[00:00:05] Speaker 04:
Good morning and happy Valentine's Day.

[00:00:08] Speaker 04:
May it please the court, I'm Ken Matfeld of the City Attorney's Office on behalf of the Harbor Department of the City of Los Angeles in its pursuit of insurance coverage for its judgment against Wilmington Marine Services, Inc.

[00:00:20] Speaker 04:
This morning I'd like to highlight the path that the District Court followed in its coverage analysis because I believe that by skipping ahead directly to the pollution exclusions caused a short circuit in the coverage analysis.

[00:00:35] Speaker 04:
The structure of a coverage analysis is laid out by the district court in its opinion, like starts on the bottom of page 13.

[00:00:44] Speaker 04:
You begin with the insuring agreement.

[00:00:46] Speaker 04:
These policies ensure against liability for property damage caused by an occurrence to which the policy applies.

[00:00:54] Speaker 04:
Now it's the city's burden to establish property damage caused by an occurrence.

[00:00:59] Speaker 04:
Then it's the insurer's burden to prove

[00:01:03] Speaker 04:
that an exclusion applies, and then it's the city's burden to prove any exceptions to the exclusions.

[00:01:09] Speaker 04:
Coverage clauses are interpreted broadly, exclusions narrowly.

[00:01:15] Speaker 01:
How about exceptions to exclusions?

[00:01:17] Speaker 01:
You didn't get to that part.

[00:01:19] Speaker 04:
He does.

[00:01:20] Speaker 04:
He jumps straight ahead.

[00:01:21] Speaker 01:
No, no.

[00:01:22] Speaker 01:
He tells us the standard of review for everything except exceptions to exclusion.

[00:01:27] Speaker 01:
And that's what we're dealing with is an exception to the exclusion.

[00:01:31] Speaker 04:
The exclusion should be construed narrowly.

[00:01:37] Speaker 04:
So the structure of the insuring agreement tells us that the occurrence is the cause of the damage, not the damage itself.

[00:01:45] Speaker 04:
It's also important to recognize that the act or accident doesn't necessarily have to happen at the same time as the damage.

[00:01:55] Speaker 04:
The travelers' policies define occurrence as an accident, including exposure to conditions.

[00:02:01] Speaker 04:
which result during the policy period in bodily injury or property damage, neither expected nor intended from the standpoint of the insured.

[00:02:10] Speaker 04:
So the court should be looking for damage during the policy periods, the 70s and the 80s.

[00:02:16] Speaker 04:
But at that point of the analysis, you don't see the court asking, has the city met its burden to prove that contaminants have reached the sediment or the soil in the 70s or 80s caused by an occurrence

[00:02:31] Speaker 04:
in the 70s or 80s, you know, within days or weeks or months or even years of that damage occurring.

[00:02:39] Speaker 04:
Instead, on page 20 of the opinion, the court elects to proceed directly to the pollution exclusions in most of the policies because it is clear that even assuming coverage, those exclusions clearly bar any coverage.

[00:02:54] Speaker 04:
Had the court dealt with the question of an occurrence at that time, it would have had to confront the timeline and the evidence

[00:03:01] Speaker 04:
with a lack of evidence specific to the periods during which these policies were in effect.

[00:03:09] Speaker 01:
Can I cut through this a little bit?

[00:03:11] Speaker 01:
You've got to show that the pollution was sudden and accidental in order to recover, is that correct?

[00:03:16] Speaker 04:
Sudden and accidental events, yes.

[00:03:20] Speaker 04:
And as we set forth in our papers, the trial evidence pertained strictly to Wilmington Marines' business practices, its housekeeping from like 2007 on.

[00:03:31] Speaker 04:
to its demise in 2013, the demise of Wilmington Marine.

[00:03:36] Speaker 04:
But the policies at issue cover between 1972 and 1986, much as 40 years earlier, when the business was run by Constance Chandler, not Dominic Bilicic, who the insurers like to quote.

[00:03:52] Speaker 04:
Also, had the court dealt with the question of occurrence at this time in its analysis, it would have had to struggle with the word accident in the definition of occurrence.

[00:04:00] Speaker 04:
But the court doesn't complete the analysis, it skips ahead.

[00:04:03] Speaker 04:
And I believe that's how the district court was able to be so dismissive of the city's evidence of intervening acts between the deliberate act of Wilmington Marine in prepping and painting boat bottoms and the resulting contamination of soil and sediment.

[00:04:20] Speaker 04:
Remember, boat repair happens on dry land.

[00:04:22] Speaker 00:
Let me try to cut to the chase a little bit.

[00:04:25] Speaker 00:
To me, in reviewing this case, it seemed like the district court's analysis, really everything stemmed from the litigation decision that the city made in the Superior Court trial.

[00:04:38] Speaker 00:
You chose a certain theory to maximize the recovery.

[00:04:44] Speaker 00:
And so the district court basically worked off of that.

[00:04:47] Speaker 00:
And now the city, it seems to me, is now trying to pivot.

[00:04:51] Speaker 00:
and present different evidence in their efforts to seek indemnification.

[00:04:55] Speaker 00:
I don't think the case law supports that.

[00:04:58] Speaker 04:
That is exactly the insurer's argument, that there was a pivot.

[00:05:01] Speaker 04:
But underlying, in the Superior Court trial, all we had to do was prove that these chemicals came from boat repair, not somewhere else.

[00:05:10] Speaker 04:
We did not have to divide the damage into specific policy periods, because now we're in contract, and those contracts cover one-year periods, 72 to 73, 73 to 74.

[00:05:23] Speaker 04:
I didn't have to do that in the trial court.

[00:05:27] Speaker 04:
And so our evidence of business practices in 2010 was sufficient.

[00:05:36] Speaker 04:
the Superior Court to say, yeah, the forensics of co-location of boat chemicals with PCBs was sufficient to establish that this contamination was caused by boat repair.

[00:05:48] Speaker 04:
It didn't have to address the mechanism of release.

[00:05:52] Speaker 00:
So you don't see the inconsistency or contradiction at all in the evidence that you presented and the theories that you advanced before the Superior Court?

[00:06:02] Speaker 00:
and the supplemental or additional evidence that you are trying to seek to present to the district court?

[00:06:08] Speaker 04:
Because there was no evidence in the trial court from relevant time periods.

[00:06:16] Speaker 05:
But aren't you using the state court judgments, finding of liability and damages to get insurance coverage?

[00:06:25] Speaker 04:
Yes.

[00:06:26] Speaker 05:
Well, then we have to look at what happened there.

[00:06:28] Speaker 04:
Now we have to address

[00:06:32] Speaker 04:
The exclusion.

[00:06:34] Speaker 04:
We have to get to the exclusion and we have to get to the exception to the exclusion.

[00:06:40] Speaker 04:
Things that were not addressed.

[00:06:42] Speaker 05:
The one thing I'm struggling with is you're trying to get, you're relying on the liability and damages amount from the state court judgment and the evidence you presented and now you're pivoting and saying just ignore that when you're trying to get money from the insurance coverage.

[00:07:00] Speaker 05:
It seems like you're stuck with it.

[00:07:01] Speaker 05:
That's what you litigated.

[00:07:03] Speaker 05:
That's the theory.

[00:07:03] Speaker 05:
That's the evidence.

[00:07:05] Speaker 05:
And now you got your judgment.

[00:07:06] Speaker 05:
You got your damages.

[00:07:08] Speaker 05:
And to collect on it, you're stuck with that.

[00:07:12] Speaker 04:
The judgment finds Wilmington Marine liable for contamination of soil and sediment.

[00:07:16] Speaker 04:
Now we have to discuss the mechanism by which that damage occurs and whether that mechanism fits or is barred by the exclusion or fits within an exception to the exclusion.

[00:07:29] Speaker 04:
So the question is, how did the district court able to conclude without any evidence or testimony from Wilmington Marine that Wilmington Marine subjectively intended damage to the soil and sediment in the 70s and 80s?

[00:07:46] Speaker 04:
Well, how you do that is you jumped to the exclusion and you adopt stand-in versus fireman's fund.

[00:07:54] Speaker 04:
And that's where I believe the short circuit occurs.

[00:07:56] Speaker 01:
When you were in front of Judge Cool in the Superior Court, did you anticipate that Wilmington was going to be insolvent and you were going to have to look to its insurer for recovery?

[00:08:07] Speaker 04:
Wilmington was insolvent at that point.

[00:08:09] Speaker 01:
So you knew.

[00:08:10] Speaker 01:
So you knew you were going to have to look to their insurer?

[00:08:15] Speaker 04:
in front of Judge Kuhl.

[00:08:17] Speaker 04:
Judge Kuhl's was a case... That's the Superior Court.

[00:08:22] Speaker 01:
Wasn't it in front of Judge Kuhl?

[00:08:24] Speaker 01:
Maybe I'm wrong.

[00:08:24] Speaker 04:
Yes, in 2019, and there's two Judge Kuhl opinions here.

[00:08:28] Speaker 04:
There's the judgment against Wilmington Marine.

[00:08:30] Speaker 04:
There's also a motion for summary adjudication brought by one of the city's insurers in another coverage case where Judge Kuhl used State of California.

[00:08:42] Speaker 01:
In the judgment that you're now trying to enforce against them, at that trial you knew that you were going to have to look to their insurers?

[00:08:52] Speaker 01:
Yes.

[00:08:53] Speaker 01:
You nonetheless tried the case on the theory that you did, which is giving you trouble now as you're looking at the insurance policy.

[00:09:02] Speaker 04:
Yes.

[00:09:04] Speaker 04:
Understood.

[00:09:06] Speaker 04:
Let's look at the model that the district court chose to analyze the exclusion.

[00:09:12] Speaker 04:
Standin versus Fireman's Fund.

[00:09:14] Speaker 04:
Note that Standin's liability was under CERCLA.

[00:09:18] Speaker 04:
CERCLA applies liability to owners, operators, and arrangers of the disposal of hazardous waste.

[00:09:26] Speaker 04:
Standin was liable as an arranger.

[00:09:28] Speaker 04:
Arrangers like

[00:09:30] Speaker 04:
basically no fault.

[00:09:31] Speaker 04:
The conduct for which Stanton was liable was simply contracting to have his waste trucked to the landfill for proper disposal.

[00:09:39] Speaker 04:
It was not liable for any release from the landfill.

[00:09:43] Speaker 04:
So even though Stanton was disposing of his waste in a perfectly legal, permitted way, he became liable for the failures of the landfill operator.

[00:09:53] Speaker 04:
That's why the Stanton court tells us the relevant discharge is the initial deposit.

[00:09:58] Speaker 04:
Simply transporting the waste creates liability.

[00:10:04] Speaker 04:
Just the deposit.

[00:10:05] Speaker 04:
And that's why the standard court is irrelevant.

[00:10:08] Speaker 04:
The insured, the arranger, didn't intend to contaminate the environment.

[00:10:13] Speaker 04:
Arranger liability doesn't require it.

[00:10:16] Speaker 04:
Under arranger liability, subsequent and accidental releases after the deposit are irrelevant.

[00:10:25] Speaker 01:
And finally, that's why the standing court tells us... So how does that case have any bearing on what's in front of us?

[00:10:31] Speaker 04:
Because the standing analogy that our district court uses isn't the appropriate legal predicate.

[00:10:38] Speaker 04:
It's a ranger model, not an operator model.

[00:10:40] Speaker 01:
No, I get that, but you're relying on the Stringfellow case.

[00:10:45] Speaker 01:
Yes.

[00:10:45] Speaker 01:
Which strikes me as you've got two major flooding events arising from two major rainstorms, and Judge Werdegar's opinion for the court says that's sudden within the meaning of the, an accidental within the meaning of the policy.

[00:11:02] Speaker 01:
We don't have such events here.

[00:11:05] Speaker 04:
But we did offer evidence in the form of an expert opinion from Dr. Greg Douglas, who examined the site.

[00:11:11] Speaker 04:
who dug paint chips out of the sediment, found the path, and he said, this waste is heavy, and it takes a flood.

[00:11:18] Speaker 04:
Something on the order of last week's atmospheric river, or actually floods being caused by tsunamis in the 60s, to wash the yard and cause this stuff to get into the sediment.

[00:11:31] Speaker 04:
We had that evidence, and Judge Wu says, I'm not gonna consider that.

[00:11:36] Speaker 04:
I don't need to consider it, because I'm just gonna rely wholly

[00:11:42] Speaker 04:
on the Superior Court's statement of decision.

[00:11:48] Speaker 04:
But that decision doesn't enlighten as to the mechanism of release, and it certainly doesn't address all the damage.

[00:11:58] Speaker 05:
then you should have brought that evidence in the state court.

[00:12:02] Speaker 05:
Maybe there would have been no liability.

[00:12:05] Speaker 05:
Maybe the defense would have been, we actually did a very good job and, you know, except for that once in a generation, you know, rainfall received, the port wouldn't have been contaminated and maybe there would have been no liability.

[00:12:18] Speaker 05:
you know, get liability by saying they did nothing, you know, toxins were being released everywhere, get the liability, get the damages, and then pivot and say, well, actually, you know what, maybe they did a good job.

[00:12:28] Speaker 05:
Maybe it would have been all contained in the pavement except for this huge, you know, monsoon that came.

[00:12:34] Speaker 04:
That's why you don't try your coverage case in the liability case.

[00:12:40] Speaker 05:
But you're relying on the underlying state case for the liability and damages and trying to leverage that to get money from the insurers.

[00:12:49] Speaker 04:
Again, all we proved in the state case was that PCB didn't come from snow, as the defendants, as travelers suggested.

[00:12:59] Speaker 04:
That because we can find PCBs in the soil and sediment, and its concentrations correlate with high concentrations of copper, which is also used in both bottom pane, this more likely than not came from

[00:13:17] Speaker 04:
boat paint and not other sources.

[00:13:20] Speaker 04:
We didn't address the mechanism of release.

[00:13:23] Speaker 04:
The mechanism of release, which is what the coverage turns on, is what's at issue in front of the district court.

[00:13:34] Speaker 04:
When you use an arranger model to direct your focus to the

[00:13:41] Speaker 04:
conduct from which liability arises, you end up focused on the wrong conduct.

[00:13:46] Speaker 04:
This generation of paint waste on pavement is not the same as deposit of waste to a landfill.

[00:13:55] Speaker 04:
Property damage doesn't occur when you scrape a boat and it falls on asphalt.

[00:14:00] Speaker 04:
It's not ultimate disposal.

[00:14:02] Speaker 04:
We know that Wilmington Marine was sweeping up the waste.

[00:14:06] Speaker 04:
It had to be.

[00:14:06] Speaker 04:
If they weren't, it would be knee deep.

[00:14:11] Speaker 04:
Wilmington was not arranging for waste to be deposited in the farm.

[00:14:15] Speaker 00:
I thought that part of the evidence at trial was that Wilmington really willfully adopted no containment measures.

[00:14:24] Speaker 00:
I think at one point there was reference to Wilmington spreading the

[00:14:29] Speaker 00:
toxic waste around, like fertilizer, allowing it to just freely flow into the harbor whenever it rained.

[00:14:37] Speaker 00:
That's a very specific theory, and there were multiple witnesses that testified to that.

[00:14:41] Speaker 00:
So I guess I still don't get why that doesn't relate to the issue that you're arguing today.

[00:14:46] Speaker 04:
That conclusion is the district court's conclusion.

[00:14:50] Speaker 04:
He came to the conclusion that there was no effort at containment, which is not the same as deficient efforts at containment.

[00:14:59] Speaker 04:
Because if you use an operator model, evidence of good housekeeping is pivotal.

[00:15:06] Speaker 05:
What were the efforts at containment here?

[00:15:08] Speaker 04:
Sweeping up.

[00:15:10] Speaker 04:
Housekeeping is the key for boat repair, because it's still done the same way.

[00:15:15] Speaker 04:
Happens on dry land, scrape the boat, you've got to sweep it.

[00:15:17] Speaker 04:
If you don't sweep it, if you don't sweep it completely, you get the atmospheric river, you get a flood, it's going to end up in the harbor.

[00:15:28] Speaker 01:
If you apply an operator model... Now, do you need an atmospheric river or just an ordinary rainstorm?

[00:15:33] Speaker 04:
Well, it's heavy.

[00:15:34] Speaker 04:
It needs to generate flow.

[00:15:35] Speaker 04:
You need a flow rate.

[00:15:37] Speaker 04:
That was Dr. Douglas's opinion.

[00:15:39] Speaker 04:
You need a lot of water to pick this stuff up from where it lies on dry land and carry it to the ocean.

[00:15:49] Speaker 04:
Judge Wu used the arranger model.

[00:15:52] Speaker 04:
where, like I said, liabilities strip.

[00:15:55] Speaker 04:
You transport your libel.

[00:15:57] Speaker 04:
Intervening events between the deposit and the resulting environmental damage don't matter.

[00:16:03] Speaker 04:
Resulting environmental damage doesn't need to be anticipated.

[00:16:07] Speaker 04:
So it's easy for the judge in that case, using the standard model, it's easy for him to conclude that this damage was the result of a deliberate act.

[00:16:16] Speaker 04:
The courts actually rely, once you get back on page 28, when he gets back,

[00:16:24] Speaker 04:
the occurrence analysis remember there's three policies the first three policies the exclusion is based on if the insured intended or expected the release well he's already identified from stand-in that the act is the act of doing boat repair and dropping paint on the pavement well now using

[00:16:50] Speaker 04:
California cases that deal with sexual assault and child molestation, they say that, oh, well, the damage is like a foregone conclusion from those acts.

[00:17:00] Speaker 04:
But that's not what California law says.

[00:17:04] Speaker 04:
The possibility that an unexpected and unforeseen intervening event can create an accident has never been foreclosed.

[00:17:11] Speaker 04:
I mean, you can see it.

[00:17:15] Speaker 04:
The district court actually said as much.

[00:17:16] Speaker 04:
It said an accident does not occur when the insured performs a deliberate act unless some additional unexpected, independent and unforeseen happening occurs that produces damage.

[00:17:26] Speaker 04:
We put in evidence of these tsunamis, heavy rainstorms.

[00:17:33] Speaker 04:
Court chose not to consider that.

[00:17:36] Speaker 05:
There's no way the city, if they're doing an audit of a company and they're scraping toxic paint and just let it drop onto the concrete and they say, well, we're doing a pretty good job or we're doing an adequate job of containing it.

[00:17:49] Speaker 05:
There's no way the city would say, that's okay.

[00:17:52] Speaker 05:
You know, there's no way.

[00:17:55] Speaker 04:
It still happens.

[00:17:57] Speaker 05:
And the city's OK with it?

[00:17:59] Speaker 04:
Well, that's another separate issue.

[00:18:01] Speaker 04:
The city's not an environmental regulator, for one.

[00:18:03] Speaker 04:
Two, there's evidence in this case that the EPA did an audit of Wilmington Marine.

[00:18:09] Speaker 04:
And there was no citation.

[00:18:11] Speaker 04:
So it's hard to square it.

[00:18:12] Speaker 05:
That's a separate issue of our agencies, whether they're doing their job.

[00:18:15] Speaker 05:
But I don't think anyone would say that's a containment, not putting it into a pit or a landfill, just letting it fall into the concrete.

[00:18:23] Speaker 04:
We paint houses the same way.

[00:18:26] Speaker 04:
scrape your garage door, it falls on the driveway.

[00:18:28] Speaker 05:
I don't think there's a water port nearby.

[00:18:32] Speaker 05:
Maybe if you're lucky enough, maybe you're in a waterfront property, but most of us aren't.

[00:18:39] Speaker 04:
Anyway, I was just going to conclude and save my last minute.

[00:18:43] Speaker 04:
Even Delgado tells us, which the district court cites, that there's room that the law allows.

[00:18:52] Speaker 04:
for an additional unexpected to event to create an accident provided it occurs after the deliberate act.

[00:19:01] Speaker 00:
Thank you, counsel.

[00:19:12] Speaker 03:
Your honor's good morning may it please the court.

[00:19:14] Speaker 03:
My name is Dan Kadabaugh.

[00:19:16] Speaker 03:
I am counsel for United National Insurance Company in this case.

[00:19:19] Speaker 03:
I am taking the first 10 minutes of this appellee's argument.

[00:19:22] Speaker 03:
My colleague Mr. Jack is counselor for, he is counsel for travelers.

[00:19:26] Speaker 03:
He will take the second 10 minutes.

[00:19:27] Speaker 03:
So I will try to keep this exactly at 10 and give him the last 10.

[00:19:31] Speaker 03:
I would like to start by responding to the points Mr. Matfeld just made and then raise one additional issue that Judge Wynn, you hit on about containment.

[00:19:39] Speaker 03:
Starting with the broad theme of Mr. Matfield's argument, what he argued before you is that there is no evidence in the Wilmington record of polluting acts during the insurers' policies in the 1970s and the 1980s.

[00:19:50] Speaker 03:
He said, I believe he got up here and said that it was only from 2007 on to the demise of Wilmington Marine.

[00:19:56] Speaker 03:
That's the evidence of polluting acts that are in the record, and that's all that was litigated in the Wilmington case.

[00:20:05] Speaker 03:
That is not true.

[00:20:06] Speaker 03:
If you look to Mr. Matfeld's own opening argument in the Wilmington trial, it appears starting in the record at page 2048, he specifically told Judge Cool that there was not going to be percipient witness testimony

[00:20:21] Speaker 03:
before the court, but that did not matter because Dr. Douglas, his expert witness, was going to give such conclusive and persuasive testimony about the nature of the chemicals that were found at the site and in the harbor sediments that he could go back in time and tell you what those chemicals were, what the pollutants were, what time periods they were used during boat repair operations in the 60s, 70s, 80s, 90s.

[00:20:43] Speaker 03:
And thus, based on that, that Mr. Matfeld was going to be able to show the court that from 1962 when Wilmington started operating at that premise, or at those premises, until 2012 when it was evicted, it polluted the site and caused pollution of the harbor sediments the entire time.

[00:20:59] Speaker 03:
And the court agreed with that.

[00:21:00] Speaker 03:
Judge Cool specifically found as a fact that from 1962 to 2012, Wilmington

[00:21:07] Speaker 03:
Through its business operations of cleaning boats of shedding paint of cleaning out engines of doing boat repair caused significant contamination of the site that at least from the city and of the harbor sediments and that was the judgment and that's what it was premised on.

[00:21:21] Speaker 03:
So that is why in this coverage case, we are focusing on the.

[00:21:26] Speaker 03:
business operations of Wilmington Marine Service because those were the causal acts of pollution that this judgment rests on.

[00:21:32] Speaker 01:
Let me ask you this and I probably shouldn't know the answer to this already.

[00:21:35] Speaker 01:
Was the judgment in the Superior Court based upon pollution into the harbor only or pollution into the ground at the site as well?

[00:21:44] Speaker 03:
It was based on both.

[00:21:45] Speaker 03:
It was based on the initial discharge of pollutants onto the boatyard ground, and that those boatyard pollutants were not contained by Wilmington.

[00:21:51] Speaker 03:
They then spread into the harbor.

[00:21:53] Speaker 03:
And there's actually a great quote from Mr. Matfeld himself.

[00:21:57] Speaker 01:
Maybe I misunderstood you.

[00:21:58] Speaker 01:
I asked, is the judgment based on what goes into the harbor and what stays on land?

[00:22:04] Speaker 01:
And then you said both, and then you just talked about what went into the harbor.

[00:22:08] Speaker 03:
My apologies, Your Honor.

[00:22:09] Speaker 03:
Yes, it's based on both.

[00:22:10] Speaker 03:
It's based on what is in the harbor polluting the sediments and also on the land and then the seep down into the groundwater at the site.

[00:22:17] Speaker 03:
The judgment is based on all of that.

[00:22:18] Speaker 01:
So at least as to that that stays on land, you don't need a big rainstorm to wash it into the harbor because it doesn't go into the harbor.

[00:22:27] Speaker 03:
You don't.

[00:22:28] Speaker 03:
But it did go into the harbor.

[00:22:30] Speaker 03:
I'm sorry, I think I misunderstood your question.

[00:22:33] Speaker 03:
The pollution that is discharged directly onto the land, that's what comes from cleaning boats, repairing boats, goes onto the ground at the boatyard.

[00:22:41] Speaker 03:
The stuff that stays there, it can get hit by rain.

[00:22:43] Speaker 03:
I believe Judge Winn pointed out during Mr. Matfeld's argument, there's a quote in there about

[00:22:47] Speaker 03:
It's like fertilizing your lawn.

[00:22:49] Speaker 03:
It seeps down into the groundwater.

[00:22:51] Speaker 03:
That's part of it.

[00:22:51] Speaker 03:
So there's polluted groundwater.

[00:22:53] Speaker 03:
That's part of what Wilmington was sued for.

[00:22:55] Speaker 03:
There's pollution all over the boatyard, but there's also pollution in the harbor waters down into the sediment.

[00:23:00] Speaker 03:
And so that comes from the boatyard pollution that gets washed into the harbor.

[00:23:05] Speaker 03:
As to that, what we have from Mr. Matfeld in his opening argument in the Wilmington trial,

[00:23:11] Speaker 03:
This is on page 2048, line 27 of the transcript.

[00:23:14] Speaker 03:
He told the court, he said, today we're going to show the court that over the course of 50 years of operation, Wilmington Marine Services released or otherwise failed to contain hazardous wastes that are generated by its boat repair operation.

[00:23:27] Speaker 03:
We go to his closing argument after all the testimony he adduced at trial.

[00:23:30] Speaker 03:
This is page 1930 of the record, and it starts at line 25 of this transcript page.

[00:23:36] Speaker 03:
Mr. Matfeld, so the city is asking that the court find Wilmington Marine Service is liable for the contamination of soil, groundwater, and sediment at birth 162 on account of its release and failure to contain hazardous waste.

[00:23:49] Speaker 03:
And those wastes, shall I say the waste streams were generated by boat repair and it's well documented and it's not really disputed.

[00:23:56] Speaker 03:
So when Mr. Matfeld got up here and told you guys, told this honorable panel that there's no evidence in the record that there were

[00:24:03] Speaker 03:
releases or polluting events during the insurers policy periods in the 70s, that is simply not true.

[00:24:09] Speaker 03:
The entire case was litigated on the basis that for 50 years, Wilmington Marine polluted its site, did nothing to contain its pollution.

[00:24:16] Speaker 03:
And because of that failure to contain pollution, sediments got polluted by runoff into the harbor.

[00:24:22] Speaker 03:
It just happened for 50 years.

[00:24:23] Speaker 03:
And that's why the judgment, excuse me, that is what the judgment is based on.

[00:24:27] Speaker 03:
The judgment is a liability judgment for five decades of pollution.

[00:24:30] Speaker 01:
So what if we have evidence that in severe rainstorms, some of this pollution will wash off into the harbor?

[00:24:43] Speaker 01:
That pollution, is that sudden and accidental?

[00:24:47] Speaker 03:
It is not.

[00:24:47] Speaker 03:
The reason it is not, and it is not the same as the State of California case, it's the Stringfellow case that you mentioned in Mr. Mathel's argument.

[00:24:54] Speaker 03:
In that case, the reason that was deemed sudden and accidental is because that was a new polluting event.

[00:24:59] Speaker 03:
And the reason why is that the insured in that case, the state of California was being held liable for a release from a specifically designed containment facility where chemicals that were dumped by polluting corporations

[00:25:10] Speaker 03:
in a specifically designed facility to hold those contaminants.

[00:25:13] Speaker 01:
Huge rainstorms.

[00:25:14] Speaker 01:
I understand the facts of that case, and I don't think that the definition of sudden and accidental is an identity function with what happened in Stringfellow.

[00:25:24] Speaker 01:
What happened in Stringfellow clearly was sudden and accidental, but there may be things that are a little, as it were, I guess I can say milder, that might also be sudden and accidental.

[00:25:33] Speaker 01:
Why is it not sudden and accidental if you have a typical Southern California rainstorm, the kind we get maybe a couple of times a year, that washes into the harbor?

[00:25:43] Speaker 01:
Why is that not sudden and accidental?

[00:25:45] Speaker 03:
The reason, Your Honor, is that on a sudden and accidental exception to a pollution exclusion, according to Standen and then the Stringfellow case State of California, the focus is on the release that gave rise to liability for the insured.

[00:25:56] Speaker 03:
So the release that gave liability to this insured Wilmington is its initial releases through its business activities.

[00:26:03] Speaker 03:
Then, because we get to the issue of failure to contain, and that is key to this issue, is that when you have discharges onto the ground that are not contained, any further spreading of the pollution that's on the ground into the broader environment, per stand-in and then state of California,

[00:26:18] Speaker 03:
is not another release that is not a polluting event by which the pollution exclusion is analyzed.

[00:26:23] Speaker 01:
I don't buy that one.

[00:26:25] Speaker 01:
So if I don't buy that distinction, why is it not sudden and accidental?

[00:26:30] Speaker 01:
I put it somewhere, I count on the ground to contain it, the ground doesn't work, it washes off.

[00:26:36] Speaker 03:
Well, Your Honor, when you say you don't buy it, what the state of California specifically says is that the issue is whether or not it is intended to be contained.

[00:26:45] Speaker 03:
So when you discharge into the environment directly without any effort in containment, which is specifically the theory that the city litigated the underlying case on, further spreading through other events,

[00:26:55] Speaker 03:
is not a sudden and accidental release because it is not a release at all.

[00:26:58] Speaker 03:
It's just further instance of property damage.

[00:27:01] Speaker 03:
So there has to be intended containment and then a release from that state of containment in order to be a sudden and accidental release because otherwise it's not a polluting event that matters at all to a pollution exclusion.

[00:27:12] Speaker 03:
That's why.

[00:27:16] Speaker 01:
Is there no evidence at all in front of Judge Cool of attempts to contain?

[00:27:20] Speaker 01:
It clearly was inadequate, but there's no evidence of any attempt to contain or mitigate?

[00:27:25] Speaker 03:
And I realize that I'm coming up on my time, so I'll try to keep this short, although I have a minute and 45 seconds.

[00:27:30] Speaker 03:
There is no evidence to contain other than Wilmington Marine installing two concrete interception berms to catch wastewater in 1995, which for purposes of these policies is legally irrelevant because that's 10 years after the last one expired.

[00:27:45] Speaker 03:
So during the policy periods when property damage must occur, no, there is no evidence of containment.

[00:27:51] Speaker 03:
And take it from Mr. Matfeld's own words, what he says on page 1930 of the record in his closing argument.

[00:27:57] Speaker 03:
So the city is asking that the court find Wilmington Marine liable for the contamination of soil, groundwater, and sediment at birth 162 on account of its release and failure to contain pollutants.

[00:28:07] Speaker 03:
Bottom of page 1931 at line 26, Mr. Matfeld.

[00:28:11] Speaker 03:
Now, as for Wilmington Marine's efforts to contain those hazardous wastes and prevent them from contaminating the soil and sediment, check well.

[00:28:21] Speaker 03:
There is no evidence that Wilmington Marine made any effort at all, particularly before about 95, when an attempt to gain compliance with the Clean Water Act by installing those berms with the witnesses testified were generally ineffective.

[00:28:34] Speaker 03:
So council's own argument to obtain the judgment

[00:28:37] Speaker 03:
The evidence that he had induced, the testimony he put on, and the court agreed with this, was that there was no effort to ever contain pollutants until 1995, which does not matter for these policies.

[00:28:46] Speaker 03:
So yes, when you ask was there any evidence of containment, the answer is no, not as it affects coverage in this case.

[00:28:51] Speaker 03:
None whatsoever.

[00:28:54] Speaker 03:
I have 20 seconds left.

[00:28:55] Speaker 03:
I have one other note.

[00:28:56] Speaker 03:
I just wanted to say, I heard Mr. Matfeld say in his argument that there is no evidence that Wilmington Marines subjectively intended damage to the soil and sediment.

[00:29:05] Speaker 03:
I would just like to note for the panel, that is legally irrelevant for a pollution exclusion that focuses on the nature of the release, not the intent to cause damage.

[00:29:11] Speaker 03:
So it's whether the polluting event itself, the discharge, was sudden and accidental.

[00:29:16] Speaker 03:
Whether the pollution was intended, that is not relevant.

[00:29:20] Speaker 03:
That doesn't matter.

[00:29:21] Speaker 00:
Thank you.

[00:29:38] Speaker 02:
Good morning.

[00:29:39] Speaker 02:
May it please the court, Everett Jack, appearing on behalf of the Travelers Appellees in this matter.

[00:29:43] Speaker 02:
And Travelers joins in the arguments that Council for United Nations just made.

[00:29:48] Speaker 02:
I'd like to, I have four points I want to address, but first I'd like to address the questions that the court was asking about discharges from rainwater.

[00:29:57] Speaker 02:
And the evidence put forward in the record was that sufficient, it was sufficient to discharge waste from the operations merely via rain.

[00:30:06] Speaker 02:
and boat washing on the site.

[00:30:09] Speaker 02:
That waste would run into the water.

[00:30:11] Speaker 02:
So it didn't require a storm event.

[00:30:13] Speaker 02:
This was the record before the trial court.

[00:30:15] Speaker 02:
It did not require a storm event for that to occur.

[00:30:18] Speaker 02:
And in fact, the reason that the berms were installed in 1995 was because they knew that waste was running into the water, and that was a mechanism as an effort to try and stop it after 40 years of operations.

[00:30:30] Speaker 02:
First of all, I just want to address my first issue is that this is not a duty to defend case.

[00:30:39] Speaker 02:
This is a duty to indemnify case.

[00:30:41] Speaker 02:
So the broad potential for coverage arguments that you might ordinarily hear on cases like this do not apply here.

[00:30:48] Speaker 02:
And in this instance, what we're actually interested in is the actual liability imposed on Wilmington Marine based on the claims and theories presented.

[00:30:58] Speaker 02:
by comparing the judgment against the policies in question.

[00:31:03] Speaker 02:
And I want to next address the record in the trial court.

[00:31:10] Speaker 02:
At trial, the city chose to pursue a deliberate business operations resulted in discharged, resulted in contamination over 50 yards from business operations, causing contamination to the soil and the sediment and the groundwater, like lots of other boat yards.

[00:31:28] Speaker 02:
And the city went all in on this business operations discharge by dismissing all of their negligence claims before the trial of this case.

[00:31:37] Speaker 02:
So they went to trial without any negligence claims at all.

[00:31:42] Speaker 02:
During the judgment by Judge Cool then made detailed findings and conclusions, none of which were appealed, and therefore are all verities for the liability at issue in this case.

[00:31:55] Speaker 02:
They included Wilmington Marine's operations for 50 years on the site.

[00:32:00] Speaker 02:
That waste discharged by Wilmington Marine's boat and repair maintenance operations contaminated the soil, groundwater, and sediments.

[00:32:08] Speaker 02:
That the contaminations at issue were used in marine paints from 1948 until 1989, and there were high levels of those contaminants in areas where Wilmington Marine historically performed boat operations.

[00:32:23] Speaker 02:
that based on the chemical composition of the contaminants and the co-location testimony from Dr. Douglas, Wilmington Marines' boat repair activities from the 1960s to the 1980s were the cause of the contamination.

[00:32:38] Speaker 02:
And that Wilmington Marines' first effort at any containment was 1995 when it installed the berms.

[00:32:45] Speaker 02:
The conduct for which liability is imposed and coverages to be determined are those facts that the court found.

[00:32:53] Speaker 02:
Now, in Wilmington, excuse me, in the city's reply brief, they make a statement that if this court determines that these deliberate business operations are that discharged waste into the environment, namely the stripping of paint, sandboxing of paint, washing of hazardous materials from ship hulls, is the relevant discharge?

[00:33:20] Speaker 02:
that there is no need to talk about an accident because that is not an accident and therefore there would not be any coverage.

[00:33:28] Speaker 02:
So what Mr. Matfel then focused on with you this morning was whether or not there was a relevant discharge event.

[00:33:38] Speaker 02:
And I think preliminarily it's important to recognize

[00:33:42] Speaker 02:
that the judgment identifies really only a single discharge event.

[00:33:46] Speaker 02:
And that is Wilmington Marines decades of boat repair operations by which pollutants were deliberately discharged in that process into the environment causing contamination to the site, both the soil, the groundwater, and the sediments.

[00:34:03] Speaker 02:
And the declaration offered by Mr. Douglas and Dr. Douglas in this case was the first claim of some subsequent discharge

[00:34:11] Speaker 02:
as a result of a fitter to contain.

[00:34:15] Speaker 01:
Mr. Matfeld talked about... Were the insurance companies defending in the trial court under duty to defend?

[00:34:22] Speaker 02:
Yes, sir.

[00:34:22] Speaker 02:
Actually, travelers appeared to provide a defense, notwithstanding the fact that the insured failed to appear and failed to cooperate in the defense.

[00:34:35] Speaker 02:
Mr. Matfeld has talked a little bit about the Stanton case.

[00:34:39] Speaker 02:
and the City of Los Angeles case, and what is the right analysis for considering the discharge that should be evaluated by the court.

[00:34:49] Speaker 02:
The stand-up decision and the State of California case both apply exactly the same analysis to what is the correct discharge event to consider.

[00:35:01] Speaker 02:
And in each case, the court concluded that the relevant discharge is the one that is alleged to be the basis for the liability or which the judgment is based against the insured.

[00:35:15] Speaker 02:
So in the Standom case, the liability against the insured was for the delivery of waste to the site.

[00:35:21] Speaker 02:
And so therefore, the delivery of the waste to the site was the relevant discharge.

[00:35:26] Speaker 02:
In the State of California case, the allegation was that the state

[00:35:31] Speaker 02:
allowed the waste to release from a containment facility.

[00:35:35] Speaker 02:
And therefore, that was the reason and the discharge that was relevant for those purposes.

[00:35:40] Speaker 02:
Here in this case, the city's entire theory of liability and basis for liability in the judgment was that Wilmington Marine was liable for damages as a result of discharge to the site from pollutants as part of its regular and routine business operations over 50 years, as evidenced by the co-location evidence in the high levels of contamination

[00:36:00] Speaker 02:
in areas where they conducted those boat repair operations.

[00:36:04] Speaker 02:
In short, there should be no dispute that it is those business operations that the city pursued as the means of release and Mr. Matfeld recognizes that if that is in fact the appropriate discharge, there is no accident because regular business operations cannot constitute an accident under a general liability policy and therefore there would be no coverage.

[00:36:29] Speaker 02:
I could speak about a lot of other things, but I'd rather find out if the court has any questions that I'm not answering.

[00:36:36] Speaker 00:
We have no further questions.

[00:36:37] Speaker 02:
All right.

[00:36:37] Speaker 02:
Thank you.

[00:36:38] Speaker 00:
Thank you for your argument.

[00:36:52] Speaker 04:
Does the stand on court actually distinguishes Montrose chemical?

[00:36:57] Speaker 04:
as the proper, as different because it involved releases from an operation at the insurance place of business.

[00:37:06] Speaker 04:
STANDIN distinguishes arranger liability from operator liability.

[00:37:09] Speaker 04:
It distinguishes its choice of relevant discharge from the state of California, which is an operator model.

[00:37:19] Speaker 04:
The reason, I mean, we did argue that releases and failures to contain cause the contamination.

[00:37:25] Speaker 04:
Chemical of concern in this case is PCB.

[00:37:28] Speaker 04:
PCB was invented in the 30s, outlawed in 76.

[00:37:32] Speaker 04:
In order to get liability for PCB, we had to argue that releases occurred

[00:37:41] Speaker 04:
in the 60s, in the 70s, when PCBs were widely in use as a plasticizer for marine paints.

[00:37:48] Speaker 01:
But we never argued that it was... Is it true, as was represented in the argument from the other side, that the first attempt to contain was the installment of those berms?

[00:37:59] Speaker 04:
Because they're using this construct that that pavement concrete asphalt is not a containment.

[00:38:07] Speaker 04:
And so that's a construct that allowed the district court in this case to back into standing.

[00:38:15] Speaker 04:
He said, that releases the generation of waste through boat repair, the legitimate business.

[00:38:22] Speaker 04:
That business was a deliberate, the Deliberate Act is conducting the business of boat repairs.

[00:38:29] Speaker 04:
But yeah, in the trial court, we said, yeah, releases and failures to contain, but we never said intentional.

[00:38:35] Speaker 04:
We never said,

[00:38:36] Speaker 04:
sudden and accidental mechanisms.

[00:38:38] Speaker 04:
We never talked about expected or intended damages.

[00:38:41] Speaker 04:
We just said these chemicals, PCBs in particular, are associated with boat paints used in the 60s and the 70s.

[00:38:53] Speaker 04:
Again.

[00:38:55] Speaker 04:
When your honor challenged Mr. Kattabaw on the pavement issue, he jumped right back to stand in the arranger liability, where expectation of damage is of no matter, subsequent releases don't matter, liability is strict.

[00:39:11] Speaker 04:
And that's the model that the district court uses to find that there's no accident.

[00:39:18] Speaker 00:
All right, thank you very much.

[00:39:19] Speaker 00:
Our questions took you over time.

[00:39:21] Speaker 00:
I appreciate both sides for your argument today.

[00:39:23] Speaker 00:
The matter is submitted.

[00:39:24] Speaker 00:
And that's our last case on the argument calendar this morning.

[00:39:27] Speaker 00:
We're in recess until tomorrow morning.

[00:39:29] Speaker 00:
Thank you.

[00:39:29] Speaker 05:
All rise.

[00:39:32] Speaker 00:
This court stands in recess until tomorrow morning.