City of San Buenaventura v. The Ins. Co. of State of PA
FILED OPINION (ANDREW J. KLEINFELD, MILAN D. SMITH, JR. and ALGENON L. MARBLEY) AFFIRMED. Judge: AJK Authoring, FILED AND ENTERED JUDGMENT.  [10-56727, 11-55284]
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CITY OF SAN BUENAVENTURA ,
THE INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA ,
CITY OF SAN BUENAVENTURA ,
GREAT LAKES REINSURANCE (UK)
Appeal from the United States District Court
for the Central District of California
Dale S. Fischer, District Judge, Presiding
Argued and Submitted
April 11, 2012—Pasadena, California
Filed June 26, 2013
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2 CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA .
Before: Andrew J. Kleinfeld and Milan D. Smith, Jr.,
Circuit Judges, and Algenon L. Marbley, District Judge.*
Opinion by Judge Kleinfeld
The panel affirmed the district court’s summary judgment
in favor of insurers in a declaratory judgment action brought
by the City of Buenaventura to establish insurance coverage
in underlying condominium buyers’ litigation against the
The panel held under California law that any occurrence
or wrongful act alleged by the condominium buyers took
place prior to the policy periods, and therefore there was no
insurance coverage. The panel declined to extend the holding
in Montrose Chemical Corp. v. Admiral Ins. Co., 913 P.2d
878 (Cal. 1995) (holding that claims for pollutants deposited
into the ground prior to the insurance policy period, but
continuing to leach into soil and groundwater during the
policy period, gave rise to insurance coverage), to this case to
extend the period of insurance coverage.
The Honorable Algenon L. Marbley, District Judge for the U.S.
District Court for the Southern District of Ohio, sitting by designation.
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
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CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA . 3
David A. Shaneyfelt, Anderson, Kill, Wood, & Bender, P.C.,
Ventura, California, for Appellant.
Rosemary J. Springer, McCurdy & Fuller, LLP, Menlo Park,
California, for Appellee Insurance Company of the State of
Pennsylvania; Bruce Winkelman, Craig & Winkelman, LLP,
Berkeley, California, for Appellee Great Lakes Resinsurance.
KLEINFELD, Senior Circuit Judge:
This is a declaratory judgment action to establish
The City of San Buenaventura (“City”) contracted with a
developer to build condominium units for people of low and
moderate income. Sale and resale prices were limited to
ceilings governing the development.1 Sales could not close
until the City issued certificates of compliance with its
affordable housing program.
According to the parties’ joint statement of facts, the “Covenants,
Conditions, and Restrictions” governing the development, which were
recorded, refer to Cal. Health & Safety Code § 50079.5, which limits
“lower income households” to those qualifying for Section 8 housing. See
42 U.S.C.A. § 1437, et. seq. The Department of Housing and Urban
Development sets the Section 8 income levels. The City’s affordable
housing program then publishes a list each year showing the maximum
sales price for low income units.
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4 CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA .
In 2004, a number of buyers sued the City, the developer,
and the developer’s partners. The buyers alleged that they
had bought low-income condominiums in 2001, and obtained
certificates of compliance, without being told that their
condominiums were subject to low-income ceilings. They
also alleged that they had paid prices higher than the ceilings.
The condominium buyers sought two forms of relief against
the City. They sought a declaratory judgment that the City’s
affordable housing program restrictions did not apply to their
condominiums. In the alternative, if the court found that
restrictions did apply to their condominiums, they sought
damages and a declaration of which restrictions applied.
Their theory of damages was that the City failed adequately
to review their sale documentation, issued erroneous
certificates of compliance, and negligently failed to tell them
about the low-income price ceilings. As a result, they
claimed to have suffered financial damage to the extent of
their overpayments and to the extent that they paid extra
interest and property taxes because of the higher than
This appeal is consolidated from lawsuits brought by the
City against two insurance companies. It is not an appeal of
the lawsuits by the condominium buyers against the City and
developers. The City bought general liability insurance
policies from Great Lakes Reinsurance (UK) PLC (“Great
Lakes”), covering July 2002 to July 2003, and from the
Insurance Company of the State of Pennsylvania (“ICSOP”),
covering July 2003 to July 2004. In both policies, the City
self-insured for the first million dollars of liability, and the
insurers covered liability exceeding one million up to ten
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CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA . 5
In 2007, three years after the condominium buyers’
litigation began, the City tendered this action to the two
insurers, saying the City had exhausted its million dollar selfinsured retention. The tender letters do not say whether
defense or indemnity or both are sought. Both insurers
rejected the City’s claims, saying that the City’s alleged
negligence and wrongful conduct in connection with the sales
occurred prior to their policy periods. The City then sued
each of the insurers. The City’s declaratory judgment actions
to establish coverage claimed breach of contract and breach
of the covenant of good faith and fair dealing.2 The City’s
complaints do not say whether its breach of contract claims
are based on breach of the duty to defend, breach of the duty
to indemnify, or both.
The district court granted summary judgment in favor of
both insurers, because any occurrence or wrongful act alleged
by the homeowners took place prior to the policy periods.
We review the district court’s grants of summary
judgment de novo, and apply California law to our
interpretation of the insurance policies.3 We reach the same
conclusion as the district court.
It is undisputed that the City’s alleged negligence
occurred in 2001, prior to the policy periods. The City argues
The City later dropped its breach of the covenant of good faith and fair
dealing claim against Great Lakes.
See Cort v. St. Paul Fire & Marine Ins. Cos., Inc., 311 F.3d 979, 983
(9th Cir. 2002).
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6 CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA .
that because the condominium buyers continue to suffer
under the burden of having overpaid and having their resale
prices restrained by a ceiling,4 the “occurrence” has continued
into the policy periods. The core of the argument is an
analogy to the California Supreme Court’s decision in
Montrose Chemical Corp. v. Admiral Insurance Co.5 That
decision held that claims for pollutants deposited in the
ground prior to the policy period, but continuing to leach into
soil and groundwater during the policy period, gave rise to a
duty to defend, because continuance of the property damage
during the policy period gave rise to coverage.6
The City stretches Montrose Chemical too far. The
insured in Montrose Chemical had deposited chemical wastes
prior to the policy period, but wastes were still there and
causing more damage during the policy period. Under
California law, “property damage that is continuous or
progressively deteriorating throughout several policy periods
is potentially covered by all policies in effect during those
periods.”7 State v. Continental Insurance Co. explains that
this kind of long tail on a tort frequently occurs “in the
context of environmental damage and toxic exposure
One set of buyers no longer operates under the low-income ceiling.
The City agreed to re-designate their condominium as a moderate-income
unit and allow them to sell under the moderate-income ceiling.
Montrose Chem. Corp. v. Admiral Ins. Co., 913 P.2d 878 (Cal. 1995).
Id. at 880–83, 888.
State v. Cont’l Ins. Co., 281 P.3d 1000, 1005 (Cal. 2012) (quoting
Montrose Chem., 913 P.2d at 880).
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CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA . 7
litigation.”8 Continental arose out of the State of California’s
negligent construction of a waste disposal site in the 1950s
that resulted in continuous discharge of industrial wastes
many years after the site was closed, and a federally ordered
cleanup in 1998.9
The policies in Montrose Chemical covered “property
damage . . . caused by an occurrence . . . .”10 Property
damage was defined as “physical injury to or destruction of
tangible property which occurs during the policy period
. . . .”11 The antecedent for “which” in the Montrose
Chemical policies is “injury to or destruction of.” Thus under
that policy, there was coverage if injury occurred during the
policy period, even if the accident that caused it occurred
prior to the policy period. As Montrose Chemical explains,
this policy language unambiguously
distinguishes between the causative event—an
accident or “continuous and repeated
exposure to conditions”—and the resulting
“bodily injury or property damage.” It is the
latter injury or damage that must “occur”
during the policy period, and “which results”
from the accident or “continuous and repeated
exposure to conditions.”12
Id. at 1002–03.
Montrose Chem., 913 P.2d at 889.
Id. at 890.
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8 CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA .
By contrast, the Great Lakes policy language promises
indemnification for loss caused by property damage “first
arising out of an Occurrence during the Policy Period . . . .”
That language is materially different from the Montrose
Chemical policy language. The Montrose Chemical policies
required only damages during the policy period, but the Great
Lakes policy requires the occurrence causing the damage to
have been during the policy period. Likewise, the ICSOP
policy affords coverage for liability incurred because of
“property damage arising out of an occurrence during the
Policy Period.” Perhaps the underwriters of these two
policies had read Montrose Chemical and drafted around it to
avoid similar exposure.
No occurrence is or could be alleged to have occurred
during the Great Lakes or ICSOP policy period. The Great
Lakes policy defines “occurrence” as “an accidental
happening,” which would fit the negligent failure to apply the
affordable housing program properly when the condominium
purchasers bought their units, but would not fit keeping the
program in place. Similarly, the ICSOP policy defines
“occurrence” as “an accident . . . which results in . . . property
damage neither expected nor intended,” phrasing applicable
to the City’s claimed errors at the time the condominiums
were sold, but not to keeping the affordable housing program
The City asserts that ICSOP has a duty to defend, and that
therefore ICSOP is liable if the condominium buyers’
complaints show the potential for coverage.13 However, “if,
See Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal. 2005)
(“[T]hat the precise causes of action pled by the third-party complaint may
fall outside policy coverage does not excuse the duty to defend where,
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CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA . 9
as a matter of law, neither the complaint nor the known
extrinsic facts indicate any basis for potential coverage, the
duty to defend does not arise in the first instance.”14 Here,
there is no duty to defend. ICSOP was not given any
information outside of the complaints suggesting a possibility
of coverage, and the facts alleged and reasonably inferable
from the complaints do not show any basis for potential
coverage. There is in this case neither a duty to defend, nor
a duty to indemnify.15
The condominium buyers’ complaints allege that they
were damaged by the City’s negligence when they purchased
their units in early 2001, over a year prior to the 2002–2003
Great Lakes policy and two years prior to the 2003–2004
ICSOP policy. They do not allege that they were wrongfully
damaged by the City’s affordable housing program, or that
the program was in any way unlawful. They merely ask that
the program be suspended as to them because of the City’s
2001 negligence. And both policies expressly exclude
coverage for declaratory or injunctive relief, so those claims
by the condominium buyers cannot provide a basis for duties
to defend or indemnify.
The City argues that leaving the affordable housing
restrictions in place was a “wrongful act” that took place
under the facts alleged, reasonably inferable, or otherwise known, the
complaint could fairly be amended to state a covered liability.”).
Certain Underwriters at Lloyd’s of London v. Superior Court, 16 P.3d
94, 102 (Cal. 2001) (“W here there is a duty to defend, there may be a duty
to indemnify; but where there is no duty to defend, there cannot be a duty
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10 CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA .
under the ICSOP policy, which provides coverage for “loss
arising out of [the insured’s] wrongful act that takes place
during the Policy Period.” “Wrongful act” is defined in the
policy as “[a]ny actual or alleged error or misstatement,
omission, negligent act, or breach of duty including
misfeasance, malfeasance, and nonfeasance by [the insured]
including, but not limited to, those constituted by . . . [a]ny
negligent ministerial act . . . .” Just as leaving lawful housing
policies on the books is not an “occurrence” resulting in
property damage under either policy, it is also not a
“wrongful act” as defined by the ICSOP policy.
The City would have us read “occurrence” more broadly,
because the policies define “occurrence” as “including
continuous or repeated exposure to substantially the same
general harmful conditions” (Great Lakes), and “including
continuous, repeated or related exposure to substantially the
same general harmful conditions” (ICSOP). This language
describes the kind of continuing event resulting in exposure
to toxic waste discussed in Montrose Chemical16 and
Continental,17 but not the kind of event claimed by the
condominium buyers. They claim that they were harmed by
the City’s 2001 errors, not by any errors since. When a
pollutant is deposited in the ground before the policy period,
but leaches more toxins into the soil during the policy period,
the subsequent leaching may itself be an occurrence.
Under the insurance policy language at issue
in Montrose, we determined that a continuous
condition becomes an occurrence for the
Montrose Chem., 913 P.2d at 888.
Cont’l, 281 P.3d at 1005.
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CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA . 11
purposes of triggering insurance coverage
when ‘property damage’ results from a
causative event consisting of ‘the accident or
continuous and repeated exposure to
conditions.’ The limitation on potential
indemnity was that the damage must ‘occur’
during the policy period and ‘ . . . result’
from the accident or ‘continuous and repeated
exposure to conditions.’18
No such subsequent occurrence was or could be alleged here.
The City’s argument is essentially that failure to remedy a
pre-coverage occurrence is itself a continuing, subsequent
The City’s argument for extending Montrose Chemical to
failure to provide a remedy for a past occurrence would imply
an absurd result. Were the “continuous exposure” or
“continuous damage” language in Montrose Chemical
construed to apply to failure to remedy a discrete previous
harm, then a 2001 automobile accident resulting in tort
liability and as yet uncompensated would fall within the
coverage of a policy sold in 2003 and covering only
occurrences during the year 2003.19 Such a construction
would fall outside the reasonable expectations of the insured
to such a policy,20 and would enable the City to delay buying
insurance until after it had incurred a tort liability, yet obtain
Id. at 1006 (quotations marks and citation omitted).
Cf. Montrose Chem., 913 P.2d at 888.
See Bank of the West v. Superior Court, 833 P.2d 545, 552 (Cal.
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12 CITY OF SAN BUENAVENTURA V . THE INS. CO . OF PA .
coverage for the pre-policy tort because the City had not
compensated the victim. There may be circumstances where
the Montrose Chemical and Continental rules apply outside
the pollution context,21 but this case is not one of them.
See Borg v. Transamerica Ins. Co., 54 Cal. Rptr. 2d 811, 818–20 (Ct.
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