According to the court, in determining whether the State's liability for the contamination from the hazardous waste disposal site was covered under the provision covering "sudden and accidental" discharges, the relevant discharge was the escape of waste from evaporation ponds on the site through seepage and overflow, rather than the deposit of waste into ponds. This was even assuming the initial deposit of chemicals into the ponds was also a "discharge, dispersal, release or escape" and was nonaccidental. Further, the State was not held liable for polluting the evaporation ponds, but for polluting the land and groundwater outside the ponds.

The court explained that when pollutants were deposited directly onto land or into water without any attempt at containment, their further migration may reasonably be viewed as an aspect of property damage rather than as an additional release or discharge. The State's initial deposit of chemical wastes into the ponds at the hazardous waste disposal site was not a "discharge, dispersal, release or escape" within the meaning of the pollution exclusion, even if the wastes later leaked out of the pond, as the initial deposit of wastes at the site put them into confinement and did not itself spread chemical wastes widely through the environment.

Next, the court examined whether an absolute exclusion for pollution of a "watercourse" applied to the 1969 overflow presented a triable issue of fact. The court determined that a triable issue of fact existed with regard to whether the overflow from the ponds was entirely "into or upon any watercourse" within the meaning of the water pollution exclusion from coverage under the State's liability policies, thus precluding summary adjudication of that issue for the insurers. The maps in the record did not make it clear exactly where the waste would have escaped the ponds and where the creek began, and the most contemporaneous report of the overflow in the record misstated the location of the creek and may have been mistaken about whether the detected contamination was within the creek bed.

According to the court, the overflow would be entirely within the exclusion only if the overflow was confined to the regular channel of the stream draining the canyon where the disposal site was located, even if the creek was not flowing at the time, but not if the contaminants merely flowed onto land drained by the stream.

Next, the court examined whether the emergency release of polluted runoff in 1978 was "accidental" presented a triable issue of fact. The court held that a fact issue existed as to whether the release of waste was accidental, precluding summary adjudication for the State's insurers on the basis that the release was not "accidental" as required for coverage under the policy. After a previous overflow the State attempted to prevent future overflows by improving the runoff diversion system and removing a large amount of waste from the ponds, and the State attempted to prevent overflow when unusually heavy rain occurred again by topping the dam with sandbags and digging new storage ponds. The release of waste only became necessary when a pump failed and the dam began to crack.

The court explained that an "accidental" discharge, within the meaning of the "sudden and accidental" exception, was one the insured neither intended nor expected to happen. A discharge of pollution is considered "expected," and thus not within an exception to a pollution exclusion from liability coverage for a "sudden and accidental" discharge, only when the insured subjectively knew or believed it was highly likely to occur.

Further, an exclusion from the State's liability policies for pollution other than the "sudden and accidental" discharge of wastes did not bar coverage for liability arising from the State's intentional release of hazardous wastes from evaporation ponds to the extent that heavy rains threatened a sudden and accidental release of wastes, since the release was an effort to mitigate damage from the threatened accidental discharge.

Finally, the court held that the State was entitled to indemnity if it could show that sudden and accidental releases of waste were proximate causes of damage. To the extent the State could show that the two "sudden and accidental" releases of hazardous wastes from its evaporation ponds proximately caused damage for which it was held liable, the State was contractually entitled to indemnity under the policies, even if the State could not differentiate damage caused by sudden releases from damage caused by gradual leakage which was excluded from coverage. The two releases would have rendered the State fully liable for the contamination of soils and groundwater below the waste disposal site without consideration of subsurface leakage. In the policies' terms, the indivisible cost of contamination would be "sums which the Insured … [became] obligated to pay…for damages…because of" nonexcluded property damage.

According to the court, a genuine issue of material fact existed as to whether property damage from the contamination of soil and water near the State's waste disposal site, or the cost of repairing it, could be quantitatively divided among causes of contamination that were or were not covered under "sudden and accidental" exception to the exclusion.

Also, a genuine issue of material fact existed as to whether two allegedly "sudden and accidental" releases of hazardous wastes from the State's disposal site contributed substantially to contamination of soils and groundwater for which the State was held liable. Water samples taken after the evaporation ponds overflowed showed contamination below the site dam as well as farther downslope, an interagency report noted that a marked change in the quality of the groundwater was detected after the first release, and the State's expert opined that downslope soil and groundwater contamination were attributable to both releases.

Further, if only a probably distinct amount of the remediation costs for contamination of soils and groundwater below the State's waste disposal site were attributable to "sudden and accidental" discharges of pollutants, only that amount would be covered under as "sums which the Insured … [became] obligated to pay … for damages … because of"…nonexcluded property damage from "sudden and accidental" discharges, and the amount attributable to gradual leakage would be excluded.

Because the summary judgment record showed the existence of triable issues of fact as to whether the 1969 and 1978 events occurred suddenly and accidentally, whether they contributed substantially to the downslope contamination of soil and groundwater for which the State was held liable in damages, and whether those damages were incapable of division according to a causal event, the court determined that summary judgment for the insurers based on the policies' qualified pollution exclusions was improper.