Petition for Writ of Certiorari — Labour v. American States Insurance

c

supreme Court, U.d.

PILED

861609 MAR 41997

0.

OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

ARTHUR A. LABOUR,

Petitioner,

VS.

AMERICAN STATES INSURANCE COMPANY

and ROYAL INSURANCE COMPANY,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

THEODORE S. WENTWORTH

Counsel of Record

JAMES D. WHITE

ROBERT S. LEWIN

Attorneys at Law

500 Newport Center Drive, Suite 740

Newport Beach, California 92660

(714) 497-3102

Attorneys for Petitioner

ARTHUR A. LABOUR

Lawyers Brief Service * Appellate Brief Printers * (213) 613-1013 * (714) 720-1510

QUESTIONS PRESENTED

1. Whether the Court of Appeals erred in upholding the

District Court's decision to grant summary judgment in favor

of two insurance carriers and against an insured, in an

environmental clean up coverage dispute over who should

pay for mandated clean up costs for subsurface soil

contamination arising from the conduct of a metals plating

business which involved long term splashing and dripping of

toxic chemicals, but where the evidence also showed that

some of the pollution damage resulted from three large,

sudden and accidental spills which would otherwise have been

covered by the insurance?

‘2 Whether the Court of Appeals erred when it failed to

follow the requirements of the United States Supreme Court

set forth in United States v. Diebold, Inc., 369 US 654, 8

L.Ed.2d 176, 82 S.Ct. 993 (1962) which requires that, at

summary judgment, lower courts must give the non-moving

party the benefit of all reasonable and logical inferences from

the facts adduced?

3. Whether the Court of Appeals erred when it failed to

follow the established and applicable California decisional law

of Montrose v. Superior Court, 6 Cal.4th 287 (1993) and

Vann v. The Travelers Companies, 39 Cal. App. 4th 1610

(1995) which require that under California law, summary

judgment must be denied unless the insurer can establish the

absence of any potential for coverage?

LIST OF ALL PARTIES

All of the parties are listed in the case caption except

Dale Carter, Alice Kazanjian, Richard Perry, Arlene Perry,

Sacramento Plating Company and RAR Marketing. Richard

Perry, Arlene Perry, Sacramento Plating Company and RAR

Marketing filed bankruptcy during the pendency of the district

court case, did not oppose the summary judgment motion, and

did not appeal from the district court's decision granting

summary judgment, although they were also insured by the

same insurance carriers under separate but identical policies of

insurance. Only Labour filed an opposition to the summary

judgment rnotion. Copies of this Petition are being served on

all parties and counsel, including counsel for Insurance

Environmental Litigation Association, a trade association of

property and casualty insures, Amicus, below.

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TABLE OF CONTENTS

QUESTIONS PRESENTED

LIST OF ALL PARTIES

TABLE OF CONTENTS

TABLE OF AUTHORITIES

OPINIONS BELOW

BASIS FOR JURISDICTION

CONSTITUTIONAL PROVISION INVOLVED

STATEMENT OF THE CASE

REASONS FOR GRANTING THE WRIT

CONCLUSION

APPENDIX A

iil

TABLE OF AUTHORITIES

Cases

Cameron v. Vancouver Plywood Corp.,

266 F2d 535 (CAS, 1959) .......00..s00-000

Horace Mann Ins. Co. v. Barbara B.

2 7S. RURTRARERSE bpm neon monte

Intex v. United Nat. Ins. Co.

23 F3d 254 (9th Cir 1994)...

Lumbermans Mut. v. Belleville Ind.

938 F .2d 1423, 1428 (ist Cir, 1991) ..

Montrose v. Superior Court

PSE BOF CE Diese cdaccadeiicccdnctcun:

Smith v. Hughes Aircraft

22 F. 3d 1432 (9th Cir, 1993)...............

Smith v. Hughes Aircraft

783 F. Supp. 1222 (D. Ariz. 1991).......

United States v. Diebold, Inc.,

369 US 654, 8 L.Ed.2d 176, 82 S.Ct. 993

A 8 5 REAL gO PA MES RRE LI Sere St

Vann v. Travelers Companies

39 Cal. App. 4th 1610 (1995)...............

Other Authorities

Webster's New Universal Unabridged Dictionary,

Second Edition,

Simon & Schuster, 1983..........0000..000.00..

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Page

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passim

passim

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SUPREME COURT of the UNITED STATES

OCTOBER TERM, 1996

ARTHUR A. LABOUR, Petitioner,

v.

AMERICAN STATES INSURANCE COMPANY

and ROYAL INSURANCE COMPANY, Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioner Arthur Labour hereby respectfully prays that

a writ of certiorari issue to review the judgment and opinion

of the United States Court of Appeals for the Ninth Circuit

entered in this action on October 25, 1996. A timely petition

for rehearing was denied by the Ninth Circuit Court of

Appeals on December 4, 1996.

OPINIONS BELOW

The decision of the District Court is reported as

American States Ins. Co. v. Sacramento Plating, Inc., 861 F.

Supp. 964, 94 Daily Journal DAR 12868. The Decision of the

Court of Appeals was issued on a "Not For Publication" basis.

The decision of the Court of Appeals and the Order on the

Petition for rehearing are set forth in Appendix A to this

Petition.

BASIS FOR JURISDICTION

The judgment and opinion of the United States Court

of Appeals for the Ninth Circuit was entered in this action on

October 25, 1996. A timely petition for rehearing was denied

by the Ninth Circuit Court of Appeals on December 4, 1996.

This Court has jurisdiction to review the judgment of the

Court of Appeals pursuant to 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISION INVOLVED

The United States Constitution, Amendment V

provides:

"No person shall .. . be deprived of life,

liberty, or property, without due process

oflaw...".

.

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STATEMENT OF THE CASE

Basis of Federal Jurisdiction in the District Court

And Facts Material to Consideration

Of the Questions Presented

Subject matter jurisdiction in the District Court was

properly based on diversity of citizenship under 28 U.S.C. §

1332. Plaintiff American States Insurance Co. was an Indiana

cotporation. Defendants were all California residents. Cross-

Defendant Royal Insurance Company was an_ Illinois

corporation.

I

Introduction

It is the contention of Petitioner/Appellant Labour that

the District Court and the Court of Appeals below failed to

follow California substantive law, as determined by the

California Supreme Court in Montrose v. Superior Court, 6

Cal. 4th 287 (1993) and as further demonstrated in Vann v.

Travelers Companies, 39 Cal. App. 4th 1610 (1995). At

issue in the case below, which was decided on summary

judgment, was the question of whether, under the facts of the

case, insurance coverage for environmental pollution damages

was excluded by certain exclusionary language of certain

commercial general liability policies issued in the early and

mid-1980's.

1

Federal Courts of Appeal will follow state appellate

court decisions absent compelling evidence that the State's Supreme

Court would decide differently. Intex v. United Nat. Ins. Co. 23 F3d 254

(9th Cir 1994).

The facts demonstrated that pollution of the soil below

the concrete slab floor of a metals plating shop arose from

four causes. One cause was the long term and gradual

dripping and splashing of toxic chemicals onto the shop floor

during normal operations. It is not disputed that pollution

from this cause would not be covered under the applicable

insurance policies. However, the evidence also clearly

demonstrated that there were three additional and at least

equally significant causes; causes for which insurance

coverage should properly have been provided. These three

additional causes arose from three large, isolated, infrequent,

sudden and accidental incidents where the contents of

chemical tanks containing hundreds of gallons of pollutants

were also accidentally spilled and discharged onto the shop

floor. The evidence showed that the shop floor was so

degraded that it permitted the spills to escape into the soils

beneath the slab floor. The insurance carriers and the District

Court below at summary judgment denied insurance coverage

to Petitioner/Appellant Labour for the three large sudden and

accidental spills and refused to treat the three incidents as

covered events because the regular business practices at the

shop involved long term use and spillage of toxic chemicals.

The Court of Appeals affirmed.

The decisions below failed to afford Labour the benefit

of all reasonable and logical inferences from the facts adduced

and failed to follow California substantive law on the subject.

In particular, the Court of Appeals Memorandum decision

(Appendix A, pg. A-1) asserts that "uncontroverted evidence

in the record indicates (the 1981, 1984 and 1985) spills were

not unexpected". Id. at A-5. The decision also asserts that

"(t)he evidence unequivocally demonstrated that the spillage

onto the floor occurred over a long period of time."

a ee ee eee - “

(Emphasis added). Id. at A-6. As will be shown below, and

as has been argued to the Court of Appeals, had the Court of

Appeals given Labour the benefit of all reasonable and logical

inferences from the facts adduced, and had the Court fully

considered all the evidence, the Court could not have

concluded that the evidence was "uncontroverted" and

"unequivocal".

I

The Court Overlooked Montrose V. Superior Court

And Vann V. Travelers

The decisions below overlooked and failed to follow

California substantive law, as determined by the California

Supreme Court in Montrose v. Superior Court, 6 Cal.4th 287

(1993) and as further demonstrated in Vann v. The Travelers

Companies, 39 Cal. App. 4th 1610 (1995). These California

court decisions demonstrate that when considering the

propriety of awarding summary judgment in favor of a

commercial general liability carrier which has denied insurance

coverage for damages arising from pollution, the fact that

regular business practices of the insured involved long term

use and spillage of toxic chemicals" could not eliminate the

possibility that at least some of the pollution damage might

have resulted from accidental causes." (Montrose, pg. 305).

(Emphasis added). To prevail at summary judgment, under

California law, "the insurer must establish the absence" of any

potential for coverage. (Id., pg. 300). The evidence adduced,

when properly considered, does not establish the “absence of

any potential for coverage"; indeed, the Perrv Declaration

(Excerpts of Record/ Court of Appeals, Tab 67) and "tell-tale

lead"* demonstrated in a consultant's report’ proves the very

existence of a potential for coverage based on the three spills

in question. The three spills in question demonstrate that at

least some of the pollution damage resulted from these three

incidents; incidents which were "sudden and accidental", when

all the evidence is properly considered. Thus, under California

law, summary judgment should have been denied.

Although the District Court and the Court of Appeals

in the case at bar relied heavily upon the case of Smith v.

Hughes Aircraft, 22 F. 3d 1432 (9th Cir, 1993), neither

District Court Judge Shubb (in American States Ins. Co. v.

Sacramento Plating (86 F. Supp. 964) nor the Ninth Circuit

Court of Appeals in Smith v. Hughes cited or appeared to

have considered Montrose v. Sup. Ct., which had been

decided a mere four days before the Court of Appeals decided

Smith v. Hughes and six months before it was amended on

rehearing.

Furthermore, Vann v. Travelers (a case decided by the

California Court of Appeals in October of 1995 and which

cites and discusses Montrose v. Superior Court) also confirms

: Elevated levels of lead were found in the soils beneath

the concrete slab. This fact was referred to below as the "tell-tale lead"

for the following reasons; Perry took over metal plating operations at the

site in 1963; during Perry's operations, he did not use lead during his

operations from 1963 to the cessation of business in 1989; yet elevated

lead was found in the soils beneath the slab. The clear inference is that

the lead in solution escaped through the degraded slab floor, thereby

establishing that the slab floor was degraded before the three incidents in

question.

3

000713)

Excerpts of Record/ Court of Appeai, Tab 86, pg. BC

that for a court in California to properly consider a summary

judgment motion, the court must look not to whether

noncovered acts predominate... but to whether there is

any potential for liability. (pg 1613). If the evidence

shows that the pollution was caused "in part, by a condition

that developed so rapidly it could properly be described as

a "sudden" event", then summary judgment is

improper."

Of significance is the fact that the Court in Vann, when

offering an example of a "sudden and accidental" event, noted

that the words "sudden and accidental" should be given a

"common, ordinary meaning, relating to a release of toxic

materials that is short in duration, such as a burst storage

tank." (pg. 1613). In the case at bar, the evidence adduced

regarding the three spills in question showed that on two

specific occasions a storage tank liner ruptured and on the

third occasion a storage tank was inadvertently allowed to

overflow during a filling operation. In each instance,

according to the Perry Declaration, toxins were released onto

the cement floor at a specific point in time, fo wit, "Spring,

1981"; "June, 1984"; and "May, 1985". The evidence further

showed that at the time of each of the three spills in question

Perry believed the chemical spills went down the drain and

into the sewer. However, it may be inferred from the facts

adduced, (particularly from the evidence of the "tell-tale" lead

in the soil beneath the slab in higher than background levels

and the fact that lead was not used by Perry), that the cement

floor was degraded prior to the three spills in question and

thereby provided a "pollution track" through the cement to the

underlying soils.

The Vann Court also noted, citing another California

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Supreme Court case, that "(a)ny doubt as to whether the facts

give rise to a duty to defend is resolved in the insured's favor"

(Vann, at page 1618, citing Horace Mann Ins. Co. v. Barbara

B., 4 Cal.4th 1076, 1081). The decisions by the courts below

in the case at bar overlooked both Montrose v. Superior Court

and Vann v. Travelers and the decisions below fail to follow

California law.

I

The Decisions Overlooked and Failed to Afford Labour

The Benefit of All Reasonable and Logical Inferences

From the Facts Adduced

The decisions below also overlooked and failed to

afford Labour the benefit of all reasonable and logical

inferences from the facts adduced. In particular, the decision

by the Court of Appeals wrongly asserts that "uncontroverted

evidence in the record indicates (the 1981, 1984 and 1985)

spills were not unexpected". The decision also wrongly

asserts that "(t)he evidence unequivocally demonstrated that

the spillage onto the floor occurred over a long period of

time." (Emphasis added). Had the Court of Appeals

considered all the evidence and had it given Labour the benefit

of all reasonable and logical inferences from the facts adduced,

the Court could not have concluded that the evidence was

"uncontroverted" and "unequivocal".

Undoubtedly, the Court of Appeals looked to

paragraph 12 of the Perry Declaration. (Excerpts of Record/

Court of Appeals, Tab 67). Paragraph 12 reads as follows:

"42. The tank content losses described

above were not reported to any governmental

a

ee ee ee ee ee a

agencies or to any insurance companies or

insurance brokers or agents. These events

were not considered insurable by me at the

time they occurred. They arose from general

business hazards which I expected to occur in

SACRAMENTO PLATING, INC.'s

operations at the Site, even thought I did not

want them to happen since replacement of any

chemical bath solutions is a_ substantial

business expense. These incidents involving

loss of tank contents as well as the daily

splashing and dripping of chemicals from the

baths during the plating of bumpers and other

processed parts were a normal part of the

business at the Site throughout the time it was

occupied by me and operated as

SACRAMENTO PLATING, INC."

(Emphasis added).

At first blush, one might interpret paragraph 12 to

mean that the three polluting events in question were

"expected" and that they were a "normal part" of business

operations. However, a careful reading of paragraph 12 and

a careful review of the other facts attested to by Perry tend to

support a contrary conclusion, as will be shown below.

Summary Judgment should be denied where an issue of fact

arises from the "countering inferences" which are permissible

from evidence accepted as true. Cameron v. Vancouver

Plywood Corp., 266 F2d 535 (CA9, 1959). It is the Perry

Declaration and this paragraph in particular that must be read

with an understanding of who the "messenger" of this message

truly was. Perry was also an insured, but filed bankruptcy and

therefore did not oppose the summary judgment motion. The

Perry Declaration is on the pleading paper of the law firm and

attorney for the one of the insurance carriers. The name of the

firm then representing the insurance carrier, (not Perry's own

attorney) is printed on the bottom of each page of Perry's

Declaration. So although one might be tempted to interpret

paragraph 12 to mean that the three polluting events in

question were "expected" and that they were a "normal part"

of business operations, a close reading of paragraph 12

together with the balance of the Perry Declaration shows that

the evidence was not "“uncontroverted" and was not

"unequivocal", as the Court of Appeal's Decision claims and

as Perry's Declaration attempts to conclude.

In this regard, in particular, the evidence shows

"countering inferences". Perry was in charge of and operated

his business at the site from 1963 to 1988 (Perry Dec., § 1).

Under Perry's supervision, the electroplating processes

occurred on a full-time daily basis for the 25 year period from

1963 to 1988. (Perry Dec., ] 5). During the electroplating

process, parts were immersed in tanks containing chemical

baths and the parts were moved by hand from bath to bath.

(Perry Dec., § 7). In moving the parts from bath to bath,

chemicals in liquid form would normaliy splash and/or drip off

the parts onto the wooden catwalk surfaces and to the

flooring. (Perry Dec., { 7). During the 25 year period of

operations by Perry, Perry could only recall three incidents

where loss of chemical bath liquids occurred (other than

during the course of daily operations). (Perry Dec., ¥ 11).

Clearly, if only three such incidents with "large"

releases occurred over a twenty five year period, those three

incidents were not the "norm". The "norm", as Perry's

Declaration shows, was for the contents of a chemical tank to

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remain in the tank, except for the drips that occurred as parts

were being moved. Here, referring to the three spills in

question, the District Court noted that "large amounts"

of toxins were "infrequently" released onto the floor. (861

F. Supp. 964, 970). Lumbermans Mut. v. Belleville Ind., 938

F .2d 1423, 1428 (1st Cir, 1991) teaches that a "coverable

occurrence would be clearly identifiable as sudden and

accidental: because it would be a_ marked departure from

normal operations". (Emphasis added). Where pollution is

"part and parcel of daily conduct, there is the possibility of

infinite variations on the usual theme, polluting events are

likely to occur that are on the fringe of normal operations"

(pg. 1428) and thus a microanalysis of a continuous pattern

of pollution would result in an "ill-fated effort to distinguish

between virtually indistinguishable occurrences." (Pg. 1428).

However, the three "large" and "infrequent" spills in the case

at bar here are very much distinguishable from frequent

dripping and splashing which occurred on a daily basis. The

three spills clearly were a "marked departure from normal

operations". As the District Court noted, the three spills in

question resulted in "large amounts" of toxins being

"infrequently" released onto the floor. (861 F. Supp. 964,

970).

This is very much unlike Smith v. Hughes. The Court

of Appeals in Smith v. Hughes said that the "evidence

unequivocally demonstrates that the pollution was gradual".

The Court of Appeals would not permit Hughes to “break

down its long term practices into temporal components.” (Pg.

1438). But, unlike the case at bar, there was good reason in

Smith v. Hughes to refuse to break down the long term

practices into temporal components. Although not recited by

this Court of Appeals in its recitation of the facts in its opinion

1]

in Smith v. Hughes, that reason is found in the District Court's

decision (783 F.Supp 1222) where we learn that the proffered

events in Smith v. Hughes were not entitled to be considered

"sudden and accidental" because they were not infrequent.

The District Court's decision in Smith v. Hughes reveals that

"Hughes encountered periodic episodes where its waste

treatment plant broke down or was over-capacitated." (at 783

F. Supp 1222, 1232, Footnote 14). (Emphasis added).

WEBSTERS defines "Periodic" as "Re-occurring at regular

intervals". Thus, in Smith v. Hughes, the proffered events

were not infrequent, but rather they were "periodic episodes";

episodes "re-occurring at regular intervals". Said another

way, in Smith v. Hughes the proffered events were frequently

occurring events. Thus, the court in Smith v. Hughes rightly

rejected the proffered events in that case.

However, in the case at bar here, as contrasted to the

un-quantified but daily occurring drips and splashes, Perry

could only recall three distinct large spills over a twenty five

year period. Perry's Declaration shows that these three spills

were not a part of the long term practices; they were not

frequently repeated events. Just three events in over twenty

five years of operations by Perry can hardly be said to be

"periodic episodes", as the District Court found in Smith v.

Hughes. In the case at bar, the three events offered to justify

insurance coverage were not part of the normal operations,

they were not events which were "re-occurring at regular

intervals", they were not "periodic episodes". They were

"infrequent" events! Each was, as Lumbermans teaches (at

page 1428), "a marked departure from normal operations"!

"Infrequent" events over a 25 year period cannot fairly be

considered as "periodic"; yet that is exactly what the Courts

below in the case at bar have done.

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REASONS FOR GRANTING THE WRIT

Environmental clean up is a matter of grave

importance to all. If the insurance industry does not pay their

fair share under the policies that the industry has issued across

this country, then the additional expense and added burden

will fall on us all, whether as individuals or as tax-payers. In

the case at bar, the evidence showed that there were four

main causes of the pollution; one cause was not covered by

insurance, but the other causes would warrant coverage, had

not the Court of Appeals entered a decision that conflicts with

a decision of the court of last resort of the State of California.

The Court of Appeals has departed from the accepted and

usual course of judicial proceedings and has sanctioned such

a departure by the District Court as to call for the exercise of

this Court's supervisory power.

The Courts below failed to follow United States v.

Diebold, Inc., 369 US 654 and thus failed to afford Labour

the benefit of all reasonable and logical inferences from the

facts adduced. Furthermore, the courts below overlooked

Montrose _v. Superior Court and Vann v. Travelers and

thereby failed to follow established California law. In so

doing, the Courts below added a new and additional

requirement to the insurance contract.

CONCLUSION

While paragraph 12 of the Perry Declaration offers a

simplistic conclusion, upon which the insurance carriers have

been only too happy to have the Courts below focus, the

balance of the Perry declaration shows that there was evidence

of "countering inferences" to support the contention that the

13

three spills were not part of the normal operations and that the

pollution also resulting from these three spills was therefore

"sudden and accidental". Thus, the claim in the decision by

the Court of Appeals that the evidence is "uncontroverted"

and "unequivocal" could only be made if the Court overlooked

the evidence of "countering inferences" in the Perry

Declaration which tends to establish that the three spills were

not a part of normal operations. The Perry Declaration, when

properly considered, does not establish the "absence of any

potential for coverage", as Montrose v. Superior Court

requires to justify summary judgment in California in favor of

the carriers. Indeed, the Perry Declaration proves the

existence of coverage based on the three spills in question.

Labour deserved to have a trial in order to determine the

extent of pollution caused by the un-quantified daily drips and

splashes as compared to the pollution caused by the three

large and infrequent "sudden and accidental" polluting events

where hundreds of gallons of toxin were released into the

environment. Under California law the court must look not

to whether noncovered acts predominate ... but to

whether there is any potential for liability. (pg 1613). If

the evidence shows that the pollution was caused "in part, by

a condition that developed so rapidly it could properly be

described as a "sudden" event", then summary judgment

is improper." Simply put, the Court of Appeals below failed

to follow the law.

Although the decisions below are financially

devastating to Labour, he is just but one individual. The

decisions below, unless reversed, will fall heavily on us all.

Unless reversed, the insurance industry as a whole will now be

able to take great advantage of their insureds by citing the

District Court's published decision and asserting the claim that

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any amount of gradual pollution at a site from ongoing

operations will defeat any claim for coverage under the

"sudden and accidental" exception to the limited pollution

exclusion, no matter how big the accident and no matter how

unexpected the event. In the late 1970's and the 1980's the

insurance industry sold a standardized policy which claimed

they would cover damages for "sudden and accidental"

pollution. The Courts below, by their decisions in the case at

bar, have now added a new clause to those insurance contracts

in favor of the carriers. Now an insured will not only have to

show that pollution occurred as a result of a "sudden and

accidental" incident, but the insured will also have to show

that there is no evidence of any gradual pollution at the site, as

well. Let there be no mistake about it, the insurance industry

will benefit greatly from this decision; a decision which leaves

in place a summary judgment in favor of the insurers while

overlooking and ignoring established California law. This

decision strips insureds of their rights to insurance coverage

for "sudden and accidental" pollution under the policies in

question, wherever some amount of "gradual" pollution may

also have occurred.

Based on the foregoing, Petitioner/Appellant Labour

respectfully requests this Court grant relief and issue its writ

of certiorari.

Respectfully submitted,

Theodore S. Wentworth

Counsel of Record

James D. White

Robert S. Lewin

Attorneys for Petitioner

15

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FILED

OCT 25, 1996

AMERICAN STATES ) NO. 94 - 16905

INSURANCE COMPANY )

Plaintiff - counter- ) D.C. No. CV-93-569-WBS

defendant - Appellee, )

V. )

SACRAMENTO PLATING ) Memorandum*

INC.; RICHARD PERRY;

ARLENE PERRY; DALE

CARTER; RAR

MARKETING INC;

ALICE KAZANJIAN,

Defendants, and

ARTHUR LABOUR,

Defendant -counter-

claimant- Appellant,

V.

ROYAL INSURANCE

COMPANY OF AMERICA,

Counter defendant

Appellee.

Nee ee ee le ese es ss

Appeal from the United States District Court

for the Eastern District of California

William B. Shubb, District Judge, Presiding

Argued and Submitted September 16, 1996

San Francisco, California

A-]

Before: BEEZER and THOMPSON, Circuit Judges, and

GILLMOR, ** District Judge.

Arthur A. Labour appeals the district court's entry of

summary judgment for American States Insurance Company

("ASI") and Royal Insurance Company ("Royal") in an action

for declaratory judgment and breach of contract arising out of

ASI's and Royal's refusal to provide coverage under several

comprehensive general liability policies for costs associated

with Labour's compliance with an "Imminent and Substantial

Endangerment Determination and Order" issued by the

California Environmental Protection Agency Department of

Toxic Substances Control ("Cal-EPA Order") regarding

environmental pollution on Labour's Property. The district

court held that the "qualified pollution exclusions" found in the

relevant ASI and Royal policies precluded coverage as a

matter of law. We have jurisdiction pursuant to 28 U.S.C. §

1291. We conclude that the district court properly exercised

jurisdiction over this matter, and we affirm as to all other

issues raised on appeal.

I.

Royal asserts that Labour waived his nght to challenge

the summary judgment decision on appeal by filing a statement

of nonopposition to Royal's motion in the proceedings below.

_ This disposition is not appropriate for publication and

may not be cited to or by the courts of this circuit except as

provided by Ninth Circuit Rule 36-3.

” Honorable Helen Gillmor, United States District Judge

for the District of Hawaii, sitting by designation.

Where, as here, Labour consented to entry of summary

judgment by the district court, "we have ‘followed the practice

of looking at the language of the consent judgment and other

evidence in the record to determine whether a party may

appeal following an order entered by consent.' " Paracor

Finance, Inc. v. General Elec. Capital Corp., 1996 WL

552678 *15 (9th Cir. 1996) (quoting Blair v. Shanahan, 38

F.3d 1514, 1521 (9th Cir. 1994), cert. denied, -- U.S. --, 115

S.Ct 1698 (1995)); Shores v. Sklar, 885 F.2d 760, 762 (11th

Cir. 1989), cert. denied, 493 U.S. 1045 (1990). It is apparent

from the record that at least Labour and the district court

believed that Labour had reserved the right to appeal from

Royal's summary judgment, id., and Labour in fact exercised

this right in a timely fashion by filing his notice of appeal on

October 14, 1994, 30 days after the district court's September

14, 1994 entry of such judgment. See Fed.R.App.Proc. 4(a).

We therefore conclude that Labour did not waive his right to

appeal from the district court's entry of summary judgment in

Royal's favor.'

Il.

Before reaching the merits of Labour's appeal, we

: Although less than clear, Royal appears to assert that

Labour did not file a timely notice of appeal from the district courtis entry

of judgment for ASI. ASI has not raised this issue. Even if ASI had,

however, it should be resolved in Labour's favor. ASI's judgment, dated

August 29, 1994, does not contain an express determination that there

was no reason for delay, and it does not expressly direct entry of a final

judgment. It therefore became final when the district court disposed of

Labour's remaining crossclaims against Royal by judgment entered

September 14, 1994. As discussed in the text above, Labour filed a notice

of appeal on October 14, 1994, 30 days after entry of final judgment. The

appeal was timely. See Kreines v. U.S., 959 F.2d 834, 836 (9th Cir.

1992).

A-3

consider whether the district court abused its discretion by

exercising jurisdiction over the case. In deciding whether a

district court abuses its discretion by entertaining a declaratory

relief action, we consider whether "there are ‘circumstances

present to warrant an exception’ to the general rule that the

action belongs in state rather than federal court." Employers

Reinsurance Corp. v_Karussos, 65 F.3d 796, 799 (9th Cir.

1995) (quoting American National Fire Insurance Co. v.

Hungerford, 53 F.3d 1012, 1019 (9th Cir. 1995)). In the

instant case, the district court expressly weighed the factors

bearing upon the discretionary exercise of federal court

jurisdiction, and decided to retain the declaratory relief action.

We conclude that the circumstances of this case did not

obligate the district court to exercise its discretion to decline

jurisdiction over the declaratory relief claims, especially in

light of Labour's breach of contract counter-claims and cross-

claims against ASI and Royal, respectively. Dismissal of the

declaratory relief claims would have resulted in piecemeal

litigation because the breach of contract claims would still be

pending before the court. See Maryland Casualty Co. v.

Knight, F.3d --, --, 1996 WL 544213 *4. In addition,

dismissal at this stage will frustrate the interests of judicial

economy because, as discussed below, the district court

correctly decided the case on the merits. See id.

We now consider the appeal on its merits.

Ill

We review de novo a grant of summary judgment.

Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130

(9th Cir. 1994). We must determine, viewing the evidence in

the light most favorable to the nonmoving party, whether there

are any genuine, disputed issues of material fact and whether

A-4

the district court correctly applied the relevant substantive

law. Id.

On appeal, Labour contends that the district court

erred in concluding that the evidence of the three tank spills in

1981, 1984 and 1985 did not raise a triable issue of fact as to

whether a "sudden and accidental" discharge caused part of

the contamination at the Property. The relevant ASI and

Royal policies contain qualified pollution exclusions which

exclude from coverage all claims for injury or damage caused

by a discharge, dispersal, release or escape of pollutants (a

"discharge"), but except from this exclusion injury or damage

caused by "sudden and accidental" discharges. Under

California law, a "sudden and accidental" discharge is one that

is abrupt, unexpected and unintended. See, e.g., Shell Oil Co.

yv. Winterthur Swiss Ins. Co., 12 Cal.App.4th 714, 755, 15

Cal.Rptr.2d 815 (1993). Gradual pollution is unambiguously

excluded from coverage. ACL Technolouies. Inc._v.

Northbrook Property & Casualty Ins. Co., 17 Cal.App.4th

1773, 1787, 22 Cal.Rptr.2d 206 (1993).

The insured has the burden of proving a claim is

covered under an exception to an exclusion, Aeroquip Corp.

v. Aetna Casualtv Surety Co.. Inc., 26 F.3d 893, 894-95 (9th

Cir. 1994), and Labour presented no evidence from which it

could be inferred that the soil contamination was caused by a

"sudden and accidental" discharge. Even if the concrete floor

was degraded prior to 1981, as Labour would have us infer,

the three tank spills in 1981, 1984 and 1985 did not involve

soil contamination caused by an abrupt, unexpected and

unintended discharge. The uncontroverted evidence in the

record indicates that these spills were not unexpected, and that

at least one of these spills resulted from corrosion -- a

A-5

condition that was not abrupt, but rather occurred over time

due to lack of maintenance. In addition, the occasional tank

spills onto the floor occurred in the context of daily drippings

and spills of toxic liquids onto the floor over many years. The

district court, therefore, correctly applied Smith v. Hughes

Aircraft, 22 F.3d 1432 (9th Cir. 1994). Labour's effort to

break down their long term electroplating practices in handling

the chemical fluids into temporal components must be

rejected. Id. at 1438. The evidence unequivocally

demonstrated that the spillage onto the floor occurred over a

long period of time.

We conclude that the district court properly entered

summary judgment in favor of ASI and Royal. Labour's

proffered evidence of the three tank spills did not raise a

triable issue of fact regarding coverage under any ASI or

Royal policy.

AFFIRMED.

A-6

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FILED

DEC 4, 1996

AMERICAN STATES ) NO. 94 - 16905

INSURANCE COMPANY _ )

Plaintiff - counter- ) D.C.No. CV-93-569-WBS

defendant - Appellee, )

V. )

SACRAMENTO PLATING ) ORDER

INC.; RICHARD PERRY;

ARLENE PERRY; DALE

CARTER; RAR

MARKETING INC;

ALICE KAZANJIAN,

Defendants, and

ARTHUR LABOUR,

Defendant -counter-

claimant- Appellant,

V.

ROYAL INSURANCE

COMPANY OF AMERICA, )

Counter defendant _)

Appellee. )

Before: BEEZER and THOMPSON, Circuit Judges, and

GILLMOR, ** District Judge.

The petition for rehearing is denied.

)

)

)

)

)

)

)

)

)

)

)

)

+6 Honorable Helen Gillmor, United States District Judge

for the District of Hawaii, sitting by designation.