F OR P UB LIC AT ION


### U N I TED STA TES C O U R T O F A PPEA LS F O R T H E N IN T H C IR C U IT

C I T Y O F S AN B U EN A V EN T U RA ,

Plaintif f-Appellant ,

v. T HE I NS URANCE C OMPANY OF THE S T A T E O F P E N N SY LV A N IA ,

Defendant-

Appellee

. No. 10-56727

D.C. No. 2:09-cv-09098- DSF -C W

OPI NI ON

C I T Y O F S AN B U EN A V EN T U RA ,

Plaintif f-Appellant ,

v. G R E AT L A KE S R EI NS URANCE (UK) PL C, Defendant- Appellee

. No. 11-55284

D.C. No. 2:10-cv-00227- DSF -C W

Appea l from the United States District Court fo r t he Ce ntr a l D istri c t of

Ca lif or nia Dale S. F ischer, D istrict J udg e, Presiding Argued and Submitted Ap ri l 11 , 2 01 2—Pa sa de na , Ca lif or nia Filed June 26, 2013C I T Y O F S AN B UE NAVE NTUR A V
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T h e H o no ra bl e Al g en on L. M ar bl ey , D i s t r i ct J u dg e f or t h e U

. S. * D i st ri ct C o urt f

o r t he So ut hern D i st ri ct of O hi o , s i t t i ng by desi gnat i o n.
T hi s s ummary cons t i t ut es no part o f the o pi ni on of

t he cour t

. I t ha s ** b een p repa red b y co urt s t af f f o r t he co nveni ence o f

t he read er. Be fore : AndrewJ . Kleinfe ld and Milan D. Smith, J r., Circuit J udg es, and A lge non L . Marbley , District J udg e. *

Op ini on by Judg e Kl e inf

e ld

SUMMAR

Y **

Insu rance Law The pa nel af firmed the district court’s summary judgme nt in favor of insurer s in a dec lara tory judgme nt action broug ht b y th e C i ty o f B u en av en turat o es t ab l i s hi n s ura n ce co v er age in underlying c ondominium buy ers’ litigation ag ainst the C i ty. The pa nel held under California law that any occur renc e or wrongfu l act a lleg ed by the condominium buy ers took p l ace prior to the policy

periods, and the ref

ore the re w as no insurance cover ag e. The panel de clined to extend the holding inMont r o s e Chemic al Corp. v. Admiral Ins. Co. , 913 P.2d 878 (Cal. 1995) (holdingthat claims for pollutants deposited i n t o the g round prior to the insura nce policy

period, but continuing to leac h into soil and g roundwater duringthe po lic y pe ri od , g ave ri se to ins ur anc e c ov e ra g e ), to t his c a se to extend the period of insura nce c overa g e.C I T Y O F S AN B UE NAVE NTUR A V
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A cc o rd i ng t o t he p a r tie s’ j o i nt st atem en t o f f ac t s, t he “C o ve na nts, 1 C o nd i t i o ns, and R est ri ct i o ns” governi ng t he d evel o p m ent , whi ch were
re c o rd e d , re fer to C a l. H e a lth & S a fety C o d e § 5 0 0 7 9 .5 , w h ic h li m its “lo w e r in c o m e ho u se h o ld s” to tho se q u a lif ying fo r S e c tio n 8 h o u sin g
. See 4 2 U .S .C .A . § 1 4 3 7 , e t. se q
. T he D epar t ment of H ou si ng an d U r ban D e v e lop m ent s et s t he Se ct i o n 8 i nco m e l evel s. T he C i t y ’ s af f o rd a b le ho usi ng pro gram t hen p ub l i shes a l i st each y ear s ho wi ng t he m axi m um sales p rice fo r l o w i nc o m e u nit s.

CO UN SEL
David A. Shane y felt, Ande rson, Kill, Wood, & Be nder, P.C., Ve ntu ra , Ca lif or nia , f or Ap pe lla nt. Rosemary

J . Springe r, McCurdy

& F uller, L L P, Menlo Park, California, for

Appellee Insuranc e Company of the S t ate of Pe nn sylva

nia ; B ru c e Wink e lma

n, Cr a ig & Wink e lma

n, L L P, Be rkele y , California, for Appellee Gre at L akes Resinsura nce.

OP IN ION
KL EI NFE L D, Senior Circuit J udg e: Th is i s a

d e c l ar at o r

y j u d g m e n ta c t i o nt o e s t a b l i sh insurance cover ag e.
F AC TS The City of S an B uenave ntura (“ City ”) c ontrac ted with a develope r to build c ondominium units f or people of low and mod e rate inc ome . Sa le and re sa le pr ic e s w e re lim ite d to c e ili ng s g ov e rn ingthe de vel opme nt. Sa le s c ou ld n ot c los e 1 un til the City iss ue d c e rt if ic ate s of c omp lia

nc e with its a ff or da ble ho us ingpr og ra

m.C I T Y O F S AN B UE NAVE NTUR A V
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In 2004, a number

of buy ers sue d the City , the deve loper, and the de veloper ’s par

tners. The buy ers a lleg ed that they had bought l ow-income condominiums in 2001, and obtained c e rt if ic ate s o f c omp lian c e , w ith out be ingtol d th at th e ir condominiums were subje ct t o l o w-income ceiling s. They a lso a lle g e d that the y ha d pa id p ri c e s h ig he r t ha n th e c e ili ng s. Th e c on do min ium

buy e rs so ug ht two fo rm s o f r e lie f a g a ins t the City

. They soug ht a decla ratory judgme nt that the City ’s a ff or da ble ho us ing pr og ra

m r e str ic tio ns did

no t a pp ly to t he ir condominiums. I n the alter native, if the c ourt found that restric tions did apply

to thei r co n dominiums , they soug ht damag es and a

decla ration of whic h restric tions applied. Th eir the or

y of dama g e s w a s th at th e City fa ile d a de qu ate ly to review their sale doc umentation, issued err oneous cer tificates of

compliance , and neg lige ntly failed to tell them about the low-inc ome price ce i l i ng s. As a re sult, they claimed to have suffe red f inancial da

mag e to the extent of their over

pay ments and to the extent t hat they paid extra interest and pr operty

taxes because of the hig h erthan pe rm itt e d p ri c e s. This appea l is consolidated from lawsuits broug ht by the City ag ainst two insurance companies. It is not an appe al of the lawsuits by the condominium buy ers a g ainst the City and d evelope rs. The City

boug ht ge nera l liabilit y insurance policies from Gr eat L akes Reinsura nce ( UK) P L C (“Gr eat L ak e s ” ) , c o v e r in g Ju ly 2 0 0 2 to Ju ly 2 0 0 3 , an d f r om the Insuranc e Company of the State of Pennsylvania (“ I CSOP ”), c ov e ri ngJuly

20 03 to Jul y

20 04 . In b oth

po lic ie s, the Ci ty self-insu re d for the f

irst mill ion dollars of liability , and the insurers c overe d liability ex cee ding one milli on up to ten mil lio n d oll ars
.C I T Y O F S AN B UE NAVE NTUR A V
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T h e C ity la te r d ro p p e d it s b re a c h o f t h e c o v e n a n t o f go o d faith a n d fair 2 d ea l i ng claim ag ainst G rea t L ak es.
See Co r t v. St

. P au l F i r e & M ari ne I ns. Co s
. , I

nc. , 311 F. 3d 979, 983 3 (9th C i r. 20 0 2 ). In 2 00 7, thr e e y ears a ft e r t he c on do min ium

buye rs ’ litigati o nb e g an , th e Ci ty te n d e r e d th is a c ti o nto th e two insurers, sa

ying the City

had exhausted its mill ion dollar selfinsured re tention. The t ender letters do not say

whether defe nse or indemnity

or bot h are soug ht. Both insurer s reje cted the City ’s claims, say ing that the City ’s allege d neg lige nce a

nd wrong ful conduct in conne ction with the sales occur red pr ior t o their policy

periods. The City

then sued eac h of the insure rs. The City ’s dec laratory judgme nt actions to establi s h cover ag e cla imed brea ch of c ontrac t and bre ach o f t h e c o v e n an to f go o d

fa i than d fa i r d ea l i n g. The City ’s

2 c omplai nts do no t sa

y wh e the r i ts b re a c h o f c on tr a c t c la ims are ba se d o n b re a c h o f t

he duty to d e fe nd , b re a c h o f t

he duty to indemnify , or both.
The dist rict court g rante d summary judgme nt in favor of both insure rs, beca

use any occur

renc e or wrong ful ac t alleg ed by the ho me owne rs too k p la c e pr ior to t he po lic y pe ri od s. AN AL YSI S
We reviewthe district court’s gran t s of summary judgme nt de novo, and ap p l y California lawto our int e rp re tatio n of the ins ur anc e po lic ie s. We r e a c h th e same 3 c on c lus ion

a s th e dis tr ic t c ourt

. I t is undisput ed that the C i t y ’s alleg ed neg lige nce occur red in 2001, prior to the pol icy periods. The City arguesC I T Y O F S AN B UE NAVE NTUR A V
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O ne set of b uy ers n o l o nger op erat es under t he l o w- i nco m e cei l i ng. 4 T h e Ci t y a g r e e d t o r e - de s i g n a t e t h e i r c on do mi n i u m a s a mo de r a t e - i n c om e uni t and al l o w t hem t o s el l unde r t he m o d erat e- i nco m e cei l i ng.
M ont r os e Chem

. Cor

p. v
. Adm i r al I

ns
. Co. , 91 3 P

. 2 d 87 8 (Ca l

. 19 9 5 ). 5

I d. a t 880–83, 888. 6

St at e v. Con t ’l In s. Co. , 28 1 P

. 3 d 10 0 0 , 10 0 5 (Ca l

. 20 1 2 ) ( q uo t i ng 7 Mo n t r o s e C h e m. , 91 3 P

. 2 d at 88 0 ). that beca use the c ondominium b u y ers c ontinue to suffer un de r t he burd e n o f h avin gov e rp a id and havin gthe ir re sa le p ri ce s re s tra i n edb y

a c ei l i n g, the “occurr ence ” has c ontinued

4 into the policy

periods. The core of the a rgument i s an ana logy to t he Ca lif or nia Sup re me Co urt’ s d e c isi on in Montrose Chemical Corp. v. A dmiral Insurance Co. That 5 decision held that c laims fo r p ollutants deposited in the g ro un d p ri or to the po lic y

pe ri od , b ut c on tin

uin gto l e a c h into soil and groundw ater during the pol icy period, g ave r ise to a d u ty t o d ef en d , b ec au s e c o n t i nu an ce o f t h e p ro p erty d am age duringthe policy

period g ave r ise to cover ag e. 6
Th e City str e tc he s Montrose Chemical too far. T he insured in Montrose Chemical had deposited che mical waste s prio r to th e p o li c y p e r io d , b u t w a s te s w e r e s ti ll th e re and causingmore damag e duringthe policy period. Unde r California law , “prope rty damag e that is continuous or prog ressively deter ioratingthroug hout severa l policy periods is po te nti a lly c ov e re d by a ll po lic ie s in e ff e c t duri ng those periods.” State v. Continental Insurance Co. explains t hat

7 this kind of long tail on a tort fr equently occur s “in the context of environmental dama g e a n dtox ic exposureC I T Y O F S AN B UE NAVE NTUR A V
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I d. 8

I d. a t 1002–03. 9

Mo n t r o s e C h e m. , 913 P. 2d a t 889. 10

I d. 11

I d. a t 890. 12 litigation.” Continental arose out of the State of California’ s

8 neg lige nt con s t ru ction of a w aste disposal site in the 1950s that resulted in continuous dischar g e of industrial wa s tes many y ear s afte r t he si te was c losed, and a fede rally order ed clea nup in 1998. 9 The policies in Montrose Chemical c ov e re d “ pr op e rt

y damag e . . . ca

u sed by an occ urre nce . . . .” Pr op e rt y 10 damag e wa s def

i n ed as “ phy sical injury

to or destruc tion of t an g i b l e p r o p e rty which occurs during the policy pe r i od . . . .” T he ante cede nt for “which” in the Mo ntros e

11 Chemical policies is “ injury to or destruction of.” Thus under that policy , there was c overa g e if i n j u ry occur red dur ing the po li c y p e r io d , e v e nif

th e a c c id e n t t

h at c a u s e d it o c c ur red pr ior to t he po lic y pe ri od . A s Montrose Chemical e xpla ins , thi s p oli c y

la ng ua g e un a mbi g u o us ly distinguishes be twe en th e c au s at i v e e v ent—an acc ident o r “ c o n ti nu o u s and re peate d exposure to conditions”—and the r esulting “bodily in ju r y o r p r o p e rty d ama g e
. ” I t i s the latter injury

or dama g e that must “occur” duri ng the po lic y

pe ri od , a nd “ wh ic h r e su lts ” from the acc ident or “c ontinuous and repe ated exposure to conditions.” 12C I T Y O F S AN B UE NAVE NTUR A V
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See Sc ot ts dal e I

ns
. Co. v
. M V Tr ans

p. , 115 P

. 3d 460, 466 ( Cal

. 2005) 13 ( “ [ T ] hat t he prec i s e c aus es of act i on pl ed by t he t hi r d- part y comp l ai nt may f al l out s i de po l i cy cove r age does not ex cus e t he dut y t o def end wh er e, By co n tr a s t, th e G r e at L ak e s p o li c y la n g u a g e p r o mi ses ind e mni fi c atio n f

or lo ss c a us e d b y pr op e rt y dama g e “ fi rs t arisingout of an Oc cu rre nce dur ing the Policy Period . . . .” That languag e is materi al l y differ ent from the Mo ntros e Chemical policy languag e. The Montrose Chemical policies require d only damag es during the policy period, but the Gr eat L ake s p oli c y

re qu ir e s th e oc c ur

re nc e c a us ingthe dama g e to have bee n du ringthe policy period. L ikewise, the I CSOP policy aff ords cove rag e for liability incurre d beca

use of “prope rty dam age arisingout of an oc curr ence duringthe Policy Period.” Perha

ps the underwriters of t h es e two policies had re ad Montrose Chemical and dr a ft e d a ro un d it to avoid similar exposure.
No occ urre nce is or could be alleg ed to have occur red duringthe Gre at L akes or I CSOP pol i cy

period. The Gre at L akes policy

define s “occ urre nce” as “a n acc idental happening ,” which w ould fit the neg lige nt failure to a pply the aff ordable housing pr og ram prope rly when the c ondominium purcha sers boug ht their units, but would n ot fit keepingthe prog ram in plac e. Similarly , the I CSOP policy define s
“ oc c ur re nc e ” a s “ an a c c ide nt .

. . wh ic h re su lts in .

. . pr op e rt y dama g e ne ith e r e xpe c te d n or int e nd ed, ” phra sin ga

pp lic a ble to the City ’s c la ime d e rr or s at the tim e the co ndomi niums wer e sold, but not to keeping the afforda ble housing prog ram in force

. The Ci ty asser

ts that I CSOP has a duty to defe nd, and that the re fo re I CSO P is lia

ble if the c on do min ium

buye rs ’ complaints show the potential for c overa g e. Howeve r, “if, 13C I T Y O F S AN B UE NAVE NTUR A V
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und er t he f

act s al l eged , reas o nab l y i nf e ra b l e, or o t herwi se known, t he
co m p l ai nt co ul d f

ai rl y be am end ed t o s t at e a co vered l i ab i l i t y
. ”).

I d. 14

C erta i n Un d erw ri t ers a t L l o yd ’s o f L o n d o n v. S u

p erio r C o u rt , 16 P. 3d 15 94 , 102 ( C al

. 200 1) ( “ W her e t her e i s a dut y t o def end, t her e m ay be a d u ty t o i ndemni f

y ; but whe r e t her e i s no dut y t o def end, t her e cannot

be a d u ty t o i nd em ni f

y
. ”). as a matter of law , neither the complaint nor the known extrinsi c fa cts indicate a

ny b as i s for potential covera g e, the duty to defe nd does not arise in the fi rst instance.” Her e, 14 th er e i s no duty

to defe nd. I CSOP was not g iven any inf or matio n o uts ide of

the c omp la int s su g g e sti nga po ssi bil ity of c ov e ra g e , a

nd the fact s a lle g e d a

nd re a so na bly inf e ra ble from the c omplaints do not show any b as is for potential cover ag e. The re is in this case ne ith er a du t y to defe nd, nor a d u ty t o i n d e m n i f

y. 15
The c ondominium buy ers ’ complaints alleg e that they wer e dama g ed by

the City ’s neg lige nce when they purcha sed their units in early

2001, over a

y ea r prior to the 2002–2003 Gre at L akes policy

and two y ear s prior to the 2003–2004 I CSO P po lic y . T he y

do no t a lle g e that the y we re wr on g fu lly damag ed by

the City ’s af

forda ble hou s i ngprog ram, or that the prog ram wa s in any

way unlawful. The y mere ly

ask that the prog ram be suspended a s to them b ec au s e of the City ’s 2 0 0 1 n eg lige nce. And both policies expressly exclude c ov e ra g e fo r de c larator

y or inj un c tiv e re lie f, so tho se c la ims by the condominium buy ers cannot provide a basis for duties t o d e f e n d o r i n d e m n i f y. The City argues that leaving the aff o rd ab le housing restric tions in pl ace was a “wr on gful ac t” that took placeC I T Y O F S AN B UE NAVE NTUR A V
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Mo n t r o s e C h e m. , 913 P. 2d a t 888. 16

C o n t ’l , 281 P. 3d a t 1005. 17 un de r t he I CSO P po licy , whic h p ro vid e s c ov e ra g e fo r “ los s arisingout of [the insured’s] wrong ful ac t that takes plac e during t h e P o licy

Period.” “ Wrongf

ul act” is de fined in the po lic y a s “ [a]ny

a c tua l or alle g e d e rr or

or mis state me nt, omission, negligent ac t, or brea ch of duty including misfeasa nce, ma lfea sance , and nonfea sance by [t he insured] including, but not l i mited to, those constituted by . . . [a] ny neg lige nt minis terial a ct . . . .” J ust as leavinglawful housing po lic ie s o n th e bo ok s is no t an “ oc c ur re nc e ” re su lti ng

in pr op e rt y dama g e un de r e ither po licy , it is a lso no t a

“ w r o n g f u l a c t ” a s d e f

i n e d b y th e IC S O P p o l i c y. T h e C i ty w o u l d h av e u s r e a d “ o c c ur r e n c e ” m o r e b r o a d l y, beca use the p o licies define “occ urre nce” as “inc luding c on tin uo us or re pe ate d e xpos ur e to su bs tanti a lly the same g ener al har

mful conditions” (Gre at Lake s), and “ including continuous, repe ated or

related exposure to substantially the s am e ge n er al h arm fu l co n d i t i o n s ” ( I C S OP ). T h i s l an gu age descr ibes the kind of continuing event resultin g i n ex posure to tox ic waste discussed in Montrose Chemical and 16 Continental , but not the kind of even t claimed by the 17 condominium buy ers. The y claim that they

wer e har med by the Ci ty ’ s 2 0 0 1 e r

r o r s , n o t b y an y e r

r o r s s in c e
. When a pollutant is deposited in the g round befor e the policy period, but leac hes m ore tox ins into the s oil during the policy period, the subsequent lea chingmay itself be an oc curr ence
. Under the i nsuranc e policy

languag e at issue in Mo ntros e , we de termined that a continuous condition becomes a

n occur renc e for theC I T Y O F S AN B UE NAVE NTUR A V
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I d. at 10 0 6 (quo t at i o ns m arks and ci t at i o n om i t t ed ). 18

C f

. Mo n t r o s e C h e m. , 913 P. 2d a t 888. 19

S ee B a n k o

f th e W e st v. S u

p erio r C o u rt , 8 3 3 P .2 d 5 4 5 , 5 5 2 (C a l. 20 1 9 9 2 ). p u rp o s es o f t ri gger i n g i n s ura n ce co v er age wh e n ‘ pr op e rt

y dama g e ’ r e su lts fr om a causative event consisting of ‘the accide nt or c on tin uo us and re pe a te d e xpos ur e to conditions.’ The limitation on potential indemnity was that the damag e must ‘o ccur’ du r in g th e p o l i c y

p e r i o d an d ‘

. . . r e s u l t [ ]’ from the a ccide nt or ‘continuous and repeated exposure to conditions.’ 18 No such subsequent occur renc e was or could be allege d here

. T h e C i t y ’ s ar g u m e n ti s e s s e n t i a l l y th atf a i l ur e t o r e m e dy a pre- cover ag e occur

renc e is itself a continuin g, s ubsequent occur renc e.
T h e C i ty ’s ar gu m en tfo r e x t en d i n g Montrose Chemical to fa ilure to p ro vid e a

re me dy fo r a pa st o c c ur

re nc e wo uld

imp ly an absurd r esult. Were the “ continuous exposure” or “cont inuous damag e” la ng uag e in Montrose Chemical construed to a

pply to failure to r emedy a d i s crete pre vious harm , th e na

2 0 0 1 a u to mo b il e a c c id e n t r e s u lt in gin tort liability and as yet uncompensated would fa ll wi t h in the c ov e ra g e of

a po lic y so ld in 2003 and

c ov e ri ngon ly occur renc es duringthe y ear

2003. Such a construc tion

19 would fall outside the re asonable expectations of the insured t o s u c ha p o l i c y, and would enable the C ity to delay buying 20 ins ur anc e un til a ft e r it had inc ur re d a to rt lia bil ity , ye t ob ta inC I T Y O F S AN B UE NAVE NTUR A V
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See Borg v
. Tr ans am er i ca I ns
. Co. , 5 4 C a l. R p tr. 2 d 8 1 1 , 8 1 8

– 2 0 (C t. 21 A p p
. 19 9 6 ). cover ag e for

the pre-policy

tort beca

use the City

had not compensated the victim. There may be cir cumstance s where the Montrose Chemical

and Continental

rules apply

outside the po llutio n c on te xt, but th is c a se is n ot o ne of the m. 21
AF F IRMED.