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Homestead Insurance Co. v. Ryness Co.

filed: January 5, 1994.

HOMESTEAD INSURANCE CO., PLAINTIFF-APPELLEE,
v.
THE RYNESS COMPANY, ET AL., DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Northern District of California. D.C. No. CV-91-03611-FMS. Fern M. Smith, District Judge, Presiding

Before: Wallace, Chief Judge, Garth*fn* and Wiggins, Circuit Judges

MEMORANDUM

The Ryness Company ("Ryness") appeals from a grant of summary judgment in favor of Homestead Insurance Company ("Homestead"), denying Ryness coverage under a duty to defend clause in a Specialty Errors and Omissions Policy ("Policy") issued by Homestead. We affirm.*fn1

I.

Ryness is a California real estate brokerage firm. On January 8, 1991, a class action was filed against Ryness and others by purchasers of condominium units sold by Ryness in the late 1980's. The class' multiple causes of action alleged, inter alia, that Ryness had defrauded the class members by failing to disclose that land adjacent to the condominium development had been a residential, municipal, and industrial waste dump from the years 1945 to 1970.

At the time the class action was filed, Ryness was insured under a "Specialty Errors or Omissions Liability Insurance Policy" issued by Homestead Insurance Company. The Policy contained provisions whereby Homestead agreed to pay on behalf of Ryness all sums which Ryness might become legally obligated to pay on account of third-party claims for damages caused by "a negligent act, error, or omission" committed by Ryness in the performance of its "real estate sales and brokerage, mortgage loan origination and marketing consultation" business.

The Policy also contained a series of exclusions. In particular, subsection (m) of section 2 of the Policy ("Exclusion (m)") provided as follows:

This insurance does not apply to claims for or arising out of. . . (m) the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water.

(Emphasis added.)

On February 4, 1991, Ryness tendered the defense of the underlying class action to Homestead. Homestead asserted that the underlying class action fell within the scope of Exclusion (m) and that, therefore, its duty to defend did not arise. On October 11, 1991, Homestead filed a declaratory judgment suit in federal court to determine its rights and obligations under the Policy.

Both parties filed motions for summary judgment on the issue of whether or not Exclusion (m) relieved Homestead of its duty to defend Ryness. On July 7, 1992, the district court entered a written order granting summary judgment to Homestead. We have jurisdiction over Ryness' appeal from the final order of the district court pursuant to 28 U.S.C. § 1291. Our review of a district court's grant of summary judgment is plenary. Jones v. Union Pacific R.R., 968 F.2d 937, 940 (9th Cir. 1992).

II.

This appeal raises the question of whether the underlying action brought against Ryness for its failure to disclose that land adjacent to the development was a garbage dump is a claim arising out of . . . the discharge, dispersal, release or escape" of pollutants, within the meaning of Exclusion (m)

Neither party was able to cite to us any case which is directly on point. We have recognized, however, that California courts interpret the words "arising from" broadly, and that they "are ordinarily understood to mean 'originating from' 'having its origin in,' 'growing out of' or 'flowing from' or in short, 'incident to, or having connection with.'" Continental Casualty Co. v. Richmond, 763 F.2d 1076, 1080 (9th Cir. ...


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