Citations
- 141 Cal. App. 4th 969
Full opinion text
Opinion
HOLLENHORST, Acting P. J.
I. INTRODUCTION
Plaintiffs and Appellants Ortega Rock Quarry, Jay Hubbs, and John Schmutz (sometimes referred to collectively as Ortega) appeal from judgment following the trial court’s grant of summary judgment in favor of defendants and respondents Golden Eagle Insurance Corporation, Liberty Mutual Insurance Company, Continental Casualty Company, and Valley Forge Insurance Company (sometimes referred to collectively as the insurers). Ortega made claims against the insurers for a defense and indemnity for an Environmental Protection Agency (EPA) order and corresponding civil lawsuit. The insurers relied on pollution exclusions in the policies to deny coverage, and Ortega brought a lawsuit for breach of contract and other claims. The trial court granted summary judgment and summary adjudication in favor of the insurers, and Ortega has appealed. Ortega contends that the trial court erred in determining that (1) the insurers had no duty to defend Ortega because the EPA proceedings were not a “suit” within the scope of the policies; (2) the pollution exclusion endorsements in the insurance policies excluded coverage for Ortega’s claims; and (3) Ortega’s acts were willful and therefore uninsurable.
II. FACTS AND PROCEDURAL BACKGROUND
A. Underlying Facts
The underlying facts are essentially undisputed. Plaintiff and appellant Ortega Rock Quarry operated a rock quarry business in southern Orange County; Hubbs and Schmutz were principals of the corporation. Defendant Golden Eagle Insurance Company, a subsidiary of Liberty Mutual Insurance Company (collectively referred to as GEIC), had issued a general commercial liability policy and an excess insurance policy to Ortega with policy dates of February 1999 to February 2000. Ortega was also insured under a general commercial liability policy issued by Continental Casualty Company, provided through its company Valley Forge Insurance Company (collectively referred to as CNA), with policy dates of February 1998 to February 1999.
Lucas Canyon Creek, an intermittent water course, mns through the land that Ortega Rock Quarry leased for its business. The lessor of the property was the Santa Margarita Company. In February 1998, El Niño storms caused the creek to overflow and wash out an access road on the leased property. To maintain access to the quarry, Ortega placed fill dirt from the quarry along the road throughout 1998 and 1999.
B. EPA Administrative Orders
The EPA issued an administrative order to Ortega in February 2000, alleging that Ortega’s placement of fill along the road had resulted in an unauthorized discharge of fill material into Lucas Canyon Creek. The order required Ortega to:
“(1) Immediately cease discharge of fill material into Lucas Canyon Creek except as authorized by permit;
“(2) Submit an interim erosion control plan and site restoration plan;
“(3) Submit an interim erosion control plan to curtail erosion of the fill materials into the creek; and
“(4) Submit a restoration plan detailing the manner in which the impacted areas of the creek would be restored.”
The order stated that on “ ‘numerous days in 1999,’ ” Ortega had, without a permit, discharged fill material, consisting of dirt and rocks, along the northern embankment of Lucas Canyon Creek, causing substantial portions of the creek to fill. The order alleged a violation of section 1311(a) of title 33 of the United States Code, which makes it unlawful to discharge any pollutant from a point source into any water of the United States without a permit. The order stated that the fill materials, consisting of dirt and rocks, that Ortega placed into the creek bed “are dredged and fill material, hence pollutants within the meaning of sections 301(a) and 404” of the Clean Water Act (33 U.S.C.A. § 1251 et seq.)
In response to the order, Ortega assisted in the development of a removal/restoration plan that was accepted by the EPA in June 2000. In October 2000, the EPA issued a second order to Ortega directing it to implement and complete, by December 15, 2000, remedial acts outlined in the removal/restoration plan.
C. Civil Lawsuit
In June 2001, the Santa Margarita Company, Ortega’s lessor, filed a civil lawsuit against Ortega alleging that Ortega had damaged the creek and surrounding property. The lawsuit sought damages and a judicial determination that Ortega owed the Santa Margarita Company indemnity for any property damage that was subject to the Clean Water Act.
D. Policy Provisions
The insurers had issued general liability and excess coverage policies to Ortega.
1. Definition of “Suit”
Both the GEIC and CNA policies defined “suit” as follows; “ ‘Suit’ means a civil proceeding in which damages because of ‘bodily injury,’ ‘property damage,’ ‘personal injury’ or ‘advertising injury’ to which this insurance applies are alleged. ‘Suit’ includes: fl[] a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or [f] b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”
2. Pollution Exclusion Endorsements
The GEIC policy contained a pollution exclusion endorsement that excluded from coverage:
“1) ‘Bodily injury,’ ‘property damage,’ or ‘personal injury’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.
“2) Any loss, cost or expense arising out of any:
“a. Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize, or in any way respond to, or assess the effects of pollutants; or
“b. Claim or suit by or on behalf of any authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants; or
“c. Payment related to the investigation or defense for any loss, injury or damage, or any cost, fine or penalty, or for any expense or claim or suit related to 1) and 2) a. and b. above.” The CNA policy included a substantially similar pollution exclusion endorsement.
Under both the GEIC and CNA policies, “pollutants” were defined 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.”
E. Ortega’s Submission of Claims to Insurers
Ortega submitted claims to the insurers to defend it in the EPA administrative proceedings and in the civil lawsuit. The insurers summarily denied both claims, contending that coverage was barred under the pollution exclusions in the policies. The insurers also asserted that dirt and rocks were pollutants within the policy definitions and were thus subject to the pollution exclusion.
F. Ortega’s Lawsuit
Ortega filed suit against the insurers for breach of the insurance contracts and breach of the covenant of good faith and fair dealing and for a declaration that its claims were covered under the insurance policies.
CNA filed a motion for summary judgment and/or summary adjudication. GEIC filed a motion for summary adjudication as to issues of duty and damages.
Following additional briefing and a hearing, the trial court granted summary adjudication in favor of GEIC and summary judgment in favor of CNA. The court held that the policy language did not trigger a duty to defend an EPA action. The court further held that the pollution exclusions in the policies excluded coverage for Ortega’s claims. Finally, the court held that Ortega’s acts were willful and therefore uninsurable. Judgment was entered in favor of CNA, and GEIC stipulated to judgment with the proviso that the stipulated judgment did not waive Ortega’s right to appeal and that appeals against all the insurers could proceed together.
III. DISCUSSION
A. Standard of Review
This court applies a de novo standard of review to an appeal based on the granting of summary judgment when, as here, the underlying facts are undisputed and the sole issues involve interpretation or application of the terms of an insurance policy. (County of San Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406, 414 [33 Cal.Rptr.3d 583, 118 P.3d 607].) In conducting our review, we apply settled rules governing the interpretation of an insurance policy:
“ 1 “ ‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ [Citations.] ‘The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.’ [Citation.] ‘Such intent is to be inferred, if possible, solely from the written provisions of the contract.’ [Citation.] ‘If contractual language is clear and explicit, it governs.’ [Citation.]” [Citation.]
“ ‘ “ ‘A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable.’ [Citations.] The fact that a term is not defined in the policies does not make it ambiguous. [Citations.] Nor does ‘[disagreement concerning the meaning of a phrase,’ or ‘ “the fact that a word or phrase isolated from its context is susceptible of more than one meaning.” ’ [Citation.] ‘ “[L]anguage in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.” ’ [Citation.] ‘If an asserted ambiguity is not eliminated by the language and context of the policy, courts then invoke the principle that ambiguities are generally construed against the party who caused the uncertainty to exist (i.e., the insurer) in order to protect the insured’s reasonable expectation of coverage.’ [Citation.]” [Citation.]’ [Citation.]” (County of San Diego v. Ace Property & Casualty Ins. Co., supra, 37 Cal.4th at p. 415.)
Under California law, “ ‘ “[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. [Citation.] . . . ‘[T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.’ [Citation.] Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. [Citations.]” [Citation.]’ [Citation.] [f] To prevail ... on the issue of duty to defend, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. ‘In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot.’ [Citation.]” (Standun, Inc. v. Fireman’s Fund Ins. Co. (1998) 62 Cal.App.4th 882, 888-889 [73 Cal.Rptr.2d 116] (quoting Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295, 300 [24 Cal.Rptr.2d 467, 861 P.2d 1153].)
B. Determination That EPA Orders Were Not Suits
The trial court held that the insurers had no duty to defend because the EPA administrative proceedings were not “suits” within the meaning of the policies. When the EPA believes that an individual or entity has violated the Clean Water Act, the EPA may issue an administrative order to the alleged offender setting forth the EPA’s claims. If the offender identified in the order does not comply with the EPA’s demands, the EPA may file a civil lawsuit in federal district court.
Our Supreme Court has held that such administrative proceedings are not “suits” (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857 [77 Cal.Rptr.2d 107, 959 P.2d 265] {Foster-Gardner)), and that costs a company is required to pay as a result of such proceedings are not “damages” within the meaning of insurance policies (Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 Cal.4th 945 [103 Cal.Rptr.2d 672, 16 P.3d 94] (Powerine)).
In Foster-Gardner, the Supreme Court held that the defendant insurers had no duty to defend the plaintiff insured in proceedings originating from a determination and order from a department of the California Environmental Protection Agency because those proceedings were not a “suit.” The policies at issue required the insurers to “defend any suit against the insured seeking damages on account of . . . bodily injury or property damage, . . . and may make such investigation and settlement of any claim or suit . . . .” (Foster-Gardner, supra, 18 Cal.4th at p. 863.) The court held that the use of the word “suit” in the policies meant a civil action commenced by the filing of a complaint. (Id. at p. 887.) Thus, the court held, the department’s order issued before the filing of a complaint did not initiate a suit within the meaning of the policies, and the insurers had no duty to defend. (Id. at pp. 887-888.)
Later, in Powerine, the Supreme Court expanded upon its holding in Foster-Gardner and held that “the insurer’s duty to indemnify the insured for ‘all sums that the insured becomes legally obligated to pay as damages’ is limited to money ordered by a court.” (Powerine, supra, 24 Cal.4th at pp. 951, 960, 964.) Thus, the court rejected the argument of the insureds that they were entitled to indemnity under a standard comprehensive general liability policy for costs incurred in complying with orders issued during administrative environmental proceedings because the administratively imposed liabilities did not constitute “money ordered by a court.” (Id. at p. 966.)
In Powerine, the policy period in question was from 1958 to 1961. The court noted that the standard comprehensive general liability (CGL) policy was developed in 1940 and had evolved over the years. In 1986, the standard CGL policies defined a “suit” as a civil proceeding, but the policy before the court did not contain any definition of “suit.” The court also noted that administrative proceedings such as those instituted by the EPA and state environmental agencies were not in existence at the time the Powerine policy was drafted; and finally, the policy’s references to “suit” and “damages” indicated that “damages” were necessarily adjudged in a civil judicial proceeding. (Powerine, supra, 24 Cal.4th at pp. 955-956, 959, 960.) The court therefore held that indemnity coverage applied only to damages from a civil suit. (Id. at p. 960.)
The court noted, however, that its holding applied to the policy under consideration. The court stated, “The syllogism here is not predicated on any assumption that the absence of a duty to defend necessarily entails the absence of a duty to indemnify under some possible policy of comprehensive general liability insurance. It is predicated, instead, on the fact that the absence of a duty to defend actually entails the absence of a duty to indemnify under this individual policy of comprehensive general liability insurance.” (Powerine, supra, 24 Cal.4th at p. 973, original italics.)
Ortega argues that Foster-Gardner and Powerine are distinguishable because in that case, the policies at issue did not contain a definition of the word “suit.” (See Foster-Gardner, supra, 18 Cal.4th at p. 864; Powerine, supra, 24 Cal.4th at p. 959, fn. 3.) Thus, the courts were required to make an independent determination of the term based on common usage.
In contrast, in the present case, the policies did contain a definition of the word “suit” that included alternative dispute resolution. Specifically, the policies issued to Ortega defined a suit as “a civil proceeding in which damages because of . . . ‘property damage,’ ... to which this insurance applies are alleged. ‘Suit’ includes: [