Union Oil Co. v. International Insurance Co.

Introduction

This case requires us to decide whether an insured party’s liability for the cost of pollution remediation, excluded from the property damage clause of its liability policy, is nonetheless covered under the policy’s “personal injury” clause. We conclude it is not and affirm the judgment.

Background I. The Gasoline Leak

Sometime after December 1981, an underground gasoline tank at a gas station owned by Union Oil Company of California (Union Oil) began to leak. By the time the leak was discovered and stopped in early 1984, over 14,000 gallons of gasoline had escaped into the soil and groundwater and contaminated neighboring properties. Union Oil began a cleanup operation, which continues today. The cost of remediation had exceeded $2,165,000 by the time of trial in 1993.

II. The Insurance Policies

As Union Oil began the cleanup, it made demands against Larry Ngow, the lessee of the gas station, and against his insurer, Fireman’s Fund Insurance Company (Fireman’s Fund). Union Oil was an additional insured on the Fireman’s Fund policy, which it had required Ngow to obtain as a condition of the gas station lease. After a brief episode of litigation,…