No Coverage for Gradual Environmental Contamination Under "Accident Based" Manuscript Policies with Qualified Pollution Exclusion Type Language
February, 2006
An aircraft company sought coverage from its commercial general liability (CGL) policies for pollution related liability totaling hundreds of millions of dollars. The court, finding that the manuscript policy language only covered accident based damage, affirmed judgment for the insurers. Lockheed Corp. v. Continental Ins. Co. et al, 2005 WL 3110933 (Cal. App. 2005).
Facts
In a cross-claim in a declaratory action, Lockheed sought coverage from its primary and excess CGL carriers for its liability for soil and ground water contamination at multiple locations. Seeking damages for breach of contract and bad faith related to environmental claims at 13 different sites, Lockheed alleged its contamination liability exceeded $500 million. For its Burbank location, the highest damage site, Lockheed presented evidence of ruptures and leaks to its degreaser tanks that stored and used TCE and PCE over many years.
Analysis
The majority of the decision applied to the Harbor policies which were construed by the court to be manuscript not standard form policies. The court initially addressed Lockheed’s claim that an enforcement action triggered the duty to defend. In declining to broaden the term “action” to include administrative proceedings, the court found that the language “any suit or action”, meant a civil action prosecuted in a court. The court also rejected Lockheed’s attempt to secure coverage for pollution-related property damage under the personal injury coverage, finding that such an interpretation would nullify the pollution exclusion.
Finding (with extrinsic evidence) that the Harbor policies were accident-based with language more akin to a qualified pollution exclusion, the court determined that for coverage to exist, the event that caused the damage must have been sudden, unintended and unexpected, must be identifiable in time and place, and must have occurred during the policy period. There could be no coverage under the accident-based policies for damage arising from gradual causes or from deliberate waste disposal practices. Further, the damages from a covered accident must be in an appreciable amount of contamination over and above that caused by gradual long term contamination. In finding that the Harbor primary policies were not triggered, the court held that there was no potential that Lockheed would exhaust its primary coverage and reach the excess policies.
Leaning Point:
While the court strictly construed the qualified pollution exclusion, the court specifically articulated that its finding was tailored to the application of a unique set of policies that contained unique language different from standard form policies. Further, had Lockheed been able to provide evidence of its damages over and above those damages resulting from the long term gradual contamination, the court may have found that coverage was owed. •
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