Ruffin Road Venture Lot IV v. Travelers Property Casualty Co. of Amer. (S.D. Cal. June 20, 2011)
In this environmental coverage dispute, the policyholder Ruffin Road, initiated an action to recover the unpaid amounts allegedly owed to it under the policy as well as for attorneys fees and punitive damages based on its claim the insurer acted in bad faith. Specifically, Ruffin Road discovered that a pipe running beneath the property had burst. Mud, rocks, and other debris were sucked into the pipe and circulated through the HVAC system, resulting in extensive damage. Ruffin Road filed a claim with Travelers who paid $19,000 to cover the cost of excavating and repairing the broken water pipe. Travelers subsequently refused to pay the balance of Ruffin Road's claim, including the cost of repairing the HVAC system itself; the cleaning expenses for the interior of the building, which was damaged in the process of excavating the broken pipe; and the business income Ruffin Road claims it lost as a result of the incident.
As to the issues regarding the removal of contaminants from the HVAC system, the policyholder claimed that coverage was extended under the provision granting “Additional Coverage” for “Pollutant Cleanup and Removal” contained in the policy. The insurer objected to coverage on several grounds including Travelers’ claim that dirt and mud inside the HVAC system does not qualify as “pollutants,” citing California precedent holding that the pollution exclusion refers only to “environmental pollutants” and not dire and mud, which are ubiquitous. In addition, the insurer highlighted an explicit exclusion in the policy for “contamination by other than pollutants” which it claimed more appropriately applied to the situation.
The court determined that this turned on the disputed meaning of the term “pollutants” and relied on the California Supreme Court holding in MacKinnon v. Truck ins. Exhc., 31 Cal. 4th 635, 653 (2003), which held that an insurance pollution cases, the term “pollutant” should be interpreted as referring only to “conventional environmental pollution.” Thus, after analyzing the provision and case precedent, the court determined that the policy’s inclusionary provision for “Pollutant Cleanup and Removal” was not applicable in the current situation, thereby declining to accept the policyholder’s view that a pollutant can be anything that makes something else unclean or impure, especially here, where the contamination existed in an internal closed system, as opposed to the environment.
The court concluded that because pollutants is most naturally understood as a reference to traditional environmental pollution, this provision regarding contamination is likewise to be viewed as contamination of the natural environment. That is, the contamination specifically excluded in the policy refers to the introduction of some foreign substance in the land or water. As such, the presence of debris inside the HVAC system would not be “contamination by other than ‘pollutants’ within the meaning of the policy, and therefore, partial summary judgment was granted to the policyholder.
For a copy of this decision click here