Insurance Law News - August 2011

• "Pollution" Exclusion Eliminates Coverage for First-Party Asbestos Contamination
• Liability Policy's "Intellectual Property Rights" Exclusion Bars Coverage for Insured's Alleged Misappropriation of Claimant's Image and Likeness

< Return to News page

"Pollution" Exclusion Eliminates Coverage for First-Party Asbestos Contamination

A first-party “pollution” exclusion eliminated coverage where a contractor caused the release of asbestos inside and outside a building. (The Villa Los Alamos Homeowners Assn. v. State Farm General Insurance Company (2011) WL 3586475)

Facts

The Villa Los Alamos Homeowners Association (Association) purchased a “Condominium/Association Policy” from State Farm General Insurance Company (State Farm). The policy provided “all-risk” (“open-peril”) coverage for first-party property losses, subject to the policy’s exclusions and limitations.

Pursuant to the terms of the policy, State Farm agreed to insure “for accidental direct physical loss” to buildings and structures and business personal property owned by the Association and caused by an insured loss, unless specifically limited or excluded by the policy. The policy excluded coverage for loss caused by “the presence, release, discharge or dispersal of pollutants, meaning any solid, liquid, gaseous or thermal irritant or contaminant, including vapor, soot, fumes, acids, alkalis, chemicals and waste.” 

The Association contracted with Cal Coast Construction (Cal Coast) to remove the sprayed-acoustical ceilings in a three-story, 18-unit building. Over the course of a few days, Cal Coast disturbed asbestos contained in the acoustical ceilings. This caused the fibers to become airborne and to spread throughout the building, including its corridors, stairwells, in residential units, inside the HVAC system, and onto the exterior grounds, at the entrance of the building, on sidewalks, in bushes and grass in front of the building and in parking lots and a private street.

The Bay Area Air Quality Management District (District) cited Cal Coast and removed the company from the project. The District also ordered the Association to perform a comprehensive abatement of the building, including all common areas and separate interest areas, individual units, and residents’ personal property.

The Association hired another contractor to perform the remediation work the District ordered. The Association submitted a first-party claim to State Farm, which State Farm declined. Ultimately, the Association spent $650,000 to complete work ordered by the District.

Thereafter the Association sued State Farm, asserting causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief. The trial court granted summary adjudication in favor of State Farm, ruling that the pollution exclusion eliminated coverage for the Association’s claims. The Association appealed.

Holding

The Court of Appeal affirmed the summary judgment in favor of State Farm. The appellate court held that a “pollution” exclusion, whether found in the first-party property section of a policy or in the third-party liability section of a policy, applies to “environmental” pollution. Asbestos is considered to be a “pollutant” under many state and federal laws and regulations, and is a “pollutant” for purposes of the exclusion in State Farm’s policy. What occurred here was environmental pollution, even though it was confined to only a relatively small area, and even though it occurred only over a few days. As such, the State Farm policy excluded coverage for the Association’s claim.

Comment

This case extends the basic holding of an important third-party coverage case, MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635. In that case, MacKinnon was the owner of an apartment building who, at the request of a tenant, hired a pest control company to eradicate yellow jackets at the apartment. The pest control company treated the building several times and the tenant died from pesticide exposure. The tenant’s parents sued, and MacKinnon tendered the claim to his insurer. However, MacKinnon’s insurer concluded that the pollution exclusion precluded coverage.

In MacKinnon, the California Supreme Court ultimately ruled that the standard pollution exclusion clause in a comprehensive general liability policy was intended to exclude coverage for injuries resulting from events commonly regarded as “environmental pollution.” Thus, the MacKinnon Court held that a reasonable policyholder would not think that the activity in question – namely, the normal but negligent spraying of pesticides around an apartment building in order to kill yellow jackets – was an act of pollution.

Top of Page

Liability Policy's "Intellectual Property Rights" Exclusion Bars Coverage for Insured's Alleged Misappropriation of Claimant's Image and Likeness

A commercial general liability policy’s exclusion for violation of “intellectual property rights” precluded coverage for an insured’s alleged misappropriation of the claimant’s image and likeness. (Aroa Marketing, Inc. v. Hartford Insurance Company of the Midwest (2011) WL 3672295)

Facts

Aroa Marketing, Inc. hired a model named Tara Radcliffe to film an exercise video for Aroa’s business. According to Radcliffe, Aroa was only authorized to use the video at the Consumer Electronics Show (CES) held in January 2007 and on CES’s internet site. Nevertheless, Aroa allegedly used Radcliffe’s image and likeness to market and sell products through media other than CES and its internet site. When Radcliffe discovered that Aroa was using Radcliffe’s image and likeness in media beyond what was allowed in their contract, Radcliffe requested that Aroa pay Radcliffe for such use. However, Aroa allegedly failed to pay Radcliffe and continued its unauthorized use of her image and likeness.

In response, Radcliffe sued Aroa for using her “likeness to sell and market products beyond that which was allowed under the contract.” According to Radcliffe, Aroa’s actions directly injured Radcliffe “in that her image and likeness was, and still is, being associated with and taken as an endorsement of the Aroa brand and its products such that it diminished her marketability and publicity value as a professional actor and model.” Radcliffe also claimed that as a direct and legal result of Aroa’s activities, Radcliffe was “deprived of her right to publicity.” Radcliffe’s complaint against Aroa contained causes of action for “statutory and common law misappropriation of likeness,” “breach of contract,” “unjust enrichment” and “unfair competition.”

Aroa tendered defense of the lawsuit to its general liability insurer, Hartford Insurance Company of the Midwest. The Hartford policy provided that Hartford would indemnify Aroa against damages because of “personal and advertising injury” not otherwise excluded. The policy further provided that Hartford would defend Aroa against any suit seeking covered damages. Hartford declined to defend Aroa against Radcliffe’s lawsuit, asserting that (1) Radcliffe was not seeking damages against Aroa because of “personal and advertising injury” as defined in the Hartford policy, and (2) in any event, Radcliffe’s claims against Aroa were barred from coverage by the policy’s exclusion for violation of “intellectual property rights.”

Following Hartford’s denial of coverage, Aroa settled Radcliffe’s lawsuit. Aroa then sued Hartford alleging that Hartford had breached its duty to defend and indemnify Aroa against Radcliffe’s claims. The trial court ruled that the Hartford policy did not potentially cover Aroa’s alleged liability to Radcliffe in the underlying action. Thus, the trial court dismissed Aroa’s lawsuit against Hartford. Aroa appealed.

Holding

The Court of Appeal affirmed the dismissal in favor of Hartford.

The appellate court began by holding that in the underlying action, Radcliffe had sought damages from Aroa because of “personal and advertising injury” as defined in the Hartford policy. The appellate court reasoned that Radcliffe’s “misappropriation of likeness” claim was a “right of publicity” claim, which has traditionally been categorized as a type of “right of privacy” claim. The court then noted that the Hartford policy defined “personal and advertising injury” so as to include “oral, written or electronic publication of material that violates a person’s right of privacy.” Thus, according to the appellate court, Radcliffe’s claim against Aroa did fall within the scope of the Hartford policy’s insuring agreement for “personal and advertising injury.”

Nevertheless, the appellate court held that Radcliffe’s claim against Aroa was barred from coverage by the Hartford policy’s “intellectual property rights” exclusion. That exclusion precluded coverage for personal and advertising injury arising out of “any violation of any intellectual property rights such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity.” According to the appellate court, the “right of publicity” is an “intellectual property right.” Thus, Radcliffe’s claim for right of publicity (i.e., misappropriation of likeness) against Aroa fell squarely within the broad language of Hartford’s intellectual property rights exclusion. The intellectual property rights exclusion did not have to specifically refer to the “right of publicity.”

Since Radcliffe’s underlying lawsuit against Aroa was not potentially covered by the Hartford policy, Hartford was under no duty to defend Aroa against Radcliffe’s lawsuit. As such, Aroa could not state a claim for breach of contact or bad faith against Hartford.

Comment

Top of Page