Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_14-cv-00377/USCOURTS-azd-2_14-cv-00377-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Declaratory Judgement

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Roselle Gallego Saba, 

Plaintiff, 

v. 

Occidental Fire & Casualty Company of 

North Carolina, et al., 

Defendants.

No. CV-14-00377-PHX-GMS

ORDER 

 Pending before the Court are the cross motions for partial summary judgment of 

Plaintiff Roselle Gallego Saba and Defendant Occidental Fire and Casualty Company of 

North Carolina. (Docs. 25, 27.) For the following reasons, Defendant’s Motion is denied 

and Plaintiff’s Motion is granted in part and denied in part. 

BACKGROUND 

In November 2006, Plaintiff Roselle Gallego Saba purchased a house in 

Scottsdale, Arizona. From the time that Saba moved into the house, she began to 

experience severe headaches, nausea, and fatigue. Eventually, doctors diagnosed her with 

permanent brain damage and heart damage. In January 2010, Saba discovered the 

presence of carbon monoxide fumes in the air conditioning vents, caused by a water 

heater that was placed in an unvented utility closet with the burner improperly de-rated 

for a gas and air mixture. The utility closet was located adjacent to an air conditioning 

handler that delivered air into the master bedroom. As a result, Saba experienced 

sustained carbon monoxide poisoning. Her impaired mental and physical condition 

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caused her to lose her employment and eventually her house when she could no longer 

afford mortgage payments. 

 The water heater had been installed by Plumbing Specialists (“Plumbing”). 

Plumbing was insured by Occidental Fire & Casualty Company of North Carolina, 

(“Occidental”), under a Commercial Liability Policy (No. CP00015734) (the “Initial 

Policy”) effective February 14, 2006 to February 14, 2007 and under a renewal policy 

(No. CP00079089) (the “Renewed Policy”) effective February 14, 2007 to February 14, 

2008. Both policies cover claims based upon bodily injury. 

 Saba brought suit in state court against Plumbing for its negligent installation of 

the water heater. Plumbing’s attorney requested Occidental to intervene, but Occidental 

declined to either defend the suit or provide indemnification, citing to a pollution 

exclusion in the policies. 

 Plumbing then entered into a Damron agreement with Saba, under which 

Plumbing admitted fault, stipulated to entry of judgment against it, and assigned all rights 

against Occidental under the policy to Saba in exchange for Saba’s covenant to not 

execute the judgment against Plumbing. See Damron v. Sledge, 105 Ariz. 151, 155, 460 

P.2d 997, 1001 (1969); United Servs. Auto. Ass’n v. Morris, 154 Ariz. 113, 119, 741 P.2d 

246, 252 (1987) (noting that the limitation on such agreements is that they “must be made 

fairly, with notice to the insurer, and without fraud or collusion on the insurer”). The 

Damron agreement enabled entry of judgment against Plumbing in the amount of 

$2,000,000.00—the amount of coverage in the policies for the years of 2006 and 2007. 

 Saba brought suit again in state court against Occidental, seeking declaratory 

judgment based on the policies and also recovery under a breach of contract theory. (Doc. 

1, Ex. A.) Occidental removed the case to this Court and now requests summary 

judgment that the pollution exclusion in the policies precludes Saba’s claims. (Docs. 1, 

27.) In the alternative, Occidental requests summary judgment that the only applicable 

policy is the Initial Policy and not the Renewed Policy. (Doc. 27.) Saba requests 

summary judgment that the pollution exclusion did not apply and that both the Initial and 

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Renewal Policies cover Saba’s injuries. (Doc. 25.) 

DISCUSSION 

I. Legal Standard 

 Summary judgment is appropriate if the evidence, viewed in the light most 

favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to 

any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. 

P. 56(a). Substantive law determines which facts are material, and “[o]nly disputes over 

facts that might affect the outcome of the suit under the governing law will properly 

preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 

248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could 

return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 

1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving 

party must show that the genuine factual issues “‘can be resolved only by a finder of fact 

because they may reasonably be resolved in favor of either party.’” Cal. Architectural 

Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) 

(original emphasis omitted) (quoting Anderson, 477 U.S. at 250). 

 Interpretation of an insurance contract is a question of law. Benevides v. Arizona 

Prop. & Cas. Ins. Guar. Fund, 184 Ariz. 610, 613, 911 P.2d 616, 619 (Ct. App. 1995). 

II. The Pollution Exclusion 

 Both the Initial and the Renewed Policy contain a clause entitled the “Total 

Pollution Exclusion Endorsement,” which states that the insured may not recover for the 

following claims: 

f. (1) “Bodily Injury,” “Property Damage" or "Personal Injury" which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time. 

(2) Any loss, cost or expense arising out of any: 

 (a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, 

 detoxify or neutralize, or in any way respond to, or assess the effects of Pollutants; or 

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 (b) Claim or suit by or on behalf of a governmental 

 authority for damages because of testing for, 

 monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants. 

Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, 

alkalis, chemicals and waste. Waste includes material to be 

recycled, reconditioned or reclaimed. 

(Doc. 25, Ex. B, at 35.) Arizona courts have very narrowly interpreted a pollution 

exclusion which is in all relevant respects indistinguishable from the pollution exclusion 

in this case. Keggi v. Northbrook Property & Casualty Insurance Co., 199 Ariz. 43, 13 

P.3d 785. (Ariz. App. 2000). In Keggi, an insurer sought to apply the pollution exclusion 

to a plaintiff’s claims for injuries caused by ingesting “total and fecal coliform bacteria” 

contained in supposedly potable water Id. at 44–45, 13 P.3d at 786–87. The court held 

that the plain language of the policy definition for pollution did not include bacteria and 

thus the pollution exclusion did not apply. Id. at 50, 13 P.3d at 792. But, the court went 

on to hold that even if the language of the policy defining pollution “could be interpreted 

broadly enough to include ‘bacteria,’” . . . “the purpose of the clause, public policy and 

the transaction as a whole, demonstrate that the language [of the pollution exclusion] 

nevertheless should not be interpreted to preclude coverage for bacterial contamination 

absent any evidence that the actual contamination arose from traditional environmental 

pollution.” Id. 

 Thus, the court determined that the standard pollution exclusion did and does not 

apply to exclude damages for physical injury that arose in contexts other than traditional 

environmental pollution. In so holding the Keggi court relied on (1) the language and 

history of the pollution exclusion, (2) public policy, and (3) the transaction as a whole. Id.

at 48, 13 P.3d at 790. 

 First, the Keggi Court observed that “the exclusion clause appears to describe 

events, places, and activities normally associated with traditional environmental pollution 

claims.” Id. The court stated in relation to the language of the exclusion that: 

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The[] provision[] appear[s] to be directed at industrial 

insureds who must handle, store, and treat “hazardous 

wastes” in conducting their daily operations. Similarly, the clause . . . appear[s] to be intended to preclude coverage for clean-up operations ordered under RCRA, CERCLA, and 

other federal or state environmental laws. Thus, the 

exclusion's context confirms that the drafters intended it to 

apply to traditional “environmental pollution” situations and substances. 

Id. at 48–49, 13 P.3d at 790–91. 

 The language from the clause at issue here is not meaningfully distinct. The 

exclusion here, as it did there, applies to the “discharge, dispersal, seepage, migration, 

release or escape of pollutants.” (Doc. 25, Ex. B, at 35.) Many of these words are 

borrowed directly from environmental statutes. See e.g., Nautilus Ins. Co. v. Jabar, 188 

F.3d 27, 30 (1st Cir. 1999) (“[T]he terms used in the exclusion clause, such as 

‘discharge,’ “dispersal,’ ‘release’ and ‘escape,’ are terms of art in environmental law and 

are generally used to refer to damage or injury resulting from environmental pollution.”); 

Atl. Mut. Ins. Co. v. McFadden, 413 Mass. 90, 92 (1992) (same). Just as in Keggi, the 

language in the pollution exclusion here “appear[s] to be directed at industrial insureds 

who must handle, store, and treat ‘hazardous waste.’” 199 Ariz. at 48, 13 P.3d at 790. For 

example, the exclusion precludes liability from government agencies or from others for 

“testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or 

neutralizing, or in any way responding to, or assessing the effects of pollutants.” (Doc. 

25, Ex. B, at 35.) 

 The Keggi court further explained that the history behind exclusion clauses 

supports the conclusion that they were “intended to exclude coverage for causes of action 

arising from traditional environmental pollution.” 199 Ariz. at 49, 13 P.3d at 791. 

“Historically, the pollution exclusion clauses arose in CGL policies in the 1970's, in 

response to “the insurance industry's increased concern about pollution claims 

[attributable to] environmental catastrophes that occurred during the 1960s.” Id. In 

addition, other courts have found that exclusion clauses are “traditionally associated with 

environmental pollution.” Nautilus, 188 F.3d at 31; see also Continental Cas. Co. v. 

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Rapid-American Corp., 80 N.Y.2d 640, 593 (1993); Molton, Allen & Williams v. St. Paul 

Fire & Marine Ins., 347 So.2d 95, 99 (Ala. 1977). In the present case, Occidental has not 

pointed to any authorities suggesting that the exclusion clause has a history that is distinct 

from that of other pollution exclusion clauses. 

 After reviewing this history, the Keggi court concluded that “public policy 

supports an interpretation limiting the clause to its initial, intended purpose of excluding 

coverage for traditional environmental pollution-related claims.” 199 Ariz. at 49, 13 P.3d 

at 791. 

 Finally, the court in Keggi held that “the transaction as a whole supports a finding 

that the exclusion does not apply.” 199 Ariz. at 50, 13 P.3d at 792. The court looked at 

the circumstances surrounding the transaction and found that the policy “contemplated 

the operation of golf clubs and restaurants, and even the provision of water through its 

water company.” Id. It determined that “[w]here the insured's operations include 

distribution or serving of water, an insured would reasonably expect to be covered for 

negligently distributing or serving contaminated water which causes an illness or 

disease.” Id. 

 In the present case, there is less ambiguity in the policy language. Carbon 

monoxide is a gas. While, as Keggi noted, the phrases “irritant” and “contaminant” are 

hopelessly imprecise, carbon monoxide is not generally considered benign—of course 

neither is total and fecal coliform bacteria. And while Occidental’s able counsel spend the 

majority of their briefing asserting that the policy exclusion’s language is less ambiguous 

as it applies to carbon monoxide than it was as it applied to total and fecal coliform 

bacteria, there is no basis on which they persuasively distinguish the rest of the Keggi 

Court’s analysis from the facts of this case. The history of the pollution exclusion clause 

is the same. The pertinent language is all the same. So is the public policy. In this case, 

the carbon monoxide was not a pre-existing substance; it was produced by the negligent 

installation of the water heater itself and did not result from any efforts at environmental 

cleanup. This takes the case out of any “traditional environmental pollution-related 

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claims,” and thus Arizona public policy as interpreted by the Keggi court prevents this 

Court from giving the pollution exclusion the interpretation requested by Occidental. 

Further, the transaction as a whole, the insuring of a plumbing business, calls into 

question a broader application of the pollution exclusion than would arise in “traditional 

environmental pollution-related claims.” In the present case, activities such as the 

installation of plumbing devices were contemplated by the policies. The scope of 

interpretation requested by Occidental would seemingly eviscerate coverage. 

 There is no dispute that Arizona law applies to this claim. After considering the 

Arizona public policy limitations on pollution exclusions as set forth in Keggi, pollution 

exclusions cover traditional environmental pollution claims and not the bodily injuries 

suffered by Saba as a result of Plumbing’s negligence in the installation of a water heater. 

Therefore, as they pertain to the issue of whether the pollution exclusion applies to this 

case Occidental’s Motion for Summary Judgment is denied and Saba’s Motion for 

Summary Judgment is granted. 

II. The Renewed Policy 

The endorsement for the policies limits claims for bodily injury to those that “first 

occur during the policy period” and excludes those that “first occur[] prior to the 

inception of the policy.” (Doc. 25, Ex. F.) Occidental does not dispute that Saba first 

experienced injury as a result of the exposure to carbon monoxide during the period of 

the Initial Policy. However, it claims that because Saba’s injury had already occurred by 

the time that the Renewed Policy came into effect on February 14, 2007, she may not 

make claims under the Renewed Policy. 

 Occidental’s allegations highlight a genuine issue of material fact that has not been 

resolved by either party: the extent of Saba’s injuries, if any, that occurred during, and are 

attributable to, carbon monoxide exposure during the Renewed Policy’s period of 

coverage. Although Saba has provided admissible evidence that she experienced injury 

that occurred during at least the first policy period, it is unclear from the record whether 

the nature of the injury she may have experienced during the second policy period was 

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merely a continuation of injury resulting from the exposure of the first policy period, or 

whether she experienced any further injury that is attributable to exposure that occurred 

during the second policy period and was not the natural and continuing consequence of 

exposure during the first period. See Associated Aviation Underwriters v. Wood, 209 

Ariz. 137, 167, 98 P.3d 572, 602 (Ct. App. 2004) (interpreting “bodily injury” to include 

the damage caused by exposure to a substance “and, even after exposure has ceased, the 

continuing injurious process initiated thereby”). Although in her briefing Saba cites the 

opinion of an expert to the effect that the exposure caused during the second policy 

period produced injury that would have been independent from injury resulting from 

exposure suffered during the first policy period, she does so without citing to any record 

excerpt or affidavit from the expert. Thus, Saba cannot now fairly claim that such facts 

are uncontested, because she has failed to demonstrate to the Court that they have ever 

been asserted, let alone, unchallenged. Of course, on the other side of the equation, 

Occidental has done nothing to establish beyond factual dispute that the exposure during 

the second policy period did not produce independent damage to Ms. Saba. 

 Saba also asserted in her briefs that Occidental rejected a settlement offer within 

policy limits. Again, however, Saba has not placed facts in the record which establish that 

such a settlement offer was made and rejected; nor has Occidental provided a sufficient 

basis on which this Court could conclude that no settlement offer for policy limits was 

ever made. Thus, there is no basis for this Court to conclude that there are no material 

issues of fact as to whether Saba can claim the second million dollars of available policy 

coverage to cover her two million dollar judgment. Neither party has brought forth 

admissible evidence to resolve these questions. 

 Both Occidental’s and Saba’s Motions for Summary Judgment are, therefore, 

denied as to this point. 

DISCUSSION 

Saba is entitled to summary judgment on the grounds that the pollution exclusion 

of the policies at issue were not applicable to her injuries. However, neither Saba nor 

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Occidental are entitled to summary judgment on the issue of whether the Renewed Policy 

covered Saba’s injuries. 

IT IS THEREFORE ORDERED that Plaintiff Roselle Gallego Saba’s Motion 

for Partial Summary Judgment (Doc. 25) is GRANTED IN PART and DENIED IN 

PART. 

IT IS FURTHER ORDERED that Defendant’s Motion for Partial Summary 

Judgment of Occidental Fire & Casualty Company of North Carolina (Doc. 27) is 

DENIED. 

 Dated this 16th day of December, 2014. 

Case 2:14-cv-00377-GMS Document 44 Filed 12/16/14 Page 9 of 9