Revisiting the longstanding Stringfellow Acid Pits coverage litigation, the California Supreme Court relied on the doctrine of concurrent proximate cause as applied to the pollution exclusion to determine the insurer must indemnify for covered and uncovered claims. See State of California v. Allstate Ins. Co., S149988 (Cal. March 9, 2009)[here].
In the 1950's, the State constructed the Stringfellow Acid Pits, a hazardous waste disposal site. The State's geologist determined the site was suitable because it had an impermeable layer of rock, which he assumed had no water in it. Therefore, it was believed the site posed no threat of environmental pollution.
Consequently, after the site was opened in 1956, more than 30 million gallons of liquid industrial waste were deposited in the Stringfellow ponds. The site was closed in 1972 after groundwater contamination was discovered. Under the site was decomposed granite and fractured bedrock, through which an underground alluvial channel ran. Chemical pollution was seeping into the groundwater around the ends of the barrier dam, which was negligently constructed. Further, two major rain storms, one in 1969 and one in 1978, caused overflow and allowed polluted water to run down the canyon.
The state sought coverage for liability imposed in a federal court suit. The policies issued by four insurers excluded liability resulting from environmental pollution. The exclusion was qualified, however, by a "sudden and accidental" exception.
The insurers denied coverage for the federal court liability. The state sued. The trial court granted summary judgment to the insurers based on the pollution exclusion. The Court of Appeal reversed, relying on State Farm Mut. Auto. Ins. Co. v. Partridge, 10 Cal. 3d 94 (1973) and finding the policies covered the State's liability for indivisible damage caused partly by covered causes and partly by excluded causes.
The Supreme Court affirmed in part and reversed in part. First, the Supreme Court agreed with the Court of Appeal that the relevant discharges for application of the pollution exclusion were those in which, due to the State's negligence, pollutants were released form the Stringfellow ponds into the surrounding soils and groundwater. The Court rejected the insurers' contention that the relevant discharges were the initial disposals of wastes in the the unlined ponds, which would be neither sudden or accidental.
Next, the Supreme Court reversed the Court of Appeal's finding that because the 1978 flooding followed the 1969 overflow, the 1978 event was nonaccidental. The Supreme Court determined there was a triable issue of fact because the rains preceding the 1969 and 1978 discharges were extraordinary and unpredictable. On this evidence, a trier of fact could reasonably find the State did not expect the discharges.
Finally, the Supreme Court considered whether the State must prove how much of the property damage was caused by the sudden and accidental releases. Under the policies, liability for property damage caused by an accident was covered, while that caused by gradual or nonaccidental release of pollutants was excluded. The summary judgment record showed at least a triable issue of fact as to whether the 1969 and 1978 discharges were substantial factors in causing contamination of soils and groundwater.
Under Partridge, when there were concurrent proximate causes of an accident, the insurer was liable so long as one of the causes was covered by the policy. The 1969 and 1978 releases would have rendered the State fully liable for contamination, without consideration of the subsurface leakage, if they were substantial factors in causing the damage. Although subsurface leakage from the site, an excluded cause of property damage, also contributed to the contamination, this was insufficient to defeat coverage under Partridge because liability coverage exists when an insured risk constitutes a proximate cause of an accident, even if an excluded risk is a concurrent proximate cause. If the insured proved that multiple events had contributed to cause a single injury or an indivisible amount of property damage, such that one or more of the covered causes would have rendered the insured liable for the entirety of the damages, the insured's inability to allocate the damages by cause did not excuse the insurer from its duty to indemnify.
In sum, summary judgment for the insurers based on the policies' qualified pollution exclusion was improper.
Once again, thanks to my Damon Key colleague and veteran blogger, Robert Thomas (inversecomdemnation.com) for giving me early notice of this case.
