Stay Out Of This Domain: Court of Appeal Rejects Insured's Suit Against Insurer For Failure To Defend Condemnation Action Charging Property Owner With Environmental Clean-Up Costs

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Public agencies throughout the State are permitted to deduct environmental clean-up costs from their determination of the just compensation offered to private property owners whose properties are being acquired through eminent domain. This is precisely what happened to Janet Block when the Redevelopment Agency of the City of Long Beach sought to condemn two of her lots that sat atop an abandoned oil well for amounts representing a set-off in the amount of the estimated clean-up costs. Block tendered the defense of the eminent domain action to three liability insurers, all of whom rejected the tender outright. While Mrs. Block ultimately settled with the City, she sued her insurers for breach of the covenant of good faith and fair dealing and for breach of contract based on their failure to defend her in the condemnation suit. The Second District Court of Appeal affirmed the trial court’s grant of summary judgment in the insurer’s favor in Block v. Golden Eagle Insurance Company (2004) 121 Cal.App.4th 186.

In October 1999, the City Redevelopment Agency filed its complaint in eminent domain against Mrs. Block after offering her just $92,000 for both lots. This offer amount reflected an appraised value of $159,000, reduced by $67,250, the estimated cost to remediate the contamination on the parcels. Ultimately, the City increased its offer to a total of $126,000. Mrs. Block claimed that the parcels were worth a total of $375,000, plus well improvements and oil, mineral and drilling rights worth between $40,000 and $60,000. On June 25, 2001, Mrs. Block settled the condemnation action with the City in the amount $475,000, several thousand dollars in excess of her demand. These facts are provided not because they necessarily add to the legal analysis, but because it is hard to believe that the Court’s decision was not motivated, at least in part, by the favorable settlement to Mrs. Block.

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