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RLI Insurance Company's ("RLI") predecessor in interest, a Texas insurer, issued a commercial general liability insurance policy to a Texas insured, Wainoco Oil Corporation, Frontier's predecessor in interest. The contract was entered into in Texas. The policy provided both a duty to defend and duty to indemnify covered losses. The policy contained an absolute pollution exclusion which was deleted by an endorsement and provided coverage for a "pollution incident". The policy contained three endorsements specifically related to oil and gas operations in Beverly Hills, California.
Frontier and Wainoco were sued in June of 2003 related to their alleged release of toxic chemicals into the environment resulting in personal injuries and deaths. Both Frontier and Wainoco tendered their defense to RLI, which denied coverage. Frontier and Wainoco filed complaints in Los Angeles County Superior Court asserting declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court granted summary judgment in favor of RLI concluding that the insurance contract was made and accepted between a Texas insurer and a Texas based insured in Texas and was to be performed under Texas law. Under Texas law the endorsement providing coverage for a pollution incident did not provide any duty to defend. Frontier and Wainoco appealed.
The court of appeal held that Civil Code section 1646 governs the interpretation of the policy and concluded that California law controls. Civil Code section 1646 is California's choice of law statute controlling the interpretation of a contract. It states that the contract is interpreted according to law and usage of the place it is to be performed if the contract "indicates a place of performance." Here, RLI argued that the insurance policy did not indicate a specific place of performance and under the second clause of Civil Code section 1646 if the contract does not indicate a place of performance it is then interpreted according to the law and usage of the place it was made. RLI argued that, therefore, the policy was controlled by Texas law. On the other hand, Wainoco and Frontier argued that the policy did indicate a place of performance as three of the endorsements reflected the existence of a covered risk located in California.
The policy specifically provided general liability coverage to claims arising from oil and gas operations in Beverly Hills, California. Two of the policy endorsements name the city of Beverly Hills and the Department of Transportation of the City of Los Angeles as additional insureds. These endorsements demonstrate that the parties intended the policy to provide coverage for the insureds' California operations. Therefore, California was the intended place of performance of the contract and California law controls.
The court finally concluded that interpreting the policy under California law requires a finding that there is a duty to defend the underlying claims of pollution release as the policy deleted the absolute pollution exclusion and replaced it with a legal obligation to pay as damages because of any bodily injury or property damage caused by a "pollution incident." As the endorsement which modified the insuring agreement did not clearly and unmistakably exclude pollution claims from the duty to defend there was a contractual obligation to defend.
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This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.
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