Toxic Tort Claims Against Insured Barred by “Seepage / Pollution / Contamination” Exclusion, and Insured Fails to Satisfy Conditions of “Buy Back” Coverage

The California Court of Appeal has held that toxic tort claims against an insured fell within the scope of a general liability policy’s “seepage / pollution / contamination” exclusion, and that the insured failed to satisfy the conditions necessary to trigger coverage under the policy’s “buy back” pollution coverage. ( Venoco Oil Co. v. Gulf Underwriters Ins. Co . (2009) 2009 WL 1875640)

Facts

For many years, various oil companies operated an oil and gas production facility near Beverly Hills High School. In 1995, Venoco Oil, Inc. (Venoco) assumed responsibility for operating the facility.

In 1996, Venoco obtained a general liability insurance policy from Gulf Underwriters Insurance Company for the period of April 1, 1996 through April 1, 1997. The Gulf policy contained an exclusion that barred coverage for any claims “directly or indirectly … arising out of seepage … pollution and/or contamination….” However, Venoco paid an additional premium in order to “buy back” limited pollution coverage. The “buy back” clause provided the insured with coverage for pollution claims, but only if: (1) the claim stemmed from an accident; (2) the accident began on an identifiable date during the policy period; (3) the insured discovered the accident within seven days after it began; and (4) the insured notified the insurer within 60 days of discovery of the accident.

In 2003 (six years after expiration of the Gulf policy), numerous former students and employees of the High School filed lawsuits against Venoco for personal injuries allegedly caused by long-term exposure to toxic pollution from Venoco’s oil and gas operations. Venoco tendered the lawsuits to Gulf for defense. Gulf denied coverage, asserting that the underlying plaintiffs’ claims against Venoco were barred by the policy’s “seepage / pollution /contamination” exclusion, and that Venoco had not satisfied the conditions necessary to trigger the “buy back” pollution coverage.

Following Gulf’s denial of coverage, Venoco sued Gulf for breach of contract and bad faith. The trial court entered summary judgment in favor of Gulf, and Venoco appealed.

Holding

The Court of Appeal affirmed. According to the appellate court, the underlying plaintiffs’ claims against Venoco all fell within the scope of the Gulf policy’s “seepage / pollution / contamination” exclusion. The court described the exclusion as “broad and absolute,” excluding coverage for “all claims directly or indirectly arising out of seepage and/or pollution and/or contamination.”

Further, Venoco had not established the conditions necessary to trigger the “buy back” pollution coverage. Specifically, there was no evidence that the underlying plaintiffs’ injuries resulted from an accident occurring on an identifiable date during the Gulf policy period; that Venoco had discovered any such accident within seven days after it began; or that Venoco had notified Gulf of any such accident within 60 days of the accident. The conditions of the “buy back” pollution coverage were ”conspicuous, plain and clear,” and Venoco’s failure to satisfy those conditions precluded Venoco from recovering under that portion of the policy. There was no potential for coverage and, hence, no duty to defend.

Comment

The appellate court spent considerable time discussing the policy condition requiring that the insured notify the insurer of an accident within 60 days of the accident. The insured argued that the insured’s failure to comply with the 60-day notice requirement should defeat coverage only if the insurer proved that the late notice caused “actual prejudice” to the insurer. The appellate court disagreed, holding that the 60-day late notice provision was a “condition precedent” to coverage under the policy. Thus, the 60-notice condition was enforceable even without a showing of prejudice.