Case Briefs

On March 9, 2009, the California Supreme Court ruled that, in the context of a 1970 ISO pollution exclusion, the relevant discharge for application of the exclusion's “sudden and accidental” exception was the release of pollutants from a containment site rather than the initial deposit of wastes into the site. Additionally, the California high court held that where a loss has two causes ' one covered and one uncovered ' if the policyholder can establish that the covered cause was a substantial factor in causing an indivisible loss, then the entire loss will be deemed covered. State of California v. Allstate Ins. Co. et al., No. S149988 (Cal. March 9, 2009). The court therefore reversed a summary judgment for the insurers that had been granted below. Specifically, the court found that, to the extent the state can show “sudden and accidental” releases proximately caused the damage for which it was held liable, it is contractually entitled to indemnity for that liability. The court found that the summary judgment record reflected at least a triable issue of fact as to whether 1969 and 1978 discharges caused by heavy rainfalls were substantial factors in causing contamination of soils and groundwater downgradient from the Stringfellow site. The court also found that the record reflected a triable issue as to whether that property damage, or the cost of repairing it, could be quantitatively divided among the various causes of contamination. It remanded for further proceedings on those issues.

'Sudden and Accidental' Releases

This appeal concerned the application of 1970 ISO pollution exclusions, and other very similarly worded exclusions, to the State of California's liabilities associated with the Stringfellow pollution site. The Stringfellow site was a site designated by the state for hazardous waste disposal. Unfortunately, the site was negligently chosen, designed and maintained, resulting in substantial environmental pollution. In addition to pollution from gradual leaching of waste into the land and groundwater, significant pollution allegedly resulted from two very heavy rainstorms in 1969 and 1978.

Construing 1970 ISO pollution exclusions, the court first held that the exception for “sudden and accidental” releases referred to the subsequent escape of contaminants from containment, not the initial dumping of toxic waste at the designated Stringfellow disposal site. The court ruled that this was because the pollutants were placed in containment at the site and that “release” or “discharge” would mean the release or discharge from containment into the environment.

The California Supreme Court then considered whether the policyholder had the burden of proving what amount of harm resulted from the rainfalls, which a trier of fact could conclude caused sudden and accidental discharges. The court ruled that, to obtain coverage, the policyholder had the burden of proving only that sudden and accidental discharges were a significant factor in causing an indivisible loss. According to the court, so long as a covered cause was a significant factor, then all of a single or indivisible loss will be covered. In these circumstances, to establish complete coverage once the insurer shows the pollution exclusion is applicable, the court placed the burden on the policyholder to establish both that the loss is indivisible and that a covered cause was a significant factor in the loss.

The court cautioned that: “Our holding does not extend indemnity to situations where the policyholder can do no more than speculate that some polluting events may have occurred suddenly and accidentally, or where sudden and accidental events have contributed only trivially to the property damage from pollution.” Slip op. at 33. Rather, the court held that only if the insured can identify particular sudden and accidental events and prove they contributed substantially to causing indivisible property damage is the insurer required to indemnify the entirety of the damages. In this case, the court reversed summary judgment granted below for the insurers, finding that there were triable issues of fact as to whether the 1969 and 1978 events occurred suddenly and accidentally, whether they contributed substantially to the downslope contamination of soil and groundwater for which the State was held liable in damages, and whether those damages were incapable of division according to causal event.

In addition to the questions above, the California high court also addressed two other issues. It reviewed whether the 1969 overflow was “into or upon any watercourse” within the meaning of the absolute pollution exclusion for watercourses contained in certain policies and agreed with the lower court that triable issues existed on this factual issue. Further, it considered whether the actions of the state in releasing some wastes to prevent a further release from the 1978 flooding would bar coverage because those controlled discharges allegedly were not accidental. The release was ordered only to prevent a larger, uncontrolled discharge of wastes if, as threatened, the dam broke, which the State maintained would have been an accidental discharge. On this point, the court held that there would be coverage because here the insured acted reasonably to prevent a covered source of injury from coming into action.

Laura Foggan is a partner in the insurance practice and co-chair of the appellate practice of Wiley Rein LLP. She has over 25 years of experience representing insurers in complex insurance litigation. Benjamin Theisman is an associate in the insurance and litigation practices of Wiley Rein LLP.

On March 9, 2009, the California Supreme Court ruled that, in the context of a 1970 ISO pollution exclusion, the relevant discharge for application of the exclusion's “sudden and accidental” exception was the release of pollutants from a containment site rather than the initial deposit of wastes into the site. Additionally, the California high court held that where a loss has two causes ' one covered and one uncovered ' if the policyholder can establish that the covered cause was a substantial factor in causing an indivisible loss, then the entire loss will be deemed covered. State of California v. Allstate Ins. Co. et al., No. S149988 (Cal. March 9, 2009). The court therefore reversed a summary judgment for the insurers that had been granted below. Specifically, the court found that, to the extent the state can show “sudden and accidental” releases proximately caused the damage for which it was held liable, it is contractually entitled to indemnity for that liability. The court found that the summary judgment record reflected at least a triable issue of fact as to whether 1969 and 1978 discharges caused by heavy rainfalls were substantial factors in causing contamination of soils and groundwater downgradient from the Stringfellow site. The court also found that the record reflected a triable issue as to whether that property damage, or the cost of repairing it, could be quantitatively divided among the various causes of contamination. It remanded for further proceedings on those issues.

'Sudden and Accidental' Releases

This appeal concerned the application of 1970 ISO pollution exclusions, and other very similarly worded exclusions, to the State of California's liabilities associated with the Stringfellow pollution site. The Stringfellow site was a site designated by the state for hazardous waste disposal. Unfortunately, the site was negligently chosen, designed and maintained, resulting in substantial environmental pollution. In addition to pollution from gradual leaching of waste into the land and groundwater, significant pollution allegedly resulted from two very heavy rainstorms in 1969 and 1978.

Construing 1970 ISO pollution exclusions, the court first held that the exception for “sudden and accidental” releases referred to the subsequent escape of contaminants from containment, not the initial dumping of toxic waste at the designated Stringfellow disposal site. The court ruled that this was because the pollutants were placed in containment at the site and that “release” or “discharge” would mean the release or discharge from containment into the environment.

The California Supreme Court then considered whether the policyholder had the burden of proving what amount of harm resulted from the rainfalls, which a trier of fact could conclude caused sudden and accidental discharges. The court ruled that, to obtain coverage, the policyholder had the burden of proving only that sudden and accidental discharges were a significant factor in causing an indivisible loss. According to the court, so long as a covered cause was a significant factor, then all of a single or indivisible loss will be covered. In these circumstances, to establish complete coverage once the insurer shows the pollution exclusion is applicable, the court placed the burden on the policyholder to establish both that the loss is indivisible and that a covered cause was a significant factor in the loss.

The court cautioned that: “Our holding does not extend indemnity to situations where the policyholder can do no more than speculate that some polluting events may have occurred suddenly and accidentally, or where sudden and accidental events have contributed only trivially to the property damage from pollution.” Slip op. at 33. Rather, the court held that only if the insured can identify particular sudden and accidental events and prove they contributed substantially to causing indivisible property damage is the insurer required to indemnify the entirety of the damages. In this case, the court reversed summary judgment granted below for the insurers, finding that there were triable issues of fact as to whether the 1969 and 1978 events occurred suddenly and accidentally, whether they contributed substantially to the downslope contamination of soil and groundwater for which the State was held liable in damages, and whether those damages were incapable of division according to causal event.

In addition to the questions above, the California high court also addressed two other issues. It reviewed whether the 1969 overflow was “into or upon any watercourse” within the meaning of the absolute pollution exclusion for watercourses contained in certain policies and agreed with the lower court that triable issues existed on this factual issue. Further, it considered whether the actions of the state in releasing some wastes to prevent a further release from the 1978 flooding would bar coverage because those controlled discharges allegedly were not accidental. The release was ordered only to prevent a larger, uncontrolled discharge of wastes if, as threatened, the dam broke, which the State maintained would have been an accidental discharge. On this point, the court held that there would be coverage because here the insured acted reasonably to prevent a covered source of injury from coming into action.

Laura Foggan is a partner in the insurance practice and co-chair of the appellate practice of Wiley Rein LLP. She has over 25 years of experience representing insurers in complex insurance litigation. Benjamin Theisman is an associate in the insurance and litigation practices of Wiley Rein LLP.