The California Court of Appeal has held that a liability policy’s “pollution” exclusion relieved an insurer of any duty to defend or indemnify its insured for liability arising from the insured’s release of a solvent into a public sewer system. ( American Cas. Co. of Reading, PA v. Miller (2008) 71 Cal.Rptr.3rd 571)
Facts
Michael Miller operated a furniture stripping business in the City of Santa Monica, California. As part of his business, Miller generated wastewater containing solvents. The City issued Miller a “wastewater permit” which allowed him to discharge wastewater from his premises into the City’s sewer, but which prohibited him from discharging any solvents into the sewer.
On at least one occasion, Miller allegedly allowed wastewater containing a solvent, methylene chloride, to flow into an onsite waste sump which emptied into a City sewer. The wastewater allegedly caused serious injuries to Vicente Valenzuela, a workman who was performing some repairs in the sewer. As a result of the incident, Miller was charged with, and pled guilty to, negligent discharge of pollutants into a public sewer system.
Valenzuela filed a personal injury action Miller, alleging that Miller had negligently discharged methylene chloride into the sewer causing injuries to Valenzuela. Miller tendered Valenzuela’s personal injury action to Miller’s general liability insurer, American Casualty Company of Reading, PA. However, citing the policy’s “pollution” exclusion, American Casualty declined to defend Miller against Valenzuela’s lawsuit.
Thereafter Valenzuela settled his personal injury action against Miller. As part of the settlement, Miller assigned his rights against American Casualty to Valenzuela. Valenzuela then demanded that American Casualty pay its policy limit of $1 million.
American Casualty filed a declaratory relief action against the insured, Miller, and the third party-claimant, Valenzuela, alleging that the policy’s pollution exclusion applied and that American Casualty thus had no duty to defend or indemnify Miller against Valenzuela’s lawsuit. The trial court agreed that the pollution exclusion barred any potential for coverage in the underlying lawsuit, and thus entered summary judgment in favor of American Casualty. Miller and Valenzuela appealed.
Holding
The Court of Appeal affirmed. The American Casualty policy’s “pollution” exclusion barred coverage for bodily injury or property damage “arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ … at or from any premises … which is … owned or occupied by … any insured.” The policy defined “pollutants” 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.”
Here, Valenzuela’s personal injury action against Miller was based on Miller’s alleged negligence in allowing the release or discharge of a “pollutant” (i.e., wastewater containing methylene chloride) into a public sewer system. As such, Valenzuela’s claim against Miller fell within the scope of the American Casualty policy’s “pollution” exclusion, and American Casualty thus had no duty to defend or indemnify Miller against Valenzuela’s claims.
Comment
In California, a standard “pollution” exclusion does not bar coverage for all injuries arising from toxic substances; rather, the exclusion only bars injuries arising from “events commonly thought of as pollution, i.e., environmental pollution.” (See MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635.) In this case, the appellate court concluded that the insured’s alleged act of permitting methylene chloride to be released into a public sewer constituted an act of “environmental pollution.” Because a reasonable insured would expect that the pollution exclusion would defeat coverage here, the insured was not entitled to either defense or indemnification from the insurer.