• California Supreme Court Issues Significant Opinion Regarding Insurance Coverage for Environmental Pollution
  • March 27, 2009 | Author: Peter Abrahams
  • Law Firm: Horvitz & Levy LLP - Encino Office
  • In The State of California sued its insurers, seeking coverage after it was held liable for soil and groundwater contamination caused by the escape of pollutants which the State had discharged into containment ponds. Its insurers claimed coverage was barred because, among other reasons: (1) the policies contained pollution exclusions and the "sudden and accidental" exceptions to the exclusions were inapplicable because the discharges into the ponds were neither sudden nor accidental; and (2) even if some of the damages were covered because they were caused by discharges that were sudden and accidental, the State was required prove how much of its liability was traceable to those discharges.

    The trial court granted summary judgment for the insurers. In an opinion filed March 9, 2009, the California Supreme Court reversed. The court's most significant holdings are:

    (1) In determining whether the sudden and accidental exceptions to the pollution exclusions applied, the focus must be on the discharges that gave rise to property damage. Here, the State was not held liable for discharging pollutants into the containment ponds, but for polluting the land and groundwater outside the ponds. Thus, the relevant discharges for application of the pollution exclusions are those in which, due to the State's negligence, pollutants were released from the ponds into the surrounding soil and groundwater.

    (2) The State was not required to prove how much of its liability is traceable to sudden and accidental discharges, as opposed to gradual leakage from the ponds, to obtain coverage. Where an indivisible amount of property damages is caused by both covered and excluded risks, the insured's inability to allocate the damages by cause does not excuse an insurer from its duty to indemnify because the entirety of the damages are sums which the insured is obligated to pay for damages because of nonexcluded property damage. The Supreme Court disapproved Golden Eagle Refinery Co. v. Associated Internat. Ins. Co. (2001) 85 Cal.App.4th 1300 and Lockheed Martin Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 187 insofar as they hold that an insured must show not only a covered cause contributed substantially to the damages for which the insured was held liable, but must also show how much of an indivisible amount of damages resulted from covered causes.