State v. Allstate Ins. Co.

201 P.3d 1147

90 Cal.Rptr.3d 1

45 Cal. 4th 1008

STATE of California, Plaintiff and Appellant, v. ALLSTATE INSURANCE COMPANY et al., Defendants and Respondents.

State of California, Plaintiff, v. Underwriters at Lloyd's London et al., Defendants.

No. S149988.

Supreme Court of California.

March 9, 2009.

Bill Lockyer and Edmund G. Brown, Jr., Attorneys General, Gordon B. Burns, Deputy State Solicitor General, Darryl L. Doke and Jill Scally, Deputy Attorneys General; Cotkin, Collins & Ginsburg, Cotkin & Collins, Roger W. Simpson, Las Vegas, NV, David W. Johnson, Jr.; Law Offices of Daniel J. Schultz, Daniel J. Schultz, Tempe, AZ; Anderson Kill & Olick, Robert M. Horkovich and Edward J. Stein, New York, NY, for Plaintiff and Appellant.

Morgan, Lewis & Bokius, Michael Y. Horton, Jason K. Komorsky and David S. Cox, Los Angeles, for League of California Cities as Amicus Curiae on behalf of Plaintiff and Appellant.

Winston & Straw, Scott P. DeVries and Yelitza V. Dunham, San Francisco, for Aerojet-General Corporation as Amicus Curiae on behalf of Plaintiff and Appellant.

Gauntlett & Associates, David A. Gauntlett, Irvine, and Eric R. Little, Austin, TX, for United Policyholders, Consumer Federation of America and Center for Community Action & Environment as Amici Curiae on behalf of Plaintiff and Appellant.

Nixon Peabody, Bruce E. Copeland and Alan S. Feiler, San Francisco, for Defendant and Respondent Allstate Insurance Company.

Berkes Crane Robinson & Seal, Steven M. Crane, Los Angeles, and Barbara S. Hodous for Defendant and Respondent Columbia Casualty Company.

Berman & Aiwasian, Deborah Aiwasian, Alan S. Berman and Steven P. Haskell, Los Angeles, for Defendant and Respondent Century Indemnity Company.

Riedl, McCloskey & Waring and Andrew McCloskey, San Diego, for Defendant and Respondent Westport Insurance Company.

Wiley Rein & Fielding, Wiley Rein, Laura A. Foggan, John C. Yang, Washington, DC; Sinnott, Dito, Moura & Puebla, Randolph P. Sinnott, Los Angeles, and John J. Moura, San Francisco, for Complex Insurance Claims Litigation Association as Amici Curiae on behalf of Defendants and Respondents.

Duane Morris, William J. Baron and Joleen C. Lenihan, San Francisco, for Certain

London Market Insurers and Great American Insurance Company as Amici Curiae on behalf of Defendants and Respondents.

Horvitz & Levy, Barry R. Levy and Peter Abrahams, Encino, for TIG Insurance Company as Amicus Curiae on behalf of Defendants and Respondents.

WERDEGAR, J.

This case arises from efforts by the State of California (State) to obtain insurance coverage for property damage liability imposed in a federal lawsuit as a result of discharges from the "Stringfellow Acid Pits," a State-designed and -operated hazardous waste disposal facility in Riverside County. The trial court granted summary judgment to four of the State's excess insurers, and the Court of Appeal reversed. The case presents several issues regarding application of pollution exclusions in comprehensive general liability policies: (1) In determining whether the "sudden and accidental" discharge exception to the policies' pollution exclusion applies, is the proper focus on the initial deposit of chemical wastes into storage on the site or, instead, on the escape of pollutants from the site into the larger environment? (2) Does whether an absolute exclusion for pollution of a "watercourse" applies to a 1969 overflow, in which polluted runoff ran down a creek bed, present a triable issue of fact? (3) Does whether an emergency release of polluted runoff in 1978 was "accidental" present a triable issue of fact? (4) If triable issues exist as to whether some, but not all, discharges of pollutants from the site were sudden and accidental, did the trial court properly grant the insurers summary judgment on the ground that the State cannot prove what part of its property damage liability resulted from sudden and accidental discharges?

On these issues, we conclude: (1) Because the State's liability for property damage was founded on its negligence in allowing pollutants to escape from the Stringfellow evaporation ponds into the surrounding groundwater and land, the proper focus of analysis here is on discharges from the ponds, rather than deposits to them. (2) A triable issue exists whether the entirety of the 1969 overflow discharge was limited to a watercourse. (3) A triable issue exists whether the 1978 release was "accidental." (4) Because a triable issue of fact exists as to whether sudden and accidental discharges were a substantial factor in causing indivisible property damage for which the State was found liable, the trial court erred in granting summary judgment on the ground that the State cannot prove how much of its liability is traceable to those discharges. Based on these conclusions, we will affirm in part and reverse in part the judgment of the Court of Appeal.

FACTUAL AND PROCEDURAL BACKGROUND

The State seeks coverage from four insurers, Allstate Insurance Company, Century Indemnity Company, Columbia Casualty Company, and Westport Insurance Corporation (collectively Insurers), for liability imposed in a federal court civil action based on discharge of hazardous wastes from the Stringfellow Acid Pits. In the federal action, the State and the United States sued companies that had disposed of waste at the Stringfellow Acid Pits, and the companies counterclaimed against the State. In 1998, the federal district court held the State 100 percent liable for claims under California law, and 65 percent liable for claims under federal law, for past and future costs of remediating contamination of land and groundwater. The State expects those remediation costs to exceed $500 million. (See United States v. Stringfellow (C.D.Cal. 1995) 1995 WL 450856, pp. *5-*6.)¹

Many of the undisputed facts that follow are taken from the November 1993 report of a special master in the federal case, which was adopted, with modifications, by the district court, and which was added to the summary judgment record by one of the Insurers. (United States v. Stringfellow (C.D.Cal. 1993) 1993 WL 565393; see United States v. Stringfellow, supra, 1995 WL 450856, at p. *1.)

In the 1950's, the State selected the location for and designed and directed the construction of a class I hazardous waste disposal site (i.e., one capable of accepting all types of liquid wastes) known as the Stringfellow Acid Pits. The facility, located in the Jarupa Mountains just north of the community of Glen Avon, in Riverside County, sat on the floor of a canyon drained by Pyrite Creek. In 1955, geologist Robert Fox inspected the Stringfellow site for the State. After a brief inspection that included no borings or soil analysis, Fox deemed the site suitable because of what he believed to be an impermeable layer of rock, which he assumed had no water in it, beneath the site. Fox's investigation resulted in a report concluding that with construction of a watertight barrier dam across the canyon, and with adequate measures to divert runoff, the site would pose no threat of environmental pollution.

The State directed construction of open, unlined evaporation ponds to contain the hazardous waste, channels to divert rainwater around the site, and a barrier dam at the bottom of the site. The hazardous waste disposal facility was opened in 1956. At the direction and under the control of the State, more than 30 million gallons of liquid industrial waste were deposited in the Stringfellow ponds during the facility's operation; the State closed the site to new deposits in 1972 after the discovery of groundwater contamination.

Fox's assessment of the site proved inaccurate. In fact, the site was underlain by decomposed granite and fractured bedrock, through which an underground alluvial channel ran. By 1960, a later report by a State expert found, chemical pollution was seeping into the groundwater through the fractured rock and around the ends of the barrier dam, which had been negligently constructed. A plume of contaminated groundwater moved downgradient from the site.

In addition to underground leaking, two major overflow episodes occurred at the site. In March 1969, a rainstorm of around 20 inches (statistically expected to occur no more than once every 50 years), following on earlier heavy rains in January and February, flooded the site, causing the waste ponds to overflow and send polluted water down the canyon. In March 1978, again following extraordinarily heavy rains, the ponds were once more near overflowing and the retention dam began to fail. The State made a series of controlled discharges from the ponds, releasing about one million gallons of diluted waste down the Pyrite Creek channel. (The circumstances of the 1969 and 1978 releases are discussed in greater detail in connection with the legal issues.)

The State requested coverage for the liability imposed in the federal action from several insurers, including the four involved in this appeal. All four of the pertinent comprehensive general liability polices contain coverage exclusions for liability resulting from environmental pollution. Three of the policies (all but Columbia Casualty Company's) contain a then standard exclusion, qualified by a "sudden and accidental" exception as to pollution to land or air, but absolute as to pollution to watercourses and bodies of water: "This policy does not apply: [¶] ... [¶] H. To Personal Injury or Property Damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land or the atmosphere, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. [¶] It is further agreed that the Policy does not apply to Personal Injury or Property Damage arising out of the discharges, dispersal, release or...