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The California Supreme Court recently ruled against insurers that sought to limit their exposure in the remediation and cleanup of the state's Stringfellow Acid Pits industrial-waste-disposal facility in Riverside.

Some commentators have said this is "the most important insurance coverage decision to come out of the California Supreme Court in decades," said Robert Horkovich, a shareholder in the New York office of Anderson Kill & Olick, P.C., who litigated the case on behalf of the State of California, along with Deputy Attorney General Darryl Doke, Roger Simpson, whose law office is in Fountain Valley, Calif., and Daniel Schultz, whose law office is in Tempe, Ariz.

First, was whether insurers should pay "all sums" -- meaning should each insurer be liable to pay damages on its own policy up to its policy limits, or should each insurer pay a proportionate share of the damage that occurred during the timeframe the individual policy was in effect.

The second element, he said, was whether the policies should be stacked -- and thus allow the state to recover the policy limits in effect for every policy period.

The state used Stringfellow as a waste-disposal site from 1956 to 1972, and in 1998, a federal court found the state was negligent for using the site and for delaying its remediation. The state said it could cost as much as $700 million to clean up the site.

The insurers -- Continental Insurance Co., Continental Casualty Co., Yosemite Insurance Co., Stonebridge Life Insurance Co., Horace Mann Insurance Co., and Employers Insurance of Wausau -- all provided one or more excess commercial general liability insurance policies to the state between 1964 and 1976.

California has already received more than $130 million from insurers as well as $54 million in defense costs, he said. The case will now be sent back to the trial court to assess damages. The state is seeking punitive damages as well as in excess of $60 million more in compensatory damages.

Philip R. Matthews, a partner at Duane Morris LLP in San Francisco, said the impact of the ruling would "depend on a given case."

When it applies, it will probably be to a past event and only if there is coverage -- "It's not really a problem post-'85." -- as most policies today (and many policies prior to 1985 as well) have a pollution exclusion and anti-stacking provisions, Matthews said.

Still, there could be some cases -- such as sexual-abuse claims or long-tail claims involving a single occurrence larger than one year of coverage -- that could raise issues because such cases could cover more than a single policy period and the request for indemnification could be in the multimillion-dollar range.

Footnotes in the ruling may "prove to be helpful" to excess insurers, he said, as they note primary insurance should be exhausted before excess coverage is addressed.

Horkovich said state courts have been divided on whether indemnification should be determined by the "all sums" or the pro-rata approach.

--By Anne Freedman

October 1, 2012

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