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Intel Corp. v. Hartford Accident & Indem. Co.

ELR Citation: 22 ELR 20968
Nos. No. 89-15165, 952 F.2d 1551/35 ERC 1216/(9th Cir., 12/24/1991) Aff'd in part, rev'd in part

The court holds that a computer circuit manufacturer is entitled to reimbursement under its comprehensive general liability insurance policy of expenses incurred pursuant to a government consent decree requiring it to clean up toxic waste contamination at a former manufacturing facility. The court first holds that California substantive law applies, because the case was removed to federal court on the basis of diversity jurisdiction. The court holds that the district court did not unfairly grant summary judgment to the manufacturer, because the insurer had sufficient notice of what was to be decided and opportunity to conduct discovery or request additional time for discovery. The court holds that even if California law requires the manufacturer to bear the burden of showing that the contamination constituted an "occurrence" under its policy, the manufacturer met that burden. The court finds that the materials supporting the manufacturer's summary judgment motion present a scenario of unexpected and unintended environmental damage. The court holds that the district court properly granted summary judgment on this issue because the insurer failed to show that genuine issues of fact remained.

The court notes that when the district court granted summary judgment to the manufacturer on the issue of the policy's exclusion for bodily injury or property damage from pollution discharges that were not sudden and accidental, the district court erred in basing its decision on the grounds of waiver. There is no evidence that the insurer attempted to mislead the manufacturer with the belated announcement of new grounds for denial of coverage, and the manufacturer failed to show that it was prejudiced by the insurer's failure to mention the exclusion in its letter denying coverage. However, the court holds that the district court properly granted summary judgment on the inapplicability of the exclusion, because the insurer failed to show that there was a genuine issue of fact. In its materials supporting opposition to summary judgment, the insurer made no showing that the contamination at the site fell within the exclusion. The court next holds that the district court properly granted summary judgment to the manufacturer on the issue of damages covered by the policy. The court finds the policy's damages language ambiguous and, construing the clause against the party that drafted it, holds that costs incurred pursuant to a consent decree are covered. Public policy supports this holding, because if consent decree compliance costs did not constitute covered damages, insureds would be discouraged from entering into consent decrees, and the government's task would be more time consuming and costly. The court holds that the policy's exclusion for damage to property owned, occupied, rented, or used by the manufacturer does not apply to costs incurred under the consent decree to correct past groundwater contamination or to mitigate future damage that might occur from the contaminants introduced into the soil and groundwater by the manufacturer. The court also holds that the exclusion does not bar coverage of costs of preventing future harm to groundwater or adjacent property that might arise from contamination that has already taken place, whether on the manufacturer's property or not.

Finally, the court remands the case to the district court to determine what expenses were incurred to remedy existing damage to third-party property or to prevent further damage to that property from contamination introduced by the manufacturer, and what expenses were incurred only to remedy damage to property the manufacturer controlled. The court holds that the former expenses are covered by the policy, but the latter are barred by the policy's exclusions. The court also directs the district court to determine which expenditures incurred under the consent decree were made solely to remedy damage to the manufacturer's own property and which were undertaken on account of damage to the property of third parties.

[The district court's opinion is published at 19 ELR 20459.]

Counsel for Plaintiff-Appellee
John A. Skelton Jr.
Williams, Kelly, Polverari & Skelton
1775 Woodside Rd., Redwood City CA 94061
(415) 364-9110

Counsel for Defendant-Appellant
Raoul D. Kennedy
Crosby, Heafey, Roach & May
333 Bush St., Ste. 2580, San Francisco CA 94104
(415) 543-8700

Before LIVELY,* FLETCHER, and REINHARDT, Circuit Judges.