A federal appeals court has revived San Bernardino County’s longstanding legal dispute with its insurance company over cleanup costs at Chino Airport, potentially shifting millions of dollars in liability from the county to its insurer.
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In a decision issued April 23, a three-judge panel of the Ninth Circuit Court of Appeals found that language in three insurance policies held by the county with the Insurance Company of the State of Pennsylvania was ambiguous and sent the case back to U.S. District Court in Riverside for further proceedings.
The ruling could open the door for the county to recover millions more for ongoing groundwater cleanup at the airport tied to decades of industrial waste disposal, with remediation efforts dating back to the late 1980s.
“The County is pleased with the Ninth Circuit’s favorable … decision supporting the County’s pursuit of its lawsuit against its insurance company … to pay for necessary and costly treatment of groundwater contamination at the Chino Airport,” county spokesperson Jannelle Needham said in an email. “This is a significant decision for the insurance industry and could impact other cases.”
She said the county looks forward to continuing to pursue its insurance coverage claim.
Representatives of American International Group, parent company of the Insurance Company of the State of Pennsylvania, did not respond to requests for comment.
Groundwater contamination
The case centers on alleged groundwater contamination at Chino Airport tied to decades of industrial activity since World War II.
According to an opinion from the U.S. Court of Appeals for the Ninth Circuit and the county’s 2021 lawsuit, industrial activities at the county-owned airport since the 1940s have included aircraft dismantling, stripping and painting, as well as activities by tenants and contractors that have been described as involving napalm production and fire retardant mixing, along with waste disposal via underground tanks, landfills, wastewater ponds and direct discharges. The waste disposal practices are cited as potential contributors to the alleged soil and groundwater contamination.
Groundwater tests from wells near the airport in the late 1980s found elevated levels of trichloroethene — a common industrial cleaner used to remove grease — that exceeded safe drinking water standards. The findings prompted the California Regional Water Quality Control Board to issue its first cleanup and abatement order in October 1990, followed by additional orders in 2008 and 2017.
Cleanup costs
The county says it has thus far spent about $20 million on investigation and cleanup of groundwater contamination, and expects that to continue for the next 50 to 75 years, with future costs estimated at $75 million to $125 million. To help cover cleanup costs at Chino Airport, the county sought reimbursement under insurance policies it purchased from the Insurance Company of the State of Pennsylvania from 1966 to 1975.
After the insurer denied coverage, asserting that the policy limits had been exhausted, the county filed suit.
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During the litigation, ICSOP argued its liability under the policies was capped at $9 million per year regardless of how many pollution events occurred, while the county maintained that each separate occurrence of contamination should trigger its own $9 million limit, potentially resulting in significantly higher coverage.
The Ninth Circuit agreed with the county that the insurance policies are ambiguous. Writing for the three-judge panel, Judge Jay S. Bybee described the language as “not just ambiguous, but nearly incoherent.” The court also noted that under California law, when contract terms are disputed, courts may consider extrinsic evidence to determine whether the language is reasonably susceptible to a particular meaning.
With its April 23 ruling, Needham said, the federal appeals court “has sided with the County and confirmed that the ICSOP policies could permit the County to seek a much greater recovery of its remediation costs than ICSOP had claimed.”
The Ninth Circuit remanded the case to U.S. District Court in Riverside for further proceedings to determine what ICSOP owes the county in coverage for property damage at Chino Airport attributed to groundwater contamination.
Cleanup work
According to the Ninth Circuit ruling and the county’s lawsuit, the county conducted extensive environmental work at the airport from 1989 to 2016, investigating more than 20 suspected contamination sites.
Cleanup included drilling more than 280 soil borings, installing and sampling 75 groundwater monitoring wells and removing major sources of pollution. Crews removed 10 underground storage tanks containing fuel, collected 310 drums of hazardous waste such as oils, solvents and acids, and removed 51 buried drums of napalm from the site.
Since 1990, the county said it also has been investigating the extent of groundwater contamination at the airport and performs periodic water sampling and reporting to the state. The county’s cleanup plan, approved by the California Regional Water Quality Control Board in 2019, includes a groundwater pump-and-treat system built and operated in partnership with the Chino Basin Desalter Authority.
The county and the authority constructed a water treatment plant on authority property that began operations in April 2023. Once treated to state drinking water standards, the groundwater is delivered to consumers for potable water uses.
“The County is proud of its efforts to clean up this important resource and help deliver safe water to residences and businesses,” Needham said.