The Stringfellow Acid Pits Burn Insurers on Concurrent Causation
March, 2009
In State of California v. Allstate Ins. Co., ___ Cal. Rptr. 3d __, 2009 WL 579415 (Cal. Mar. 9, 2009), the California Supreme Court recently reviewed the concurrent causation doctrine in the context of environmental liability insurance. In the environmental liability context, the court held the insurer must indemnify the policyholder for all property damage, where covered and uncovered events both contributed substantially to cause indivisible property damage for which the policyholder bears liability.
Facts
In 1998, the federal district court found the State of California liable under California and federal law for an estimated $500 million remediation of environmental damage at the Stringfellow site. In the 1950s the State began operating the site, which became known as the "Stringfellow Acid Pits," as a hazardous waste disposal site. To prepare the site for hazardous waste, the State took measures to prevent the migration or release of hazardous waste from the site, but these measures were ineffective. By the time the site closed in 1972, contamination from the site extended several miles downgradient. An expert opined as to multiple causes of the contamination, including underground leaking from the containment pits and two major overflows at the site one in 1969 and another in 1978. The 1969 overflow resulted from a series of rainstorms that caused the waste ponds to overflow and release contaminated runoff down the canyon to Pyrite Creek. The site was again inundated with rain in 1978, forcing the State to release approximately one million gallons of contaminated runoff to prevent a catastrophic dam failure.
The State sought coverage from its excess insurers who denied coverage. The State then initiated an action seeking declaratory relief, and alleging breach of contract and bad faith. The trial court granted summary judgment in favor of the insurers based on the pollution exclusions. The Court of Appeals reversed.
Analysis
After finding a triable issue of fact as to whether the 1969 and 1978 overflows were covered under the policies at issue, the California Supreme Court sought to determine whether the State could obtain coverage where an insured risk and an excluded risk both proximately caused indivisible property damage for which the policyholder bears liability. The court examined excluded causes (the underground leaking from the containment pits) versus the potentially covered causes (the 1969 and 1978 overflows). Quoting State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal. 3d 94, 514 P.2d 123 (1973), the court held "liability coverage exists whenever an insured risk constitutes a proximate cause of an accident, even if an excluded risk is a concurrent proximate cause." Said another way, if the State can show only one substantial cause of contamination that was covered, it would be entitled to indemnity under the policies for all of its liability from indivisible property damage regardless of whether other uncovered causes for the property damage exist.
The insurers argued that there was no way to distinguish between the amount of covered and uncovered damages, and therefore the State could not establish coverage. The court disagreed finding that "tort law (substantial factor) causation is sufficient to create coverage under a liability policy when covered and excluded acts or events have concurred in causing injury or property damage."(1) (emphasis in original) Relying on its own precedent, Partridge, the California Supreme Court held that multiple causes creating a single injury (as in Partridge) or creating indivisible property damage (as here), should be treated as a single injury creating liability. This liability would entitle the policyholder to complete indemnity if a covered event were a substantial contributing cause. The court required the policyholder to meet the burden of proof to establish coverage, including that the damages were indivisible. By contrast, "when the damages for which the insured is liable relate to distinct, divisible injuries or items of property damage, the insured has the burden of proving which of those are attributable to causes within [coverage], for only the corresponding portion of damages constitutes ‘sums which the Insured shall become obligated to pay ... for damages ... because of' nonexcluded property damage." The court then remanded the matter to the trial court for a determination of these issues.
Learning Points
As a result of this decision, policyholders might be able to foist otherwise uncovered liability onto their insurers when claimed damages fall both within and outside the "sudden and accidental" exception of the pollution exclusion. Although the policyholder must establish that a covered event is a "substantial cause" of the damages, the threshold that an insured needs to cross to establish coverage for concurrent causes is based on tort theories of joint and several liability. This threshold is not significant, as it requires little more proof than the policyholder's actual liability. While the policyholder cannot rely on mere speculation "that some pollution events may have occurred suddenly and accidentally," or on "sudden and accidental events [that] have contributed only trivially" to the contamination, substantial cause is not a significant burden. Policyholders need only show one "sudden and accidental" spill of contamination that is of a sufficient size to create coverage. While the court does not specify criteria for when a "sudden and accidental" spill will be considered substantial, its commentary suggests a relatively small spill, i.e., something more than a speculative and trivial amount.
The policyholder also carries the burden to prove indivisibility of damages under the concurrent causation doctrine. Again, however, the bar for meeting this threshold also does not appear to be very high. The policyholder can likely meet its burden by simply providing evidence that major portions of the remediation are not separable based on different contaminating events, or by expert opinion that all of the damages are indivisible.
This decision left important questions unanswered, such as whether the policyholder can rely upon a jointly liable tortfeaor's sudden and accidental pollution events to defeat a defense based on the qualified pollution exclusion and whether the sudden and non-sudden polluting events are separate occurrences.
In defending claims for environmental clean up, insurers should attempt to compartmentalize the damages by covered and uncovered cause as much as possible. This will likely require extensive use of environmental experts to rebut policyholder allegations and expert testimony that the property damage is indivisible. This scenario will ultimately lead to the proverbial "battle of the experts," where factual issues will likely prevent resolution of the policyholder's claims at a summary judgment stage. Furthermore, it will likely increase litigation costs to the extent it requires the insurers to identify damage that can be related directly to uncovered causes. This appears to be no small task at the Stringfellow Acid Pits, where this decision, much like the pits themselves, will leave the insurers feeling burned.
For more information contact Tim Jacobs at tjacobs@clausen.com
(1)This holding is contrary to two prior California Appellate Court decisions, Golden Eagle Refinery Co. v. Associated Internat. Ins. Co., 85 Cal. App. 4th 1300, 102 Cal. Rptr. 2d 834 (Cal. Ct. App. 2001); and Lockheed Martin Corp. v. Continental Ins. Co., 134 Cal. App. 4th 187, 35 Cal. Rptr. 2d 799 (Cal. Ct. App. 2005), which the court overruled to the extent they held an insured must prove the amount of damages from covered causes to establish coverage.
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