Academic journal article Journal of Risk and Insurance

Vandenberg V. Superior Court

Academic journal article Journal of Risk and Insurance

Vandenberg V. Superior Court

Article excerpt

RECENT CouRT DECISIONS

Contributed by Jeffrey W Stempel William S. Boyd School of Law University of Nevada, Las Vegas ABSENT ExPRESS AGREEMENT, ABSENT INSURER NOT PERMITTED TO USE ARBITRATION AwARD AGAINST POUCYHOLDER,- CGL POUCY MAY BE REQUIRED To COVER CLAIMS FRAMED IN BREACH OF CONTRACT LANGUAGE RATHER THAN TORT LANGUAGE

Vandenberg v. Superior Court, 982 P-2d 229, 88 Cal. Rptr. 2d 366 (California Supreme Court-August 30, 1999)

The California Supreme Court recently dealt two blows to insurers, one by a unanimous vote, in its recent Vandenberg decision. The Court held: (1) absent express agreement in the arbitration clause, an insurer could not use an arbitration award unfavorable to the policyholder to gain "offensive" collateral estoppel against the policyholder in a subsequent coverage dispute; and (2) despite the general admonition that liability insurance covers tort claims rather than contract claims, a commercial general liability ("CGL") policy does not necessarily bar coverage for claims against the policyholder that are framed as breach of contract claims.

Policyholder Vandenberg operated an automobile sales and servicing facility from 1958 to 1988 on land leased from Eugene and Kathryn Boyd. In 1988, Vandenberg discontinued the business and the land was again possessed by the Boyds. Subsequently, the Boyds discovered pollution damage on the land and sued Vandenberg, alleging that Vandenberg's installation and operation of waste oil storage tanks on the land created the pollution. For the years in question, Vandenberg was insured by several companies through standard CGL insurance. One, USF&G, agreed to defend. As part of a complex settlement arrangement, the pollution damage to the land was remediated (with USF&G footing much of the bill, at least as an initial matter). The Boyds and Vandenberg arbitrated between themselves issues relating to whether Vandenberg's oil waste activity constituted a breach of the lease. The coverage dispute was treated as a separate matter for litigation.

After an extensive arbitration proceeding, the arbitrator found in favor of the Boyds and against Vandenberg, awarding more than $4 million in damages. In particular, the arbitrator found that the bulk of pollution damage to the land resulted from the underground waste storage tanks and was caused in part by Vandenberg's improper installation, maintenance and use of the tanks. The arbitrator also found that the discharge of pollutants from the tanks had taken place gradually over a number of years.

On the basis of the arbitrator's findings, Vandenberg's CGL insurers rejected his request for indemnification, prompting Vandenberg to sue seeking coverage. The insurers moved for judgment in their favor on the basis of the arbitration findings. In particular, the insurers argued that the arbitrator's finding that the oil waste pollution took place over several years made it impossible for Vandenberg to obtain coverage for the matter pursuant to the "sudden and accidental" pollution clause contained in the policies. In addition, the insurers (particularly those without a qualified pollution exclusion in the policy) argued that because the arbitrator had awarded damages to the Boyds for "breach of lease", the damages owed by Vandenberg to the third party claimants were contractual rather than tortious and thus outside the scope of CGL coverage.

This type of motion for summary judgment by the insurers sought to make "offensive" use of "collateral estoppel" or issue preclusion. Issue preclusion (more commonly referred to as collateral estoppel) is the legal doctrine that provides that a fact that is fully and fairly litigated may be binding in subsequent proceedings against a party who was part of the earlier factual determination. Issue preclusion may apply where: (1) the fact in question is the same in both cases; (2) where it was actually litigated in the earlier action; (3) where the proceeding was fair and the fact fully and completely litigated, and (4) where the fact in question was a necessary part of the earlier tribunal's decision. …

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