Sacramento, California (3/9/09) – The State of California has won a very important case recognizing the rights of California policyholders.  On March 9, 2009, the California Supreme Court ruled in favor of the State of California regarding the State’s insurance coverage for its environmental clean-up of the Stringfellow waste site.

State of Cal. v. Allstate Ins. Co., 45 Cal. 4th 1008, 201 P.3d 1147 (Cal. March 9, 2009).  In doing so, the California Supreme Court recognized rights important to all California insurance policyholders.  The California Supreme Court ruled that if a loss is caused by covered and uncovered events, and the policyholder can’t prove exactly how much is covered, the insurance company has to pay for the whole loss up to its policy limits. The Supreme Court’s decision helps California policyholders and policyholders whose insurance is governed by California law in a big way.  The insurance industry has tried to wipe out covered claims with arguments regarding covered versus excluded causes of losses.  This attempt has captured national attention in homeowners' insurance disputes after Hurricane Katrina, when insurance companies asserted flood exclusions to avoid paying for damage caused partly by wind, a covered cause.  Under the California Supreme Court decision, if a covered cause of damage makes the policyholder fully liable under tort doctrines of "joint and several" liability, then the insurance company must pay the full liability up to its policy limits, even if another excluded cause contributed to the damage.  Because insurance law is determined on the state level, precedents established in California, the nation's most populous state, are highly influential. In a separate part of the decision, the California Supreme Court held that policyholders do not lose insurance coverage just by putting their waste in sites that are meant to contain them.  An insurance company must prove that the policyholder expected or intended that the waste would be released from the site into the environment to deny coverage.  A jury in Riverside California decided in May 2005 that the State of California did not willfully harm anything at the Stringfellow waste site. The California Supreme Court also held that damage from the State’s controlled discharge of waste from the Stringfellow site to avoid the collapse of a dam during extraordinary flooding in 1978 could be covered by insurance.  The Supreme Court ruled that liability insurance policies cover damages resulting from actions taken to prevent covered injury, even if those actions otherwise would not be covered. The California Supreme Court rejected insurance company arguments against covering damages from the 1978 flooding because there had been a smaller flood years earlier.  The insurance companies argued that the State’s effort to cure the flooding problem showed that it knew that there could be problems from another flood.  The California Supreme Court rejected that insurance company excuse, holding that the insurance companies could have to pay because "[b]eing aware of a risk of a particular event is not equivalent to knowing or believing the event is highly likely to occur." In a separate part of the Stringfellow insurance case, on January 5, 2009, a California Court of Appeals issued a decision in favor of the State denying the insurance companies’ appeal of the State’s trial victory on policies which did not contain any pollution exclusion.  This decision makes clear that policyholders can "stack" the limits of each liability insurance policy in effect during the course of continuous environmental damage in order to pay for the necessary clean-up.  In other words, when continuous loss spans multiple policy periods, any insurance company that covered any triggered policy period is liable for the entire loss, up to its policy limits, and policyholders are allowed to recover all coverage under all policies they purchased in all years triggered.  The Court of Appeals also confirmed that liability insurance policyholders have no duty to their insurance companies to mitigate losses, because the insurance not only covers negligence that causes a loss, but also negligence in aggravating or failing to mitigate the loss.  Review of that decision now has been accepted by the California Supreme Court.  State of Cal. v. Continental Ins. Co., 88 Cal. Rptr. 3d 288, (Cal. App. 4th Dist. Jan. 5, 2009).  Review Granted:  State of Cal. v. Continental Ins. Co., 203 P.3d 425, 91 Cal. Rptr. 3d 106 (Cal. Mar 18, 2009).  These decisions follow a 2005 jury verdict in favor of the State of California against CNA and other insurance companies in State of California v. Underwriters at Lloyd's of London et al., No 239784/RIC-381555.  The suit seeks insurance coverage for the costs the State is incurring to clean-up the Stringfellow waste site.  The verdict was recognized by VerdictSearch as one of the 60 top verdicts in the United States in 2005.  Nineteen out of twenty-four defendant insurance companies have settled, and the State has recovered gross settlements of over $121 million in addition to its defense costs.  At trial, the jury rejected all of the insurance companies’ defenses and found that CNA, Wausau, Yosemite, Horace Mann (ACE) and Stonebridge each breached their insurance policies with the State. The State of California is represented by Lead Supervising Deputy Attorney General Darryl Doke, Deputy Attorney General Jill Scally, Robert M. Horkovich, Edward J. Stein, Robert Y. Chung and Cort T. Malone of Anderson Kill & Olick, P.C., Roger W. Simpson of Cotkin Collins & Ginsberg, and Daniel J. Schultz of Tuscan, Arizona. For more information, please contact: Robert M. Horkovichrhorkovich@andersonkill.com(212) 278-1322