State of California v. Continental Ins. Co.
| Decision Date | 05 January 2009 |
| Docket Number | No. E041425.,E041425. |
| Citation | 88 Cal. Rptr. 3d 288,170 Cal.App.4th 160 |
| Court | California Court of Appeals Court of Appeals |
| Parties | THE STATE OF CALIFORNIA, Plaintiff, Cross-defendant and Appellant, v. CONTINENTAL INSURANCE COMPANY et al., Defendants, Cross-complainants and Appellants; EMPLOYERS INSURANCE OF WAUSAU, Defendant, Cross-complainant and Respondent. |
In this action, the State of California (the State) seeks to recover from its liability insurers the amounts that a federal court has ordered it to pay for the cleanup of the Stringfellow hazardous waste site. Some insurers were granted summary judgment; the propriety of that ruling is currently before the California Supreme Court in State of California v. Underwriters at Lloyd's London (2006) 146 Cal.App.4th 851 , review granted April 18, 2007, S149988. Other insurers settled with the State.
By the time the trial court entered the judgment that is the subject of this appeal, there were only six insurers left standing: Continental Insurance Company (Continental), Continental Casualty Company (Casualty), Employers Insurance of Wausau (Wausau), Horace Mann Insurance Company (Horace Mann), Stonebridge Life Insurance Company (Stonebridge), and Yosemite Insurance Company (Yosemite) (collectively the Insurers). Each of them had issued to the State an excess corporate general liability policy covering a two- or three-year policy period.
The trial court ruled that every policy in effect for any policy period during which the loss was occurring covered the entire loss—which was at least $50 million, and could be as much as $700 million—subject to the policy limits. However, it also ruled that the State could not recover more than the total policy limits for any one policy period; this effectively limited the State's recovery to $48 million. Finally, it ruled that the Insurers were entitled to a setoff for settlement amounts previously paid by other insurers. Because the State had already recovered approximately $120 million in settlements, the trial court entered a judgment awarding the State "$0" against the Insurers.
The State has appealed; the Insurers (other than Wausau) have filed a protective cross-appeal.
In the end, we will uphold (or find moot) all of the trial court's rulings, with two exceptions: The trial court did err by (1) ruling that the State could not recover more than the total policy limits in effect for any one policy period, and (2) admitting certain documents under the ancient documents exception to the hearsay rule (Evid. Code, § 1331). Accordingly, we must reverse and remand for further proceedings.
We hasten to add that we do not fault the trial court in any way. Each of the successive judges who have handled the case since it was first filed, way back in 1993, has done yeoman's service. In particular, Judge Erik Michael Kaiser (now retired), who handled the case throughout its final stages, including the jury trial, did an outstanding job of organizing, managing, and ultimately adjudicating this complex case.
Judge Kaiser ruled that the State could recover for only one policy period because he believed that he was bound to follow FMC Corp. v. Plaisted & Companies (1998) 61 Cal.App.4th 1132 (FMC), which was the closest case on point. As an appellate court, however, we can and do respectfully disagree with FMC. It failed to follow other, closely analogous California cases, based on reasoning that we find to be flawed and unconvincing.
Similarly, in ruling on the ancient documents exception, Judge Kaiser entered uncharted territory, as this exception has not been the subject of an appellate opinion since it became effective, along with the rest of the Evidence Code, in 1967. We will construe it for the first time.
J.B. Stringfellow, Jr., owned a quarry near Glen Avon in Riverside County. In 1955, a state geologist inspected the quarry to determine whether it was suitable for use as an industrial waste disposal site. He reported that the site lay in a canyon, underlain by impermeable rock. He recommended that a concrete barrier dam be built to close a 250-foot gap in the canyon's natural walls. He concluded that, once such a dam was built, "the operation of the site for industrial wastes will not constitute a threat of pollution . . . ."
The State therefore proceeded to design the site and to supervise its construction. The site went into operation in 1956. More than 30 million gallons of industrial waste was deposited into unlined ponds at the site.
Actually, the site was badly flawed. First, an underground stream channel lay about 70 feet below the surface; it carried groundwater into and out of the site. Second, the underlying rock was fractured; contaminants could leak down through it and reach the groundwater. Third, the barrier dam was inadequate; it allowed contaminants to escape.
In 1969, heavy rains caused contaminants to overflow the dam. In 1972, groundwater contamination was discovered, and the site was closed. However, it continued to leak. In 1978, heavy rains once again made the ponds overflow; the State decided to allow a "controlled discharge" of contaminants into Pyrite Channel. Hazardous waste released from the site merged into a plume that ultimately extended miles away.
In 1983, the United States and the State filed suit against numerous defendants, including companies that had deposited waste at the site, as well as the hapless Mr. Stringfellow, alleging that they were liable for the resulting contamination. Certain defendants counterclaimed against the State.
In September 1998, the federal court found the State liable for, among other things, negligence in investigating the site, choosing the site, designing the site, supervising construction of the site, failing to remedy conditions at the site, and delaying the cleanup of the site. The State was held liable for all past and future remediation costs, which the State claims could be as much as $700 million.
The Insurers stipulated that the State was liable for at least $50 million.
Each of the Insurers (or their predecessors in interest) had issued one or more excess liability policies to the State, covering a multi-year policy period, as follows:
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Insurer
(short name) Policy No. Start End Limit per Occurrence
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Wausau 063700030896 9/20/64 9/20/67 $2 million
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Beneficial 11694 9/20/64 9/20/66 $2.05 million
(Stonebridge's
predecessor)1
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Wausau 063700030896 9/20/67 9/20/70 $2 million
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Continental 914-12-35 9/20/70 9/20/73 $5 million
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Harbor 109822 9/20/70 9/20/73 $5 million
(Continental's
predecessor)
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Wausau 333300112690 9/20/70 9/20/73 $2 million
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CNA (Casualty's 954-37-53 9/20/73 9/20/76 $2 million
predecessor)
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Horace Mann GLA 500063 9/20/73 8/7/75 $1 million
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Wausau 063600036713 9/20/73 9/20/76 $2 million
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Yosemite YXL 105118 9/20/73 9/20/75 $5 million
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The State had drafted a master liability policy form, which it required its...
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