Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Madera County No. MCV048596, Ernest J. Licalsi, Judge.
Dowling, Aaron & Keeler, Daniel O. Jamison and Paul M. Parvanian for Plaintiff and Appellant.
Charlston, Revich & Wollitz, Ira Revich, Stephen P. Soskin, and James B. Green for Defendant and Respondent.
OPINION
Gomes, J.
Appellant Sakaye Ichimoto, both individually and as trustee of the Ichimoto Trust Agreement dated September 22, 1988 (Ichimoto), appeals the judgment entered after a demurrer was sustained without leave to amend to her first amended complaint (FAC) against her insurer, respondent American Motorists Insurance Company (Amico), for breach of insurance contract, bad faith denial of insurance benefits, and declaratory relief. Ichimoto’s complaint was based on Amico’s refusal to provide a defense for a lawsuit a neighboring property owner brought to recover response costs and damages resulting from alleged hazardous substance contamination of three properties, including Ichimoto’s. Amico demurred to the original complaint, contending there was no potential for coverage, and also brought a motion to strike certain allegations and punitive damages from the bad faith cause of action. The trial court overruled the demurrer, but granted the motion to strike. After Ichimoto filed the FAC, Amico again demurred, contending there was no potential for coverage, and also brought a motion to strike allegations in the bad faith cause of action. The trial court agreed there was no potential for coverage and sustained the demurrer without leave to amend. We agree with the trial court that there was no potential for coverage under the facts alleged and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On appeal from a judgment of dismissal after a demurrer is sustained without leave to amend, we assume the truth of all facts properly pleaded in order to determine whether a cause of action is stated. (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814; Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 579.) We do not, however, assume the truth of contentions, deductions or conclusions of fact or law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) In accordance with these rules, we recite the facts as taken from the FAC, which Ichimoto filed after the trial court sustained Amico’s demurrer to her complaint.
Ichimoto owns real property located at 40366 and 40368 Highway 41 in Oakhurst; she and her husband, George T. Ichimoto, who passed away in December 2007, purchased the properties in 1986. In June 2006, Ichimoto received a letter from the California Regional Water Quality Control Board (the Board) which stated that a chemical used in the dry cleaning business, perchlorethylene (PCE), had been detected in elevated concentrations in soil gas at three locations surrounding Ichimoto’s property at 40368 Highway 41 (the site) and in water samples collected from a domestic water supply well within approximately 500 feet of the site. The Board requested that Ichimoto submit a work plan prepared by a civil engineer or geologist to investigate possible releases of volatile organic compounds (VOCs) to soil and groundwater from the site and nearby sewer lines or septic systems.
In April 2008, Rodney and Patricia Schultz, who own property at 40441 Highway 41 near Ichimoto’s property, brought suit against Ichimoto and others seeking to recover response costs and damages resulting from the alleged hazardous substance contamination located at 40366, 40423, and 40441 Highway 41. On June 30, 2008, Ichimoto tendered the defense and demanded indemnification of the Board proceedings and Schultz lawsuit to Amico, which had issued business liability insurance policies to Ichimoto from April 16, 1995 to April 16, 2001. Amico denied defense and indemnity on August 21, 2008. Ichimoto again tendered defense and demanded indemnification from Amico on November 6, 2008, which Amico again denied on November 7 and December 8, 2008. Ichimoto then brought this lawsuit against Amico.
The Board Letter
The Board’s letter explained that PCE was commonly used as a dry cleaning solvent and numerous studies had shown that PCE handling and disposal practices at dry cleaning businesses could lead to releases of PCE to the soil and groundwater, as well as along sanitary sewer lines that carry wastewater from the cleaners. Groundwater impacted by PCE in the vicinity of the site was first discovered in 1991 in a nearby small water system that was no longer being used as a domestic supply well. The Central Valley Regional Water Quality Control Board (Central Valley Water Board) conducted a study to assess the source of the PCE in groundwater, which included collecting and testing water samples from wells along Highway 41 in the vicinity of the site. PCE above the State of California’s drinking water maximum containment level was detected in several of the water samples. A soil vapor survey the Central Valley Water Board conducted in the summer of 1991, in which petrex tubes were installed at “three locations around the site and at two locations north of the site, ” detected PCE in the tubes installed on the site five to 50 times higher than the samples collected north of the site. Water samples collected from wells in the vicinity of the site during at least six sampling events detected PCE concentrations ranging from below detection limits to a maximum concentration of 270 ug/l in a well located on Golden Oak Drive, south and down-slope of the site.
The Board believed the source of PCE in the soil vapor detected on the site was from historical spills or discharges of PCE-laden wastewater from the former dry cleaner, which had operated on the site from 1968 to 1987, to the sanitary sewer system or septic system. The work plan the Board requested Ichimoto to submit needed to include a history of PCE usage, storage, handling and disposal practices, as well as a map of the dry cleaning building layout and the location of sanitary sewer lines or septic systems, and proposed appropriate tasks to assess the impact of PCE on soil and groundwater at the site.
After June 2006, Ichimoto received additional correspondence from the Board requiring her to bear the expense of investigation and remediation of alleged releases of PCE from Ichimoto’s property to the soil and underground water.
The Schultz Complaint
The Schultz complaint, filed in the United States District Court, Eastern District of California, seeks to (1) recover response costs and damages resulting from alleged hazardous substance contamination of real properties located at 40366, 40423 and 40441 Highway 41, Oakhurst, California, (2) obtain contribution or indemnification for costs associated with the environmental contamination, (3) recover damages and other relief arising from nuisance and trespass, (4) pursue claims for product liability, and (5) obtain declaratory and injunctive relief. The complaint alleges that at all three locations a dry cleaning business or dry cleaning machines utilizing PCE had been operated.
With respect to the property at 40366 Highway 41, the complaint alleges: (1) that Ichimoto and her husband purchased the property in 1986 and conveyed their interest to a trust in 1988, (2) a dry cleaning business had operated on the premises from 1971 to 1986, with the Schultzes operating the business from 1977 to 1986, (3) during a period in the 1970’s when other defendants, George and Frances Wolfe, owned the property, the Wolfes permitted sudden and accidental releases of PCE onto both the 40366 property as well as adjacent properties, and (4) in June 2006, the Board issued a request to the Ichimotos to submit a work plan to investigate possible releases of PCE and other chemicals from the property into the soil and groundwater.
The complaint further alleges that a laundromat had been operating on the property located at 40423 Highway 41 from 1967 to the present which required the use of PCE, and the property owners had caused or permitted releases of PCE onto that property as well as adjacent properties. With respect to the property located at 40441 Highway 41, the complaint alleges the Schultzes purchased the land in 1986, where they built and operated a second dry cleaning establishment for approximately 10 years. They then sold the business to another couple, who currently operate it. In June 2006, the Schultzes received a request from the Board to submit a work plan to investigate possible releases of PCE and other chemicals into soil and groundwater from the property and nearby sewer lines and septic systems. The Board alleged that PCE had impacted groundwater near the property at 40441 Highway 41 and been detected in soil gas in samples collected near the property, which the Board believed were from historical spills or discharges of PCE-laden wastewater from the former dry cleaner on the site to the sanitary sewer system or septic system. The complaint alleges that as a result, the Schultzes had incurred, and would continue to incur, substantial response costs and expenses in complying with both the order to submit a work plan and additional Board directives to monitor, investigate and possibly remediate groundwater.
The complaint contains causes of action under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) for cost recovery, contribution, and declaratory relief. It also contains the following causes of action that include Ichimoto as a defendant: (1) contribution under Health and Safety Code section 25363, subdivision (e); (2) equitable indemnity/contribution; (3) continuing nuisance; (4) negligence; (5) trespass; (6) declaratory relief; and (7) injunctive relief.
Policy Language
The business liability policy, a copy of which was attached to Ichimoto’s FAC, provided that Amico “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury, ’ ‘property damage, ’ ‘personal injury’ or ‘advertising injury’ to which this insurance applies. We will have the right and duty to defend any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury, ’ ‘property damage, ’ ‘personal injury’ or ‘advertising injury’ to which this insurance does not apply.” The policy defines “suit” as “a civil proceeding in which damages because of ‘bodily injury, ’ ‘property damage, ’ ‘personal injury’ or ‘advertising injury’ to which this insurance applies are alleged. ‘Suit’ includes: [¶] a. An arbitration proceeding alleging such damages to which the insured must submit or does submit with our consent; or [¶] b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.”
There were numerous exclusions to liability coverage set forth in the policy. We focus on the exclusion raised by Amico in its demurrers. Exclusion 1.f., entitled “Pollution, ” provided, in pertinent part, that liability coverage did not apply to the following (later referred to as the “Pollution Exclusion”): “1) ‘Bodily injury, ’ ‘property damage, ’ ‘personal injury, ’ or ‘advertising injury’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time: [¶] a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;... 2) Any loss, cost or expense arising out of any: [¶] a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants; or [¶] b) Claim or ‘suit’ by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants.” The Pollution Exclusion ends with the following exception: “However, the exclusion above does not apply to ‘bodily injury’ or damage to personal property of others, including all resulting loss of use of such property, occurring on any premises, site or location which is owned by or rented to any insured, resulting from the sudden and accidental discharge, dispersal, release or escape of pollutants on such premises, site or location” (the sudden and accidental exception).
Ichimoto’s Complaints and Amico’s Demurrers
In August 2009, Ichimoto filed her complaint in this action against Amico, alleging causes of action for breach of insurance contract, bad faith denial of insurance benefits, and declaratory relief. In response, Amico filed both a demurrer and a motion to strike. In the demurrer, Amico contended none of the causes of action stated facts sufficient to constitute a cause of action since there is no potential for coverage under its policies. Specifically, Amico asserted the Pollution Exclusion bars coverage of both the Schultz lawsuit and the Board proceeding, and the sudden and accidental exception does not apply because there are no allegations of bodily injury or damage to personal property of others occurring on Ichimoto’s property. In its motion to strike, Amico sought to strike from the second cause of action for bad faith denial of insurance benefits certain allegations and the prayer for punitive damages, on the ground that Ichimoto failed to allege any facts showing Amico engaged in willful, malicious or oppressive conduct, and instead offered only conclusory statements that its failure to investigate and denial of a defense were unreasonable.
Ichimoto filed written opposition to both the demurrer and motion to strike. With respect to the demurrer, Ichimoto argued the exception to the Pollution Exclusion for sudden and accidental discharges or releases applied to the Schultz lawsuit because third parties owned the water under Ichimoto’s property, which should be considered personal property.
At the hearing on the demurrer and motion to strike, Ichimoto’s counsel argued there were questions of fact over whether personal property had been damaged on the site as a result of sudden and accidental releases of PCE, and asserted it was possible personal property of others was damaged, including water flowing under Ichimoto’s property, septic tanks, underground utilities and sewer pipes. Following oral argument, the trial court, after expressing a sincere doubt as to whether liability and a duty to defend was appropriate, overruled the demurrer but granted the motion to strike with leave to amend.
Ichimoto filed a FAC which contained the same causes of action as the original complaint, namely breach of insurance contract, bad faith denial of insurance benefits, and declaratory relief. The FAC added factual allegations to one paragraph which was incorporated into the first cause of action for breach of contract, and to the second cause of action for bad faith denial of insurance benefits concerning Amico’s denials of Ichimoto’s tenders.
Amico filed both a demurrer and motion to strike with respect to the FAC. On the demurrer, Amico asserted the FAC did not allege facts sufficient to state any cause of action because the Schultz lawsuit and Board proceeding were both excluded from coverage by the policy, as neither sought to impose liability on Ichimoto for damage to the personal property of others located on Ichimoto’s property. Specifically, Amico contended the sudden and accidental exception was inapplicable because: (1) the water under Ichimoto’s property was real, not personal, property; (2) even if the water was personal property, the water and well containing it either are not on Ichimoto’s property or, if on her property, are owned by her, not others; and (3) the sewer lines or septic systems are either real property or not located on Ichimoto’s property, and the Board does not seek to hold either the Schultzes or Ichimoto liable for damage to the lines or systems. Amico further argued that since there was no duty to defend, Ichimoto could not state a cause of action for bad faith or declaratory relief, but even if a duty existed, the bad faith claim failed because the facts alleged did not show that Amico acted unreasonably. By its motion to strike, Amico sought to strike allegations in the second cause of action for bad faith, as well as the prayer for punitive damages, on the ground that Ichimoto failed to plead or establish a sufficient basis for the recovery of punitive damages and improperly pled allegations of bad faith.
Ichimoto filed written oppositions to both the demurrer and motion to strike. With respect to the demurrer, Ichimoto argued it should be overruled because (1) Amico improperly brought a successive demurrer without complying with the requirements of a motion for reconsideration; and (2) at a minimum, Ichimoto had shown the possibility that water or other utilities under her property were personal property of others that had been damaged by sudden and accidental releases of PCE.
After oral argument on the demurrer and motion to strike, the trial court found that the successive demurrer was proper and, after further review, agreed with Amico that the water below Ichimoto’s property, including the wells, is real property. The court could not find anything in the Board letter and Schultz lawsuit that would indicate damage to personal property of another. The trial court also stated that although the motion to strike was moot, it would have denied it. In its written order, the trial court sustained the demurrer in its entirety, without leave to amend, and did not rule on the motion to strike, finding it moot.
DISCUSSION
Standard of Review
A general demurrer presents the same question to the appellate court as to the trial court, namely, whether the plaintiff has alleged sufficient facts in the complaint to justify relief on any legal theory. (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1811-1812.) The “complaint must be liberally construed to afford plaintiff [his or] her day in court and render substantial justice between the parties.” (Cooper v. National Railroad Passenger Corp. (1975) 45 Cal.App.3d 389, 393, disapproved on other grounds in Ewing v. Cloverleaf Bowl (1978) 20 Cal.3d 389, 401, fn. 8.) A demurrer is properly granted when the pleadings fail to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Regardless of the label attached to the cause of action, the court must examine the complaint’s factual allegations to determine whether they state a cause of action on any available legal theory. (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 560.) It is appellant’s burden, however, to demonstrate the trial court sustained the demurrer erroneously. (Smith v. County of Kern (1993) 20 Cal.App.4th 1826, 1829-1830.)
Subsequent statutory references are to the Code of Civil Procedure unless otherwise noted.
Where a claim has been asserted against an insurer for breach of the duty to defend and the insurance policy and third party complaint are incorporated into the insured’s complaint, we may rely on those documents in assessing the tenability of the breach of the duty to defend claim. (Total Call Internat., Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161, 166 (Total Call).) The proper interpretation of policy provisions is a question of law, which we independently determine. (Rosen v. Nations Title Ins. Co. (1997) 56 Cal.App.4th 1489, 1497.)
Duty of Insurer
“It is by now a familiar principle that a liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity.” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081.) “‘[T]he duty to defend is broader than the obligation to indemnify. The former arises whenever an insurer ascertains facts that give rise to the possibility or the potential of liability to indemnify. Unlike the duty to indemnify which arises only when the insured’s underlying liability is established, the duty to defend must be assessed at the very outset of the case.’” (Total Call, supra, 181 Cal.App.4th at p. 167 (italics omitted).) “The insurer is excused from its defense obligation only when ‘the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.’” (Fire Ins. Exchange v. Superior Court (2010) 181 Cal.App.4th 388, 391-392 (Fire Ins. Exchange), quoting Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 276, fn. 15.) “Even a single claim that does not predominate, but for which there is potential coverage, will trigger the insurer’s duty to defend.” (Fire Ins. Exchange, supra, 181 Cal.App.4th at p. 392.) The absence of a duty to defend can be established if “the insurer shows that ‘the underlying claim [could not] come within the policy coverage by virtue of the scope of the insuring clause or the breadth of an exclusion.’” (Total Call, supra, at p. 167, quoting Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 301.)
To determine whether Amico properly declined to provide a defense to Ichimoto, we identify the facts available to it at the time of its denial. “‘The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy.’ [Citation.] Facts extrinsic to the complaint also trigger the duty to defend when they reveal a possibility that the claim may be covered by the policy. [Citation.] In the context of a demurrer, the absence of a duty to defend may be established when the allegations in the third party complaint disclose no basis for policy coverage, and the insured’s complaint alleges no extrinsic facts that raise a possibility of coverage.” (Total Call, supra, 181 Cal.App.4th at p. 167.)
As a threshold matter, we address Ichimoto’s claim that the trial court erred in “reconsidering” Amico’s argument concerning the applicability of the Pollution Exclusion because the trial court had previously overruled the demurrer to the original complaint on the same ground. Parties, however, are “entirely within their rights to demur to [an] amended complaint notwithstanding their prior unsuccessful efforts to demur to the... original complaint.” (Pacific States Enterprises, Inc. v. City of Coachella (1993) 13 Cal.App.4th 1414, 1420, fn. 3 (Pacific States); see also Coshow v. City of Escondido (2005) 132 Cal.App.4th 687, 702 [court has inherent power to reconsider its rulings and change its decision until entry of judgment].)
Moreover, Ichimoto’s argument ignores that where the substantive allegations of a complaint are changed on amendment, that amendment subjects the pleading anew to challenges of sufficiency because the new pleading supersedes the prior pleading. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 884 [amendatory pleading supersedes original pleading].) Here, the FAC contained new allegations that were incorporated into each of the three causes of action. Thus, to the extent the breach of contract, bad faith and declaratory relief claims relied on changed allegations in the rest of the complaint, it was subject to another demurrer. (See, e.g., Pacific States, supra, 13 Cal.App.4th at p. 1420, fn. 3.) Since Amico’s demurrer at issue here was directed toward the FAC, and was not a motion for reconsideration of the ruling on its demurrer to the original complaint, the case Ichimoto relies on, Le Francois v. Goel (2005) 35 Cal.4th 1094, 1096, in which our Supreme Court held that sections 437c, subdivision (f)(2) and 1008 prohibit a party from making renewed motions not based on new facts or law, does not prohibit the trial court from reaching the merits of the demurrer to the FAC. Furthermore, because such amended pleading supplants all prior complaints, only the FAC will be considered by the reviewing court. (O’Melia v. Adkins (1946) 73 Cal.App.2d 143, 147.)
The Pollution Exclusion and Sudden and Accidental Exception
The only damage asserted in the Board’s letter is the detection of PCE in soil gas on the site and in groundwater in the vicinity of the site, which it believed came from historical spills or discharges of PCE-laden wastewater from the former dry cleaner on the site to the sanitary sewer system or septic system. Based on this damage, the Board requested Ichimoto to submit a work plan to investigate possible releases of VOCs to the soil and groundwater from the site and nearby sewer lines or septic systems. The damages asserted in the Schultz lawsuit are based on the release of PCE from the three properties into the soil and groundwater and consist of (1) response costs, which include the cost incurred to monitor, assess and evaluate hazardous substances releases, the cost of removal and disposal of hazardous substances, and costs incurred in the identification and investigation of potentially responsible parties, (2) the cost of potentially remediating the release of PCE, and (3) the cost of complying with the Board’s directives.
Ichimoto did not dispute in the trial court, and does not dispute now, that to the extent the Schultzes and the Board are seeking damages arising out of the alleged discharge or release of PCE from her property, or demanding a response to or assessment of the effects of the release of PCE, their claims are excluded from coverage under the Pollution Exclusion. Ichimoto, however, contends that the Schultz lawsuit and Board proceeding at least raise a possibility of coverage under the sudden and accidental exception to the Pollution Exclusion, which provides coverage for (1) “damage to personal property of others, ” (2) occurring on any premises, site or location owned by any insured, (3) resulting from the sudden and accidental discharge or release of pollutants on such premises, site or location.
In arguing that the sudden and accidental exception did not apply to the Board letter and Schultz lawsuit, Amico did not contend that the release of PCE was neither sudden nor accidental. Instead, Amico contended the Board letter and Schultz lawsuit did not fall under the sudden and accidental exception because neither alleged damage to personal property of others that occurred on Ichimoto’s property. In contending that the sudden and accidental exception applies, Ichimoto asserts the following items are personal property of others that potentially were damaged during the sudden and accidental release of PCE: (1) groundwater under Ichimoto’s property; (2) water wells and any related apparatus; and (3) other utilities under Ichimoto’s property, such as a cable television or power utility underground box with removable components. As Amico points out, neither the Board letter nor the Schultz lawsuit specifically seeks to recover compensation for damage to any of these items. Ichimoto, however, asserts there is a possibility that these items were damaged as a result of the release of PCE and therefore present at least a potential for coverage.
We note that Ichimoto contends that both the Board letter and Schultz lawsuit fall under the policy’s definition of “suit” thereby requiring Amico to defend her in both matters, citing the recent California Supreme Court case of Ameron Intern. Corp. v. Ins. Co. of the State of Pennsylvania (2010) 50 Cal.4th 1370. Amico, however, contends there is no duty to defend Ichimoto in response to the Board letter because it is not a lawsuit, citing Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857. We need not resolve this issue because, as we shall explain, even if Ichimoto is correct, Amico does not have a duty to defend her in either matter.
The issue we must resolve, then, is whether any of these identified items are “personal property of others” that may have been damaged while on Ichimoto’s property. Because Amico’s policy does not define the words “personal property, ” “for interpretation purposes we look to its ‘ordinary and popular’ definition.” (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 825.) Civil Code section 663 defines “personal property” as follows: “Every kind of property that is not real is personal.” Civil Code section 658 defines real or immovable property, in pertinent part, as land, that which is affixed to land, and that which is incidental or appurtenant to land. The American Heritage Dictionary defines “personal property” as “[t]emporary or movable property as distinguished from real property.” (American Heritage Dictionary, 2nd College Ed. (1985) p. 926.) Black’s Law Dictionary defines personal property, in pertinent part, as “everything that is the subject of ownership, not coming under denomination of real estate. A right or interest in things personal, or right or interest less than a full hold in realty, or any right or interest which one has in things movable.” (Black’s Law Dict., Abridged 5th Ed. (1983) p. 636 col. 1.)
We begin with the groundwater. It is well settled that water that is not severed from the land is real, not personal, property. (Stanislaus Water Co. v. Bachman (1908) 152 Cal. 716, 725 [water in its natural state is real property].) Water may become personal property, however, when it is completely severed from the land and confined in portable receptacles. (Ibid.) Moreover, when water is collected in reservoirs and conducted in pipes to houses, the right to the water in the pipes and the pipes themselves usually constitutes an appurtenance to real property and, if so, the water usually retains its character as realty until severance is completed by its delivery from the pipes to the consumer. (Stanislaus Water Co., supra, 152 Cal. at p. 726; see also Nicoll v. Rudnick (2008) 160 Cal.App.4th 550, 557-558 [once water rights are acquired, they become appurtenant to land; an appropriative water right is a real property interest incidental and appurtenant to land].)
As explained in State v. Superior Court (2000) 78 Cal.App.4th 1019: “Thus, the current state of the law is that a riparian (or overlying) owner, or an established appropriator, has the right to take and use water from, e.g., a flowing stream, but the flowing water is not owned. On the other hand, a water right itself has been considered an interest in real property. [Citation.] It is also sometimes described as a right ‘appurtenant to’ or ‘part and parcel of’ an interest in real property. [Citation.] [¶] It may be true that, at least prior the 1928 adoption of the predecessor to section 2 of article X of California Constitution, one could speak of ‘ownership’ of water itself [citation], and there obviously remains a sense in which discrete quantities of water can be ‘owned.’ For example, one who purchases a container of Arrowhead Puritas water then ‘owns’ five gallons of California water. (See Lewis v. Scazighini (1933) 130 Cal.App. 722, 724 [recognizing that water severed from the land becomes personal property which may be bought and sold like any other commodity].) But in its natural state, water is certainly not subject to ownership by an individual.” (State v. Superior Court, supra, 78 Cal.App.4th at p. 1025.)
Thus, California law is clear that water in the ground, wells and pipes is real property until severed from the land. As Amico points out, there are no allegations in the Schultz lawsuit or the Board letter, or any evidence to suggest, that water in a well on Ichimoto’s property has been severed from the land and placed in containers. Consequently, insofar as the Schultz lawsuit and Board letter seek recovery with respect to the contaminated water itself, no coverage exists under the policy because the water is real, not personal, property, and therefore not subject to the sudden and accidental exception to the Pollution Exclusion. Since the water is real property, Ichimoto’s contention that drinking water may have been contaminated while on Ichimoto’s property and then flowed to adjacent properties, thereby causing damage to others’ property, does not help her. Moreover, the damage to others’ property did not occur on Ichimoto’s property, which is required for the exception to apply.
To avoid this conclusion, Ichimoto argues the State of California has an ownership interest in the water which is a personal property interest, citing State v. Superior Court, supra, 78 Cal.App.4th 1019. There, the Court of Appeal held that the state “owns” groundwater in a regulatory, supervisory sense, i.e. it has the power to control and regulate water use, but not in a possessory, proprietary sense. (State v. Superior Court, supra, 78 Cal.App.4th at pp. 1030, 1033-1034.) Ichimoto reasons that the state’s regulatory ownership interest in water is personal property. Even if true, there is no claim in the Schultz lawsuit or the Board letter for damage to the state’s regulatory or supervisory “ownership” of the contaminated water; instead, the claim is that the water itself is contaminated and needs to be cleaned up.
Since there is no claim in either the Board letter or Schultz lawsuit for damage to the state’s regulatory interest, we need not decide, as Ichimoto urges us to, whether such is an interest in “personal property” within the meaning of the Amico policy.
Moreover, as Amico points out, even if the water and wells containing the water are personal property, the sudden and accidental exception does not apply because either (1) the well and water are not on Ichimoto’s property, or (2) if on her property, they belong to her. As stated above, for the exception to apply, the personal property damaged must belong to “others” and the damage must occur on Ichimoto’s property. The Board letter to Ichimoto clearly states that the water well in which PCE was detected was “within 500 feet of the site, ” and therefore it is not on Ichimoto’s property. While Ichimoto asserts the contaminated well referred to in the Board letter may actually be on her property, even if it is and it is personal property, the well and water therein would then belong to her. (See, e.g., State v. Superior Court, supra, 78 Cal.App.4th at p. 1025.)
Finally, Ichimoto asserts that the Schultzes, as lessees of Ichimoto’s property at 40366 Highway 41 from 1977 to 1986, arguably owned the water under the property as their personal property. Neither the Schultz lawsuit nor the Board letter, however, seeks damages for water used more than two decades ago. Instead, they seek to recover the costs of remediating the water contamination that currently exists.
In sum, under no scenario can alleged damage to the water well and any contaminated water in the well provide a potential for coverage under Amico’s policy.
Ichimoto also contends that the Schultz lawsuit and Board letter might encompass claims of damage to sewer and septic facilities of third parties. But sewer lines and septic facilities are real, not personal property. (See, e.g., Lewis v. Scazighini, supra, 130 Cal.App. 722, 724 [water in a pipe which is real property is appurtenant to the canal or pipe, and therefore real property].) Even if personal property, the sudden and accidental exception would only apply if the sewer lines and septic facilities are on Ichimoto’s property. There is no allegation that the Board is seeking to hold the Schultzes or Ichimoto liable for damage to either sewer lines or septic facilities located on Ichimoto’s property. The Board told the Schultzes only that they needed to “monitor, investigate, and possibly remediate groundwater.” The Board did not direct the Schultzes to repair or pay for any damage to the sewer lines or septic systems themselves. Likewise, the Board directed Ichimoto to “investigate possible releases of VOCs to soil and groundwater from the subject property and nearby sewer lines or septic systems.” It did not direct Ichimoto to repair or replace the sewer lines or septic systems themselves. Accordingly, regardless of the characterization of the sewer lines and septic systems as personal property, the exception to Amico’s policy cannot apply to them.
At most, the Board and Schultz lawsuit seek to impose liability on Ichimoto only for alleged damage to real property, i.e. the contaminated groundwater in wells, sewer lines and septic systems, which is not within the scope of the exception to Amico’s Pollution Exclusion. Moreover, no possibility of coverage exists even if the water, water well, sewer lines or septic systems constitute personal property because (1) either Ichimoto owns the water, (2) the water and facilities are not on Ichimoto’s property, or (3) no damages are sought for injury to the facilities themselves.
Ichimoto speculates there might be other items located on her property that were damaged by the release of PCE, such as cable or utility boxes, that may be the personal property of others. There are no allegations in either the Board letter or Schultz lawsuit that any such property has been damaged. “An insured may not trigger the duty to defend by speculating about extraneous ‘facts’ regarding potential liability or ways in which the third party claimant might amend its complaint at some future date.” (Gunderson v. Fire Ins. Exchange (1995) 37 Cal.App.4th 1106, 1114 (Gunderson).) An insured’s imaginative counsel “‘may not speculate about unpled third party claims to manufacture coverage.’” (Ibid.) Instead, the duty to defend depends upon facts known to the insurer at the inception of the suit. (Ibid.) An insurer does not have a continuing duty to investigate whether there is a potential for coverage; once it has made an informed decision based on the third party complaint and extrinsic facts known to it at the time of tender that there is no potential for coverage, the insurer may refuse to defend the lawsuit. (Ibid.) Since damage to the items Ichimoto suggests might have been damaged, such as utility facilities, are not alleged in the Schultz lawsuit or Board letter, they cannot create a potential for coverage under the exception to the Pollution Exclusion.
In support of this assertion, Ichimoto cites an out-of-state case, Blount v. ECO Resources, Inc. (2008) 986 So.2d 1052, which Amico cited in support of its argument that the water and well are both real property. In Blount, a tax refund case in which the issue was whether a company’s repairs to components of water and sewer systems were to personal property, the court concluded substantial evidence supported the lower tribunal’s finding that removable components to the well and sewer system were personal property. (Blount, supra, 986 So.2d at pp. 1054-1055, 1057-1059.)
Amico was not required to defend Ichimoto against the Schultz lawsuit or Board proceeding because the allegations of the Schultz complaint and Board letter make it clear the damages sought were not covered by the policy. Absent a duty to defend, there can be no breach of the insurance contract.
Ichimoto also alleged Amico engaged in bad faith denial of insurance benefits by failing to defend Ichimoto or conduct a proper and unbiased investigation into the facts and circumstances surrounding the Board letter or Schultz lawsuit before denying Ichimoto’s tender of a defense. Because a contractual obligation is the underpinning of a bad faith claim, such claim cannot be maintained unless policy benefits are due under the contract. (Waller v. Truck Ins. Exch., Inc. (1955) 11 Cal.4th 1, 35.) Therefore, it is clear that if there is no potential for coverage under the terms of the policy, and hence no duty to defend, there can be no bad faith claim because such claims are based on a contractual duty between the insurer and the insured. (Id. at p. 36.) While Ichimoto asserts the covenant of good faith and fair dealing required Amico to investigate, citing Safeco Ins. Co. v. Parks (2009) 170 Cal.App.4th 992, 1008, and Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, neither case applies because Amico had no duty to defend Ichimoto under its policy.
DISPOSITION
The trial court’s judgment is affirmed. Costs of appeal are awarded to respondents.
WE CONCUR: Cornell, Acting P.J., Dawson, J.