Cold Creek Compost, Inc. v. State Farm Fire and Casualty Company

November 20, 2007, First District, Div. Two

Cite as 2007 SOS 6780

Client and Insurer In A Row Over Disputed Insurance Coverage

In Cold Creek Compost, Inc. v. State Farm Fire and Casualty Company, the First District Appellate court affirmed that the insurer had no duty to indemnify Cold Creek of claims related to ‘offensive and injuries odors’ from its facility.

The company operates in Mendocino County and involved in ‘composting organic materials including manure, fruit peel, yard tripping, etc’. Its liability insurer is State Farm Fire and Casualty Co.

In 1998, nearby property owner sued Cold Creek of storing hazardous chemicals and waste materials, and alleging that composting operations caused ‘foul and noxious odors, disruptive noise, and polluting discharge of materials, excessive dust and truck traffic, and visual blight.’

Cold Creek’s insurer, State Farm Fire and Casualty Co, tried to defend the company but later withdrew its defense. It said that the pollution exclusion is not a part of the coverage and also refused to pay indemnity to five individual plaintiffs. As a result, Cold Creek was prevented from operating without first implementing dust and odor control measures.

On the other hand, Cold Creek went after State Farm and sued it for breach of contract, breach of covenant of good faith and fair dealing, including unfair business practices for failing to defend and pay indemnity.

The Mendocino County Superior Court ruled in favor of State Farm after the jury determined that the odors emanating from the facility were a nuisance. The court concluded that an odor emanating from a compost plant that reaches the point of being declared a nuisance is pollution as defined by the California Supreme Court.

Cold Creek appealed. The First District Court of Appeal upheld the lower court’s decision that State Farm had no duty to defend or indemnify with respect to odors from the composting operations. The panel relied on MacKinnon, which ruled that the absolute pollution exclusion is applicable only to traditional environmental pollution.