Intel Corp. v. Hartford Accident & Indem. Co.
Citation: 19 ELR 20459
No. No. C 87-20434 RPA, 692 F. Supp. 1171/28 ERC 1538/(N.D. Cal., 08/04/1988)
The court holds that a comprehensive general liability insurance policy covers costs that an insured corporation incurs to clean up an area around an underground storage tank that had leaked hazardous substances into the soil and groundwater. The insured corporation had entered into a consent decree with the Environmental Protection Agency (EPA) under which the insured corporation agreed to clean up the site. The court first holds that the case satisfies the jurisdictional "case or controversy" requirement of Article III of the Constitution, because both parties have agreed that the insured corporation filed a claim for cleanup costs with its insurance company, which the insurance company denied. The court next holds that the insurance policy's pollution exclusion clause does not apply here, because the insurance company waived its right to invoke the exclusion when it did not cite the exclusion as a reason for its denial of the original claim. Although the insurance company may have referred to the pollution exclusion clause as a reason for its denial in later explanations, this is insufficient when the exclusion is not cited in the denial itself and the insurance company knew the facts that could have triggered it. The court next holds that the exclusion for damage to the insured corporation's own property does not apply to costs to clean up groundwater contamination, since damages to public resources constitutes damage to third-party property, and in California all water is the property of the people generally. Moreover, EPA has found that the contamination is an imminent and substantial danger to public health, and costs to abate such a danger also fall outside the exclusion for damage to the insured corporation's own property.
The court next holds that costs of responding to contamination are "damages" within the meaning of the insurance policy. The court first rules that this is a matter of state law, not federal law, and looks to the forum state of California. The court holds that under California law "damages" includes cases where persons have suffered detriment from the unlawful act or omission of another, and that this test has been met here by the groundwater contamination and threat to public health. Although the insured corporation entered into a consent decree with EPA and will perform some of the cleanup itself, this is only because EPA forbears to use its legal authority to compel cleanup, and the insured corporation is clearly liable for all costs of cleanup. California law makes costs to prevent damage covered under an insurance contract, where the insurance contract would cover the damage that would otherwise result. Moreover, as a matter of public policy, finding that insurance coverage exists is likely to assist the federal and state governments' hazardous waste cleanup program, by encouraging private corporations to cooperate. Finally, while it is clear that all costs yet to be incurred pursuant to the EPA consent decree are covered by the insurance policy, costs incurred prior to the consent decree must be consistent with or provide a foundation for the consent decree to be covered, or must otherwise not be solely to restore the insured's own property.
Counsel for Plaintiff
John A. Skelton Jr.
Williams, Kelly, Polverari & Skelton
1775 Woodside Rd., 2nd Fl., Redwood City CA 94061
Counsel for Defendant
Raoul D. Kennedy
Crosby, Heafey, Roach & May
1999 Harrison St., Oakland CA 94612