RECENT FEDERAL DECISIONS

February 2008

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Ninth Circuit Holds Diminution of Property Value Due to Environmental Contamination Does Not Invoke a Duty to Indemnify or Constitute Damages under General Insurance Policy
Goodstein v. Continental Casualty Co., ___F.3d___

Robert Goodstein, a court-appointed receiver for two dissolved partnerships, appealed a ruling by the District Court of Washington granting summary judgment to defendant insurance company. Goodstein sued Industrial Indemnity Co. (Industrial) after Industrial denied his claim under a comprehensive general liability policy for $5.3 million in damages to two properties previously owned by the partnerships. Goodstein contended that environmental contamination on the properties diminished the value of the properties, resulting in the properties being sold for less money than they would have had they not been contaminated. Goodstein argued that the discounted sale prices constituted “damage” to the properties under the insurance policy and sought a ruling from the court that Industrial owed a duty to indemnify and defend him under the policy, as well as damages for breach of both duties. The Ninth Circuit held that, under Washington state law, diminution in property value was not covered as “property damage” under the policy. Thus, the Ninth Circuit affirmed the District Court’s holding that Industrial had no obligation to indemnify Goodstein for the loss associated with the sale of the polluted properties. However, the court did find that Industrial had a duty to defend Goodstein because Industrial was potentially liable for response costs under the policy prior to the properties being sold.