Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-01109/USCOURTS-cand-3_05-cv-01109-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

GARY BOLTON, as Trustee of the

Arthur A. Bolton Revocable Trust

Dated May 20, 2000, the Trust A -

Marital Trust, and Trust B - Family

Trust, and as Executor of the

Estate of Arthur Bolton,

Plaintiff,

 v.

LUMBERMANS MUTUAL CASUALTY COMPANY,

an Illinois corporation,

Defendant. 

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No. 05-1109 SC

ORDER GRANTING

PLAINTIFF'S MOTION

FOR SUMMARY JUDGMENT

AND DENYING

DEFENDANT'S CROSSMOTION FOR SUMMARY

JUDGMENT 

I. INTRODUCTION

Plaintiff Gary Bolton ("Plaintiff" or "Bolton") filed this

action on March 17, 2005 against Defendant Lumbermans Mutual

Casualty Company ("Defendant" or "Lumbermans") seeking, inter

alia, to compel Lumbermans to defend Bolton against a pending

lawsuit brought by the City of Redwood City against Bolton (the

"Redwood City action") for costs and damages resulting from the

release of toxic chemicals into the soil beneath a shopping center

in Redwood City, California. Bolton has filed a motion for

summary judgment seeking a judicial determination establishing

Defendant's duty to defend him in connection with the Redwood City

action. Lumbermans has filed a cross-motion for summary judgment

seeking a ruling declaring that they do not owe Bolton a duty to

defend and that their refusal to defend Bolton was therefore not

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1

 Neither of these individuals is involved in the instant

dispute.

2

in bad faith, as Bolton has alleged in his Complaint. After

having considered the arguments and evidence submitted by the

parties, the Court hereby DENIES Defendant's motion and GRANTS

Plaintiff's motion. 

II. BACKGROUND

Beginning in the early 1940s, Arthur Bolton operated a dry

cleaning business known as "Roy's" on property he owned at 1100 El

Camino Real, Redwood City, California. See Defendant's Memorandum

in Support of Motion for Summary Judgment at 4 ("Def. Mem.");

Plaintiff's Memorandum in Support of Motion for Summary Judgment

at 1 ("Pl. Mem."). In 1970, Arthur Bolton sold the dry cleaning

business to Eno Barbitta ("Barbitta"), but retained ownership of

the real property on which Roy's was situated. See Deposition of

Eno Barbitta at 7:7-13 ("Barbitta Depo."). 

Barbitta leased the property from Arthur Bolton during the

time he owned Roy's, a period that ended in 1983 when Barbitta

sold Roy's to Bong Ho Lee and Bok Nim Lee.1 Id. at 8:13-16; Pl.

Mem. at 2. As a part of the lease agreement, Barbitta was

obligated to procure a comprehensive general liability insurance

policy, naming Arthur Bolton as an additional named insured with

respect to all operations undertaken at the property on which

Roy's was located. See Pl. Mem. at 2. For the years 1981-82 and

1982-83, Barbitta procured such insurance coverage with

Lumbermans, naming Arthur Bolton as a named additional insured

under policy numbers 1SJ 050 583 and 2SJ 050 583 (collectively,

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the "Lumbermans Policies"). Id.

In the 1990s, the California Regional Water Quality Control

Board ("CRWQCB") began investigating the contamination of soil and

groundwater in the vicinity of the Sequoia Station Shopping

Center, located across El Camino Real from Roy's. See Complaint,

City of Redwood City v. Arthur Bolton, No. C-02-2705 at 1

("Redwood City Complaint"). Specifically, laboratory tests of

groundwater, soil, and gas from around Sequoia Station have

allegedly revealed "contamination by various hazardous substances,

primarily tetrachloroethene (PCE), trichloroethene (TCE), and

dichloroethene (DCE)." Id. at 2. As a result, the City of

Redwood City filed suit against Arthur Bolton on June 5, 2002,

seeking cost recovery, contribution, and declaratory relief under

the Comprehensive Environmental Response, Compensation, and

Liability Act ("CERCLA"), as well as bringing several state law

claims. Id. at 5-11. In July 2003, Redwood City amended its

Complaint to reflect the fact that Arthur Bolton was deceased, and

that the proper Defendant in the Redwood City action was therefore

Arthur Bolton and Gary Bolton, as Trustee of two revocable trusts

dated May 20, 2000. See Amended Complaint, City of Redwood City

v. Arthur Bolton, No. C-02-2705 SC ("Redwood City Amended

Complaint").

Bolton, through his attorney, tendered his defense of the

Redwood City action to Lumbermans under the Lumbermans Policies in

June 2002, and again tendered defense of the Redwood City action

to Lumbermans in August 2003 after Redwood City filed its Amended

Complaint. See Declaration of David Isola ¶6 ("Isola Decl."). By

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letter dated March 21, 2005, Lumbermans, through its third party

claim administrator, Cavell USA, Inc., declined to defend or

indemnify Bolton in the Redwood City action. See Declaration of

Tiffany Troisi, Ex. 2 ("Troisi Decl."). In refusing to defend or

indemnify Bolton in the Redwood City action, Lumbermans relied on

the fact that the Lumbermans policies contained an exclusion for

"environmental property damage resulting from the releases of

chlorinated solvents by the dry cleaning operations on the Bolton

property into the sanitary sewer line." Id. at 2. Furthermore,

while acknowledging that the environmental property damage

exclusion does not apply where the "discharge, dispersal, release

or escape is sudden and accidental," Defendant asserted in its

denial of coverage that "the allegations against Bolton in the

[Redwood City action] do not contain any assertions whatsoever

that there were ever any "sudden" or "abrupt" releases of the

chlorinated solvents at issue, nor that the contamination was

caused as a result of any 'sudden and accidental' releases." Id.

at 3. 

Subsequently, on May 26, 2005, counsel for Plaintiff sent a

letter to counsel for Lumbermans, encouraging Lumbermans to

reconsider its denial of coverage in light of the information

discovered during the deposition of Barbitta, conducted May 4,

2005. See Troisi Decl. Ex. 4 & 5. Bolton apparently felt that

Barbitta's deposition revealed several ways in which the hazardous

substances found in the vicinity of the shopping center may have

been discharged into the sewer line through activities at Roy's

that fall within the "sudden and accidental" exception to the

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environmental property damage exclusion to the Lumbermans

Policies. Id. This effort was evidently unavailing, as the

parties have filed cross-motions for summary judgment seeking a

judicial determination of the rights and duties accorded the

parties under the Lumbermans Policies and applicable law. 

III. LEGAL STANDARD

Under Federal Rule of Civil Procedure 56(c), summary judgment

shall be granted where the "pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment as

a matter of law." Similarly, summary judgment is warranted

"against a party who fails to make a showing sufficient to

establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial...since a complete failure of proof concerning an essential

element of the nonmoving party's case necessarily renders all

other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317,

322-23 (1986). 

A genuine issue of fact exists where the non-moving party

produces evidence on which a reasonable trier of fact could find

in its favor viewing the record as a whole in light of the

evidentiary burden the law places on that party. Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 252-56 (1986). The Court's

role in adjudicating a motion for summary judgment is not to make

credibility determinations, and the "evidence of the non-moving

party is to be believed, and all justifiable inferences are to be

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drawn in its favor." Id. at 255.

IV. DISCUSSION

Under California law, an insurer has a duty to defend an

insured against claims brought against the insured, so long as at

least one of the claims "potentially seeks damages within the

coverage of the policy." Gray v. Zurich Ins. Co., 65 Cal. 2d 263,

275 (Cal. 1966); see also Montrose Chemical Corp. v. Superior

Court, 6 Cal. 4th 287, 295-96 (Cal. 1993); Vann v. Travelers

Companies, 39 Cal. App. 4th 1610, 1614 (Cal. Ct. App. 1995). The

duty to defend is considerably broader than the duty to indemnify,

and therefore will obligate the insurer to defend against claims

in which no damages are ultimately awarded. See Horace Mann Ins.

Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (Cal. 1993). "Facts

merely tending to show that the claim is not covered, or may not

be covered but are insufficient to eliminate the possibility that

the resultant damages (or the nature of the action) will fall

within the scope of coverage, therefore add no weight to the

scales." Montrose, 6 Cal. 4th at 300. 

In practice, the insured will satisfy his initial burden by

demonstrating that a bare possibility for coverage exists, even if

the evidence suggests, but does not conclusively establish, that

the loss is not covered. See id. at 299-300. In assessing

whether such a bare possibility for coverage exists, the insurer

shall make reference to the terms of the policy, the pleadings,

and any additional evidence available to the insurer at the time

of tender. See id. at 296; Vann, 39 Cal. App. 4th at 1614-15. 

//

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2

 At the time of tender, the Redwood City Complaint and

Amended Complaint alleged, in relevant part, that "On information

and belief, dry cleaning operations conducted at Defendant's

property have resulted in discharges of PCE, among other materials,

to the sanitary sewer beneath El Camino Real. On information and

belief, the contamination now impacting the Shopping Center,

Defendant's property, and the subsurface beneath El Camino Real,

was caused, at least in part, by discharges from the dry cleaning

operations conducted at Defendant's property. Redwood City's

investigation of other possible sources is on-going." Redwood City

Complaint ¶¶ 9-10; Redwood City Amended Complaint ¶¶ 12-13. 

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If the insured succeeds in carrying his initial burden of

demonstrating the potential for coverage, the insurer may avoid

being bound by the duty to defend only by showing that the third

party claims cannot possibly fall within the scope of the policy. 

See Montrose, 6 Cal. 4th at 295; Vann, 39 Cal. App. 4th at 1614. 

At the summary judgment stage, an insurer must be able to negate

coverage as a matter of law. See Maryland Cas. Co. v. National

American Insurance Co. of Calif., 48 Cal. App. 4th 1822, 1832

(Cal. Ct. App. 1996).

A. Lumbermans's Motion for Summary Judgment

Lumbermans essentially makes three arguments in support of

its motion for summary judgment. First, Lumbermans argues that

the pleadings and additional evidence available at the time of

tender do not reveal any potential way in which Bolton could be

covered by the Lumbermans Policies.2 Def. Mem. at 6. Second,

Defendant contends that even after considering additional evidence

obtained through the deposition of Barbitta, the totality of

information available still did not suggest any possible way in

which the Lumbermans Policies would cover Bolton for damages he

might be responsible for as a result of the Redwood City action. 

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Id. at 10. Finally, Lumbermans has included a single paragraph

arguing that the discharges occurred prior to the time when the

Lumbermans Policies became effective, and that Bolton is therefore

precluded from claiming any coverage under the policies. Id. at

18.

The Court disagrees. Looking back to the original time of

tender, Lumbermans was aware only of the Redwood City Complaint, 

the Answer, and the terms of the Lumbermans Policies. Even after

Bolton again tendered his claim to Lumbermans over a year later,

no additional information had been uncovered bearing on the

question of whether the claim would ultimately be covered by the

Lumbermans Policies. 

Looking to both the Redwood City Complaint and the Redwood

City Amended Complaint, it is clear that both employ extremely

broad language that can reasonably be read to encompass a means of

pollution that would fall within the scope of the policies. See

Redwood City Complaint, Redwood City Amended Complaint. Neither

document specifically identifies the means of contamination,

whether the contamination was sudden or gradual, or even who was

definitively responsible for the contamination. See Redwood City

Complaint ¶ 10; Redwood City Amended Complaint ¶ 13. While the

Court is well aware that it must refrain from engaging in

speculation so as to invent a cause of injury that would fall

within the coverage of the policy, see Gunderson v. Fire Ins.

Exchange, 37 Cal. App. 4th 1106 (Cal. Ct. App. 1995), so too must

Defendant recognize that the standard for avoiding the duty to

defend requires an insurer to conclusively establish that the

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claim cannot fall within the scope of the policy based upon the

information known at the time of tender. See STAEFA ControlSystem Inc. v. St. Paul Fire & Marine Ins. Co., 847 F. Supp. 1460,

1467 (N.D. Cal. 1994). Even if it is true, as Defendant contends,

that "there is no fact alleged in the underlying litigation, nor

in the additional evidence, that there was a sudden and accidental

release by Bolton," that would not entitle Lumbermans to the

relief requested, especially at the summary judgment stage. See

Montrose, 6 Cal. 4th at 300; Maryland Cas. Co., 48 Cal. App. 4th

at 1832. 

Similarly, even if Lumbermans is correct in its contention

that Barbitta's deposition did not assist Plaintiff's case by

revealing ways in which the contaminating chemicals suddenly and

accidentally entered the sewer, that fact would not suffice to

meet the burden placed on an insurer seeking to avoid its duty to

defend an insured. Rather, so long as Lumbermans is unable to

conclusively establish that the underlying claim cannot fall

within the ambit of the policies, it will be bound to defend

Plaintiff. See Montrose, 6 Cal. 4th at 295; Vann, 39 Cal. App.

4th at 1614. 

Finally, with respect to Defendant's third argument--that the

contamination had to have occurred prior to the period covered by

the policies--the Court notes that Defendant has based its entire

argument on Barbitta's deposition testimony, who could not recall

ever having spilled hazardous chemicals into either of the two

drains connecting Roy's to the sewer line. See Def. Mem. at 18-

19. Because Barbitta testified that no such spillage occurred,

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the argument goes, the contamination could not possibly be within

the scope of the Lumbermans Policies because all other witnesses

who might have knowledge of the operations at Roy's are either

deceased or unable to competently testify. Id. The logical chasm

between the substance of Barbitta's testimony and the legal

conclusion deduced therefrom by Lumbermans is too great to be

bridged by mere inference, especially where, as here, all

inferences are to be drawn against Lumbermans as the moving party.

See Anderson, 477 U.S. at 255. Simply because Barbitta could not

recall an event having happened does not mean it conclusively did

not happen--to so find would be to credit Barbitta's testimony, a

determination precluded at the summary judgment phase--and it

certainly does not mean that the contamination, whatever its

cause, was conclusively outside the scope of the policies. 

Accordingly, the Court declines to grant Defendant summary

judgment on this ground.

In addition to the foregoing, the Court notes several facts

that weigh against granting Defendant's motion. First, discovery

in the Redwood City action remains ongoing and the Court has not

been presented with any information by way of motion or otherwise

that would shed light on the source of the contamination or the

means by which the area under the shopping center came to be

contaminated. Second, the evidentiary record in the instant

matter is similarly sparse. Finally, Bolton has proffered the

affidavit of Paris A. Hajali, Ph.D., who has asserted that, in his

professional opinion, the source of the contamination is

inconclusive and might be attributable to more than one origin. 

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See Affidavit of Paris A. Hajali ("Hajali Aff."). While the Court

is aware that the possibility exists that the underlying claims

may well be shown eventually to be outside the scope of the

Lumbermans Policies, Defendant has not conclusively established

that fact, and certainly cannot prevail as a matter law, as it is

required to do at this stage. See Maryland Cas. Co., 48 Cal. App.

4th at 1832. 

As for Defendant's claim that it is entitled to a judgment

declaring that its declination to defend Bolton was not made in

bad faith, the Court notes that Defendant's argument is premised

entirely on the presumption that the Court will find in

Lumbermans's favor on the duty to defend issue. See Def. Mem. at

19-20. Since the Court has found that Lumbermans does have a duty

to defend Bolton in connection with the Redwood City action,

Defendant's argument is without merit. Accordingly, the Court

declines to rule that Defendant's refusal to defend Bolton was not

made in bad faith. However, since Bolton has not made a

corresponding motion seeking a determination that the refusal was

in bad faith, and since the Court has not been presented with any

evidence bearing on this issue, the Court's ruling on the instant

motion is not a conclusive resolution of the bad faith issue,

which remains an open one in this dispute. 

B. Bolton's Motion for Summary Judgment

Because the Court finds that Lumbermans has failed to

conclusively demonstrate by reference to undisputed facts that the

injuries complained of in the Redwood City action are outside the

scope of the Lumbermans Policies, the duty to defend has been

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established. See American Cyanamid Co. v. American Home Assur.

Co., 30 Cal. App. 4th 969, 975 (Cal. Ct. App. 1994), citing Horace

Mann Ins. Co., 4 Cal. 4th at 1085. The duty continues for only so

long as Lumbermans is unable to conclusively establish noncoverage under the Lumbermans Policies, however, and Defendant

will therefore be afforded the opportunity to terminate its duty

if, at some point in the future, it can prove inapplicability of

the policy coverage to the claims alleged in the Redwood City

action. See Haskel, Inc. v. Sup. Ct., 33 Cal. App. 4th 963, 977-

78 (Cal Ct. App. 1995). Until that time, however, Lumbermans must

furnish Bolton with an adequate defense, including reasonable

costs incurred by Bolton up to the present in defending against

the Redwood City action. See Aerojet-General Corp. v. Transport

Indem. Co., 17 Cal. 4th 38, 64 (Cal. 1997).

V. CONCLUSION

California law imposes a broad duty on insurers to defend

their insured in connection with claims brought by third parties,

where, as here, the claims might potentially be covered by

insurance policies provided by insurers. This broad duty has been

well defined by both state and federal courts applying California

law for decades, and is undoubtedly considered by insurers when

determining policy premiums and limitations. While the Court is

aware that it must evaluate all available evidence in determining

whether the duty to defend applies, and may not engage in

speculation so as to create a phantom basis for coverage that

finds no support in the evidence, the Court is similarly aware of

the wide latitude and deference granted to an insured seeking to

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shift the burden of defending against a lawsuit to his insurer. 

Where, as here, it cannot be said that the claims advanced by

Redwood City against Bolton will conclusively be outside the scope

of the Lumbermans Policies, the Court is bound to order Defendant

to defend Bolton against those claims until such time as

conclusive proof demonstrating non-coverage is proffered and

undisputed. Accordingly, Plaintiff's motion is GRANTED and

Defendant's motion is DENIED. 

IT IS SO ORDERED.

Dated: January 23, 2006

 

UNITED STATES DISTRICT JUDGE

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