April 25, 2022

Certain Underwriters at Lloyd’s London v. ConAgra Grocery Products Company, A160548 (April 19, 2022)

Insurance Code section 533 bars insurers from indemnifying insureds against “willful acts,” deliberate conduct that the insured expected or intended to cause harm.

ConAgra was held liable for a public nuisance created by its predecessor Fuller’s promotion of lead-based paint for interior residential use. ConAgra was ordered to contribute to an abatement fund for local governments to remediate the nuisance.

ConAgra’s liability insurers sued for declaratory relief. The trial court granted summary judgment, holding that section 533 applied and the insurers had no duty to indemnify ConAgra for the sums it paid into the abatement fund. ConAgra appealed and the Court of Appeal affirmed.

The court rejected ConAgra’s argument that because only its predecessor created the public nuisance, section 533 did not apply to ConAgra. The court held ConAgra, the successor corporation in a merger, was on notice that it purchased the predecessor’s liabilities. The successor “‘is responsible as the wrongdoer, in the sense that the successor knew that the predecessor may have committed some wrongdoing and thereby agreed to assume any liability therefore [sic].’” The court distinguished the vicarious liability of an employer for its employee’s deliberate misconduct in the scope of employment (section 533 does not bar indemnity for the employer).

The court also rejected ConAgra’s various arguments why its predecessor’s conduct did not amount to a willful act under section 533. The court held that because ConAgra was required to contribute to an abatement fund and not to pay damages for harm to particular homes, section 533 did not require proof that Fuller’s promotions caused harm to particular homes or that particular homes needed to be inspected or abated. Fuller’s promotions, the court held, were a substantial factor in causing the public nuisance for which ConAgra was liable.

Finally, the court rejected the argument that section 533 could not apply absent proof that the predecessor corporation’s management expected or intended the company’s acts to cause harm. The court held section 533 applied because the underlying action established that the predecessor corporation had actual knowledge of the harms associated with lead paint when it promoted lead paint for interior residential use and that, for purposes of section 533, corporations are charged with knowledge acquired by all their employees—not just management—in the course of employment.