California Court Holds No Coverage Under Pollution Policy for Structural Improvements

By Brian Margolies

In its recent decision in Essex Walnut Owner L.P. v. Aspen Specialty Ins. Co., 2018 U.S. Dist. LEXIS 138276 (N.D. Cal. Aug. 15, 2018), the United States District Court for the Northern District of California had occasion to consider the issue of a pollution liability insurer’s obligation to pay for the redesign of a structural support system necessitated by the alleged presence of soil contamination.

Aspen’s insured, Essex, owned a parcel of property it was in the process of redeveloping for commercial and residential purposes.  The project required excavation activities in order to construct an underground parking lot, and as part of this process, Essex designed a temporary shoring system comprising tied-in retaining walls in order to stabilize the area outside of the excavation.  During the excavation work, construction debris was encountered requiring removal.  Aspen agreed to pay for a portion of the costs to remove and dispose the debris under the pollution liability policy it issued to Essex.

The litigation between the parties concerned unconfirmed debris located outside of the excavated area, which Essex believed caused the shoring system to fail.  While Essex did not seek coverage for locating and removing this debris, it nevertheless contended that it was entitled to coverage under its policy to redesign and reimplement the shoring system.  Aspen denied coverage for these costs on the basis that the debris outside of the excavated area was not a pollutant, and that in any event, the costs of redesigning the shoring system was not a “clean-up cost.”

The court declined to reach the issue of whether the debris qualified as a pollution condition,  instead focusing on the question of whether redesigning the shoring system qualified as a “clean-up cost,” defined by the Aspen policy in part as “reasonable and necessary expense … to investigate, abate, contain, treat, remove, remediate, monitor, neutralize or dispose of contaminated soil, surface water or groundwater or other contamination caused by a pollution condition … .”  While Essex argued that the shoring system was necessary to “contain” or “neutralize” the debris outside of the excavated area, the court disagreed, concluding that the purpose of the shoring system was to provide structural support for the construction project, not to address the debris condition.  As the court observed, “Although the redesign of the shoring system addressed the instability in the soil that was purportedly due to the debris, the revised shoring system neutralized instability, not contamination of the soil.”

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