Transwestern Pipeline Co. v. Monsanto Co.

California Court of Appeal
96 Cal. Daily Op. Serv. 4354, 53 Cal.Rptr.2d 887, 46 Cal. App. 4th 502 (1996)

ELI5:

Rule of Law:

The physical contamination of property by a toxic substance constitutes 'property damage' recoverable in tort, not 'economic loss.' The costs incurred for the required remediation and cleanup of such contamination are a measure of that property damage.

Facts:

In 1968, Transwestern Pipeline Company (Transwestern) installed a new gas compressor that used a lubricant called Turbinol, which was manufactured by Monsanto Company (Monsanto) and contained polychlorinated biphenyls (PCBs).
Transwestern's parent company, Texas Eastern Transmission Company, purchased the Turbinol from Monsanto.
Monsanto learned in 1966 that PCBs were environmental contaminants but did not inform Transwestern of the environmental hazards until 1972, at which point Transwestern stopped using Turbinol.
In 1981, Southern California Gas Company (SoCalGas) discovered its pipelines were contaminated with PCBs.
An investigation revealed that Turbinol leaking from Transwestern's compressor had contaminated its own pipeline and subsequently entered and contaminated the entire SoCalGas distribution system.
The PCBs mixed with pipeline condensate, a liquid that must be regularly removed. Due to federal regulations, the presence of PCBs made the collection, storage, and disposal of this condensate significantly more expensive for SoCalGas.
The PCBs coated and clung to the pipe walls, making complete removal impossible and creating a long-term contamination problem requiring ongoing, costly management.

Procedural Posture:

In 1987, Southern California Gas Company (SoCalGas) initiated an arbitration proceeding against Transwestern Pipeline Company to recover damages for PCB contamination.
In 1990, Transwestern and SoCalGas reached a settlement in which Transwestern paid approximately $10 million and agreed to cover 86% of future remediation costs.
Following the settlement, Transwestern filed an action for equitable indemnity against Monsanto Company in a California trial court.
The case was tried before a jury, which returned a special verdict in favor of Transwestern on theories of strict liability for design defect and negligent failure to warn.
The jury apportioned 37.5% of the responsibility for the damages to Monsanto and awarded Transwestern damages for past and future costs.
After the trial court entered judgment on the verdict, Monsanto, as appellant, filed a timely appeal to the California Court of Appeal. Transwestern is the appellee.

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Issue:

Does the contamination of a pipeline system with toxic Polychlorinated Biphenyls (PCBs), which requires costly remediation but does not impair the system's basic function, constitute 'property damage' recoverable in tort, or is it 'economic loss' for which tort recovery is generally barred?

Opinions:

Majority - Johnson, J.

Yes, the contamination constitutes property damage. The physical contamination of the SoCalGas pipelines and the condensate within them by Monsanto's PCBs is a physical injury to that property, not merely an economic loss. The court rejected Monsanto's argument that the harm was purely economic because the pipelines still functioned and the costs arose from government regulation. The court reasoned that contamination by a toxic substance is analogous to asbestos contamination, where the physical incorporation of a harmful substance into a property constitutes property damage. The costs of remediation and special handling are the measure of damages for this physical injury. Therefore, Transwestern could properly seek equitable indemnity from Monsanto based on tort theories of negligence and strict liability.

Analysis:

This decision solidifies the legal principle that contamination by a toxic substance is treated as physical property damage, thereby allowing recovery under tort theories like negligence and strict liability. It distinguishes such harm from pure 'economic loss,' which is typically recoverable only in contract or warranty actions. By focusing on the physical incorporation of a hazardous substance onto another's property, the court provides a crucial pathway for plaintiffs in environmental tort cases to recover cleanup costs. This precedent strengthens the position of parties seeking to hold manufacturers of hazardous products responsible for the costs of environmental remediation, even when the underlying property remains functional.

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