Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_11-cv-00976/USCOURTS-caed-2_11-cv-00976-8/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:2201 Declaratory Judgement (Insurance)

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

ARROWOOD INDEMNITY COMPANY, a 

Delaware corporation formerly 

known as ROYAL INDEMNITY 

COMPANY, as successor to 

GLOBE INDEMNITY COMPANY,

Plaintiff,

v.

BEL AIR MART, a California 

corporation; R. GERN NAGLER, 

as Trustee of the John W. 

Burns Testamentary Trust; 

ROBERT GERN NAGLER, an 

individual,

Defendants.

No. 2:11-cv-00976 JAM-AC

ORDER GRANTING BEL AIR’S MOTION 

FOR SUMMARY JUDGMENT; GRANTING 

IN PART AND DENYING IN PART 

ARROWOOD’S MOTION FOR SUMMARY 

JUDGMENT; AND SANCTIONING 

ARROWOOD’S COUNSEL

This matter is before the Court on Plaintiff and CounterDefendant Arrowood Indemnity Company’s (“Arrowood”) Motion for 

Summary Judgment (Doc. #60) and Defendant and Counter-Claimant

Bel Air Mart’s (“Bel Air”) Cross-Motion for Summary Judgment 

(Doc. #68). Bel Air opposed Arrowood’s motion (Doc. #67) and

Arrowood opposed Bel Air’s motion (Doc. #74). Both Bel Air and 

Arrowood replied (Doc. ##75, 76, respectively).1 For the 

 

1 This motion was determined to be suitable for decision without 

oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 

for January 22, 2014.

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following reasons, Bel Air’s motion for summary judgment is 

granted and Arrowood’s motion for summary judgment is granted in 

part and denied in part.

I. BACKGROUND

Arrowood originally filed this action on April 11, 2011, 

against Bel Air seeking a declaration of whether it owed a duty 

to defend and indemnify, whether Bel Air was entitled to 

independent counsel, and whether Bel Air had breached the 

policy’s cooperation clause (Doc. #1). Bel Air filed a 

counterclaim against Arrowood for breach of contract, alleging 

that Arrowood failed to pay independent counsel’s fees (Doc. 

#10). In September 2011, the Court granted Bel Air’s Motion for 

Partial Summary Judgment, holding that Bel Air was entitled to 

independent counsel under Section 2860 of the California Civil 

Code due to conflicts of interest between Bel Air and Arrowood

and staying discovery in this action (Doc. ##41, 42). On June 3, 

2013, the Court granted Bel Air’s Motion to Compel Fee 

Arbitration and ordered that Arrowood submit all issues 

concerning the amount of fees it owed for the work of Bel Air’s 

independent counsel to binding arbitration pursuant to California 

Civil Code Section 2860(c) (Doc. #59).

A. Underlying Action 

Bel Air leased commercial property located on the southeast 

corner of Arden Way and Eastern Avenue in Sacramento, California 

(the “Property”). Arrowood’s Response to Bel Air’s Statement of 

Undisputed Facts (“Arrowood’s Response to BA SUF”), Doc. #74-1, ¶ 

1. Up until 2008, Bel Air sublet space at the Property to owners 

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of a dry cleaning facility. Id. ¶ 3

In 2007, Bel Air conducted a preliminary investigation to 

determine whether the Property was contaminated by volatile 

organic compounds (“VOC”), including tetrachloroethylene or 

perchloroethlyene (“PCE”) and trichloroethene (“TCE”). Id. ¶ 9. 

In 2007 to 2008, Bel Air received results that VOCs, including 

PCE, were present in the soil and groundwater. Id. ¶¶ 10-11. In 

June 2008, Bel Air tore down the commercial property. Id. ¶¶ 24-

25. 

On September 3, 2010, Bel Air filed a recovery action, 

seeking to recover the costs of cleaning up the pollution on the 

Property (“Underlying Action”). Id. ¶¶ 14-17. Between January 

and April 2011, three defendants in the Underlying Action filed 

counterclaims against Bel Air for (1) negligence, (2) declaratory 

relief, (3) equitable indemnity, and (4) contribution. Id.

¶¶ 18-19. They also alleged that Bel Air’s acts or omissions had 

been responsible for causing or contributing to the contamination 

of the Property. Id. ¶ 20. On July 20, 2012, a fourth 

counterclaim was filed against Bel Air for (1) contribution 

pursuant to Comprehensive Environmental Response, Compensation & 

Liability Act (“CERCLA”) § 113(f), (2) declaratory relief, 

(3) negligence, (4) hazardous substance statutory indemnity, 

(5) equitable indemnification, and (6) contribution. Id. ¶ 22. 

In the fourth counterclaim, they alleged that Bel Air’s act or 

omissions had been responsible in some way for causing or 

contributing to the contamination of the Property. Id. ¶ 23. 

Bel Air tendered all four counterclaims to Arrowood. Id.

¶ 24. Arrowood accepted the tender of defense under a 

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reservation of rights. Id. ¶ 25. 

B. Arrowood and Policies

Arrowood’s predecessor in interest, Globe Indemnity Company 

(“Globe”), issued comprehensive general liability policies to Bel 

Air between 1980 and 1985: Policy No. GYA120835 for the policy 

period April 1, 1977, to April 1, 1980; Policy No. GYA190960 for 

the policy period April 1, 1980, to August 1, 1982; and Policy 

No. GYA248615 for the policy period August 1, 1982, to August 1, 

1985 (collectively “Pre-1985 Policies”). Bel Air’s Response to 

Arrowood’s Statement of Undisputed Facts (“Bel Air’s Response to 

ASUF”), Doc. #67-1, ¶ 1. 

The Pre-1985 Policies provide, in relevant part, as follows:

I. COVERAGE A – BODILY INJURY LIABILITY

COVERAGE B – PROPERTY DAMAGE LIABILITY 

The Company will pay on behalf of the insured all 

sums which the insured shall become legally obligated 

to pay as damages because of 

A. Bodily injury or

B. Property damage

To which the insurance, cause by an occurrence, and 

the company shall have the right and duty to defend 

any suit against the insured seeking damages on 

account of such bodily injury or property damage, even 

if any of the allegations of the suit are groundless, 

false or fraudulent, and may make such investigation 

and settlement of any claim or suit as it deems 

expedient, but the company shall not be obligated to 

pay any claim or judgment or to defend any suit after 

the applicable limit of the company’s liability has 

been exhausted by payment of judgments or settlements.

Id. ¶ 2. “Occurrence” and “property damage” are defined as 

follows:

“Occurrence” means an accident, including continuous or 

repeated exposure to conditions, which results in 

bodily injury or property damage neither expected nor 

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intended from the standpoint of the insured;

“Property damage” means (1) physical injury to or 

destruction of tangible property which occurs during 

the policy period, including the loss of use thereof at 

any time resulting therefrom, or (2) loss of use of 

tangible property which has not been physically injured 

or destroyed provided such loss of use is caused by an 

occurrence during the policy period.

Id. ¶ 3. The Pre-1985 Policies have the following exclusion

(“qualified pollution exclusion”): 

Exclusions

This insurance does not apply:

(f) to bodily injury or property damage arising out of 

the discharge, dispersal, release or escape of smoke, 

vapors, soot, fumes, acids, alkalis, toxic chemicals, 

liquids, or gases, waste materials or other irritants, 

contaminants or pollutants into or upon land, the 

atmosphere or any water course or body of water; but 

this exclusion does not apply if such discharge, 

dispersal, release or escape is sudden and accidental. 

Id. ¶ 4. 

Globe also issued to Bel Air policy no. GY AE29422 (August 

1, 1985 - August 1, 1988), which contains the same general 

liability coverage language as in the Pre-1985 Policies, except 

that the “pollution exclusion” is replaced by an endorsement that 

does not contain a sudden and accidental exception. Id. ¶ 5. 

Similarly, Globe issued the following policies: policy no. 

GSP089722 for the policy period August 1, 1988, to August 1, 

1989; policy no. GSP 150040 for the policy period August 1, 1989, 

to August 1, 1990; policy no. GTY 425071 for the policy period 

August 1, 1990, to August 1, 1991; and policy no. GTY 425072 for 

the policy period August 1, 1991, to September 15, 1991. Id. ¶ 

6. Collectively these policies are referred to as the Post-1985 

Policies.

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C. Witness Evidence

1. Lowell Baker

Lowell Baker (“Baker”) testified that from 1982 to 1989 he 

worked for Bel Air at the Property. Bel Air Statement Undisputed 

Facts (“BA SUF”), Doc. #68-2, ¶ 41. He would regularly park his 

car behind the dry cleaning facility at the Property. Id. On 

one occasion, Baker saw a liquid pooled around a 55-gallon drum. 

Id. ¶ 42. He did not know what was in the drums but was sure it 

was not rain. Id.

2. Melva Jo Kirby

Melva Jo Kirby’s (“Kirby”), a named defendant in the 

underlying action, testified that her former husband, Ronald 

Armstrong, called to tell her that a machine at the dry cleaning 

facility failed and caused PCE to leak. Id. ¶¶ 31-32. 

3. Joseph Armstrong

Joseph Armstrong, son of Kirby and Ronald Armstrong, 

testified that he remembers that when he was 12 years old, his 

father and stepmother had an argument about replacing one of the 

dry cleaning machines because it was leaking at the time. Id. ¶¶ 

35, 37.

II. ANALYSIS

A. Ex-Parte Applications-- Preliminary Issues

Bel Air filed an ex parte application to strike factual 

material in Arrowood’s reply or, in the alternative, granting 

leave to file a sur-reply by Bel Air (Doc. #79). Bel Air also 

filed an ex parte application for leave to file statement of 

recent decision...(Doc. #88). Arrowood filed an ex parte 

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application (1) to file a reply brief in excess of 10 pages; (2) 

to request to file a sur-sur-reply; and (3) with a notice of nonobjection to Bel Air’s request for a sur-reply (Doc. #84). 

The Court denies all of the ex parte applications because 

the parties have had ample opportunity to address the issues 

before the Court and the recent decision issued by Judge England 

has no significant precedential effect on this Court in this 

case.

B. Arrowood’s Evidentiary Objections

In its motion for summary judgment and in its opposition to 

Bel Air’s motion for summary judgment, Arrowood objects to Bel 

Air’s evidence. Specifically, Arrowood objects to the testimony 

of Joseph Armstrong and Kirby because the testimony is 

inadmissible hearsay. 

1. Melva Jo Kirby

Arrowood argues that the Kirby’s testimony is inadmissible 

hearsay because she never saw the spill. See Arrowood Opp. at 1-

15. Kirby in her deposition testified that her former husband, 

Ronald Armstrong, called to tell her that a machine at the dry 

cleaning facility failed and caused PCE to leak. BA SUF ¶¶ 31-

32. Citing Mitroff v. United Servs. Auto. Ass’n, 72 Cal. App. 

4th 1230, 1238 n.4 (1999), Bel Air argues that these statements 

are not hearsay because they are not offered at this time for the 

truth of the matter asserted but to demonstrate that Arrowood is 

aware of information that reveals a potential for liability. In 

Mitroff, the plaintiff objected to the trial court’s 

consideration of hearsay evidence from police and medical reports 

and on appeal, the court held that it was not hearsay because it 

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was not submitted for the truth of the matter asserted but

instead, were relevant to determine the insurance company’s

knowledge. Id. Similarly, here, Bel Air does not offer the 

Kirby’s statements to show that PCE released or the machine 

failed but only to show that there is a potential for liability. 

Accordingly, the Court finds that Kirby’s statements are not

inadmissible hearsay with respect to Bel Air’s motion on the duty 

to defend issue.

2. Joseph Armstrong

Arrowood argues that the testimony of Joseph Armstrong, son 

of Kirby and Ronald Armstrong, is inadmissible hearsay. See

Arrowood Opp. at 16. Joseph Armstrong testified that he 

remembers that when he was 12 years old, his father and 

stepmother had an argument about replacing one of the dry 

cleaning machines because it was leaking. BA SUF ¶¶ 35, 37. As 

with Kirby’s statements mentioned above, the testimony was not 

offered for the truth of the matter asserted, but to show 

potential for liability and therefore, it informs the duty to 

defend issue regardless of whether the leak ultimately proves to 

be true or not. Therefore, the Court holds that Joseph 

Armstrong’s statements are not inadmissible hearsay with respect 

to Bel Air’s motion on the duty to defend issue. 

C. Duty to Defend vs Duty to Indemnify

The parties disagree on whether this case involves a duty to 

defend or duty to indemnify. Arrowood has moved for partial 

summary judgment on the duty to indemnify Bel Air. Arrowood Mot. 

at 1. Contrastingly, Bel Air moves for partial summary judgment 

on Arrowood’s duty to defend. Bel Air Mot. at 1. In a footnote, 

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Arrowood states that it “will move separately on when the duty to 

defend terminated after this motion is decided whether that duty 

ever existed.” Arrowood Mot. at 1 n.3. In Bel Air’s opposition, 

Bel Air states that because the underlying action is still 

pending, the only issue properly before the court is the duty to 

defend issue. Bel Air Opp. at. 12. 

Because the duty to defend is broader than the duty to 

indemnify, the Court will first take up Bel Air’s motion for 

summary judgment. See Certain Underwriters at Lloyd’s of London 

v. Superior Court, 24 Cal.4th 945, 958 (2001) (“Where there is a 

duty to defend, there may be a duty to indemnify; but where there 

is no duty to defend, there cannot be a duty to indemnify.”)

1. Bel Air’s Motion for Summary Judgment

The Pre-1985 Policies contain a qualified pollution 

exclusion, which excludes property damage caused by pollutants 

but “this exclusion does not apply if such discharge, dispersal, 

release or escape is sudden and accidental.” Bel Air argues that 

there is a potential for coverage under this provision of the 

Pre-1985 Policies. Arrowood argues that Bel Air’s evidence does 

not support Arrowood’s duty to defend. The parties disagree as 

to who bears the burden in this case. See Bel Air Mot. at 11-12. 

Under California law, in duty to defend cases, “a liability 

insurer owes a broad duty to defend its insured against claims 

that create a potential for indemnity.” Horace Mann Ins. Co. v. 

Barbara B., 4 Cal.4th 1076, 1081 (1993); see also Montrose Chem. 

Corp. v. Superior Court, 6 Cal.4th 287, 295 (1993). “An insurer, 

therefore, bears a duty to defend its insured whenever it 

ascertains facts which give rise to the potential of liability 

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under the policy.” Gray v. Zurich Ins. Co., 65 Cal.2d 263, 276–

77 (1966). To prevail in an action seeking declaratory relief:

the insured must prove the existence of a potential for 

coverage, while the insurer must establish the absence 

of any such potential. In other words, the insured 

need only show that the underlying claim may fall 

within policy coverage; the insurer must prove it 

cannot. Facts merely tending to show that the claim is 

not covered, or may not be covered, but are 

insufficient to eliminate the possibility that 

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. Once that possibility of coverage 

has been raised, then the insurer may defeat such claim of 

coverage by extrinsic evidence, but only where “such evidence 

presents undisputed facts which conclusively eliminate a 

potential for liability.” Id. at 298–299. 

Arrowood argues that “Bel Air bears the burden to prove that 

the claim falls within the ‘sudden and accidental’ exception to 

the qualified pollution exclusion because the exception 

reinstates coverage otherwise excluded.” Arrowood Opp. at 7. As 

mentioned above, Bel Air does bear the initial burden, but only 

to show that there is a potential for coverage. The cases cited 

by Arrowood, Aeroquip Corp. v. Aetna Cas. & Sur. Co., Inc., 26 

F.3d 893, 894 (9th Cir. 1994), and American States Ins. Co. v. 

Sacramento Plating, Inc., 861 F. Supp. 964, 969 (E.D. Cal. 1994) 

aff’d, 99 F.3d 1145 (9th Cir. 1996), do not alter the burden of 

proof used in duty to defend cases. Aeroquip is distinguishable 

because it was an indemnity action, Aeroquip, 26 F.3d at 895, and 

American States Insurance Co. does not mention the “potential for 

liability” standard used in duty to defend cases. See A-H 

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Plating, Inc. v. Am. Nat’l Fire Ins. Co., 57 Cal. App. 4th 427, 

443 (1997) (noting that American States Insurance Co. failed to 

take into consideration Montrose, 6 Cal. 4th 287, as to the 

insurer’s burden of proof). Therefore, in this case, Bel Air 

bears the initial burden of establishing that there is any 

potential that the release or escape of at least some of the 

pollutants was “sudden and accidental.” Then, in order to defeat 

this claim, Arrowood must produce undisputed evidence that 

conclusively eliminates a potential for liability.

a. Potential Liability

In this case, both parties agree that VOCs, including PCE, 

caused damage to the Property and that VOCs, including PCE and 

TCE, constitute pollutants within the meaning of the Pre-1985 

Policies. See Bel Air Mot. at 2, 13-15; Arrowood Reply at 1. In 

its opposition, Arrowood argues that Bel Air’s evidence does not 

create a reasonable inference of a sudden and accidental release. 

Thus far, Bel Air’s evidence consists of the following: (1) the 

pleadings in the underlying action, which do not mention the 

manner in which the soil and groundwater became contaminated; 

(2) Lowell Baker’s testimony that he saw a pool of liquid he 

could not identify sometime between 1982 and 1989; 

(3) Kirby/Armstrong was told about a PCE spill; and (4) Joseph 

Armstrong testified that his parents argued about a leaking 

machine. Bel Air claims that from this evidence, it is unclear

whether the Property was contaminated because the release or 

escape of at least some of the pollutants was “sudden and 

accidental.” However, the possibility exists and any doubt must 

be resolved at this stage in favor of Bel Air. Montrose, 6 

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Cal.4th at 300 (“Any doubt as to whether the facts establish the 

existence of the defense duty must be resolved in the insured’s 

favor.”) 

Arrowood contends that Bel Air’s argument is mere 

speculation, which is insufficient, relying on State v. Allstate 

Ins. Co., 45 Cal. 4th 1008, 1037 (2009), and Travelers Casualty 

Surety Co. v. Superior Court, 63 Cal. App. 4th 1440, 1460 (1998). 

Arrowood Opp. at 10. These two cases are factually 

distinguishable from the case at bar in that the underlying 

actions were complete and the court was making a post hoc 

determination as to coverage. See Allstate Ins. Co., 45 Cal.4th 

at 1014 (“This case arises from efforts by the State of 

California . . . to obtain insurance coverage for property damage 

liability imposed in a federal lawsuit . . . .”); Travelers Cas

and Sur. Co., 63 Cal.App.4th at 1448 (1998) (“This matter arises 

from the efforts of Lockheed Martin Corporation (Lockheed) to 

obtain insurance coverage for its multi-million dollar liability

for cleanup of environmental contamination at 13 sites in 

California and other states.”)

Contrastingly, as Bel Air argues, discovery in the 

underlying suit is not complete and has been stayed several 

times, and therefore, information on the type of releases that 

caused or contributed to the contamination of the Property may 

still be discovered. Accordingly, the Court finds that there is 

a potential for coverage. See Staefa Control-Sys. Inc. v. St. 

Paul Fire & Marine Ins. Co., 847 F. Supp. 1460, 1470 (finding 

that a duty to defend existed because the complaint was broad 

enough to encompass the possibility that a sudden accident caused 

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the damages and because discovery in the underlying matter was 

far from complete).

b. Eliminating the Potential for Liability

Arrowood has failed to provide any evidence that 

conclusively eliminates a potential for liability. Instead, 

Arrowood argues that it has deposed all of the witnesses who may 

have potential knowledge about sudden and accidental releases at 

the Property and none of them have information on how the 

pollutants were released. Arrowood further argues that Bel Air 

has identified other witnesses in violation to Federal Rule of 

Civil Procedure 26, and that Bel Air’s destruction of the 

building site entitles it to an inference in its favor. Arrowood 

Opp. at 16. These arguments are addressed below. 

(i) Discovery

The underlying action has been stayed multiple times. 

Further, the discovery cutoff for the underlying suit is July 25, 

2014, Bel Air has not initiated depositions in the underlying 

action, and expert designations and reports are not due until 

September 25, 2014. Therefore, discovery is not exhausted and 

given the incomplete state of the factual record, this Court 

cannot conclusively find that there is no potential for coverage.

(ii) Witnesses

Arrowood argues that Bel Air in its motion for summary 

judgment has for the first time identified the following 

witnesses: (1) a local resident at a public meeting; (2) Herb, an 

employee of the barber shop next to the Arnold Palmer Cleaners;

(3) Robert “Bob” Brown, a former employees of the Arnold Palmer 

Cleaners; and (4) a male, name unknown, who was also a former 

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employee of the Arnold Palmer Cleaners. However, the Court has 

not relied on any of these witnesses for the determination of 

this motion; therefore, the Court need not address whether they 

were properly disclosed. 

(iii) Demolition of Building

Arrowood argues that destruction of the Arnold Palmer 

Cleaners building site entitles it to an inference in its favor 

because tearing down the building is evidence spoliation. Bel 

Air argues that when the building was destroyed in June 2008, it 

did not have a duty to preserve the building and the building was 

not material. 

A party’s destruction of evidence qualifies as spoliation if 

the party has some notice that the evidence was potentially 

relevant to the litigation before it was destroyed. See United 

States v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 

2002). “As soon as a potential claim is identified, a litigant 

is under a duty to preserve evidence which it knows or reasonably 

should know is relevant to the action.” Realnetworks, Inc. v. 

DVD Copy Control Ass’n, Inc., 264 F.R.D. 517, 523-24 (N.D. Cal. 

2009) (citation omitted). “The future litigation must be 

‘probable,’ which has been held to mean ‘more than a 

possibility.’” Id. (quoting Hynix Semiconductor Inc. v. Rambus, 

Inc., 591 F.Supp.2d 1038, 1061 (N.D. Cal. 2006)). 

Arrowood argues that Bel Air was under an obligation to 

preserve the building after it discovered PCE at the property in 

2007 because it knew about the contamination and knew that the 

nature and scope of the releases would be at issue. The building 

was destroyed in 2008, the underlying action was filed in 2010,

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and this action was filed in 2011. Therefore, the contamination 

might have placed Bel Air on notice of a potential CERCLA action,

but at the time the building was destroyed, it was not probable 

that the building would be relevant to an insurance coverage 

action. Arrowood relies on AmeriPride Services, Inc. v. Valley 

Indus. Serv., Inc., S-00-113 LKK/JFM, 2006 WL 2308442, at *5, 9-

10 (E.D. Cal. Aug. 9, 2006). In AmeriPride Services, the court 

held that in an action for removal costs under CERCLA, “drawing 

an adverse inference against AmeriPride is an appropriate 

sanction” for the failure to preserve evidence from the 

contaminated property. However, unlike in this case, in 

AmeriPride, the building was destroyed during the pendency of the 

litigation, which was not an insurance coverage case. Therefore, 

the Court does not find that the destruction of the building was 

spoliation of evidence.

In sum, Arrowood has not conclusively eliminated a

potential for liability. It is therefore premature for this Court 

to conclude that there is no potential that the release or escape 

of at least some of the pollutants was “sudden and accidental.”

Accordingly, the Court finds that Arrowood owes Bel Air a duty to 

defend and grants summary judgment in favor of Bel Air on this 

issue.

2. Arrowood’s Motion for Summary Judgment

Arrowood moves for partial summary judgment on the duty to 

indemnify Bel Air. Arrowood also moves for summary judgment on 

the Post-1985 Policies because they contain an absolute pollution 

exclusion.

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a. Post-1985 Policies

Unlike the Pre-1985 Policies, the Post-1985 Policies have an 

absolute pollution exclusion because they do not contain an

exception for sudden and accidental emissions of pollutants. 

Therefore, the Post-1985 Policies reduce coverage. Bel Air does 

not disagree that the Post-1985 Policies contain an absolute 

pollution exclusion. Instead, Bel Air argues that partial 

summary judgment on this issue is precluded because Arrowood 

failed to provide evidence that it gave the required notice of 

the limitation to its insured. Bel Air Opp. at 20-21.

Under California law, “an insurance company is bound by a 

greater coverage in an earlier policy when a renewal policy is 

issued but the insured is not notified of the specific reduction 

in coverage.” Fields v. Blue Shield of Cal., 163 Cal.App.3d 570, 

579 (1985) (citing Indus. Indem. Co. v. Indus. Accident Comm’n, 

34 Cal. 24 500, 506 (1949)). Changes to or limits of coverage 

must be “conspicuous, plain[,] and clear” in order to be 

enforceable. Id. “Thus, any such limitation must be placed and 

printed so that it will attract the reader’s attention. Such a 

provision also must be stated precisely and understandably, in 

words that are part of the working vocabulary of the average 

layperson.” Haynes v. Farmers Ins. Exch., 32 Cal.4th 1198, 1204, 

(2004).

Here, Arrowood provided each policy holder an “Important 

Notice,” which mentions that a new pollution exclusion 

endorsement is in the policy. Notice, Ex. B attached to the 

Declaration of Sue Clark, Doc. #76-2. In addition, in the 

notice, sudden and accidental emissions of pollutants is listed 

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and explained under policy reductions. Id. Therefore, Arrowood 

provided notice about the change in policy. Moreover, Bel Air 

does not argue that it did not receive notice, but only Arrowood

failed to provide evidence that notice was given. 

Accordingly, because the Post-1985 Policies have an absolute 

pollution exclusion, the Court holds that no potential for 

coverage exists under these policies. The Court therefore grants 

summary judgment in favor of Arrowood as to the coverage under 

the Post-1985 Policies. 

b. Duty to Indemnify

Arrowood moves for summary judgment on the duty to indemnify

issue because Bel Air has had ample opportunity for discovery and 

there is no evidence of a sudden, accidental, non-trivial and 

indivisible discharge of PCE. Bel Air argues that the Court may 

not determine whether a duty to indemnify exists because the 

underlying action is still pending. 

Unlike the duty to defend, “[t]he insurer’s duty to 

indemnify runs to claims that are actually covered, in light of 

the facts proved.” Buss v. Superior Court, 16 Cal. 4th 35, 45-46 

(1997) (citation omitted). The duty to indemnify “arises only 

after liability is established.” Id. at 46. Nevertheless, “when 

the coverage question is logically unrelated to the issues of 

consequence in the underlying case, the declaratory relief action 

may properly proceed to judgment.” Montrose Chem. Corp. v. 

Superior Court, 6 Cal. 4th 287, 302 (1993).

In its reply, Arrowood argues that the underlying action is 

unrelated to this action and therefore, the Court may properly 

proceed to judgment. See Am. States Ins. Co. v. Superior Court, 

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33 Cal. Rptr. 2d 616, 622 (1994) (depublished) (“A state's CERCLA 

action is based on strict liability and the cause of 

contamination is irrelevant.”) However, the underlying action as 

mentioned above, is related to this action to the extent that 

discovery has not been concluded and evidence of a sudden and 

accidental emission may still be discovered. Therefore, the 

Court finds that it cannot determine Arrowood’s duty to indemnify 

at this time. 

Accordingly, the Court denies Arrowood’s motion for partial 

summary judgment without prejudice as to the duty to indemnify 

issue.

c. Page limits Sanctions

Arrowood’s Counsel Sedgwick, LLP’s Reply (Doc. #18) to Bel 

Air’s Opposition to the Motion for Summary Judgment, failed to 

comply with the Court’s Order on Page Limits (Doc. #5-2). 

Sedgwick, on behalf of Arrowood, filed an untimely ex parte 

motion for permission to submit a reply a brief in excess of 10 

pages (Doc. #84). However, a request to file a brief exceeding 

the page limit must be filed before the brief at issue is filed. 

Accordingly, Sedgwick is ordered to pay a sanction in the amount 

of $200.00 ($50.00 per page for the four pages over the page 

limit) within ten (10) days of the date of this order. 

D. ORDER

For the reasons set forth above, the Court GRANTS Bel Air’s 

motion for summary judgment on the duty to defend issue. The 

Court also GRANTS in part Arrowood’s motion for summary judgment

as to coverage under the Post-1985 Policies and DENIES in part 

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without prejudice Arrowood’s motion for summary judgment as to 

the duty to indemnify. Arrowood’s Counsel Sedgwick is hereby 

ordered to pay $200 in sanctions within ten (10) days of the date 

of this order.

IT IS SO ORDERED.

Dated: March 3, 2014

 

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