Important Rights of Policyholders Recognized in State of California v. Allstate
California Supreme Court Publishes Major Decision Relating to Stringfellow Acid Pit litigation
shareholder, Anderson Kill & Olick, P.C.
In a decision important to all policyholders in the State of California and all policyholders whose policies are governed by California law, the California Supreme Court today ruled in favor of the State of California and against its insurance companies in a case arising out of insurance coverage for the environmental clean-up of Stringfellow waste site in Glen Avon, California. A copy of the decision is attached.
First, the California Supreme Court decided that when a loss results from both covered and non-covered causes but the policyholder can't identify how much damage resulted from non-covered losses, the policyholder is entitled to coverage for the WHOLE loss up to its policy limits.
In the California Supreme Court’s words, “if the insured proves that multiple acts or events have concurred in causing a single injury … or an indivisible amount of property damage (as may be shown at trial here), such that one or more of the covered causes would have rendered the insured liable in tort for the entirety of the damages, the insured’s inability to allocate the damages by cause does not excuse the insurer from its duty to indemnify.” The California Supreme Court expressly rejected a lower court decision, Golden Eagle Refinery Co. v. Associated Internat. Ins. Co. (2001) 85 Cal.App.4th 1300, which had required policyholders to show how much of an indivisible amount of damages resulted from covered causes.
This is an important issue in insurance coverage disputes across the country, including Mississippi, Louisiana, Alabama and Texas where policyholders have lost insurance coverage for their hurricane losses due to anti-concurrent causation clauses placed in their policies where they can’t prove how much damage was caused by wind as compared to flooding.
Second, the California Supreme Court ruled against the insurance companies regarding a qualified "polluter's exclusion" in their policies. The California Supreme Court ruled that the relevant inquiry is whether the policyholder expected or intended a discharge of contaminants FROM the waste disposal facility, not TO the waste disposal facility. In other words, to deny coverage based on a polluter’s exclusion, an insurance company must prove that the policyholder not only meant to place waste into a site, but also expected or intended that it would then leak out or be discharged to pollute the environment.
A jury in Riverside California previously found in May 2005 that the State of California did not willfully cause property damage at the Stringfellow waste site.
In other key rulings, the California Supreme Court held that liability insurance covers damages resulting from intentional acts taken to prevent covered accidental injury. The lower courts ruled in favor of the insurance companies based on the State’s controlled discharge of pollutants to prevent the collapse of a containment dam during extraordinary flooding in 1978, holding that this knowing release of pollutants could not be accidental for insurance purposes. The California Supreme Court reversed, finding that the discharge to prevent potentially greater accidental pollution could be considered “accidental” for purposes of the “sudden and accidental” exception to a polluter’s exclusion. The California Supreme Court also held that the 1978 flooding damage could remain “accidental” for coverage purposes despite the State’s knowledge of the potential harm and attempts to minimize the problem after a smaller flood several years earlier, because “[b]eing aware of a risk of a particular event is not equivalent to knowing or believing the event is highly likely to occur.”
Third, the California Supreme Court also ruled that property damage caused by an overflow from the Stringfellow waste facility due to major flooding in 1978 could be covered and remanded that issue for trial.
The State of California is represented by Robert M. Horkovich, Edward J. Stein, Robert Y. Chung, and Cort T. Malone of Anderson Kill & Olick, P.C.; Roger W. Simpson of Cotkin Collins & Ginsberg; Daniel J. Schultz of Tuscon, Arizona; Darryl Doke, Lead Supervising Deputy Attorney General of the State of California; and Jill Scally, Deputy Attorney General.
The insurance companies which were part of the appeal were CNA, Allstate, ACE, and Employers Reinsurance Corporation. Wausau also is impacted as it had policies at issue.
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