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INSURANCE NOTES

Duty To Indemnify For Damages From Liquid Waste Site Not Excused By Pollution And Watercourse Exclusions

03.08.2007
Courts continue to grapple with insurance coverage issues arising from the massive liquid waste site known as "Stringfellow" located in Riverside County, California. In State of California v. Underwriters at Lloyd's London, 2006 WL 4013852, as modified by 2007 WL 178752 (2007), the Court of Appeal held that insurers were not relieved of their duty to indemnify for damage caused by the escape of pollutants from the Stringfellow site, under their policies' "pollution" and "watercourse" exclusions.

The policies had a "sudden and accidental" exception to the pollution exclusion. The watercourse exclusion precluded coverage for the discharge of pollutants into any watercourse or body of water.

The State of California had operated the Stringfellow site where more than 30 million gallons of liquid industrial wastes had been deposited. Heavy rains in 1969 caused contaminants at the site to overflow. The State later discovered contamination in the groundwater, and the site was closed. The State further discovered that leakage from the site continued to worsen. The State's chief geologist recommended certain measures to prevent overflow from the site.

The recommended measures had not been implemented by the 1978-1979 rainy season, and the site began to overflow. The State made two "controlled discharges" of over a million gallons of waste from the site. The waste went into a nearby creek and ultimately ended up in the Santa Ana River. Subsequent rains caused the released contaminants to migrate and further damage the environment.

In 1983, the United States and the State sued the companies that had disposed of waste at the site. The companies counterclaimed against the State for damages caused by progressive environmental contamination. In the trial court, the State was found 100 percent liable for remediating the contamination.

The State then sought insurance coverage for the liability. Certain of the excess liability insurers contended the pollution and watercourse exclusions applied to preclude coverage. The trial court granted summary judgment in favor of the insurers based on both exclusions.

The Court of Appeal noted that prior appellate decisions have held that the use of "sudden" in the "sudden and accidental" exception to the pollution exclusion means there is no coverage except for "abrupt" discharges of pollutants. Applying that interpretation, the Court held that the policies covered the 1969 overflow, as it was caused by heavy rains.

However, the Court reached a different conclusion as to the State's "controlled discharges" in 1978. For coverage, the policies required that the damage be caused by an "occurrence," defined as an "accident." By that point, the State was on notice that the site could overflow and that remedial measures were needed. Thus, the discharges were not "accidental." Therefore, the Court held that the 1978 discharges were not covered, but that the 1969 overflow was covered.

That notwithstanding, the Court concluded that the State was not required to prove which damages were caused by the covered overflow and which were caused by the noncovered discharges. The Court stated that "if the 1969 discharge was covered, the situation in this case would be analogous to that in Partridge, with covered and noncovered causes acting concurrently to cause an injury that could not be allocated among them." State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal.3d 94 (1973), involved an injury to a passenger in a truck when the insured drove into a bump (which was an excluded cause) and caused the hair-trigger on his gun to fire (which was a covered cause). The important effect of this part of the decision is to render all the damages covered, including what were initially deemed noncovered discharges that were neither "accidental" nor "sudden."

As to the watercourse exclusion, the Court stated it did not preclude coverage because the discharges contaminated the soil, even if the discharge initially entered a watercourse. The Court stated that if the 1969 overflow polluted groundwater by entering land, the watercourse exclusion did not apply. This part of the decision would appear to render the watercourse exclusion a nullity in many situations.

 

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