California Courts Hold EPA Administrative Proceeding Not a “Suit”; Pollution Exclusion Precludes Coverage for Release of Natural Materials
Submitted by Brian J. Colombana
In Ortega Rock Quarry v. Golden Eagle Insurance Corp. (2006) 141 Cal.App.4th 969, the Court of Appeal held that EPA administrative proceedings were not “suits” within the meaning of the policies at issue. The Court also held that the total pollution exclusions in the policies precluded coverage for damage from natural dirt and rock when such materials were placed in the waters of the United States in violation of the Clean Water Act.
In February 2000, the EPA issued an administrative order to Ortega Rock Quarry alleging Ortega’s placement of fill dirt and rocks along a road had resulted in an unauthorized discharge of fill material into a nearby creek. 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 remedial acts outlined in the removal/ restoration plan. In June 2001, Ortega’s lessor filed a civil lawsuit against Ortega alleging that Ortega had damaged the creek and surrounding property.
Ortega tendered the EPA orders and the civil suit to its CGL insurers, Golden Eagle Ins. Co. and Continental Casualty Company The insurers denied both claims contending the dirt and rocks were pollutants within the policy definitions and therefore, coverage was barred under the pollution exclusions. Ortega sued for breach of contract and bad faith. The trial court granted summary judgment in favor of the insurers.
The Appellate Court held the EPA administrative proceeding was not a “suit,” defined in the policies as “a civil proceeding in which damages ... to which this insurance applies are alleged,” including “a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” The Court dismissed Ortega’s argument that the negotiations were a form of ADR as Ortega never requested or obtained the insurers’ “consent” to submit to such proceedings.
The Court also held that dirt and rocks qualified as “pollutants” under the policies. The policies defined “pollutants” as “any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The Clean Water Act defined pollutants to include “rock, sand, cellar dirt and . . . agricultural waste discharged into water.” Therefore, dirt and rocks are “pollutants” when placed into federal waters in violation of the Clean Water Act.
Ortega argued that the total pollution exclusion was ambiguous because it failed to adopt the definition of pollutants set forth in the Clean Water Act. The Court rejected this argument holding that environmental laws may provide insight into the scope of the policies’ definition of pollutants without being specifically incorporated in those definitions.
Ortega further argued that under the doctrine of ejusdem generis, the use of the term “including” preceding the list of examples in the pollution exclusion means that all pollutants must be of the same general class as the listed examples. The Court also rejected this argument because the term “including” preceding a list of limitations is not always a term of limitation, but is “ordinarily a term of enlargement.” Quoting Hassan v. Mercy American River Hospital (2003) 31 Cal.4th 709, 717; see People v. Western Air Lines, Inc. (1954) 42 Cal.2d 621, 639. The Court went further to note that courts in California and other jurisdictions have found no ambiguity in the language of total pollution exclusions identical or substantially similar to that in the policies we are presently considering. The Court favorably cited Pa. Nat’l Mut. Cas. Ins. Co. v. Triangle Paving, Inc. (E.D.N.C. 1996) 973 F.Supp. 560, affd. (4th Cir. 1997) 121 F.3d 699 (substantially similar policy language at issue), in concluding that the pollution exclusion was not ambiguous, and coverage was properly excluded as dirt and rocks were “pollutants.”
The California Supreme Court denied a request for depublication on October 25, 2006.
© 2006 Crandall, Wade & Lowe
This newsletter and any information contained herein is intended for informational purposes only and should not be construed as legal advice. In addition, this opinion is not final and may be withdrawn from publication, modified on rehearing, or reviewed by the California Supreme Court. Any of these events would render the opinion unavailable for use as legal authority. Seek competent counsel for advice on any legal matter.