On June 3, a federal court in California entered a summary judgment ruling finding that two insurers had a duty to defend their insured against claims arising out of alleged releases of perchloroethylene (PCE) under their business auto policies because it was possible the releases resulted from the use of an automobile. Am. Guarantee & Liab. Ins. Co. v. Technichem, Inc., et al., Case No. 15-cv-03611-VC, 2016 U.S. Dist. LEXIS 72793, *7-10 (N.D. Cal. June 3, 2016). This ruling is important because it reminds policyholders to consider whether any environmental contamination claims they might be addressing were potentially attributable to their use of covered autos.

In Technichem, American Guarantee and Zurich American had both sold business auto policies to Technichem, a company that operated a dry cleaning solvent recycling facility in Emeryville, Calif., from 1987 to 2003. Technichem collected waste PCE used by dry cleaners and transported the PCE to its facility where it was unloaded for processing. In 2003, the city of Emeryville discovered PCE and other chlorinated solvent contamination in the right-of-way adjacent to Technichem’s facility. Subsequently, California’s Department of Toxic Substances Control (DTSC) filed an action to force Technichem to investigate and remediate the contamination that had been released from its facility. Technichem tendered the DTSC claim to American Guarantee and Zurich American under the auto policies, and they filed a declaratory judgment action seeking a judicial determination that there was no coverage under their policies.

The policies provided coverage for “property damage” caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto.” First analyzing whether the underlying claim involved property damage, the court stated that environmental contamination is considered “property damage” and environmental response costs are incurred under CERCLA and related statutes because of property damage. Id. at *7. Next, the court noted that the term “accident” was defined broadly to include “continuous or repeated exposure to the same conditions resulting in ... ‘property damage.’” Therefore, the court concluded that the release of PCE into the environment was an “accident” that caused “property damage.” Id. at *8.

Therefore, the final question for the court to resolve to determine whether the DTSC claim triggered the insurers’ duty to defend was whether the PCE releases arose out of the “use” of a covered auto. Under California law, the “use” of an automobile includes both loading and unloading. Id. at *9 (citing Cal. Ins. Code § 11580.06(g); Encompass Ins. Co. v. Coast Nat’l Ins. Co., 764 F.3d 981, 984-87 (9th Cir. 2014)). The underlying action alleged that Technichem had transported hazardous substances to its facility where they had been released to the environment. Based on these allegations, the court found that one highly plausible theory was that PCE was spilled while being unloaded from the covered autos that had transported it to the Technichem site. Because an insurer has a duty to defend an action unless there is no conceivable theory that could bring it within policy coverage, the court held that the possibility that the contamination was caused by the use of the covered autos during unloading of the PCE triggered the duty to defend for both insurers. Id. at *9.

Although extrinsic evidence would not have been necessary to support the court’s summary judgment ruling finding the insurers had a duty to defend Technichem against the DTSC claim, the court noted that the extrinsic evidence showed that the “unloading” theory that triggered coverage was not speculative. In fact, testing results at the site indicated that the source of some or all of the releases was near the loading dock where trucks delivered and unloaded drums and containers of solvents, which might have caused some spillage of PCE. Id. at *10. Thus, Technichem demonstrates that insureds should evaluate evidence about the location of contamination to determine whether they may establish a potential theory triggering coverage under their business auto or other policies for a third-party action based on that contamination.