California Court Weighs In on Insurance for Environmental Pollution Liability

March 12, 2009

The Supreme Court of California has reversed a decision by the state Appeals Court, weighing in on insurance coverage for environmental pollution liability.

According to court documents in State of California v. Allstate Insurance Co. et al., the state of California sued its insurers Allstate Insurance Co., Century Indemnity Co., Columbia Casualty Co. and Westport Insurance Corp. to obtain coverage for property damage liability imposed in a federal lawsuit as a result of discharges from a state designed and operated hazardous waste disposal facility in Riverside County called Stringfellow Acid Pits. The trial court granted summary judgment to four of the state’s excess insurers, and the Court of Appeal reversed the decision.

In the federal action, the state and federal government said the state was 100 percent liable for claims under state law, and 65 percent liable for claims under federal law for past and future costs of remediating contaminated land and groundwater. The state expects the remediation costs to exceed $500 million.

The insurers believed they did not have to provide coverage because the policies had pollution exclusions and the “sudden and accidental” discharge exception did not apply because the discharges were not sudden and accidental; even if some of the discharges were sudden and accidental, the state could not prove what part of its property damage liability resulted from the sudden and accidental discharges.

The Supreme Court, however, found that: “Because the state’s liability for property damage was founded on its negligence in allowing pollutants to escape from the Stringfellow evaporation ponds into the surrounding groundwater and land, the proper focus of analysis should be on the discharges from the ponds rather than the deposits to them.” Thus, a triable issue exists whether the discharge was limited to a watercourse, and whether the release was “accidental.”

“Because a triable issue of fact exists as to whether sudden and accidental discharges were a substantial factor in causing indivisible property damage for which the state was found liable, the trial court erred in granting summary judgment on the ground that the state cannot prove how much of its liability is traceable to those discharges,” the high court wrote.

Based on those conclusions, the Supreme Court affirmed in part and reversed in part the Appeals Court judgment.

“The Supreme Court disapproved … insofar as they hold that an insured must show not only a covered cause contributed substantially to the damages for which the insured was held liable, but must also show how much of an indivisible amount of damages resulted from the covered causes,” stated Horvitz & Levy partner Peter Abrams in a statement.

To view the case, visit http://www.courtinfo.ca.gov/opinions/documents/S149988.PDF.

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