THE CALIFORNIA SUPREME COURT FILES TWO INSURANCE COVERAGE DECISIONS

On Monday, August 29, 2005, the California Supreme Court filed decisions in two related cases concerning the scope of coverage under excess and umbrella policies for the cost of complying with administrative environmental cleanup orders.

In Powerine Oil Co., Inc. v. Superior Court (Aug. 29, 2005, S113295) __ Cal.4th __ [05 D.A.R. 10545] (Powerine II), the Supreme Court held that certain excess/umbrella policies covered costs that the insured must incur to comply with an administrative agency’s pollution cleanup and abatement order. In the companion case, County of San Diego v. Ace Property & Casualty Insurance Co. (Aug. 29, 2005, S114778) __ Cal.4th __ [05 D.A.R. 10554] (Ace), the Supreme Court held that a nonstandard excess third-party liability policy did not cover expenses incurred by the County responding to an administrative agency order requiring it to remediate environmental contamination, and did not cover sums expended by the County to settle related third party property damage claims outside the context of a lawsuit.

In both cases, the court discussed Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 Cal.4th 945, 960 (Powerine I). There, the court held that the insurer’s duty to indemnify the insured for “all sums that the insured becomes legally obligated to pay as damages” under a standard comprehensive general liability (CGL) insurance policy is limited to “money ordered by a court” and does not extend to environmental cleanup costs ordered by an administrative agency pursuant to an environmental statute.

In Powerine II, the Supreme Court distinguished Powerine I, noting that the insuring clauses of the excess/umbrella policies at issue went “well beyond mere coverage for court ordered money ‘damages,’ and [was] broad enough to include coverage for the liability of environmental cleanup and response costs ordered by an administrative agency.”

On the other hand, in Ace, the court followed Powerine I, noting that the central insuring provision in the excess policy at issue limited coverage to liability imposed by law for “damages” resulting from destruction or loss of use of tangible property. The court explained that the material differences in the policy language involved in Powerine II and Ace explained the different results in the two cases.

Significantly, only three justices (Justice Baxter, with Chief Justice George and Justice Chin) signed the majority opinion in Ace. Justices Werdegar and Moreno filed separate concurring opinions acknowledging that Powerine I controlled the outcome but questioning whether that case was rightly decided. Justice Kennard filed a concurring and dissenting opinion restating her view, expressed in her dissenting opinion in Powerine I, that “damages” as used in the policies should not be limited to money ordered by a court.

If you have any questions concerning these decisions, please contact Mitch Tilner or Tom Watson at (818) 995-0800 or by e-mail to mtilner@horvitzlevy.com or htwatson@horvitzlevy.com.

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