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Arrowood Indemnity Co. v. Bel Air Mart

ELR Citation: 44 ELR 20055
Nos. 2:11-cv-00976, (E.D. Cal., 03/04/2014) (Mendez, J.)

A district court held that an insurance company has a duty to defend a commercial property owner in an underlying action concerning contamination from property it leased to a dry cleaning business. The owner discovered the contamination in 2007. In 2008, it tore down the property. In 2010, the owner filed suit to recover the costs of cleaning up the pollution. The defendants in that case then filed counterclaims against the owner, who then tendered those claims to its insurer. The insurance company argued it had no duty to defend, claiming that it was entitled to an inference in its favor because tearing down the building is evidence spoliation. But the court ruled that the destruction of the building was not spoliation of evidence because the owner was not on notice that the building was potentially relevant to the litigation when it tore it down. The insurer, therefore, has not conclusively eliminated a potential for liability, as it remains unclear whether the property was contaminated due to the "sudden and accidental" release of pollutants. The insurer, therefore, owes the owner a duty to defend.