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Overton v. Consolidated Insurance Company8/1/2000
We are again presented with the question of whether placement of a pollutant (here PCBs) falls within the comprehensive general liability policy definition of an 'occurrence.'
Insurance coverage for property damage secondary to pollutants depends on whether the insured expected or intended the damage. In 1976, the Department of Ecology (Ecology) informed the owners of Spokane Transformer Company of the presence of PCBs on their property. They and their successors bought comprehensive general liability policies in 1977 and 1979. The question presented is whether the insureds' knowledge of the presence of PCBs on the property was a known risk and, therefore, fell outside the policy definition of an 'occurrence.'
We conclude that a question of fact remains on whether the damage here was expected or intended. We do so based primarily on the holding in Queen City Farms, Inc. v. Central Nat'l Ins. Co. We also conclude that the insurance companies had an obligation to defend but that their refusal to do so did not amount to bad faith given the coverage question. We, accordingly, reverse the trial court's summary dismissal of Spokane Transformer's complaint.
FACTS
From 1961 to 1980, Richard Boyce owned the property where Spokane Transformer Company was located. He owned and operated Spokane Transformer until 1972. The company repaired and manufactured electrical transformers. From 1972 to 1979, Jerry Overton leased the property and owned and operated the company. Paul and Mary Ann Gisselberg bought the property in 1981.
In 1977, Industrial Indemnity Company of the Northwest issued a comprehensive general liability (CGL) insurance policy naming Mr. Overton, Mr. Boyce and Spokane Transformer as insureds. (We refer to the insureds collectively as Spokane Transformer.) That policy was in effect until July 20, 1980. The Consolidated Insurance Company policy was in effect from July 25, 1979 to July 25, 1982.
Both policies contain standard CGL legalese. They promise to pay 'all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies, caused by an occurrence . . . .' They also agreed to defend 'any suit against the insured seeking damages on account of such . . . property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient . . . .'
Both policies define 'occurrence' as 'an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the insured.'
Both policies exclude coverage for: property damage arising out of the discharge, dispersal, release or escape of . . . toxic chemicals . . . or pollutants into or upon land . . . {unless} such discharge, dispersal, release or escape is sudden and accidental.
PCB Pollution. In 1976, Environmental Protection Agency (EPA) inspectors took two soil samples at Spokane Transformer and found some PCB contamination in one of them. Ecology reported these findings to Mr. Overton. He was hostile and uncooperative with the agents. Ecology dropped the matter. It did no further investigation to determine the extent of the contamination and took no enforcement action.
The EPA inspected again in 1980. '{O}il-stained soils were observed, but no samples taken.' The EPA tested again in 1985. Neither Ecology nor the EPA knew at that time whether the level of contamination would require cleanup. The EPA recommended that the extent of soil contamination be determined a
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