Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_19-cv-01361/USCOURTS-casd-3_19-cv-01361-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

KINGSLEY MANAGEMENT, CORP., a

Utah Corporation; KMC CA

MANAGEMENT, LLC, a Utah limited

liability company; and VILLA CAJON

MHC, L.P., a Utah limited partnership,

Plaintiffs,

v.

OCCIDENTAL FIRE & CASUALTY

COMPANY OF NORTH CAROLINA,

DBA NORTH CAROLINE

OCCIDENTAL FIRE & CASUALTY

COMPANY, a North Carolina

corporation; and OCCIDENTAL FIRE & 

CASUALTY COMPANY OF NORTH 

CAROLINA, a North Carolina

corporation,

Defendants.

Case No.: 19-cv-1361-GPC-AGS

ORDER DENYING DEFENDANTS’ 

MOTION TO DISMISS

PLAINTIFF’S FIRST AMENDED 

COMPLAINT 

[ECF No. 11]

Before the Court is Defendants’ Occidental Fire & Casualty Company of North 

Carolina dba North Caroline Occidental Fire & Casualty Company and Occidental Fire & 

Casualty Company of North Carolina (collectively, “Defendants” or “Occidental”) 

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motion to dismiss. ECF No. 11. Plaintiffs Kingsley Management Corporation, KMC CA 

Management, LLC, and Villa Cajon MHC, L.P. (“Plaintiffs”) filed an opposition. ECF 

No. 16. Defendants filed a reply. ECF No. 17. The Court finds this motion suitable for 

decision without oral argument pursuant to Local Civil Rule 7.1(d)(1).

BACKGROUND

Plaintiffs are corporate entities organized under the laws of the State of Utah that 

own, operate, and manage the Villa Cajon Mobile Home Estate, located at 255 East 

Bradley Avenue, El Cajon, CA 92021 (“Subject Insured Property”). ECF No. 4 (“First 

Amended Complaint” or “FAC”) ¶¶ 1-5. Defendants are North Carolina corporations 

that provide the insurance policies that give rise to this litigation. Id. ¶¶ 6-8. Plaintiffs 

allege that Defendants have a duty to provide insurance coverage for the defense of 

claims in a class action lawsuit, Cox et al., v. Ametek, Inc., et al., Case No. 3:17-CV00579-GPC-AGS, filed in this Court on March 24, 2017 (“Underlying Action”). Id. ¶ 39. 

I. Insurance Policies

Defendants provided Plaintiff Kingsley Management with three policies, Policy 

No. MH13471, which covers the period December 31, 2014 until December 31, 2015 

(FAC, Ex. A); Policy No. MH14035, which covers the period December 31, 2015 until 

December 31, 2016 (FAC, Ex. B); and Policy No. MH14460, which covers the period 

December 31, 2016 until December 31, 2017 (FAC, Ex. C) (collectively, the “Policies”). 

The Policies name Plaintiffs KMC Management, KMC CA Management and Villa Cajon 

as named insureds. FAC ¶ 17. 

a. Coverage A

Under Coverage A for “Bodily Injury and Property Damage Liability,” the Policies 

provide liability coverage for allegations of “property damage” and “bodily injury” 

arising from an “occurrence.” FAC ¶¶ 18-19; ECF No. 4-1 at 116; ECF No. 4-2 at 121;

ECF No. 4-3 at 124. The Policies obligate Defendants to provide defense for any “suit” 

seeking “property damage” against Plaintiffs, in accordance with the following:

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1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as 

damages because of ‘bodily injury’ or ‘property damage’ to which this insurance 

applies. We will have the right and duty to defend the insured against any ‘suit’ 

seeking those damages . . .

b. This insurance applies to ‘bodily injury’ and ‘property damage’ only if:

(1) The ‘bodily injury’ or 'property damage' is caused by an 'occurrence' that takes 

place in the 'coverage territory';

(2) The ‘bodily injury’ or 'property damage' occurs during the policy period; and

(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II –

Who Is An Insured and no 'employee' authorized by you to give or receive notice 

of an 'occurrence' or claim, knew that the ‘bodily injury’ or 'property damage’ had

occurred, in whole or in part. If such a listed insured or authorized 'employee' 

knew, prior to the policy period, that the ‘bodily injury’ or 'property damage' 

occurred, then any continuation, change or resumption of such ‘bodily injury’ or

'property damage' during or after the policy period will be deemed to have been 

known prior to the policy period.

FAC ¶ 21. Coverage A also contains a Pollution Exclusion:

This insurance does not apply to:

f. Pollution

(1) 'Bodily injury' or 'property damage' arising out of the actual, alleged or 

threatened discharge, dispersal, seepage, migration, release or escape of 

'pollutants':

(a) At or from any premises, site or location which is or was at any time owned or 

occupied by, or rented or loaned to, any insured . . .

(b) At or from any premises, site or location which is or was at any time used by or 

for any insured or others for the handling, storage, disposal, processing or 

treatment of waste;

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(c) Which are or were at any time transported, handled, stored, treated, disposed of, 

or processed as waste by or for:

(i) Any insured; or

(ii) Any person or organization for whom you may be legally responsible; or

(d) At or from any premises, site or location on which any insured or any 

contractors or subcontractors working directly or indirectly on any insured's behalf 

are performing operations if the 'pollutants' are brought on or to the premises, site 

or location in connection with such operations by such insured, contractor or 

subcontractor . . .

(e) At or from any premises, site or location on which any insured or any 

contractors or subcontractors working directly or indirectly on any insured's behalf 

are performing operations if the operations are to test for, monitor, clean up, 

remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess 

the effects of, 'pollutants.'

FAC ¶ 22. The Policies contain an endorsement that modify the Coverage A Pollution 

Exclusion in the following manner:

This insurance does not apply to:

f. Pollution

(a) “Bodily Injury” or “property damage” 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.

FAC ¶ 23 (emphasis added).

b. Coverage B

Under Coverage B, the Policies obligate Defendants to provide indemnity for any 

“personal and advertising injury” and obligates Defendants to provide a defense for any 

“suit” seeking damages for “personal and advertising injury.” FAC ¶ 26. Coverage B 

provides:

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1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as 

damages because of 'personal and advertising injury' to which this insurance 

applies. We will have the right and duty to defend the insured against any 'suit' 

seeking those damages . . .

b. This insurance applies to 'personal and advertising injury' caused by an offense 

arising out of your business but only if the offense was committed in the 'coverage 

territory' during the policy period.

Id. Coverage B also contains the following Pollution Exclusion:

A. Exclusion m. under Paragraph 2., Exclusions of Section I – Coverage B –

Personal and Advertising Injury Liability I replaced by the following:

This insurance does not apply to:

a. “Personal and advertising injury”;

(10) Arising out of the actual, alleged or threatened discharge, dispersal, 

seepage, migration, release, growth, or escape of “pollutants” at any time.

B. The definition of “pollutants” under Section V – Definitions is replaced by

the following:

“Pollutants” mean any solid, liquid, gaseous or thermal irritant or

contaminant, including smoke, vapor, soot, fumes, acids, alkalis, mold,

fungi, bacteria, and other similar microbial contaminants, chemicals and

waste. Waste includes materials to be recycled, reconditioned or reclaimed.

FAC ¶ 27. 

c. Other Coverage

The Policies also provide a Supplementary Payments coverage, which, in

part, provides that Defendants will pay, with respect to a claim that settles or any suit

against an insured “all expenses we incur” and “all court costs taxed against the insured

in the ‘suit.’” FAC ¶ 28.

/ / /

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d. Terms

Under Coverage A, the Policies apply for a suit seeking “Property Damage” to 

tangible property. FAC ¶ 33. Under Coverage B, the Policies apply for a suit seeking 

“Personal Injury” under Coverage B, including nuisance and trespass. Id. Accordingly, 

any such claim or suit alleged against Plaintiffs will trigger Occidental’s duty to defend 

and indemnify pursuant to the Policies.

The Policies define ‘occurrence’ as “an accident, including continuous or repeated 

exposure to substantially the same general harmful conditions.” FAC ¶ 30. 

The Policies define ‘bodily injury’ as “bodily injury, sickness or disease sustained 

by a person, including death resulting from any of these at any time. Id. ¶ 31.

The Policies define ‘personal and advertising injury’ as inclusive of a claim for 

nuisance and/or trespass: 

‘Personal and advertising injury’ means injury, including consequential 'bodily

injury,' arising out of one or more of the following offenses . . . c. The wrongful 

eviction from, wrongful entry into, or invasion of the right of private occupancy of 

a room, dwelling or premises that a person occupies, committed by or on behalf of 

its owner, landlord or lessor.

Id. ¶ 31. The Policies define ‘property damage’ as follows:

a. Physical injury to tangible property, including all resulting loss of

use of that property. All such loss of use shall be deemed to occur at

the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All

such loss of use shall be deemed to occur at the time of the

'occurrence' that caused it.

The Policies define “suit” as “a civil proceeding in which damages because of 

'bodily injury,' 'property damage' or 'personal and advertising injury' to which this 

insurance applies are alleged." Id. ¶ 33.

/ / / 

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II. Underlying Matter

On October 6, 2016, the California Department of Toxic Substances Control 

(“DTSC”) issued a Proposition 65 Notification (“Prop 65 Notice”) to the San Diego 

County Public Health Officer indicating that several chemicals considered human

carcinogens were detected at 790 Greenfield Drive, El Cajon, California (“Contaminated 

Property”). ECF No. 4-4 at 2. The Prop 65 Notice states that Trichlorethylene (TCE) has 

been found in the groundwater and soil gas at the Contaminated Property and 

surrounding community. Id. at 3. Ametek, Inc. is listed as the responsible party and 

Plaintiffs are not mentioned in the Prop 65 Notice. FAC ¶ 37. 

The plaintiffs in the Underlying Matter (“Putative Underlying Class”) are all 

individuals who were either past or current residents of the Subject Insured Property. 

FAC ¶ 42. The Putative Underlying Class alleged that Ametek stored toxic waste at the 

Contaminated Property from 1968 to 1988, and that Ametek was aware in 1987 or 1988 

that chlorinated solvents and other chemical waste leached and leaked into the 

groundwater and subsurface soil, thereby creating a groundwater plume. Id. ¶ 43-45. 

The Putative Underlying Class alleged they suffered bodily harm, economic loss, and 

interference with their use of and enjoyment of their homes and comfortable enjoyment 

of life. Id. ¶ 46, 47. 

a. Third Party Actions

On June 20, 2017, Senior Operations filed a third-party complaint against Plaintiffs 

in the instant action (i.e., Villa Cajon, KMC CA Management, and Kingsley 

Management), as well as the alleged owners of the other affected mobile home parks for 

indemnity, equitable contribution, and declaratory relief. Id. ¶ 55. 

On June 27, 2017, Ametek and Thomas Deeney also filed a third-party complaint 

in the Underlying Matter against Plaintiffs in the instant action (i.e., Villa Cajon, KMC 

CA Management, and Kingsley Management) for indemnity, comparative contribution, 

and declaratory relief. Id. ¶ 59. 

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Senior Operations, Ametek, and Deeney allege that Plaintiffs purchased the 

Subject Insured Property in late 2009 and early 2010 and that Plaintiffs were or should 

have been aware of information about the environmental conditions of the Subject 

Insured Property, including the subject plume described in the Prop 65 Notice that gave 

rise to the Underlying Matter. Id. ¶ 56, 60. Senior Operations, Ametek, and Deeney did 

not allege that Plaintiffs were responsible for the actual acts of pollution that gave rise to 

the Underlying Matter. Id. ¶ 58, 62.1 Plaintiffs allege that at no point did any party in the 

Underlying Matter allege that Plaintiffs created or caused the environmental pollution 

event that affected the Subject Insured Property and gave rise to the Underlying Matter. 

Id. ¶ 63-71. 

III. Requests for Insurance Coverage

On June 20, 2017, Plaintiffs notified Occidental of the Underlying Matter and 

requested a defense and indemnity pursuant to the Policies. Id. ¶ 73. On the same day, 

Occidental’s third-party claims administrator, Innovative Risk Management, requested a 

copy of the complaint in the Underlying Matter. Id. ¶ 74.

On July 14, 2017, Occidental requested information regarding the date on which 

Villa Cajon and Kingsley Management were served with the complaint in the Underlying 

Matter. Id ¶ 75. On the same day, Plaintiffs emailed Occidental and requested that 

Occidental coordinate with Plaintiffs to defend the pleadings in the Underlying Matter on 

behalf of all three Plaintiffs. Id. ¶ 76. Defendants replied and asked Plaintiffs whether 

they had hired an attorney “to protect the answer date or has it just been reported to 

[Defendants]?” Id. ¶ 77. 

On August 2, 2017, Innovative Risk Management issued a letter acknowledging 

 

1 The third-party defendants in the Underlying Matter moved to dismiss these third-party complaints and 

the Court denied these motions, except with respect to the claims for attorney’s fees under CA law. Cox 

v. Ametek, Case No. 17cv0597-GPC-AGS, ECF No. 59. 

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the claims against Plaintiffs in the Underlying Matter, and on the same day, Occidental 

denied coverage on the basis of the Pollution Exclusion from the Policies.

On July 30, 2018, Plaintiffs’ counsel responded to the denial letter, providing 

additional information as to why the Pollution Exclusion was inapplicable since no party 

in the Underlying Matter had alleged that Plaintiffs were involved in any environmental 

pollution event. Id. ¶ 81. As of the date of the filing of the FAC, Occidental had not 

responded to this communication from Plaintiffs’ counsel. Id. ¶ 83. 

Plaintiffs allege that they have incurred substantial attorneys’ fees and costs as a 

result of defending the Underlying Matter, and Defendants’ denial of insurance coverage 

forced Plaintiffs to forego benefits that they were entitled to under the Policies. Id. ¶ 87-

89. Plaintiffs have entered into a tentative settlement of the Underlying Matter, and this 

settlement is subject to further negotiations between Ametek and the Putative Underlying 

class. Id. ¶ 90-92. Plaintiffs allege that their decision to enter into this settlement was a 

consequence of Occidental’s failure to defend, since Plaintiffs were required to pay outof-pocket defense fees and costs, which are in excess of $75,000. Id. ¶ 98, 99. Plaintiffs 

additionally argue that Occidental’s denial of coverage was “designed to force Plaintiffs 

to forego benefits under the respective policies.” Id. ¶ 102.

Plaintiffs allege causes of action for breach of contract based on Occidental’s 

failure to defend and failure to indemnify; breach of implied covenant of good faith and 

fair dealing for failure to defend and failure to indemnify; and declaratory relief. 

Defendants move to dismiss on all counts.

DISCUSSION

Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal for “failure to 

state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal 

under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or 

sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police 

Dep’t., 901 F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required 

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only to set forth a “short and plain statement of the claim showing that the pleader is 

entitled to relief,” and “give the defendant fair notice of what the . . . claim is and the

grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

A complaint may survive a motion to dismiss only if, taking all well-pleaded 

factual allegations as true, it contains enough facts to “state a claim to relief that is

plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 

550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual 

content that allows the court to draw the reasonable inference that the defendant is liable 

for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of 

action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a 

complaint to survive a motion to dismiss, the non-conclusory factual content, and 

reasonable inferences from that content, must be plausibly suggestive of a claim entitling 

the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) 

(quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true all 

facts alleged in the complaint, and draws all reasonable inferences in favor of the 

plaintiff. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). 

I. Breach of Contract – Duty to Defend

Occidental argues that it had no duty to defend Plaintiffs because there is no 

potential for coverage of Plaintiffs’ claims due to the pollution exclusion clauses in the 

Policies’ as articulated in both Coverage A and Coverage B. Plaintiffs counter that they 

are entitled to coverage under the Policies because the Policies are silent on whether the 

pollution exclusion clauses can apply regardless of the location of the environmental 

pollution event and the insured’s lack of involvement with causing the pollution, and in 

the face of this ambiguity, the contract must be construed against Occidental.

Under California law, the elements required for a cause of action for breach of 

contract are: (1) the existence of a contract, (2) plaintiffs’ performance or excuse of 

nonperformance, (3) defendant’s breach, and (4) resulting damages to plaintiff. Reichert 

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v. General Ins. Co., 442 P.2d 377 (Cal. 1968); McDonald v. John P. Scripps 

Newspaper, 210 Cal.App.3d 100, 104 (1989). “Interpretation of an insurance policy is a 

question of law and follows the general rules of contract interpretation.” MacKinnon v.

Truck Ins. Exch., 31 Cal. 4th 635, 647 (2003) (citing Waller v. Truck Ins. Exchange, Inc., 

11 Cal.4th 1, 18 (1995)). “The fundamental rules of contract interpretation are based on 

the premise that the interpretation of a contract must give effect to the ‘mutual intention’ 

of the parties.” Id. “Such intent is to be inferred, if possible, solely from the written 

provisions of the contract.” Id.

A liability insurer owes a broad duty to defend its insured against claims that create 

a potential for indemnity. Montrose Chemical Corp. of Cal. v. Superior Court, 6 Cal.4th 

287, 295 (1993) (en banc). The existence of a duty to defend turns upon the facts known 

to the insurer at the inception of the lawsuit, not upon the ultimate adjudication of 

coverage. Id. (quoting Saylin v. Cal. Ins. Guarantee Ass'n, 179 Cal.App.3d 256, 263 

(1986)); Aetna Cas. & Sur. Co. v. Centennial Ins. Co., 838 F.2d 346, 350 (9th Cir.1988)). 

The duty to defend arises if the facts known to the insurer indicate a potential or 

possibility for indemnity. Montrose, 6 Cal.4th at 300. An insurer has no duty only if, at 

the time of its decision, it can prove that the claim cannot fall within policy coverage. Id.

a. Pollution Exclusion 

The parties disagree as to whether the Pollution Exclusion clauses in both 

Coverage A and Coverage B exclude the Underlying Matter from coverage. 

Exceptions to the performance of the basic underlying contract obligation must be 

clearly stated to apprise the insured of the effect of those exceptions. Gray v. Zurich 

Insurance Co., 65 Cal.2d 263, 269 (1966). “Whereas coverage clauses are interpreted 

broadly to afford the greatest possible protection to the insured, exclusionary clauses are 

construed narrowly against the insurer.” Cont'l Cas. Co. v. City of Richmond, 763 F.2d 

1076, 1079 (9th Cir. 1985). Therefore, “[a]ny doubt as to whether the facts give rise to a 

duty to defend is resolved in favor of the insured.” Legarra v. Federated Mut. Ins. Co., 

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35 Cal. App. 4th 1472, 1479 (1995). “Courts may not rewrite the insurance contract or 

force a conclusion to exact liability where none was contemplated.” Id. at 1480. An 

insurer may select the risks it will insure and those it will not, and a clear exclusion will 

be respected. Howell v. State Farm Fire & Casualty Co., 218 Cal.App.3d 1446, 1467

(1990).

First, it is undisputed that “pollutant” covers the chemicals at issue in the 

underlying claims – i.e., trichlorethylene, dichlorethene, dioxane, and trichloroacetic acid. 

ECF No. 11-1 at 18. The parties, however, dispute whether the relevant pollution 

exclusions from both Coverage A and Coverage B preclude insurance coverage of the 

Underlying Matter. Defendants argue that Coverage A and/or Coverage B’s pollution 

exclusions apply to this case and that the key language from both exclusion clauses (i.e., 

“but for” and “arising from”) should be broadly construed, and furthermore that the 

exclusion does not require that the act of pollution (i.e., discharge, seepage, etc.) take 

place by a specific actor, including the insured. ECF No. 11-1 at 18. Plaintiffs counter 

that there is no plain, clear, or conspicuous language in the exclusion that reflects “in an 

unmistakable manner” that the exclusion will apply to an “(a) offsite release, (b) where 

the insured did not cause the pollution condition, and (c) the pollution is unrelated to the 

insured’s business activities.” ECF No. 16 at 14. 

i. Coverage A

As described above, Coverage A’s Pollution Exclusion clause states that the 

insurance does not apply to bodily injury or property damages “which would not have 

occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, 

migration, release or escape of ‘pollutants’ at any time.” FAC ¶ 23 (emphasis added). 

Plaintiffs argue that this exclusion does not make clear that it applies to offsite activities 

or to acts that are independent of the insured’s operations. 

The Defendants rely on Garamendi v. Golden Eagle Ins. Co., 127 Cal. App. 4th 

480 (2005), to support their argument that the “but for” language provides a clear 

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coverage exclusion. In Garamendi, the court held that a pollution exclusion which 

provided that the insurance did not apply to bodily injury which would not have occurred 

in whole or part “but for” the act of pollution indicated that this exclusion was “far 

broader” than a prior exclusion that used “arising out of” language. Id. at 487. The court 

found that the “but for” language shifted the focus from actions taken to injuries that 

would not have occurred “but for” the discharge of pollutants. Id. As a result, the 

exclusion encompassed products liability claims since the injuries at issue would not have 

occurred “but for” the discharge of the pollutant. Id. at 488. Here, Coverage A’s 

Pollution Exclusion extends a similarly broad reach and excludes coverage for damages 

that would not have occurred “but for” the discharge of the pollutant. 

Parties also disagree as to whether the deletion of the phrase “at or from” in 

Coverage A’s pollution exclusion clause broadens or narrows its scope. The Garamendi

court noted that the use of “but for” created a “far broader” exclusion clause than the 

version that encompassed only “bodily injury . . . at or from any premises, site or 

location” owned by the insured. Id. at 487 (emphasis added). Therefore, the Court finds 

that the use of the phrase “but for” is decisive in determining that the scope of the 

pollution exclusion clause is broad enough to encompass the allegations against Plaintiffs 

in the Underlying Matter. Since Coverage A’s pollution exclusion clause, as drafted, 

focuses on the injuries that were sustained, rather than the site of pollution, the clause 

clearly encompasses the claims brought against Plaintiffs in the Underlying Matter,

regardless of whether the damages were due to offsite discharge or independent of the 

insured’s operations. Accordingly, the Court finds that Defendants did not have a duty to 

defend based upon Coverage A. In the section that follows, the Court considers the 

whether there was a duty to defend under Coverage B.

ii. Coverage B

Defendants next argue that the Court should construe the “arising out of” language 

in Coverage B similar to the “but for” language. However, this position is wholly 

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unsupported under California law. 

Defendants cite Cont’l Cas. Co. v. City of Richmond, 763 F.2d 1076 (9th Cir. 

1985) for the proposition that “arising out of” language is as broadly construed as the 

“but for” exclusion in Garamendi. ECF No. 11-1 at 21-22. In Cont’l Cas. Co., the 

question considered by the Ninth Circuit was distinct from the question presented here. 

The Cont’l Cas. Co. complaint alleged that police officers assaulted and beat the 

plaintiffs’ father to death, and that this conduct was part of a pattern and practice of 

police brutality caused by the City’s failure to properly train its employees. Id. The

plaintiffs brought due process, equal protection, and excessive force claims based on the 

alleged wrongful death of their father. The Ninth Circuit held that the wrongful death 

allegations “arose out of” alleged bodily injury and wrongful death, and therefore were 

excluded under the applicable exclusionary clause in the policy which provided that the 

insurance company “would not be liable on any claim arising from the bodily injury, 

assault, battery, or death of any person.” Id. at 1078. 

Here, the causal chain between the allegations in the Underlying Matter and 

Plaintiffs’ liability is far more attenuated than the chain in Cont'l Cas. Co. since the 

claims against Plaintiffs are based on Plaintiffs’ failure to act on their knowledge of the 

pollution, rather than their alleged contribution to the act of pollution itself. Occidental 

has not cited, any case law counseling a broad approach to the phrase “arising out of” in a 

context similar to the situation in the present litigation. Moreover, as noted in the 

previous section, the Garamendi court has recognized that “but for” exclusions provide a 

far broader reach than “arising out of” exclusions. This holding supports a narrow 

reading of “arising out of” in Coverage B in a constrained manner against the insurer. 

In addition, Coverage B can be better analyzed through the lens of MacKinnon, 

where the California Supreme Court held that a landlord’s use of pesticides at the tenant’s 

request did not qualify as the type of environmental pollution that should be excluded 

from coverage since the applicable pollution exclusion clause did not “plainly and 

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clearly” exclude the landlord’s conduct from coverage. In making this decision, the

MacKinnon court “declined to extend the [pollution] exclusion beyond” the “arena” of 

potential liability arising from “the gradual or repeated discharge of hazardous substances 

into the environment.” Id. at 646. 

Occidental argues that MacKinnon does not help Plaintiffs because the MacKinnon

court was only concerned with the questions of whether the type of hazardous substance 

qualifies as pollution and whether the geographical scope of the contamination merits 

exclusion from insurance coverage, but did not consider the questions relevant this 

instant litigation – i.e., whether the exclusion applies to pollution where the insured did 

not engage in the polluting. Moreover, Occidental argues that MacKinnon’s reasoning 

applied to the current litigation would cut against Plaintiffs since the plume clearly 

involved hazardous substances and the geographical scope of the Plume’s pollution was 

significant in size. ECF No. 11-1 at 25. 

However, Occidental has failed to reckon with the MacKinnon court’s overarching 

encouragement for courts to adopt a reading of the case as it could be understood by a lay 

person and avoid adopting an interpretation of the pollution exclusion that would lead to 

“absurd results.” MacKinnon, 31 Cal.4th at 640. Here, the Pollution Exclusion in

Coverage B goes to great lengths to define the nature of the pollution as the “actual, 

alleged or threatened discharge, dispersal, seepage, migration, release or escape of 

‘pollutants.’” FAC ¶¶ 23, 27. Adopting a lay person’s reading of this exhaustive list, the 

language of the Coverage B Pollution Exclusion is tailored to address the act of the 

polluter. In MacKinnon, the court specifically noted that “certain acts of ordinary 

negligence” should be covered by the insurance policy unless the pollution exclusion 

“conspicuously, plainly and clearly apprises the insured that certain acts of ordinary 

negligence . . . will not be covered.” Id. at 649 (emphasis added). Here, the language of 

the pollution exclusion does not conspicuously, plainly, or clearly apprise Plaintiffs that 

their failure to notify the residents of the Subject Insured Property of pollution would be 

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encompassed by this exclusion. In the Underlying Matter, the third-party complaint 

alleges that Plaintiffs had a duty to “deal honestly with [the residents] . . . in negotiating 

lease agreements and disclosing information or concerns.” FAC, Ex. G at 921.2 

Therefore, if the Court were to adopt a reading of the exclusion that Defendants offer, the 

Court would be at risk of extending the pollution exclusion beyond a layperson’s 

understanding of the pollution exclusion. The Court finds there was a duty to defend 

based upon Coverage B and therefore DENIES Defendant’s motion to dismiss.

1. Context of Operations and Intent of the Exclusion

Parties additionally disagree as to whether and how the Court should consider the 

context of the insured’s operations and the intent of the pollution exclusion clause. 

Plaintiffs argue that the since pollution exclusion clause does not specify that it covers 

offsite discharge or activities that are independent of insured’s operations, it should not 

apply here. Plaintiffs cite several out-of-state cases and argue that their reasoning is in 

line with MacKinnon since the MacKinnon court explained that pollution exclusions 

apply to “traditional environmental events that the insured be involved in the polluting 

activity in the absence of language to the contrary.” ECF No. 16 at 27.

Out-of-state courts are divided on the matter. In addition to the cases that Plaintiff 

cites (ECF No. 16 at 26-27), the Court also considers Payne v. U.S. Fid. & Guar. Co., 

625 F. Supp. 1189, 1193 (S.D. Fla. 1985) where an insured property owner knew that 

their property was polluted but did not attempt to control or contain the spread of the 

pollutants. The Payne court found that the owner was still entitled to insurance coverage

(despite the presence of a pollution exclusion clause) since, as the court pointed out, it 

was not alleged that the insureds were commercial or industrial enterprises, that they 

generated the hazardous substances, or disposed such substances as a natural and usual 

 

2 Due to the illegibility of the ECF pagination, the pagination referred to here is the internal Bates page 

numbering.

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part of its business. Id. (“Because the pollution did not result from the regular course of 

the insured's business” the pollution was not excluded from coverage).

3

Defendants counter by citing two New York state cases where the pollution 

exclusion precluded coverage, even where the policyholder was blameless in causing the 

pollution: Budofsky v. Hartford Ins. Co., 556 N.Y.S.2d 438 (Sup. Ct. 1990) and Town of 

Harrison v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 89 N.Y.2d 308 (1996). 

However, in Budofsky, the court noted that the pollution exclusion specifically stated that 

the insurance would not apply to pollution damages to the premises owned by the 

insured. Budofsky, 556 N.Y.S.2D at 440. The Harrison court similarly noted that the 

coverage was “unambiguously excluded” for claims generated by the dumping of waste 

materials onto complainants' properties. Harrison, 89 N.Y.2d at 316.

Ultimately, since the Court has already denied the motion to dismiss on the basis of 

the reasoning above, the questions of the context of insured’s operations and the pollution 

exclusion’s intent are not determinative. However, the Court nevertheless notes that 

Plaintiffs’ position is generally supported by the historical analysis provided in 

MacKinnon regarding the general intent of the inclusion of pollution exclusion clauses. 

The MacKinnon court included an instructive historical analysis of the development of 

the pollution exclusion clause, noting that it developed as a result of the implementation 

of more stringent anti-pollutions laws between 1966 and 1980, which put further pressure 

on insurance underwriters as they dealt with environmental clean-up and disasters claims. 

MacKinnon, 73 P.3d at 1210. In light of these enhanced pollution standards, the court 

explained, insurance companies began to tailor their policies to exclude pollution-related 

 

3 Plaintiffs cite Griffin Dewatering Corp. v. N. Ins. Co. of New York, 176 Cal. App. 4th 172, 201 (2009), 

noting that there the court held that the pollution exclusion did not apply where the insured was not 

involved in the pollution activity. However, the Griffin court did not base its analysis on the insured’s 

lack of involvement in the act of pollution, but instead focused on the insurer’s reasonable denial of 

coverage given the lack of case law on the question at the time.

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injuries. Id. Plaintiffs argue that the overall policy within the insurance industry shows 

that the intent of pollution exclusions generally is to prevent coverage for persistent 

polluters and to penalize the polluters who handled toxic materials without proper 

precautions. ECF No. 16 at 27-30. Occidental, however, counters that insurance policies 

have excluded coverage for earthquakes or floods and therefore Plaintiffs’ reasoning does 

not apply. ECF No. 17 at 8. In light of this historical analysis provided in MacKinnon, 

the Court is inclined to agree with Plaintiffs in that Coverage B’s pollution exclusion was 

intended to exclude the acts of persistent polluters and the Court would therefore be 

expanding the historical intent of the pollution exclusion clause by including the acts of 

parties that did not engage in any act of pollution. 

II. Other Claims

Occidental argues that Plaintiffs’ causes of action on the duty to indemnify must 

also be dismissed since they rely on a finding of a duty to defend; that Plaintiffs’ third 

and fourth causes of action for breach of implied covenant of good faith and fair dealing 

should be dismissed because Occidental did not breach the policy; and that the fifth cause 

of action for Declaratory Relief should also be denied since there is no actual controversy 

since Occidental did not have a duty under the Policies. Since the Court has denied the 

motion to dismiss with respect to the question of Occidental’s duty to defend, the motion 

to dismiss as to the other causes of action is also DENIED. 

IT IS SO ORDERED.

Dated: February 28, 2020

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