Insurance Law

Chemical Discharge Exclusion Triggered by Insured’s 20-year Old Deposition Testimony

In Holloway Cleaners & Laundry Co. v. Central Nat’l Ins. Co. of Omaha, Inc., the court granted a CGL carrier’s motion for summary judgment and held that it did not have a duty to defend its insured in an underlying action alleging that the insured’s conduct led to soil and groundwater contamination that damaged other properties. The court’s ruling was based on a chemical discharge exclusion in the policy, which provided that the insurance did not apply to property damage arising out of the discharge or release of chemicals unless the discharge was sudden or accidental. The insurer based its denial on twenty-year old deposition testimony taken from the insured in connection with a prior lawsuit in which they admitted that their regular practice for disposing chemical waste was to throw such materials in the dumpster and other trash receptacles on the property.

The insured’s primary argument against summary judgment was that additional evidence could be discovered during the course of the underlying action showing that the damage at issue was not caused by the insured’s actions, but through some other sudden or accidental release of chemicals. The court held this argument alone, unsupported by a single piece of evidence to show that something else caused the contamination, was insufficient to create a genuine issue of material fact.

The insured also presented two additional arguments. First, the insured argued that the carrier had waived its right to contest coverage because, in two emails sent on the same day, the insurer agreed to defend the insured and did not reserve its right to contest coverage until three weeks later. The court noted that the insured offered no authority requiring an insurer to reserve its right to contest coverage the instant it agrees to defend an insured. Further, the case cited by the insured to support its position, Miller v. Elite Ins. Co., 100 Cal. App. 3d 739, 754 (1980), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], was distinguishable because the insured in that case never reserved its right to contest coverage or communicated that there was a coverage dispute. Accordingly, the court held there was no waiver.

Second, the insured objected to the admissibility of the extrinsic evidence – including the deposition transcripts – on three grounds: (1) the insurer violated discovery rules by not identifying the evidence in its initial disclosures and disclosing the transcripts after the close of discovery, (2) the transcripts are prejudicial to the insured in the underlying action, and (3) the content of the transcripts was disputed.

With respect to the first argument, the court held that the insurer followed proper procedure because the insurer timely filed a supplemental discovery response specifically identifying the transcripts once it began preparing its MSJ and realized that the transcripts would be an active part of its defense. The court also rejected the insured’s prejudice argument, noting that the insured, not the insurer, had moved the court to lift the prior stay of the coverage action.

Finally, the court rejected the insured’s final argument based on the position that the disputed nature of a document does not bear on whether it should be admitted into evidence.

Holloway Cleaners & Laundry Co. v. Central Nat’l Ins. Co. of Omaha, Inc., No. 2:13-cv-07497-ODW (Ex) (C.D. Cal. April 23, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

Originally published in California Insurance Law Review - 2015

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