Stringfellow -The Next Chapter - Significant Changes to California Pollution Coverage Law
Of great significance to environmental coverage involving landfills and “indivisible” damages from covered and non-covered releases of pollution, the California Supreme Court issued rulings in the latest chapter of the Stringfellow case. The court found for the State of California on several significant points, and remanded the case for trial on factual issues, since these ruling arose out of summary judgment. (See earlier blogs for reports on other decisions from this long-standing litigation.)
Three main legal issues were addressed in this latest decision:
(1) Does application of the sudden and accidental pollution exclusion clause turn on when waste material was discharged from the Stringfellow Acid Pits waste disposal site or when the waste was initially deposited into the site?
The trial court ruled the relevant discharge was the discharge to the landfill, not the later discharge from the facility, following Standun, Inc. v. Fireman's Fund Ins. Co. (1998) 62 Cal.App.4th 882. The appellate court reversed, and the Supremes agreed, holding that on these facts, relevant was the release of pollutants from containment not to the containment. This was because the State was being held liable, as the entity that sited, designed, built, and operated the facility with its evaporation ponds, for failing to contain the pollutants; it was not being held liable for pollluting the evaporation ponds.
The Supreme Court found the earlier landfill case (Standum) consistent because, there, the liability of the insured (a manufacturer of liquid wastes deposited on the soil at the landfill) was being held liable for disposing wastes at the landfill. The crucial issue for application of the coverage question, according to California’s highest court, was examining the basis for the insured’s liability.
(2) If pollution is caused by both non-covered events and covered accidents, does the insured have the burden at trial to prove that all of the damages it seeks to recover were caused by a covered event, or is there a duty to indemnify when two concurrent causes are responsible for an injury even if one of the causes is not covered?
The Supreme Court agreed with the appellate court on this issue as well and disapproved of Golden Eagle Refinery Co. v. Associated Int. Ins. Co. (2001) 85 Cal.App.4th 1300 and Lockheed Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 184, to the extent those earlier decisions are incompatible.
In Stringfellow, there were many claimed causes of the pollution, including underground leaking, and two major overflow incidents, the latter which the State claimed were sudden and accidental. The State admitted it could not differentiate the damage caused by the different sources of contamination, nor could it differentiate the different work that had been necessitated by the pollution based on its cause.
Under the California Supreme Court's decision in State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94, where there is indivisible harm from both a covered and non-covered cause, the insured is entitled to full coverage. This is a unwelcome decision for insurers who argued, consistent with Golden Eagle, that the insured should have the burden of proving what part of the damage was caused by a covered event. Even so, the insured still has to prove there is a covered cause of the damage, and that the covered cause was a substantial factor in the property damage. The covered cause cannot be speculative or have only contributed trivially to the property damage. Furthermore, the Supreme Court explained, the insurer can counter the insured’s evidence of a covered cause that is a substantial factor in causing indivisible harm, by evidence that damages are divisible and that only a limited portion of those damages resulted from covered causes.
(3) If the insured takes remedial steps to prevent harm that might have been an accident and covered, is the remedial action covered?
In what may be the most surprising aspect of this decision, the Court ruled that there could be coverage for damage caused not by an accident but by deliberate preventative steps taken by the insured to avoid an accident (here, another flooding) to happen. Whether the action taken in fact avoided a covered event was a factual issue still to be tried.
The Court reasoned that policies cover costs to prevent harm, and that this result would be consistent with an insured’s reasonable expectations., and would encourage measures to mitigate and prevent damage. The Court cites no policy language in support of its holding which appears to emphasize public policy over contract interpretation.
