Calif. Court Rules Federal Proceedings Equivalent to CGL-Covered Lawsuit

The California Supreme Court has ruled that the term “suit” in a comprehensive general liability policy includes federal administrative adjudicative proceedings before an administrative law judge of the U.S. Interior Board of Contract Appeals.

In Ameron International Corp. v. Insurance Company of the State of Pennsylvania et al.,11 insurance companies provided Ameron, which manufactures siphons, with primary CGL coverage, as well as excess/umbrella policies. In 1990, the U.S. Interior’s Bureau of Reclamation discovered defects in its siphons, which required replacement at a cost of approximately $116 million. In 1992, the Central Arizona Water Conservation District sued Ameron for its responsibility in providing the defective siphons. The Bureau sought about $40 million in damages from Ameron and the company that had hired it, Kiewit. Kiewit and Ameron settled for $10 million.

Following that settlement, one of Ameron’s primary insurers, Truck Insurance Exchange, paid Ameron “certain sums” for litigation, and INA offered $750,000 for the settlement. However, Ameron rejected the amount as insufficient, and filed a complaint against the respondent insurers for breach of contract, breach of the covenant of good faith and fair dealing, declaratory relief, waiver and estoppel, and contribution. The trial court held that “an environmental agency’s order identifying the insured as a party responsible for remediating environmental pollution was not a ‘suit’ that would trigger an insurer’s duty to defend its insured or provide insurance coverage.”

The Court of Appeal partially reversed the trial court’s judgment and awarded defense and coverage costs for those policies that defined a “suit” as a “civil proceeding.” The Appeal Court said based on Foster-Gardner, supra, 18 Cal.4th 857, CGL insurers are excused from defending their insured in administrative law proceedings before the U.S. Department of Interior Board of Contract Appeals.

The Supreme Court reversed the decision, noting that the Department of Interior Board of Contract Appeals (IBCA) proceedings provide contractors with their “day in court.” “This case proceeded in a 22-day IBCA hearing, in which witnesses testified and were cross-examined. The parties then decided to mediate, and reached a settlement in which Ameron agreed to pay the government $10 million,” the high court said. “A reasonable policyholder would recognize such proceedings as a suit and would expect it to be defended and, if necessary, indemnified by its insurer. It is safe to assume that Ameron would not have proceeded under the IBCA appeals process if it had known that coverage would not be extended to its $10 million settlement with the government.”

Topics Lawsuits California Carriers USA Legislation Pollution