On Monday, March 9, 2009, the California Supreme Court issued its opinion in State of California v. Underwriters at Lloyd’s London et al., S149988. The Court ruled on numerous issues, all of which were decided favorably for insureds. This particular blog post focuses on the Court’s reaffirmation of the concurrent proximate cause rule in the environmental liability context. We will highlight other aspects of the Underwriters ruling in future blog posts, as well as our upcoming Client Alert.
Underwriters is the latest decision involving insurance coverage disputes arising out of environmental contamination at the Stringfellow industrial waste disposal site in Riverside County. The Stringfellow pit was a hazardous waste disposal site designed and operated by the State of California. Multiple factors contributed to contamination at the Stringfellow site. Various design defects permitted the gradual escape of contaminants from the pit. In addition, on two different occasions the pit overflowed following a period of particularly heavy rain. However, the State admitted that it could not differentiate between contamination caused by gradual seepage and contamination caused by the two overflow events.
The State sought coverage for this exposure under numerous general liability policies. The policies at issue in Underwriters all incorporated an exclusion for environmental pollution, with an exception for “sudden and accidental” discharges of pollutants. The State contended that it was entitled to coverage under these policies, due to the two “sudden and accidental” overflow events. The insurers disagreed, arguing that they were entitled to summary judgment because the State could not prove that any specific portion of the property damage was caused by sudden and accidental releases.
The California Supreme Court found that there were triable issues of fact which precluded summary judgment for the insurers. In reaching this conclusion, the Court reaffirmed its prior ruling in State Farm Mutual Automobile Insurance Co. v. Partridge, 10 Cal. 3d 94 (1973). The Court held that the “concurrent proximate cause” rule developed in Partridge was directly applicable to environmental coverage disputes such as the one before it.
In Partridge, the Court ruled that the principles which govern the insured’s underlying liability should also be employed to resolve issues of causation. In the case of a general liability policy, the relevant rules are traditional tort concepts of fault and proximate cause. A tortfeasor whose actions constitute only one of several contributing causes of an accident can nevertheless be held liable for the entire damage. Applying this concept, the Court held that when any covered act or event subjects the insured to liability for an indivisible injury, the insurer must pay the entire loss – even if non-covered events also contributed to the loss.
Recently, some California Court of Appeal decisions have deviated from the Partridge rule in the context of environmental exposures. In Golden Eagle Refinery Co. v. Associated International Insurance Co., 85 Cal. App. 4th 1300 (2001), the insured had polluted its refinery site and sought coverage government-ordered remediation costs. Like the policies at issue in Underwriters, Golden Eagle’s policies contained pollution exclusions with an exception for “sudden and accidental” discharges. The insurer pointed to evidence of “routine, repeated, and intentional” discharges, as well as the fact that the insured could not assign any particular portion of the contamination to sudden and accidental discharges. The Golden Eagle court held that the insured had the burden to quantify the damages resulting from sudden and accidental discharges, and could recover nothing if was unable to do so.
In Underwriters, the California Supreme Court recognized that the reasoning of Golden Eagle flies in the faces of the Partridge rule. The Court expressly disapproved Golden Eagle, as well as another Court of Appeal case that employed similar reasoning, Lockheed Martin Corp v. Continental Insurance Co., 134 Cal. App. 4th 187 (2005). Applying Partridge, the Court found a triable issue of fact as to whether a covered act or event (i.e., the two overflow events) subjected the State to liability for all the disputed property damage. Thus, the Underwriters decision restates and reaffirms the concurrent proximate cause rule:
“…if the insured proves that multiple acts or events have concurred in causing a single injury (as in Partridge) or an indivisible amount of property damage (as may be shown at trial here), such that one of 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.”