cal. Super. April 13, 2000) and Quemetco, Inc. v. Pacific Automobile Ins. Co., Los Angeles No. BC 012529 (Cal. Super. November 29, 1993).

While continuing to adhere to this view of the exclusion, a number of rulings of the California Court of Appeal in this regard have been unpublished, thus limiting the precedential value of such rulings.  See e.g.  Bujulian v. Commercial Union Ins. Co., No. F021539 (Cal. App. July 13, 1995) and McMillin Development Inc. v. Illinois Union Ins. Co., D017754 (Cal. App. February 1995).

Even where the exclusion has been found to be unambiguous, courts have sometimes ruled that there is a duty to defend since the complaints do not preclude the possibility that "sudden and accidental" discharges occur.  See e.g. Reese v. The Travelers Ins. Co., 129 F.3d 1056 (9th Cir. 1997); Wong v. Globe Indemnity Co., No. CO28154 (Cal. App. January 28, 1999);  Vann v. Travelers Companies, 39 Cal. App. 4th 1610, 46 Cal. Rptr.2d 617 (1st Dist. 1995); Wynn's International, Inc. v. Continental Ins. Co., 1995 U.S. Dist. LEXIS  (N.D. Cal. August 14, 1995); Staefa Control-System Inc. v. St. Paul Fire & Marine Ins. Co., 847 F.Supp. 1172 (N.D. Cal. 1994); Hirschberg v. Lumbermen's Mutual Cas. Co., 798 F.Supp. 600 (M.D. Cal. 1992); Grand Rent-A-Car Corp. v. The Central National Ins. Co. of Omaha, No. CV-90-2099 (C.D. Cal. March 20, 1992); Casmalia Resources v. Industrial Indemnity Co., Los Angeles No. BC 054 564 (Cal. Super. April 8, 1993);  Northrop Corp. v. American Motorists Ins. Co.. Los Angeles No. C-710571 (Cal. Super. April 7, 1992), aff'd in part, rev'd in part, B080492 (Cal. App. July 28, 1995). However, in Bernie & Co., Inc. v. Chubb Group of Companies, Los Angeles No. BC106744 (Cal. Super. September 20, 1995), a trial court ruled that the absence of allegations of "sudden and accidental" discharges barred any duty to defend.

However, in the most recent case to address this issue, the Court of Appeal ruled in Standun, Inc. v. Firemans Fund Ins. Co., 73 Cal. Rptr.2d 116 (1998) that a different standard might apply to waste generators.   The court distinguished other recent cases such as Vann and A-H Plating as involving pollution on the insured's property arising out of diverse business activities, whereas here the insured's liability was based upon its regular transport of waste to the OII site.

There remains some controversy as to whether "sudden" applies solely to the onset of pollution or also to its duration.  The earliest case on this issue, Shell, declared that courts should look to the overall duration of pollution.  See also Service Control Corp. v. Liberty Mutual Ins. Co.,46 Cal. App.4th 1047, 54 Cal. Rptr.2d 74 (4th Dist. 1996), review denied (Cal. August 21, 1996)(depublished)("the duration of the discharge must be considered in addition to the abruptness of its inception in order to prevent the exception from being rendered meaningless") and  Truck Ins. Exchange v. Pozzuoli, 17 Cal. App. 4th 856, 21 Cal. Rptr.2d 680 (1993), rev. denied (Cal. November 17, 1993)(LUST claims).  However, some courts have suggested that it is solely the point of commencement that is crucial.  See e.g.  Vann v. Travelers Companies, 39 Cal. App. 4th 1610, 46 Cal. Rptr.2d 617 (1st Dist. 1995).

The Ninth Circuit has rejected insured efforts to "microanalyze" sources of pollution to create coverage. Smith v. Hughes Aircraft Co., 10 F.3d 1448 (9th Cir. 1993).  See also American States Ins. Co. v. Sacramento Plating, 861 F.Supp. 964 (E.D. Cal. 1994), aff'd, No. 94-16905 (9th Cir. October 25, 1996).  Hughes was adopted by the California Court of Appeal in its unpublished opinion in McMillin.  Accord, Coast Oil Co. v. Northbrook Property & Casualty Co., Santa Clara No. 731150 (Cal. Super. November 20, 1995)(individual discharge did not reinstate coverage where it only contributed to long term routine pollution arising out of the operation of the plant over many years).  See also  Syntex Corp.  v.  Lowsley-Williams & Companies,  A076964 (Cal.  App.  July 31, 1998) and  Aerojet-General Corporation v. Fidelity & Casualty Company of New York Sacramento R27932 (Cal. Super. August 26, 1999)(evidence of specific, isolated pollution didn’t satisfy insured’s burden where “evidence” of discharges was based on mere speculation and/or involved the purposeful disposal of waste that was in any event not accidental.” 

California courts have generally refused to permit evidence of drafting history to "illumine" the meaning of the pollution exclusion where the insured had no contemporaneous knowledge of this hidden intent.  Service Control Corp. v. Liberty Mutual Ins. Co., 46 Cal. App.4th 1047, 54 Cal. Rptr.2d 74 (4th Dist. 1996), review denied (Cal. August 21, 1996)(depublished);  ACL Technologies, Inc. v. Northbrook Property & Cas. Ins. Co., 22 Cal. Rptr.2d 206 (Cal. App. 1993), rev. denied (Cal. November 17, 1993); McMillin Development Inc. v. Illinois Union Ins. Co., D017754 (Cal. App. February 1995); Smith v. Hughes Aircraft Co., 10 F.3d 1448 (9th Cir. 1993).  In Hughes, the Ninth Circuit drew a distinction between ISO document that Hughes had been unaware of and specific representations that insurers had made to Hughes' upon which it had relied in configuring its insurance program.

London's exclusion (NMA 1685) has been given the same application as conventional ISO forms.  Shell, supra; Syntex Corp.  v.  Lowsley-Williams & Companies, A076964 (Cal.  App.  July 31, 1998);   American National Can Co. v. Certain Underwriters at Lloyd's, San Francisco No. 895940 (Cal. Super. December 22, 1993).  However, in Hartford Acc. & Ind. Co. v. Employers Insurance of Wausau, San Francisco No. 847212 (Cal. Super. May 26, 1995), a trial court refused to grant summary judgment for various insurers with London wordings, holding that whereas it did not appear that the underlying discharges were "sudden," the exclusion also reinstated coverage if the discharges were "unexpected or unintended" but did not discuss from whose standpoint the discharge must be unexpected and unintended. 

A policyholder claim that the pollution of an aquifer was not damage to a "watercourse or body of water" was rejected in American States Ins. Co. v. Estate of Abbas Bakhtiary, No. C94-3092 (N.D. Cal. October 11, 1995).

In general, the absolute exclusion has been upheld for pollution clean up actions but has been given inconsistent effect in other actions.  The exclusion was upheld in Interstate Truck Insurance Exchange v. Interstate Brands Corp., No. B087522 (Cal. App. October 2, 1996); Titan Corp. v. Aetna Cas. & Sur. Co., 22 Cal. App. 4th 457, 27 Cal. Rptr. 476 (1994)(landfill clean up); Hendricks v. Scottsdale Ins. Co., No. 149233 (Cal. App. February 28, 1994), review denied, No. S039102 (Cal. May 26, 1994)(leaking petroleum products);  Legarra v. Federated Mutual Ins. Co., 35 Cal. App.4th 1472, 42 Cal. Rptr.2d 101 (Cal. App. 1995) (leaking tanks); Suburban Water Systems v. National Union Fire Ins. Co. of Pittsburgh, 76 F.3d 388 (9th Cir. 1996)(unpublished)(full text at 1996 U.S. App. LEXIS 4388);  East Quincy Services District v. Continental Ins. Co., 864 F.Supp. 976 (E.D. Cal. 1994)(E. coli bacteria in well field); Staefa Control-System Inc. v. St. Paul Fire & Marine Ins. Co., 847 F.Supp. 1172 (N.D. Cal. 1994); Hydro Systems, Inc. v. Continental Ins. Co., 717 F.Supp. 701 (C.D. Cal. 1989), affirmed, 929 F.2d 472 (9th Cir. 1991); Ascon Properties v. Illinois Union Ins. Co., C.A. No. 88-0167 (November, 30, 1988, C.D. Cal.), affirmed memorandum opinion, 908 F.2d 976 (9th Cir. 1990).  Similarly, the Ninth Circuit ruled that an exclusion for claims arising out of the discharge or release of pollutants precluded any duty to defend suits by property owners against a real estate broker for allegedly failing to advise them that their homes were situated on top of a hazardous waste dump.  Homestead Ins. Co. v. Ryness, 15 F.3d 1085 (9th Cir. 1994)(Table).

California courts have also consistently rejected efforts to avoid such exclusions based on “personal injury” arguments.  In Lakeside Non-Ferrous Metals, Inc. v. Hanover Ins. Co., 172 F.3d 702 (9th Cir. 1999), the Ninth Circuit declared that “California courts refuse to write a pollution exclusion out of an insurance policy by recasting a property damage claim as a personal injury claim unburdened by a pollution exclusion clause.”

In Titan, the Court of Appeal ruled that the exclusion did not extend to the burial of bricks and other types of inert solid waste that had not caused property damage and did not threaten harm.  A more limited view of the exclusion was adopted by a trial court in Bodine v. Fireman's Fund Ins. Co., Tulare County No. 150364 (Cal. Super. September 24, 1992) in finding the exclusion inapplicable to personal injury claims asserted by a motorist who was accidentally sprayed by pesticides that the insured was spraying on an adjoining citrus orchard at the time.  An absolute exclusion was also not given effect in Mosten Management Co., Inc. v. Zurich-American Ins. Group, No. C 89-3475 (N.D. Cal. June 19, 1992) based upon the insurer's failure to give notice to the insured when it added this coverage restriction.

The Second District of the California Court of Appeal gave a sweepingly broad interpretation of the "absolute" pollution exclusion in Employers Cas. Co. v. St. Paul Fire & Marine Ins. Co., 44 Cal. App.4th 545, 52 Cal. Rptr.2d 17 (2d Dist. 1996), review denied (Cal. 1996), ruling that the exclusion applies to a suit by a subcontractor's employee against the contractor, holding that respiratory injuries that a welder suffered after inhaling toxic fumes that he had accidentally set afire with a cutting torch were a "pollutant" that the insured had brought onto premises where the insured was performing operations.  However, in July 1996, the California Supreme Court ordered that this decision be "depublished", robbing it of any precedential value in California.

The Second District took a considerably more limited view of the exclusion in Charles E. Thomas Co. v. Transamerica Ins. Group,  62 Cal.  App.  437, 72 Cal.  Rptr.2d 577 (2d Dist. 1998).  The Court of Appeal reversed a lower court's declaration that the absolute pollution exclusion precluded coverage for allegations that the negligent installation of leak detectors by the insured had allowed thousands of gallons diesel fuel to escape.  The court held that claims that the property owner was damaged by having to remove and replace the tanks, excavate contaminated soil and repair damage to its property did not arise out of any governmental request or directive and that, accordingly, the insurer had a duty to defend.  The court refused to give a "but for"  meaning to "arising out of," holding that the California cases cited by Transamerica were in the context of the coverage grant and did not apply in the context of an exclusion.  The court found that Transamerica was trying to use this language to turn this into a truly "absolute" exclusion.  In any event, the court held that the exclusion would not have applied to a claim for the lost diesel fuel, even though the plaintiff had never made such a claim.
 
However, a different division of the same District held that the exclusion barred coverage for a sewage back up caused by a Chinese restaurant's disposal of grease and cooking oil down their drain.  In Panda Management Co. v. Wausau Underwriters Ins. Co., 73 Cal. Rptr. 2d 160 (2nd Dist. 1998), review denied, (Cal.  July 9, 1998), Division Four found that the sewage was plainly "waste" and that there had plainly been a release of these materials into the environment.  Again, however, this opinion was later depublished by order of the California Supreme Court.

The discharge of soil or silt from the insured’s farming operations was held not to be excluded in Tsakopoulos v. American Manufacturers Mutual Insurance Company, 2000 U.S. Dist. LEXIS 18569 (E.D. Cal. August 9, 2000).  The court refused to find that the release of dredge or fill from the insured’s property involved any discharge of “pollutants.”  Applying the principle ejusdem genris, the District Court found that “pollutant” must be restricted to contaminants and irritants which are of the same sort as are explicitly listed in the total pollution exclusion.  In the absence of any California precedent, the court was persuaded by the Alabama Supreme Court’s ruling in Molton, in which the court had refused to apply the exclusion to soil erosion claims against a contractor.

Disputed issues of fact with respect to whether a chemical reaction inside a drum constituted a "hostile fire" caused the Ninth Circuit to overturn a favorable ruling in J.R. Maffei v. Northern Ins. Co. of New York, 12 F.3d 892 (9th Cir. 1993).  While agreeing that the common meaning of "fire" under California law required evidence of both "heat" and "light," The court ruled that the expert's testimony would have been probative of whether the chemical reaction had produced "light" since it had occurred in a closed barrel and was therefore not directly observable.

More recently, a District Court has ruled that the "hostile fire" exception does not apply to the governmental clean-up aspect of the exclusion. Risner v. American States Ins. Co., CV 94-1468 (C.D. Cal. January 12, 1995), aff'd on other grounds, 91 F.3d 152 (9th Cir. 1996)(Table--full text at 1996 U.S. App. LEXIS 17808).

Language in the exclusion requiring that a discharge be from the insured's premises refers to the place where the pollutants originate, not the damaged property that subsequently becomes polluted by such discharges. Lick Mill Creek Apartments v. General Star Ind. Co., A066564 (Cal. App. November 27, 1995).

The Court of Appeal considered but failed to address the issue of whether indoor releases of asbestos fibers are a discharge of "pollutants" in Sunset Vine Tower, LTD v. Commerce and Industry Ins. Co., B074979 (Cal. App. December 14, 1994), ruling instead that the property exclusion in that case was inapplicable to losses resulting from vandalism or water damage.

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