Major Precedent Seen In Calif. High Court Toxic Case Ruling

The high court finding upheld a verdict in January by the California Appellate Court (4th District) in Riverside, Calif., reversing a lower court ruling in 2005. That ruling severely limited the insurers' exposure and found they owed the state nothing after factoring in payments by other carriers that made settlements in the case.

Mr. Horkovich said the insurers that were part of the Supreme Court appeal were CNA, Allstate, ACE and Employers Reinsurance Corporation. Wausau also is impacted as it had policies at issue.

In dispute were cleanup costs that the state was held liable for after federal officials brought an action against it in 1998 over its faulty construction of a toxic waste collection point known as Stringfellow Acid Pits, which leaked poisons into groundwater extending for miles from its site at a rock quarry in Glen Avon, Calif.

The state has estimated that past and future remediation costs total up to $700 million. In limiting what California could collect from insurers, trial Judge Erik Kaiser (now retired) relied on a California court decision in 1998–FMC Corp. v. Plaisted & Companies.

The FMC case ruling held that even though a policy covered multiple years, recoveries were limited by the amount of property damage taking place in a single year.

This meant the insured, in making a claim, basically had to pick only one year for which a recovery could be made, Mr. Horkovich said.

Now policyholders can stack coverage, accessing all coverage under all policies in all years triggered.

Insurers involved had issued to the state an excess corporate general liability policy covering a two- or three-year policy period.

Mr. Horkovich pointed to words in the high court decision that, "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."

He noted that the California Supreme Court expressly rejected a lower court decision, which had required policyholders to show how much of an indivisible amount of damages resulted from covered causes.

The attorney said this is an important issue in insurance coverage disputes across the country–including Mississippi, Louisiana, Alabama and Texas–where policyholders have been denied insurance coverage for hurricane losses. This is due to anti-concurrent causation clauses in their policies, where they can't prove how much damage was caused by wind as compared to flooding.

The ruling, he said, also found against the insurance companies' qualified "polluter's exclusion" in their policies.

Mr. Horkovich commented that the court found 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," he said, "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."