Opinion ID: 1801815
Heading Depth: 2
Heading Rank: 1

Heading: The Relevant Discharge for Application of the Pollution Exclusion

Text: The Court of Appeal held that because the basis for the State's federal court liability was the escape into the environment of pollutants from containment ponds on the site, the release of the wastes from the site after they had been deposited there by other entities was the relevant discharge for purposes of determining whether the State's discharge of pollutants was `sudden and accidental.' Insurers, relying on Standun, Inc. v. Fireman's Fund Ins. Co. (1998) 62 Cal.App.4th 882 [73 Cal.Rptr.2d 116] ( Standun ), argue, to the contrary, that the relevant discharges are the initial disposals of waste into the unlined ponds, which discharges were, of course, neither sudden nor accidental. We agree with the Court of Appeal. The State seeks indemnity from Insurers for its liability for property damage as determined in the federal action. The policies exclude such liability if the property damage arises out of a discharge of pollutants to land, unless the discharge was sudden and accidental. Because the issue is thus whether the discharge causing the property damage for which the State was found liable was sudden and accidental, the focus of analysis must be on the particular discharge or discharges that gave rise to that property damage. Here the State's liability was based on its having sited, designed, built, and operated the Stringfellow facility in such a negligent manner as to allow hazardous chemicals to escape from the evaporation ponds (by both seepage and overflow) into the surrounding environment. The State was not held liable for polluting the evaporation ponds, but for polluting the land and groundwater outside the ponds. [2] The relevant discharges for application of the pollution exclusion, then, are those in which, due to the State's negligence, pollutants were released from the Stringfellow evaporation ponds into the surrounding soils and groundwater. Standun is not to the contrary. The insured in that case was a manufacturer who had dumped its liquid wastes at a landfill operated by a third party. The liquid wastes were not held in containment ponds at the landfill but were deposited on the soil or mixed with solid refuse. ( Standun, supra, 62 Cal.App.4th at pp. 885-886, 891.) The appellate court concluded [t]he relevant discharge as to [the insured] is the discharge of its wastes into the landfill, not the subsequent migration of wastes from the landfill to other property. ( Id. at p. 892.) Though it reached a different result, the Standun court's approach resembles our own. As have we, the court look[ed] first to the underlying claims to determine the polluting event. ( Standun, supra, 62 Cal.App.4th at p. 890.) The underlying actions, a United States Environmental Protection Agency claim and a third party action for contribution, sought damages from the insured arising out of [its] disposal of hazardous wastes at the ... landfill. ( Ibid. ) Because the policyholder's liability was based on this set of discharges, which were purposeful and regular, not sudden or accidental, its liability policy's pollution exclusion barred coverage. ( Id. at p. 892.) The result in Standun thus depended, as it does here, on identification of the discharge that formed the basis for the insured's liability, in that case the insured's depositing liquid wastes at the landfill. The Court of Appeal in this case explained the importance of the factual distinction: Here, in contrast, the State was not held liable for dumping wastes into the site. It was held liable for negligently selecting, designing, building, and operating the site. Its liability was based not on the release of wastes into the sitethat was, after all, the intended purpose of the sitebut on the release of wastes from the site when, because of the State's negligence, the site failed to contain them properly. Because the bases for the underlying liability in Standun and this case were different, Standun does not support denying coverage here. (3) The Standun court also opined that where wastes are deposited directly onto the land, not into a containment facility, the subsequent release of pollutants from the landfill into the water, air and adjoining land was merely an instance of damages arising out of the discharge. ( Standun, supra, 62 Cal.App.4th at p. 891.) Again, Standun is distinguishable. We agree that in the sudden and accidental exception, `[a]ccidental' means an unexpected or unintended discharge, not unexpected or unintended damage.  ( Id. at p. 889; accord, Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 783-784 [15 Cal.Rptr.2d 815].) When, as in Standun, pollutants are deposited directly onto land or into water, without any attempt at containment, their further migration may reasonably be viewed as an aspect of property damage rather than an additional release or discharge; arguably, the only discharge to be considered in such a case is the initial deposit. In this case, however, the hazardous wastes were deposited into ponds intended and expected to contain them, albeit ones poorly sited and designed for the purpose. Because the wastes were placed into containment in the evaporation ponds rather than directly dispersed widely into the environment, the initial deposit of chemical wastes into the Stringfellow ponds was not itself a discharge, dispersal, release or escape within the meaning of the pollution exclusion. In MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635 [3 Cal.Rptr.3d 228, 73 P.3d 1205], we held an apartment building owner's liability for spraying the building with insecticides was not excluded from coverage by a pollution exclusion phrased similarly to that here (though lacking an exception for sudden and accidental events). (See id. at p. 639.) We noted that the terms release and escape in a pollution exclusion connote some sort of freedom from containment ( id. at p. 651); the word `dispersal,' when in conjunction with `pollutant,' is commonly used to describe the spreading of pollution widely enough to cause its dissipation and dilution ( ibid. ); and in the pesticide context discharge was most commonly used to describe pesticide runoff behaving as a traditional environmental pollutant ( id. at p. 652). Because of the tension between the potentially broad literal meanings of these terms and their connotations in common usage, the pollution exclusion as phrased here and in MacKinnon is ambiguous as to its exact scope of application. The initial deposit of wastes at the Stringfellow site put them into confinement, imperfect though it was, and did not itself spread chemical wastes widely through the environment. A reasonable insured would not understand an exclusion for release of pollutants to apply where, as here, the wastes are deposited into intended containment ponds and do not behave as environmental pollutants until they are later released or discharged from the ponds. (See MacKinnon v. Truck Ins. Exchange, supra, 31 Cal.4th at p. 654 [reasonable insured would not understand spraying of pesticides to control insects in building as an act of pollution]; Patz v. St. Paul Fire & Marine Ins. Co. (7th Cir. 1994) 15 F.3d 699, 704 [unlined evaporation pit was a containing structure, despite its lack of artificial materials and [t]he discharge of wastes into the environment did not occur until the water leached through the bottom of the pit]; Queen City Farms v. Central Nat'l Ins. (1994) 126 Wn.2d 50 [882 P.2d 703, 719] [placement of wastes into earthen pits intended to contain them was not a discharge, dispersal, release, or escape of pollutants, as `none of the[se] terms is normally used to describe the placement of a substance into an area of confinement'; rather, the polluting event is the discharge, dispersal, release, or escape from that place of containment into or upon the land, the air or water].) (4) But even considering the initial deposit of chemicals into the evaporation ponds to be a discharge, dispersal, release or escape (or rather a set of such events), the subsequent escape of those chemicals from the ponds into the surrounding soils and groundwater was clearly another. And, as we have seen, the State's liability was based on its negligence in allowing the second set of discharges, not the first. The instances of seepage and overflow from the ponds were therefore liability-causing events, not merely aspects of the property damage as in Standun, supra, 62 Cal.App.4th at page 891. (See SMDA v. American Ins. Co. (1997) 225 Mich.App. 635 [572 N.W.2d 686, 703] [pollution exclusion is applied to escape of pollutants from landfill facility, not initial dumping: `If waste materials are placed in a contained area or structure and later escape into the environment, the latter discharge is the relevant discharge.']; Key Tronic Corporation v. Aetna (1994) 124 Wn.2d 618 [881 P.2d 201, 206] [Depending upon the circumstances, the initial depositing of wastes may be a polluting event. For example, the dumping of toxic wastes into a lake could fit this category, as well as so-called `midnight dumping' along a county road. [¶] However, where wastes are deposited in a sanitary landfill, the escape of polluting materials from the landfill is the relevant polluting event.].) We conclude the initial deposit of wastes was not a polluting event subject to the policy exclusion (i.e., a discharge, dispersal, release or escape of pollutants) and, even if it were, the State's liability was based not on the initial deposit, but instead on the subsequent escape of chemicals from the Stringfellow ponds into the surrounding soils and groundwater, making that the relevant set of polluting events. In light of these conclusions, we need not address Insurers' argument that the damages here ar[ose] out of the initial deposit of wastes in a simple (but-for) causal sense.