Opinion ID: 748414
Heading Depth: 3
Heading Rank: 1

Heading: Owned-Property Exclusion

Text: 13 Travelers argues that extrinsic evidence conclusively establishes that any property damage 2 alleged in the Chrisman complaint occurred on property owned by Keystone 3 and therefore is not covered under the policy. During discovery, Travelers produced evidence demonstrating that the contamination alleged in the underlying complaint was confined to the property under the control of Keystone and that there was no threat of groundwater contamination. Based on this evidence, the district court agreed that there was no genuine issue of fact concerning the threat of off-site contamination. Therefore, the district court held that the owned-property exclusion in the Travelers CGL policies precludes any possibility of coverage in the underlying action and Travelers has no duty to defend. 14 Travelers' arguments and the ruling of the district court fundamentally misapprehend the relevant inquiry. The question is not whether the allegations of the underlying complaint are meritorious, but rather whether Travelers' policy terms require it to provide a defense against such claims. See Waller, 44 Cal.Rptr.2d at 377-78, 900 P.2d at 627 (The duty to defend is measured by the nature and kinds of risks covered by the policy.). Travelers has a duty to defend ... as long as the complaint contains language creating the potential of liability under an insurance policy. A-Mark Financial Corp. v. CIGNA Prop. and Casualty Co., 34 Cal.App.4th 1179, 40 Cal.Rptr.2d 808, 814 (1995) (quotation omitted). Potential liability deals with whether the insurer owes coverage to the insured based upon the facts known to the insurer or facts pleaded in the complaint, even if false. Id., 40 Cal.Rptr.2d at 815 (quotation omitted). Thus, we must determine whether the underlying complaint alleges a covered claim, not whether the facts alleged in the complaint are true. 15 The Chrisman complaint alleges that the appellants caused property damage beyond the Site. Specifically, the complaint alleges groundwater contamination, which Travelers concedes is covered property damage not excluded by the owned-property exclusion. Thus, the complaint on its face contains language creating potential liability. Because the Chrisman complaint sets forth a claim covered by the policy, Travelers has a duty to defend appellants in the underlying action. To allow Travelers to avoid its duty to defend Keystone based on its allegation, even if true, that it cannot ultimately be held liable to Chrisman allows it to avoid the contractual duty it assumed to defend Keystone against even groundless, false, or fraudulent suits. 16 In his concurrence, Judge Boochever argues that had Travelers been able to prove conclusively that it could not be held liable, it had no duty to defend. As he points out, there is language in Montrose I to the effect that an insurer has no duty to defend where there is no potential for liability. 24 Cal.Rptr.2d at 474, 861 P.2d at 1160. However, we believe that when read in context, the Montrose I court meant that the insurer would have no duty to defend where undisputed facts showed that as a matter of law there was no potential for liability to defend because there was no potential for coverage. In Montrose I, the issue before the court was whether or not the third party's complaint referred to a covered risk. Here, the complaint unambiguously refers to a covered risk. 17 A case very recently decided by the California Court of Appeals is closely analogous to the case at hand and perhaps makes this point more clearly. A-H Plating, Inc. v. American Nat'l Fire Ins. Co., 57 Cal.App.4th 427, 67 Cal.Rptr.2d 113 (1997). The court cited extensively to Montrose I for the proposition that the duty to defend rested entirely upon the existence of the potential for coverage. Then, reviewing an owned property exclusion similar to the one at issue here and the insurer's evidence that there was no groundwater contamination, the court held that, 18 an insurer cannot avoid the duty to defend merely by concluding, based on its own investigation, that the insured has done no wrong.... [A]merican National's unilateral determination that the third party claims are groundless, false, or fraudulent did not relieve it of the duty to provide a defense. Its contrary assertion ignores the distinction between the duty to defend and the duty to indemnify.... 19 Id., 67 Cal.Rptr.2d at 121. Significantly, the court noted as an aside that American National had not proved as a matter of law that there was no groundwater contamination; however, this determination was not a necessary part of the court's holding that American National owed a duty to defend. Id., 67 Cal.Rptr.2d at 121 n. 12.