In a landmark victory for property owners, Californias Northern District ruled that three national insurers cannot escape their defense obligations in an environmental contamination case. On summary judgment, the Court ruled that two of the three have an ongoing duty to defend and that legal defense costs not exhaust policy limits.
Technichem, Inc. and Mark J. Ng (collectively as (Technichem) are represented by David Griffin of Next Law Group and Brett Boon of [Benner & Boon, LLP](http://bennerboon.com/) independent (Cumis), [environmental counsel](http://bennerboon.com/practice-areas/environmental-law/). Technichem operated a tetrachloroethylene (commonly referred to as PCE or PERC) recycling plant in Emeryville, California for approximately seventeen years. Technichem recycled PCE from area dry-cleaner in an effort to preclude it from contaminating the local soil and groundwater.
Technichem is currently being sued by its former landlord as well as Californias Department of Toxic Substances Control, each of whom allege that Technichems operations caused environmental contamination. Although DTSC has not been able to establish precisely how any alleged releases of PCE occurred, the Court previously found that Technichem is liable as a former operator under CERCLA. The Court denied DTSCs summary judgment motion against Mr. Ng, however, holding that a question of fact remains as to Mr. Ngs operator status. In the midst of the underlying action, each of Technichems three insurers sued Technichem seeking a declaratory judgment that they had no ongoing duty to defend Technichem in the underlying actions. Two of the insurers, each of which had denied coverage to date, argued that they had no defense obligations at all. The third insurer, which had provided Technichem a defense through December 31, 2015, contended that defense costs exhausted policy limits and, as a result, the duty to defend had been extinguished.
The Court found that Zurich American Insurance Company does not have a duty to defend Technichem under Commercial General Liability Policies due to a total pollution exclusion in the policy.
However, the Court found that Steadfast Insurance Company owes an ongoing duty to defend Technichem under an Environmental Impairment Policy. Steadfast sought a declaration that it had no continuing defense obligations because it had paid legal defense costs exceeding the policys liability limits. However, the Court rejected this argument because clear California authority states that the liability limit is exclusive of legal defense costs. (Cal. Code of Regs. Title 22 §§ 66264.147 and 66265.147). Public policy supports this finding because the liability limits are intended to remediate the contamination, not fund the defense.
The Court also rejected Steadfasts argument that these provisions do not apply because sudden accidental releases of PCE had not been established in the underlying actions. The Court reasoned that it is at least possible that sudden accidental releases caused the contamination at issue, and in fact DTSC had complained of just such occurrences. Because only a potential for coverage arising from allegations and extrinsic evidence is required to establish a duty to defend, the Court ordered Steadfast to continue to defend Technichem.
Additionally, the Court found that Zurich American and American Guarantee and Liability Insurance Company, which had refused to defend Technichem since the underlying actions were initiated, owe a duty to defend Technichem right now. Zurich and American Guarantee issued Technichem annual Business Auto Policies, and the insurers contended that no allegations existed giving rise to a duty to defend.
The Court found otherwise, ruling that based on the allegations in the underlying complaint, theres a non-speculative possibility that the accident at the Technichem site resulted from the use of a covered auto. As a result, American Guarantee cannot escape coverage.
The Court stayed the remainder of the insurers lawsuit, allowing Technichem it to once again prioritize full focus to defending itself in the underlying actions.
To read the full ORDER ON SUMMARY JUDGEMENT please [click here](http://bennerboon.com/american-guarantee-liability-company-v-technichem-et-al-case-no-15-cv-03611-cv/).
