Opinion ID: 575203
Heading Depth: 2
Heading Rank: 3

Heading: Applicability of Exclusion (f)

Text: 50 Two exclusions in the policy were arguably relevant to coverage of the contamination at the Middlefield Road site: exclusion (f) and exclusion (k). We discuss first the former.
51 The district court found that Hartford had waived reliance on exclusion (f). When Hartford, in its letter of May 19, 1982, informed Intel that it was denying coverage, it cited only exclusion (k). Relying on McLaughlin v. Connecticut General Life Ins. Co., 565 F.Supp. 434 (N.D.Cal.1983) (McLaughlin ), the district court held that Hartford had thus waived reliance on any other grounds not mentioned in that letter. In McLaughlin, which will be discussed further below, the court held that an insurance company which relies on specified grounds for denying a claim thereby waives the right to rely in subsequent litigation on any other grounds which a reasonable investigation would have uncovered. McLaughlin, 565 F.Supp. at 451. 52 Under California law, waiver is a question of fact. Waiver is an affirmative defense, for which the insured bears the burden of proof. Insurance Co. of the West v. Haralambos Beverage Co., 195 Cal.App.3d 1308, 241 Cal.Rptr. 427 (1987). 53 California courts will find waiver when a party intentionally relinquishes a right, or when that party's acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished. Rheem Mfg Co. v. United States, 57 Cal.2d 621, 21 Cal.Rptr. 802, 371 P.2d 578, 581 (1962). The doctrine of waiver looks to the act, or the consequences of the act, of one side only, in contrast to the doctrine of estoppel, which is applicable where the conduct of one side has induced the other to take such a position that it would be injured if the first should be permitted to repudiate its acts. 30 Cal.Jur.3d Estoppel and Waiver 2 (1987). 54 In the insurance context, however, the waiver doctrine has developed somewhat differently, and the distinction between waiver and estoppel has been blurred. 5 In cases where waiver has been found, there is generally some element of misconduct by the insurer or detrimental reliance by the insured. For example, in Miller v. Elite Ins. Co., 100 Cal.App.3d 739, 161 Cal.Rptr. 322 (1980) (Miller ), the court held that the insurer had waived its right to deny coverage for damages caused by an accident in which the insured was involved. The court found that, by its conduct in proceeding to deal with [the other party's insurer] as though [the insurer] intended to represent and defend [the insured], created the impression that there was no coverage dispute. Moreover, the insurer never informed the insured that it intended to reserve its rights to assert noncoverage. Miller, 161 Cal.Rptr. at 328; see also Elliano v. Assurance Co. of America, 3 Cal.App.3d 446, 83 Cal.Rptr. 509 (1970) (insurer waived requirement that insured commence any action on insurance policy within one year when insurer engaged in settlement negotiations with insured that lasted beyond the deadline for filing suit, admitted at all times that insured had suffered a loss, and never notified insured of its intention to rely on the limitation); Dalzell v. Northwestern Mut. Ins. Co., 218 Cal.App.2d 96, 32 Cal.Rptr. 125, 128 (1963) (insurer waived requirement that insured forward summons to it where insurer knew suit had been filed against insured and told insured everything would be taken care of); Ruffino v. Queen Ins. Co. of America, 138 Cal.App. 528, 33 P.2d 26 (1934) (insurer waived requirement that insured present sworn proof of loss within sixty days of loss when insurer repeatedly told insured, in response to insured's inquiries, that insured was required to do nothing further to obtain settlement of claim). 55 Federal cases applying California law also suggest such misconduct or reliance must be shown. See Zumbrun v. United Services Auto. Ass'n, 719 F.Supp. 890 (E.D.Cal.1989) (Zumbrun) (in lawsuit filed after it denied a claim, insurer waived affirmative defenses based on policy exclusions insurer failed to assert in letter denying coverage issued fifteen months after insured filed claim); Stinson v. Home Ins. Co., 690 F.Supp. 882 (N.D.Cal.1988) (refusing to find waiver of limitation of actions clause where there was no evidence that the insurance company had taken affirmative steps to deter insured from filing suit within the limitations period); Becker v. State Farm Fire and Cas. Co., 664 F.Supp. 460 (N.D.Cal.1987) (refusing to find waiver of limitation of actions clause where insured did not inform insured of its loss until after the limitations period had expired); McLaughlin (discussed below). 56 McLaughlin is consistent with this trend. The language cited above, and relied on in the district court's decision, suggests a more absolute rule: whatever exclusions an insurer fails to include in a letter denying coverage are lost forever. However, the facts in McLaughlin, and the policies behind the decision, suggest that a finding of waiver should not be so automatic. 57 In McLaughlin, the insured sought coverage for experimental cancer treatment. The insurer denied coverage; in the period leading up to litigation it based its denial on the fact that the treatment was not approved by the FDA, and informed the insured that this was the only basis for its denial. Apparently, the insurer conducted only minimal investigation of the insured's treatment. When the insured sued, however, the insurer invoked a series of other potentially applicable exclusions it had not previously mentioned. The district court held that the insured had waived these exclusions, which it had not investigated before denying coverage, and had not raised when it denied coverage. McLaughlin, 565 F.Supp. at 451. 58 Thus, in McLaughlin it was necessary to find waiver to protect insureds who had been mislead by the insurer's statements as to the denial of coverage. The policy grounds set forth by the McLaughlin court, and subsequently by the court in Zumbrun, make clear the rationale of protecting insureds and providing incentives for insurers to proceed properly. McLaughlin relied on Egan v. Mutual of Omaha, 24 Cal.3d 809, 169 Cal.Rptr. 691, 620 P.2d 141 (1979), in which the California Supreme Court found that an insurer has a duty to investigate thoroughly the claims of an insured. The McLaughlin waiver doctrine is a means of enforcing this requirement: If an insurance company could deny a claim without thoroughly investigating it and then defend a subsequent lawsuit on grounds which it develops during discovery for trial, the company's incentive to fulfill its duty to investigate would be significantly diminished. McLaughlin, 565 F.Supp. at 451. Additionally, the waiver doctrine prevents an insurer from sandbagging the insured by constantly raising additional exclusions. The waiver rule denies [the insurer] multiple opportunities to avoid liability under terms of the policy that are ambiguous or disputed. Zumbrun, 719 F.Supp. at 896. 59 Applying the waiver doctrine as it has been applied by California courts and federal courts applying California law, we find that the district court erred in granting summary judgment on the exclusion (f) issue on grounds of waiver. Intel has failed to make the required showing as to waiver by Hartford. The record showed that Intel was informed on March 31, 1982 that exclusion (f) might apply. While there was no mention of that exclusion in the May 19, 1982 letter denying coverage, Hartford mentioned the exclusion again when it reiterated its denial of coverage on November 19, 1982. Intel points to Hartford in-house communications in which employees expressed doubt as to whether exclusion (f) would apply; however, Intel did not know of such communications at the time they were made and thus could not have relied on them to its detriment. There is no evidence Hartford attempted to sandbag or mislead Intel with the belated announcement of a new grounds for denial of coverage, nor has Intel shown it was prejudiced by the failure to mention exclusion (f) in the May 19, 1982 letter. 60 Thus, on these facts, the district court should not have found Hartford waived reliance on exclusion (f). However, we nonetheless affirm the grant of summary judgment on the application of exclusion (f). We find Hartford failed to meet its burden of showing that summary judgment on the issue of coverage was precluded because there was a genuine issue of fact as to the application of exclusion (f). 61
62 As the district court noted, courts have differed as to the construction and application of pollution exclusions such as exclusion (f). The trend appears to be towards an application of the exclusion according to the plain, everyday meaning of its terms. See, e.g., FL Aerospace v. Aetna Casualty and Sur. Co., 897 F.2d 214 (6th Cir.) (applying Michigan law) (pollution exclusion barred coverage), cert. denied, --- U.S. ----, 111 S.Ct. 284, 112 L.Ed.2d 238 (1990); United States Fidelity and Guar. Co. v. Star Fire Coals, Inc., 856 F.2d 31 (6th Cir.1988) (applying Kentucky law) (language of pollution exclusion was not ambiguous; pollution exclusion barred coverage); see also C.P.C. Intern. v. Northbrook Excess & Surplus Ins., 759 F.Supp. 966 (D.R.I.1991) (applying New Jersey law) (language of pollution exclusion was not ambiguous; listing other cases which have also so held). However, a significant number of courts have refused to apply the exclusion, holding that because its language is ambiguous, the clause must be construed against the insurer. See, e.g., New Castle Cty. v. Hartford Accident and Indem. Co., 673 F.Supp. 1359 (D.Del.1987) (applying Delaware law) (term sudden was ambiguous, and ambiguity should be resolved in favor of the insured; pollution exclusion did not bar coverage); National Grange Mut. Ins. Co. v. Continental Ins. Co., 650 F.Supp. 1404 (S.D.N.Y.1986) (applying New York law) (language of pollution clause was ambiguous and ambiguity should be resolved in favor of the insured; pollution clause did not bar coverage); see also Claussen v. Aetna Casualty & Sur. Co., 865 F.2d 1217 (11th Cir.1989) (certifying question of application of pollution clause under Georgia law to Georgia Supreme Court; listing cases in which the clause has been applied on its terms and in which courts have found it ambiguous). California courts have apparently not had occasion to rule on this issue. 63 We need not enter this controversy, however, for we find that even if exclusion (f) is applied on its terms, Hartford has failed to meet its burden of showing that there is an issue for the trier of fact as to whether it bars coverage in this case. 64 Here, after Intel made its showing that there remained no genuine issues of material fact as to coverage under the policy, the burden shifted to Hartford to show that such issues did exist. As noted above, the insurer has the burden of proof as to the application of exclusions. Hartford failed to show that there existed evidence such that a reasonable jury might find for it on the application of exclusion (f). In the materials supporting its opposition, it made no showing that the contamination at the Middlefield Rd. site fell within the exclusion. [T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). Admittedly, Intel made no showing that the exclusion did not apply. However, there is no express or implied requirement in Rule 56 that the moving party support its motion with affidavits or other similar materials negating the opponent's claim. Id. 65 Therefore, although on grounds other than those relied on by the district court, we find that the district court properly granted summary judgment on the issue of exclusion (f).