Watts Industries, Inc. v. Zurich American Insurance

This suit involves an insurer’s duty to defend a policyholder who claims there is a possibility of coverage in an underlying suit. The plaintiffs and policyholders in this case are Watts Industries, Inc. (Watts) and James Jones Company (Jones), manufacturers of parts used in municipal water systems. In an underlying suit, various municipalities allege injury to their water systems and lead contamination of water flowing through the systems, resulting from substandard parts sold by Watts and Jones. During the years in which the parts were sold, Watts and Jones held commercial general liability (CGL) policies issued by defendant and respondent Zurich American Insurance Company (Zurich). In the policies, and subject to various exclusions, Zurich promised to defend and indemnify claims for damages resulting from property damage.

The issue in this case is whether there is a triable issue of fact as to the possibility of coverage based on allegations in the underlying complaint. Zurich’s chief positions are: (1) there can be no damages based upon lead contamination of the water, because any contaminated water has been used and consumed, has left the water system, and cannot be…