Magazine article Dispute Resolution Journal

Insurance: Nonmutual Collateral Estoppel

Magazine article Dispute Resolution Journal

Insurance: Nonmutual Collateral Estoppel

Article excerpt

Under California law an arbitration award does not have collateral estoppel effect against third parties unless the arbitrating parties have so agreed, the California Supreme Court ruled in a divided decision.

The case involved a parcel of contaminated property on which Vandenberg operated an auto sales and service facility pursuant to a lease. Only the property owner's breach of lease claims were submitted to arbitration pursuant to a settlement agreement between the owner, Vandenberg, and one of his CGL insurers. This insurer agreed to defend Vandenberg in the arbitration, but reserved the issue of its ultimate liability to provide coverage for future resolution.

The arbitrator issued a $4 million award against Vandenberg, finding him primarily responsible for the environmental contamination on the property, and citing improper installation, maintenance and use of underground storage tanks. The arbitrator also said that the discharge of contaminants was not "sudden and accidental." Vandenberg sued his insurers seeking defense and indemnity under various CGL policies. The insurers moved for summary judgment, asserting that, based on the arbitrator's finding that the pollution was not "sudden and accidental," coverage was excluded by the "pollution exclusion" clause. The insurers argued that the doctrine of collateral estoppel precluded re-litigation of this issue.

The trial court agreed, but the California Court of Appeal found it would not be fair to give a private arbitration decision "nonmutual collateral estoppel effect" without the consent of the arbitrating parties. …

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