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Insurers May Have to Pay for Cleanups : Pollution: The ruling by the state justices is seen as making it easier to decontaminate waste sites.


SAN FRANCISCO — In a case with billions of dollars at stake, the state Supreme Court ruled Thursday that insurance companies may be forced to pay for government-ordered cleanups of toxic waste created by firms they insure.

The justices, resolving a far-reaching issue raised in at least 17 pending cases, opened the way for policy-holding polluters to invoke coverage, unanimously reversing a state appeal court ruling that had protected insurers against such claims. None of the 17 cases involve Orange County.

The high court decision represented not only a major victory for corporate policyholders but a triumph as well for state and local officials, who argued that including cleanup costs in coverage would lead to faster, more effective cleanups and thus protect public health.

Lawyers for insurers, while disappointed with the ruling, noted that they still will be able to dispute coverage in individual cases. They may contend, for example, that an act of pollution was "willful"--as in the case of a so-called "midnight dumper"--and excluded under their policies.

The issue of coverage has emerged in scores of cases around the country where officials have ordered toxic-waste cleanups under the federal environmental "superfund" law. Pending cases in California alone involve cleanup costs of more than $2 billion, according to attorneys.

Some experts welcomed the ruling as a badly needed resolution of a hotly disputed issue. "The best thing to come out of this ruling will be to short-circuit much of the litigation and get down to the problem of obtaining environmental cleanups," said Jack Skelton, a Redwood City attorney who has represented both insurers and accused polluters.

Polluting firms have argued that cleanup costs were covered as "damages" under comprehensive general liability policies.

Insurers responded that such terminology was not intended for cleanups but only for monetary awards for injuries in court cases. If they ultimately were forced to pay for cleanup costs, insurers said in a brief to the court, reserves would be depleted, premiums would rise and insurance coverage would become less available.

The high court, in a 60-page opinion by Chief Justice Malcolm M. Lucas, concluded that the "plain and ordinary meaning" of the disputed "damage" terminology intended includes coverage for cleanup costs. The court did not consider other provisions that might affect coverage in individual cases.

The justices cited the legal rule that ambiguous language must be resolved against the insurer. An attorney for FMC Corp., a Chicago-based chemical firm seeking insurance coverage in the case, said the ruling would have a "major impact" on pending cases and could lead to quicker, more effective cleanups. "Ambiguous terms are to be construed in favor of coverage," said David W. Steuber, a Los Angeles lawyer. "That's going to be extremely important as other courts address similar cases."

The ruling also was welcomed by state Atty. Gen. John K. Van de Kamp, who said that in opening the way for insurer liability, the decision would promote privately funded cleanups "with minimum delay" and without "unnecessary public expense."

State Deputy Atty. Gen. Timothy R. Patterson, who represented the state in the case, noted that while insurers still may raise other issues to contest coverage, the high court ruling "resolves the critical first question--whether there can be coverage."

"This decision will encourage settlements," Patterson said. "And settlements without lawsuits is just what Congress and the state of California wanted to achieve."

Benjamin Kaufman of Los Angeles, a lawyer for 62 cities and counties urging insurance coverage of polluters, said the ruling would help protect taxpayers from paying cleanup costs. "If the insurance companies had won this case, they would have hit a home run, because there would be no coverage," Kaufman said.

An attorney for the AIU Insurance Co., the insurer contesting FMC Corp.'s claim of coverage, expressed disappointment with the ruling but pointed out that the issue of coverage would not be finally resolved until issues of other provisions in policies are decided.

"There are many other provisions and exclusions we believe will prevent insurance coverage in a vast number of cases," said Deborah A. Pitts of Los Angeles. Pitts added that lawyers would be considering whether to take the issue to the federal courts.

The case before the court arose when state and federal authorities filed suits against FMC, alleging that the firm was responsible for contamination of 79 hazardous-waste disposal sites throughout the United States. Officials sought court orders requiring the firm to remove the contaminants and reimburse government agencies for the investigation and initial stage of a cleanup.

FMC, in turn, sought to invoke coverage for cleanup costs under the more than 60 general liability policies issued by its insurers. But AIU and other insurers resisted, saying the policies did not cover such costs. A Santa Clara County Superior Court judge rejected the insurers' claims, but last year, a state appellate panel in San Jose reversed that decision, holding that the policies would not allow FMC to pass on the costs to its insurers.

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