Wesco Insurance Company v. Brad Ingram Construction ( 2024 )

FILED
NOT FOR PUBLICATION
JAN 23 2024
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
WESCO INSURANCE COMPANY, a No. 22-16584
Delaware corporation,
D.C. No. 3:21-cv-05682-WHO
Plaintiff-Appellee,
v. MEMORANDUM*
BRAD INGRAM CONSTRUCTION,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of California
William Horsley Orrick, District Judge, Presiding
Argued and Submitted November 13, 2023
San Francisco, California
Before: S.R. THOMAS, FORREST, and MENDOZA, Circuit Judges.
Dissent by Judge FORREST.
Brad Ingram Construction (“Ingram”) appeals the district court’s judgment
that Ingram’s insurer, Wesco Insurance Company (“Wesco”), does not have a duty
to defend Ingram in connection with injuries caused by airborne wildfire debris.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
The sole question on appeal is whether, under California law, there was any
potential for coverage given the pollution exclusion provision in Ingram’s
insurance policy.1 Because we conclude that there was a potential for coverage, we
reverse.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We review the district
court’s grant of summary judgment de novo. Flores v. City of San Gabriel, 824
F.3d 890, 897 (9th Cir. 2016). Likewise, “the interpretation of [an] insurance
policy is a question of law for the court and is reviewed de novo” as well. McHugh
v. United Serv. Auto. Ass’n, 164 F.3d 451, 454 (9th Cir. 1999).
Because the parties are familiar with the facts and the procedural history, we
will not recount them here.
I
Under California law, insurance policies are construed in accordance with
“general rules of contract interpretation” that aim to “give effect to the ‘mutual
intention’ of the parties.” MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1212
(Cal. 2003) (quoting Cal. Civ. Code § 1636). “The determination whether [an]
1
The provision in question excludes coverage for “‘Bodily injury’ or
‘property damage’ which would not have occurred in whole or part but for the
actual, alleged or threatened discharge, dispersal, seepage, migration, release or
escape of ‘pollutants’ at any time.”
2
insurer owes a duty to defend usually is made in the first instance by comparing the
allegations . . . with the terms of the policy.” Horace Mann Ins. Co. v. Barbara B.,
846 P.2d 792, 795 (Cal. 1993). Coverage provisions are “interpreted broadly so as
to afford the greatest possible protection to the insured,” whereas “exclusionary
clauses are interpreted narrowly against the insurer.” MacKinnon, 73 P.3d at 1213
(quoting White v. W. Title Ins. Co., 710 P.2d 309, 313 (Cal. 1985)). “[T]he burden
is on the insurer to prove the claim is specifically excluded.” Aydin Corp. v. First
State Ins. Co., 959 P.2d 1213, 1215 (Cal. 1998).
Applying these principles in MacKinnon, the California Supreme Court held
that a pollution exclusion applies only to “injuries arising from events commonly
thought of as pollution, i.e. environmental pollution . . . .” MacKinnon, 73 P.3d at
1216. To determine whether a pollution event has occurred, the reviewing court
should consider both the character of the injurious substance and whether exposure
occurred due to a mechanism specified in the policy. Id. at 1213–16. Under
MacKinnon, neither the substance nor the mechanism of exposure is dispositive;
they are to be considered “in conjunction” with one another. Id. at 1215. See
Garamendi v. Golden Eagle Ins. Co., 25 Cal. Rptr. 3d 642, 646–48 (Cal. Ct. App.
2005); Ortega Rock Quarry v. Golden Eagle Ins. Corp., 46 Cal. Rptr. 3d 517,
525–26 (Cal. Ct. App. 2006); Cold Creek Compost, Inc. v. State Farm Fire & Cas.
3
Co., 68 Cal. Rptr. 3d 216, 224–25 (Cal. Ct. App. 2007); The Villa Los Alamos
Homeowners Assn. v. State Farm Gen. Ins. Co., 130 Cal. Rptr. 3d 374, 383–85
(2011); JRK Prop. Holdings, Inc. v. Colony Ins. Co, 313 Cal. Rptr. 3d 895,
905–09 (Cal. Ct. App. 2023).
In addition, under California law, an insurer’s duty to defend and its duty to
indemnify are not synonymous. Certain Underwriters at Lloyd’s of London v.
Superior Ct., 16 P.3d 94, 102–03 (Cal. 2001). The duty to defend is broader than
the duty to indemnify. Id. “An insurer has a duty to defend when the policy is
ambiguous and the insured would reasonably expect the insurer to defend him or
her against the suit based on the nature and kind of risk covered by the policy, or
when the underlying suit potentially seeks damages within the coverage of the
policy.” Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 959 P.2d 265, 273
(Cal. 1998).
“To prevail in an action seeking declaratory relief on the question of the duty
to defend, the insured must prove the existence of a potential for coverage, while
the insurer must establish the absence of any such potential. In other words, the
insured need only show that the underlying claim may fall within policy coverage;
the insurer must prove it cannot. The duty to defend exists if the insurer becomes
aware of, or if the third party lawsuit pleads, facts giving rise to the potential for
4
coverage under the insuring agreement.” Delgado v. Interinsurance Exch. of Auto.
Club of S. Cal., 211 P.3d 1083, 1086 (Cal. 2009) (internal citations and quotations
omitted).
II
In this case, a truck driver was allegedly injured by “expos[ure] . . . to clouds
of toxic dust during the loading and unloading of his truck.” The allegations do
not specify the composition of the dust except to say that the wildfire waste
consisted of “ash, debris, metal, concrete, and contaminated soil.” As to the
mechanism of exposure, the driver alleges that onsite workers “stirred up” the dust
deposited in the environment by the fire while “load[ing] debris” and again when
the debris was uncovered and “dump[ed]” at the waste facility. We conclude that
while wildfire debris may be considered a “pollutant” in certain circumstances, the
mechanism of exposure described in the complaint does not clearly constitute an
“event commonly thought of as pollution.” MacKinnon, 73 P.3d at 1216 (emphasis
added).
MacKinnon noted that “terms such as ‘commonly thought of as pollution,’
or ‘environmental pollution,’ are not paragons of precision.” Id. at 1217. There is
no California case directly on point as to dust created or disbursed by a naturally
occurring event. California courts have noted that, in considering a matter of first
5
impression, courts should be cautious of relieving an insurer of its duties under the
policy. Ortega Rock Quarry, 46 Cal. Rptr. 3d at 528 (quoting Pa. Nat'l Mut. Cas.
Ins. Co. v. Triangle Paving, Inc., 973 F. Supp. 560, 566–67 (E.D.N.C. 1996)).
“Any doubt as to whether the facts establish the existence of the defense
duty must be resolved in the insured’s favor.” Montrose v. Superior Ct., 861 P.2d
1153, 1160 (Cal. 1994); accord Anthem Elecs., Inc. v. Pac. Emps. Ins. Co., 302
F.3d 1049, 1054 (9th Cir. 2002). Given the test in MacKinnon, which has not been
applied in sufficiently analogous cases, and the fact that the pollution exclusion
does not apply unambiguously to the driver’s injuries, there existed a potential for
coverage under the insurance policy, and Wesco had a duty to defend the litigation.
We do not opine as to whether Wesco would have had a duty to indemnify, if
damages were awarded.
REVERSED.
6
FILED
JAN 23 2024
Wesco Insurance Company v. Brad Ingram Construction, No. 22-16584 MOLLY C. DWYER, CLERK
Forrest, J., dissenting: U.S. COURT OF APPEALS
While I agree with the majority’s statement of the governing legal standard, I
disagree with its application of that standard. As the majority explains, the California
Supreme Court has held that a pollution exclusion like the one at issue here applies
only to “injuries arising from events commonly thought of as pollution, i.e.
environmental pollution.” MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1216 (Cal.
2003), as modified on denial of reh’g (Sept. 17, 2003). In determining whether an
event would be understood as an act of pollution, courts consider two factors: the
substance (alleged pollutant) and the mechanism of exposure of the substance;
neither factor is itself dispositive. Id. at 1216–17; Villa Los Alamos Homeowners
Ass’n v. State Farm Gen. Ins. Co., 130 Cal. Rptr. 3d 374, 380–81 (Ct. App. 2011).
California caselaw indicates that the circumstances at issue here would be commonly
understood as an act of pollution, thus triggering the pollution exclusion, as the
district court held. Therefore, I respectfully dissent.
I.
Turning first to the substance at issue, the underlying complaint alleges that
the employee’s injury stemmed from exposure to “clouds of toxic dust.” The dust
directly resulted from a massive wildfire, but the “clouds” of particles that allegedly
caused injury were created when the dust was disturbed by the wildfire cleanup
project.1
Even though the dust was originally created by a wildfire and may consist of
natural material, that does not prevent it from being part of a pollution event.
California courts have recognized that natural materials can be pollutants. See
Ortega Rock Quarry v. Golden Eagle Ins. Corp., 46 Cal. Rptr. 3d 517, 525 (Ct. App.
2006) (“[H]azardous substances are not rendered non-polluting by the fact that they
are naturally occurring . . . .” (quoting Gold Fields Am. Corp. v. Aetna Cas. & Sur.
Co., 744 N.Y.S. 2d 395, 396 (2002))). In Ortega Rock Quarry, a quarry operator
placed fill dirt along a road after highwaters washed out portions of the road. 46 Cal.
Rptr. 3d at 519–520. Even though the rocks and dirt were natural materials, the
California Court of Appeal held that they were nonetheless a pollutant given the
regulation of waterways and that these materials were placed by human activity. Id.at 525–26. Likewise, in Cold Creek Compost, Inc. v. State Farm Fire & Casualty
Co., the California Court of Appeal held that “[h]eavy clouds of dust from . . . 18
wheeler double-wide trucks” triggered the pollution exclusion despite arguments
1
In the opening brief, Appellant Brad Ingram Construction (Ingram) argues
that the underlying injury may have been caused by bacteria. The underlying
complaint, however, makes no mention of bacteria and instead alleges the injury was
caused by toxic dust and debris. “Determination of the duty to defend depends, in
the first instance, on a comparison between the allegations of the complaint and the
terms of the policy.” Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal.
2005).
2
that “dust is not commonly thought of as a pollutant.” 68 Cal. Rptr. 3d 216, 220, 229
(Ct. App. 2007). The court explained that “[d]ust has been held to be a pollutant
within the meaning of the pollution exclusion in California and elsewhere, and dust
is recognized and regulated as a form of air pollution under California environmental
law.” Id. at 229 (citations omitted); see also id. at 226 n.5 (applying a pollution
exclusion to compost odors from “100% natural, organic materials” and rejecting
the suggestion that the odors could not qualify as a pollutant given their “natural”
origin); Garamendi v. Golden Eagle Ins. Co., 25 Cal. Rptr. 3d 642, 648 (Ct. App.
2005) (applying the pollution exclusion to silica dust, a “natural product”).
These cases establish that simply because the substance at issue is dust does
not prohibit it from being a pollutant. And the dust alleged here is not simply dirt—
it is toxic dust located in a heavily regulated cleanup area.
The context at issue further informs this analysis. While a wildfire created the
toxic dust, the government required that prime contractors performing the cleanup
“be certified for hazardous substance removal” because the debris “was known to be
a health hazard.” Workers at the cleanup sites wore protective clothing and
respirators. On-site crews were expected to don and doff protective equipment in
designated decontamination zones. Air monitoring stations were set up around the
community to track airborne toxins.
3
The policy defines pollutants as “any solid, liquid, gaseous or thermal irritant
or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste.” Given the level of precautions here, concluding that the dust is a pollutant is
a far cry from the hypotheticals considered unreasonable in MacKinnon. See 73 P.3d
at 1214 (noting the absurdity in applying the pollutant label to pool chlorine—an
irritant—used for its ordinary purpose if it were to cause an allergic reaction).
II.
Turning to the mechanism that caused the alleged injury, see Villa Los
Alamos, 130 Cal. Rptr. 3d at 383, the pollution exclusion applies where a “discharge,
dispersal, seepage, migration, release or escape” of a pollutant occurs. The parties
focus on different acts of dispersal or release. Appellee Wesco Insurance Company
(Wesco) contends the cleanup project is the proper focus, while Ingram focuses on
the wildfire. But the complaint makes clear that the cleanup project is the proper
focus because it alleges the injury stemmed from the cleanup effort “stirr[ing] up”
toxic dust.
Focusing on the cleanup, Ingram argues that there was no “release”2 because
the toxic material was not contained—it was “on the ground” and “open to the
elements.” Ingram relies on MacKinnon, which stated that a release implies “some
2
Because the district court found a release, it did not consider whether a
dispersal occurred. I do the same.
4
sort of freedom from containment.” 73 P.3d at 1215. Ingram further argues, through
dictionary definitions, that a release can only occur when there is a “protective
barrier” or an escape from “a structure.” This overly restrictive interpretation of
“release” is not persuasive.3 Rather, the asbestos context is instructive. A California
court found a “release” when workers scraped acoustical popcorn off ceiling tiles,
which released asbestos into the air. Villa Los Alamos, 130 Cal. Rptr. 3d at 384–86.
“When asbestos is disturbed by construction and related activities, the result is
commonly referred to as a ‘release’ of asbestos . . . .” Id. at 384 (emphasis added);
see also Cal. Lab. Code § 6501.8(a) (“‘[A]sbestos-related work’ means any activity
which by disturbing asbestos-containing construction materials may release
asbestos fibers into the air . . . .” (emphasis added)).
Here, the toxic dust was on the ground, and it was then “stirred up” by the
massive cleanup operation, which released the dust into the air to create “clouds” of
dust particles. Cf. Cold Creek Compost, 68 Cal. Rptr. 3d at 224–25 (finding odors
emanating into the air from composting materials to be a release absent discussion
or reference to a protective barrier). That the underlying complaint alleges only one
worker was injured is of no moment. Cf. Am. Cas. Co. of Reading, Pa. v. Miller, 71
3
Similarly, the California Supreme Court found it absurd to describe the
normal spraying of pesticides in a residential area as a “release.” MacKinnon, 73
P.3d at 1215–16. This was so even though the pesticides were likely sprayed from
some sort of containment. Accordingly, a “protective barrier” is not solely
determinative when considering a release.
5
Cal. Rptr. 3d 571, 581 (Ct. App. 2008) (“The test in MacKinnon is not based upon
the extent of injury, but upon the type of pollutant and how it is released into the
environment.”). Nor does it matter here that the injury involved an employee injured
through his employment. Cf. Garamendi, 25 Cal. Rptr. 3d at 644 (applying the
exclusion to claims brought by workers injured by silica dust throughout their
employment).
III.
Considering the substance and the mechanism of exposure together, a
reasonable insured would view the circumstances alleged to have caused injury to
be “an act of pollution.” MacKinnon, 73 P.3d at 1217. The activity in Villa Los
Alamos was “a commercial operation, namely the removal of asbestos-containing
ceiling material by a licensed general contractor, work that is tightly regulated and
entails notification, and highly technical protocols for asbestos removal,
containment and waste disposal.” 130 Cal. Rptr. 3d at 386. Likewise, here the
wildfire cleanup was a regulated operation in part because of contamination and
human health concerns. Therefore, I would affirm the district court’s conclusion that
the pollution exclusion applies, and Wesco does not have a duty to defend Ingram
against the underlying action. I respectfully dissent.
6