Covering Pollution Damage as a Personal Injury: A Recent California Case Bolsters Insureds' Arguments for Coverage

David Read, Stephen Meyer, and Barbara Morris

David Read is an associate, Stephen Meyer is a partner, and Barbara Morris is of counsel with Downey, Brand, Seymour & Rohwer, located in Sacramento, California. Mr. Read's practice emphasizes environmental, insurance coverage, and construction litigation. Mr. Meyer's practice emphasizes environmental, banking, and complex business litigation. Ms. Morris emphasizes insurance coverage, employment litigation, and civil appeals in her practice.

[26 ELR 10124]

In 1994, a California case called Titan Corp. v. Aetna Casualty and Surety Co.¹ seemed to signal the closing of the door on insureds' hopes for insurance coverage for environmental cleanups under the Personal Injury section of their commercial general liability policies. However, a recent California Court of Appeal case, Martin Marietta Corp. v. Insurance Co. of North America,² may mean that the door remains ajar.

Government agencies seek to recover the costs of environmental cleanups from the persons they identify as potentially responsible for the contamination. In turn, these potentially responsible parties often seek defense and indemnity from the insurance companies from whom they obtained Comprehensive General Liability (CGL) policies. The insurance companies invariably deny coverage. This has led to a flood of lawsuits around the country over the last six years about the scope of CGL policies.

Since 1973, most CGL policies have contained pollution exclusion clauses in the Property Damage and Bodily Injury sections of the policies, and in many cases these have effectively prevented coverage for pollution damage from being found under the Property Damage sections of the CGL policies.³ However, the Personal Injury sections of the policies did not contain pollution exclusion clauses, so there has also been considerable recent litigation as to whether pollution cleanups can be covered under the Personal Injury sections as a "wrongful entry" onto another's property.

Background

In its 1994 opinion, the Titan court concluded that pollution damages are not covered under CGL Personal Injury sections. It reasoned that pollution damages cannot reasonably be interpreted as a "wrongful entry" or "other invasion of the right to occupancy," and so are not covered in the Personal Injury coverage.⁴ Although the Titan court was not the first court to consider the issue, it has proved to be one of the most influential. Since 1994, the insurance industry has quoted and cited Titan in cases around the country and has succeeded in persuading many courts that Personal Injury coverage of "wrongful entry" cannot reasonably be interpreted to cover liabilities from pollution.⁵

In 1995, another California Court of Appeal, in Legarra v. Federated Mutual Insurance Co.,⁶ interpreted "wrongful entry" less narrowly than Titan, but nevertheless followed the Titan holding. Instead of flatly giving a narrow interpretation to "wrongful entry," the Legarra court reasoned that the term was ambiguous in isolation. The court ruled, however, that in the context of the entire policy, "wrongful entry" could reasonably only be interpreted in the narrow Titan way. A subsequent case, Union Oil Co. v. International Insurance Co.,⁷ quickly fell in line with the Titan/Legarra reasoning.

[26 ELR 10125]

On December 5, 1995, however, a California Court of Appeal parted company with Titan. In Martin Marietta⁸ the court disagreed with Titan's narrow interpretation of "wrongful entry," and found that the Personal Injury section of the insurance policy in that case does cover pollution damage where there is no pollution exclusion clause to preclude coverage. Although the Martin Marietta insurance policy was unusual in that no pollution exclusion clause was present in the Property Damage section of the policy, in reaching its decision the Martin Marietta court interpreted "wrongful entry" broadly enough to bring into question the continued legitimacy of the Titan/Legarra holdings. Indeed, with the right facts, insureds in the future may be able to circumvent the Titan/Legarra holdings altogether.

The Law Until Martin Marietta

The Argument That "Wrongful Entry" Is Ambiguous

Until Martin Marietta, insureds consistently focused their arguments for coverage under the following three-step reasoning: (1) the term "wrongful entry" is ambiguous, and (2) ambiguous terms are to be construed against the insurer; therefore (3) "wrongful entry" should be interpreted against the insurer to cover pollution damage. The argument has some merit, but — for the reasons explained in this Dialogue — was not persuasive to California courts.

Under California law, an ambiguous term in an insurance policy is to be construed against the insurer.⁹ If an insurance policy can reasonably be interpreted to afford protection to the insured, the policy is to be interpreted to afford protection.¹⁰

CGL policies provide coverage in their Personal Injury sections for "wrongful entry" onto the land of another, or for "other invasion[s] of the right to occupancy" caused by the insured. Standing alone, this language creates an ambiguity about whether it covers liability for a "simple trespass" such as when someone or something enters onto another's land. A "simple trespass" would also encompass situations where contaminants from an insured's land spread onto property owned by a neighbor or the state, including the state's groundwater.¹¹ Simply put, if broadly interpreted, "wrongful entry" includes trespasses; if narrowly interpreted, "wrongful entry" does not. As an ambiguous term of coverage which the insurance companies failed to define in their policies, insureds can fairly expect "wrongful entry" to be construed to cover the insureds for simple trespasses, since wrongful entry can reasonably be interpreted to cover such trespasses.¹²

The Titan Court Ignored the Ambiguity

The court in Titan Corp. v. Aetna Casualty and Surety Co.¹³ rejected the argument that "wrongful entry" is ambiguous, stating abruptly that "'wrongful entry or eviction' … connotes disruptions of the ability of a landowner to actually occupy his property, not mere injuries to property."¹⁴ This interpretation of "wrongful entry" is narrow, and precludes Personal Injury coverage for most environmental contamination cases since the spread of small amounts of contaminants onto another's land usually does not disrupt the third party's ability to occupy or possess their own property.

The Titan court's interpretation has been heavily cited by the insurance industry, and was relied on and accepted in subsequent California cases. This is unfortunate because the court's narrow interpretation of "wrongful entry" appears to have resulted from a lack of briefing or research on the issue. Titan's central holding on whether contamination of groundwater could be covered as a "wrongful entry" relied principally on the insistence by the court that the pollution exclusion clause (located in the Property Damage section of the policy) precluded coverage for all pollution damage to property, regardless of whether coverage was sought in the Personal Injury section instead of the Property Damage section.¹⁵ For the Titan court, the technical interpretation of "wrongful entry" involved mere dicta and, apparently, received short shrift.

There was thus an unforeseen downside to the insureds' argument for coverage that relied on the ambiguity of the term "wrongful entry": the court could simply sidestep the insureds' argument by stating (as the Titan/Legarra courts did) that any ambiguity in the term "wrongful entry" is resolved once the policy is read as a whole to take into account the pollution exclusion clause.¹⁶

It should also be noted that the Titan court did not cite or refer to preexisting California cases on the meaning of "wrongful entry" when it stated its narrow interpretation of the term.¹⁷ This indicates that previous California court interpretations were most likely not cited in the briefs to the court. For this reason, the insurance industry's and recent courts' reliance on Titan's narrow interpretation of "wrongful entry" has been greatly misplaced.

The Legarra Court Avoided the Ambiguity

The recent case of Legarra v. Federated Mutual Insurance Co.¹⁸ considered more fully the interpretation of "wrongful entry" in the CGL insurance policies. The court admitted that in isolation the coverage for "wrongful entry" could apply to groundwater contamination, but rejected the insureds' ambiguity argument anyway.

[26 ELR 10126]

The scope of 'wrongful entry' is less clear. A wrongful entry may be the wrongful dispossession by another. It has also, however, been equated with trespass….

Given these differing interpretations, the phrase 'wrongful entry or eviction or other invasion of the right to private occupancy' could be considered ambiguous if read in isolation. Since an ambiguity in an insurance contract is construed against the insurer, the phrase could be read to encompass a physical invasion that adversely affects the right of occupancy….

While 'wrongful entry or eviction or other invasion of the right of private occupancy' in the abstract might apply to pollution damage, read in the context of the entire policy it is unreasonable to expect such coverage here…. Property damage caused by groundwater contamination … is clearly excluded under the pollution exclusion.¹⁹

Therefore, although the Titan court simply rejected the insureds' argument of ambiguity, the Legarra court acknowledged that the argument has some validity, but then circumvented the argument by focusing on whether an expectation of coverage was reasonable given the pollution exclusion clause elsewhere in the policy.

The Martin Marietta Case

The insureds in Martin Marietta wisely abandoned reliance on the ambiguity argument, and instead contended that "wrongful entry" is not ambiguous. The insureds were able to find and cite sufficient California precedent supporting this theory to persuade the court that "wrongful entry" is not ambiguous in isolation at all, but instead is a clear term that includes wrongful entries by pollutants onto the land of a third party.²⁰ The court agreed with the insureds that under previous California law "wrongful entry" had consistently been used to encompass simple trespasses, including those in which there was no intent or effect of dispossession of the plaintiff's interest in property. As such, the phrase was unambiguous, and provided coverage for the pollution claims against Martin Marietta since no pollution exclusion clause existed in Martin Marietta's policy to eliminate the coverage granted. The court's reasoning was sound, and can be further enhanced by an evaluation of the cases the court cited.

Previous California law directly stated that "wrongful entry" in a CGL policy can describe a "simple trespass." The court in Fibreboard Corp. v. Hartford Accident and Indemnity Co.²¹ stated:

Although wrongful entry can describe a trespass committed for the specific purpose of dispossessing the owner or occupant of land, we agree with Fibreboard that it can also describe a more general, 'simple trespass' involving no intent to dispossess: 'Every wrongful entry upon land in the occupation or possession of the owner constitutes a trespass….' MacLeod v. Fox West Coast T. Corp., 74 P.2d 276 (Cal. 1937).²²

The broader interpretation of wrongful entry and trespass stated in Fibreboard has been the law in California for at least 100 years. In Trescony v. Brandenstein,²³ the California Supreme Court considered a suit for wrongful entry that had facts closely analogous to the release of contaminants onto another's property (including into the state's groundwater), which occurs in many current environmental contamination cases.

In Trescony, the plaintiff sued the defendants for damage caused to his land. The complaint alleged that the defendants had "wrongfully and unlawfully entered" the plaintiff's land when defendants' cattle and horses entered onto the plaintiff's land and caused damage to, i.e., ate and walked on, the plaintiff's grass and pasturage.²⁴ Just as in a pollution case, the alleged entry onto (and damage to) the land was the movement of ferae naturae (i.e., nonhumans that move by themselves) onto the land; there was no alleged intent or effect of dispossession or disruption of the right to occupancy of the landowner, and there were no damages or injuries sustained apart from injury to the land.²⁵ The actions were nevertheless characterized in the complaint and by the court as a "wrongful entry."²⁶ The California Supreme Court then ruled that the alleged facts of the "wrongful entry" were sufficient to constitute a cause of action for trespass, stating:

Those facts were sufficient to constitute a cause of action. It is elementary law that every wrongful entry upon lands in the occupation or possession of the owner constitutes a trespass, for which the owner may maintain an action for damages;and if the entry be made by animals belonging to the wrong-doer he is responsible for their trespass.²⁷

Can it really be maintained (when a "wrongful entry" can be committed by cattle eating grass) that "wrongful entry" in an insurance policy requires an intent or effect of dispossession, as proposed in the Titan and Legarra cases? The Titan and Legarra courts clearly erred in adopting narrow interpretations of the meaning of "wrongful entry" as it is contained in CGL policies. The insurance companies should have been aware when they designed the CGL policies and added coverage for the term "wrongful entry" that the California Supreme Court had used the term "wrongful entry" more than once in describing simple trespasses which involved no intent or effect of dispossession.²⁸

The Trescony case alone shows that there can be a "wrongful entry" in which there were "mere injuries" to the plaintiff's land and no disruptions of the landowner's ability to actually occupy his property. And now, the Martin [26 ELR 10127] Marietta case adds legitimacy to this broader interpretation of wrongful entry.

The Next Step: Asserting Coverage Despite the Existence of a Pollution Exclusion Clause in the Policy

Groundwater has been expressly determined in California to be the property of the state.²⁹ Therefore, in any case in which an insured has caused contaminants to spread into and contaminate groundwater, the insured is potentially liable to the state in an action for trespass based on the wrongful entry of the contaminants into the groundwater, and insurance coverage under the Personal Injury section of the insured's CGL policy is triggered.

Of course, insurance companies may still argue that even though "wrongful entry" by itself is a term that extends to cover pollution damages which have led to groundwater contamination, still no reasonable insured could expect coverage for pollution in light of the pollution exclusion clause elsewhere in the policy.³⁰ However, insurance companies would be hard pressed to convince a court that no coverage can reasonably exist if, given their established definitions under California law, the express provisions in the insurance policy as to Personal Injury liabilities provide for coverage. A ruling that no coverage exists would fly in the face of California precedents that declare a public policy preference for finding coverage when interpreting insurance policies.³¹ Whereas the insurance industry's context argument is persuasive when the phrase "wrongful entry" is termed ambiguous, the argument loses its force once the phrase is recognized to be unambiguous in light of previous California Supreme Court precedent.

Suggestions for Improving the Likelihood of Coverage

If you are a claimant in an environmental case, you should fashion your complaint to include a cause of action for trespass. The claim of trespass should be based on the wrongful entry of the contaminants onto third-person property, which has caused damage to that property. The claims can be similar to those made and upheld in Trescony and in Cassinos v. Union Oil Co.³² The incentive for adding such a claim to the complaint is that it will facilitate settlement by helping the defendant obtain insurance coverage for cleanup costs.

But how does this help the defendant in obtaining insurance coverage when there is a pollution exclusion clause in the Property Damage section of the policy held by the defendant? The answer is that the theories of recovery pled in the complaint are very important to the defendant in obtaining insurance coverage. This is because in interpreting insurance policy terms (including the interaction of the "wrongful entry" coverage in the Personal Injury section with the pollution exclusion clause in the Property Damage section) the courts look to the reasonable expectations of the insureds.

When the Titan/Legarra cases are boiled down to their nuts and bolts after the Martin Marietta case, the insurance companies are left to argue merely that it is not objectively reasonable for an insured to expect "wrongful entry" to cover pollution damage to property when there is a pollution exclusion clause elsewhere in the policy (although not directly applicable to "wrongful entries"). Now, suppose that the complaint filed against the insured not only alleges liability for pollution damage to property, but also alleges that the defendant is liable for the wrongful entry of contaminants onto the claimant's property (often the state's groundwater), causing damage to the property. With the complaint closely tracking the "wrongful entry" terms of the policy, the insured can argue more persuasively that its expectation of coverage is objectively reasonable.³³

Conclusion

Insureds made a tactical error in trying to find coverage by arguing that the term "wrongful entry" is ambiguous. This error has given the courts the impression that insureds are unduly trying to strain the plain meaning of CGL policies, and the courts have therefore often decided that it is unreasonable for insureds to expect coverage for environmental pollution under CGL policies containing pollution exclusion clauses. As Martin Marietta now demonstrates, insureds would fare much better if they instead assert that California Supreme Court precedent in Trescony and MacLeod has already described and used "wrongful entry" in a way that encompasses liability for environmental contamination that spreads to groundwater. And if the allegations of the complaint against an insured allege trespass based on wrongful entry, that insured will find itself in the more comfortable position of having a case that is distinguishable from the Titan/Legarra precedents.

1. 27 Cal. Rptr. 2d 476 (Cal. Ct. App. 1994).

2. 47 Cal. Rptr. 2d 670 (Cal. Ct. App. 1995).

3. See generally Stanley M. Spracker et al., A Trial Lawyer's Perspective on the Pollution Exclusion, 25 ELR 10065, 10067-72 (Feb. 1995).

4. 27 Cal. Rptr. 2d at 487.

5. See, e.g., Harrow Prods., Inc. v. Liberty Mut. Ins. Co., 64 F.3d 1015, 1023 (6th Cir. 1995) (discussing Titan); U.S. Fidelity and Guaranty Co. v. B & B Oil Well Serv., Inc., No. CIV.A.4:94-CV-12 L N, 1995 WL 788879 (S.D. Miss. June 12, 1995) (citing Titan). California cases on environmental insurance issues, and federal cases interpreting California law in this area, have been influential throughout the nation, in part due to the comparatively large body of California case law. See, e.g., Martin Marietta, 47 Cal. Rptr. 2d at 670 (finding coverage); Union Oil Co. v. International Ins. Co., 44 Cal. Rptr. 2d 4 (Cal. Ct. App. 1995) (finding no coverage); Legarra v. Federated Mut. Ins. Co., 42 Cal. Rptr. 2d 101 (Cal. Ct. App. 1995) (finding no coverage); W.H. Breshears, Inc. v. Federated Mut. Ins. Co., No. 93-15252, 1994 WL 577258 (9th Cir. Oct. 17, 1994) (unpublished opinion finding no coverage, disposition noted at 38 F.3d 1219); Staefa Control System Inc. v. St. Paul Fire and Marine Ins. Co., 847 F. Supp. 1460, amended on reconsideration, 875 F. Supp. 656 (N.D. Cal. 1994) (finding no coverage); Hirschberg v. Lumbermens Mut. Casualty, 798 F. Supp. 600 (N.D. Cal. 1992) (finding coverage). Thus, whereas few other states or federal circuits have published more than one opinion addressing these environmental insurance coverage issues, the California courts have had the opportunity to examine and critique previous courts' reasoning on the same issues under the same applicable law. The eventual resolution of California law will have a nationwide effect.

6. 42 Cal. Rptr. 2d 101 (Cal. Ct. App. 1995).

7. 44 Cal. Rptr. 2d 4 (Cal. Ct. App. 1995).

8. 47 Cal. Rptr. 2d 670 (Cal. Ct. App. 1995).

9. AIU Ins. Co. v. Superior Court, 274 Cal. Rptr. 820, 831-32, 799 P.2d 1253, 1264-65 (Cal. 1990).

10. Id.

11. See Legarra v. Federated Mut. Ins. Co., 42 Cal. Rptr. 2d 101 (Cal. Ct. App. 1995).

12. See id.; see also AIU Ins. Co., 274 Cal. Rptr. at 820, 799 P.2d at 1253.

13. 27 Cal. Rptr. 2d 476 (Cal. Ct. App. 1994).

14. Id. at 487.

15. 27 Cal. Rptr. 2d at 478, 485, 487.

16. This line of reasoning is made especially clear in an unpublished Ninth Circuit case interpreting California law on this subject. W.H. Breshears, Inc. v. Federated Mut. Ins. Co., No. 93-15252, 1994 WL 577258 (9th Cir. Oct. 17, 1994) (disposition noted at 38 F.3d 1219). The Ninth Circuit stated: "More importantly [than the interpretation of 'wrongful entry'] in this case, however, California law is clear that insurance provisions should be interpreted 'in context [with the rest of the policy] ….'". In fact, the Breshears court did not bother to decide the interpretation of "wrongful entry" because the court felt that any ambiguity in the term was irrelevant if the context of the rest of the policy clarified the term's function in the policy to the plaintiff insured. Id.

17. 27 Cal. Rptr. 2d at 487.

18. 42 Cal. Rptr. 2d 101 (Cal. Ct. App. 1995).

19. Id. at 109 (citations omitted).

20. Martin Marietta Corp. v. Insurance Co. of North America, 47 Cal. Rptr. 2d 670, 681 (Cal. Ct. App. 1995).

21. 20 Cal. Rptr. 2d 376, 388 (Cal. Ct. App. 1993).

22. Id. (emphasis added). In MacLeod (quoted in Fibreboard), an individual was found to have committed a trespass by entering on land of another without the owner's consent and against the owner's will. MacLeod, 74 P.2d at 278-79. This was said by the court to be a "trespass" and a "wrongful entry," despite the fact that the individual thought he had been invited onto the land, did not dispossess the owner of the owner's use of the property in any way, and had no intent to interfere with the owner's use of the property. Id. Thus, the California Supreme Court reaffirmed its stance that the tort of "trespass," based on a "wrongful entry" for which a defendant is liable to pay for any damages caused thereby, exists even when there is no intent or effect of dispossession. See also Trescony v. Brandenstein, 6 P. 384, 385 (1885).

23. 6 P. 384 (Cal. 1885).

24. Id. at 385.

25. Id.

26. Id.

27. Id.

28. Id.; see also MacLeod v. Fox West Coast Theatres Corp., 74 P.2d 276, 278-79 (Cal. 1937).

29. CAL. WATER CODE § 102 (West 1971); see also AIU Ins. Co. v. Superior Court, 799 P.2d 1253, 1261 n.6 (Cal. 1990).

30. See Legarra v. Federated Mut. Ins. Co., 42 Cal. Rptr. 2d 101 (Cal. Ct. App. 1995).

31. See, e.g., AIU Ins. Co. v. Superior Court, 274 Cal. Rptr. 820, 831-32, 799 P.2d 1253, 1264-65 (Cal. 1990). Garvey v. State Farm Fire and Casualty Co., 257 Cal. Rptr. 292, 304, 770 P.2d 704, 716 (Cal. 1989) (Kaufman, J., concurring) ("Further, there is a public policy consideration involved in coverage determinations under liability policies that may not be involved in coverage determination under property damage policies; third-party injury and the potential burden on the public fisc in the absence of compensation.").

32. 18 Cal. Rptr. 2d 574 (Cal. Ct. App. 1993).

33. See, e.g., Martin Marietta Corp. v. Insurance Co. of North America, 47 Cal. Rptr. 2d 670, 677 ("Coverage is not determined by the nature of the damages sought … but by the nature of the claims made against the insured in the action.").