Division Four of the First Appellate District applied the interpretation limiting the scope of the standard pollution exclusion outlined by the California Supreme Court in MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, to the first party property context. Even under that interpretation, the court applied the exclusion to bar coverage for damages arising from the release of asbestos fibers during the scraping/repair of an acoustical ceiling.
After a contractor hired by the plaintiff HOA began to scrape acoustical ceilings in a condominium building, it was discovered that asbestos fibers contained in the ceiling had been released into the air, the common area hallways and stairwells, individual units, and the common and public spaces outside the building. The Bay Area Air Quality Management District ordered the HOA to perform comprehensive abatement of the building.
The HOA obtained a judgment against the contractor. However, with the contractor insolvent and its general liability insurer denying coverage based on an asbestos exclusion, the HOA turned to its own insurer, State Farm General Insurance Company. State Farm declined coverage citing a pollution exclusion in the first party property section of its policy. Coverage litigation commenced and the trial court granted State Farm's motion for summary adjudication finding that asbestos was a pollutant and that because the asbestos fibers had been released to the outside environment, the exclusion applied. This appeal followed.
In reviewing the trial court's decision, the appellate court identified two questions that it was required to answer: (1) does the restrictive interpretation of a general liability policy's pollution exclusion in MacKinnon apply in the first party property policy context; and (2) did the facts of this case constitute environmental pollution triggering application of the pollution exclusion. The court answered each of these questions in the affirmative.
Turning first to the applicability of MacKinnon to first party property policies, the court reiterated the holdings in MacKinnon that: (1) rejected a literal reading of the pollution exclusion and dictionary definitions of key words such as "discharge" and "irritant"; (2) adopted definitions that afforded the "the broadest spectrum of protection"; (3) held that a reasonable policyholder would understand the policy as only excluding "injuries arising from events commonly thought of as pollution, i.e., environmental pollution"; (4) found that the common understanding of the term "pollutant" indicated something creating impurity, something objectionable and unwanted; and (5) limited the scope of the exclusion by interpreting the terms "discharge, dispersal, release or escape," as referring to conventional environmental pollution.
Holding these same general principles applied to analogous pollution exclusions found in first party property policies, the court reasoned that, while it was mindful of the analytical differences between first party property and third party liability policies, both were designed to provide coverage under terms broadly interpreted to give the insured the greatest possible protection with exclusionary clauses narrowly interpreted against the insurer. Because the pollution exclusions found in the first party property and general liability sections of the State Farm policy were virtually identical, the court found that there was no reasonable basis to interpret the two differently.
The court then turned to the question of whether or not the release of asbestos constituted environmental pollution. First, the court reaffirmed the finding in Garamendi v. Golden Eagle Ins. Co. (2005) 127 Cal.App.4th 480, and held that asbestos is a pollutant. Next, the court examined the causal mechanism of the HOA's damages and found they had been caused by a "release" of asbestos into the air. Thus, the exclusion applied. Unlike the application of pesticides in MacKinnon, the scraping of acoustical ceiling known to contain asbestos fibers could not be characterized as "ordinary" or a "normal application" because the remediation of any material containing asbestos is highly regulated. Likewise, because there is no safe level of exposure to asbestos, any release of asbestos into the air or area surrounding the building would comport with the common understanding of the word "pollute" and that even a "one-time event" can be polluting.
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