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Horvitz & Levy LLP represented appellant Northern Insurance Company of New York. The California Court of Appeal reversed an $11.1 million judgment against Northern, including $10 million in punitive damages. The appellate proceedings lasted nearly four years and included four rounds of supplemental briefing and two oral arguments. The Los Angeles & San Francisco Daily Journal discussed the unusually protracted proceedings in this article.  

The plaintiff, Griffin Dewatering Corporation, worked on a sewer bypass project that failed, causing raw sewage to flood a home. Griffin was sued for negligence. It requested a defense from its insurer, Northern. Northern initially declined to defend, taking the position that the pollution exclusion in Griffin’s policy precluded coverage for damage caused by sewage. At the time Northern took that position, courts around the country were split on whether pollution exclusions encompass claims for damage caused by sewage. California courts had not yet addressed the issue. 

Eleven months after Northern denied the defense and before Griffin had paid anything for its own defense, Northern reconsidered its position, provided a defense, and settled the suit against Griffin at no cost to Griffin. Nevertheless, Griffin sued Northern for bad faith and obtained a judgment for $1.1 million in compensatory damages (consisting entirely of the attorney’s fees and costs that Griffin incurred in its lawsuit against Northern) and $10 in punitive damages. 

The Court of Appeal (Fourth Appellate District, Division Three) reversed in a published opinion, directing the trial court to enter judgment in favor of Northern. The court held that, as a matter of law, Northern’s interpretation of the policy was objectively reasonable at the time it was made, even though the California Supreme Court later adopted a narrower interpretation of the pollution exclusion in MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635.  MacKinnon was not issued until after Northern had already accepted the defense, and therefore could not support a finding that Northern’s denial of the defense was unreasonable at the time Northern made that decision. 

The California Supreme Court denied Griffin’s petition for review on November 19, 2009.