May 17, 2022

Charlie Doodle

Unique Art & Entertainment

Lead Paint Coverage Claim Bites The Dust – Insurance Laws and Products

6 min read

Duane Morris lawyers helped secure a victory at the California
Court of Appeal when the court held Tuesday that ConAgra’s
insurers have no duty to indemnify ConAgra against a public
nuisance action in which ConAgra was ordered to contribute to an
abatement fund due to its predecessor’s promotion of the use of
lead paint in pre-1950 homes.  (See Certain Underwriters
at Lloyd’s London, et al. v. ConAgra Grocery Products
Company
et al., Case No. A160548, April 19,
2022, certified for publication
(“ConAgra“).)

The underlying case (the “Santa Clara 
Action”) began in 2000 when Santa Clara County, later joined
by other California government agencies filed a class action
complaint against certain lead paint manufacturers, including
ConAgra, NL Industries, Inc., and Sherwin-Williams Company. The
focus of the underlying case was narrowed, and that case ultimately
went to trial on one cause of action for representative public
nuisance.  In pursuing that causes of action, the underlying
plaintiffs alleged that the presence of lead in paint and coatings
in and around homes and buildings in California created a public
health crisis created and/or assisted by the defendants.  In a
pre-trial appeal in the Santa Clara  County
action, the court held that the representative public nuisance
cause of action required as an essential element that the paint
manufacturers had acted intentionally with actual knowledge that
their marketing of lead paint for interior residential use would
cause harm.  (See County of Santa Clara v. Atlantic
Richfield Co. 
(2006) 137 Cal.App.4th 292, 299
(“Santa Clara I“).)  The underlying case
went to trial under that standard, and the court found the
manufacturers jointly and severally liable for representative
public nuisance.

In 2017, the Court of Appeal in the Santa
Clara 
Action affirmed the finding that the paint
manufacturer were liable, although the Court ruled that the amount
of the judgment must be re-tried.  (People v. ConAgra
Grocery Products Co. 
(2017) 17 Cal.App.5th 51
(“Santa Clara II“).).  In upholding the
finding of liability, Santa Clara II  held that
when ConAgra’s corporate predecessor, W.P. Fuller & Co.
(“Fuller”) marketed paint for use inside homes, Fuller
had “actual knowledge of the hazards of lead
paint—including childhood lead poisoning,” and
specifically that “(1) ‘lower level lead exposure harmed
children,’ (2) ‘lead paint used on the interiors of homes
would deteriorate,’ and (3) ‘lead dust resulting from this
deterioration would poison children and cause serious
injury.'”  (Santa Clara II, supra,  17
Cal.App.4th at 85.)

The plaintiffs’ public nuisance cause of action in
the Santa Clara  Action did not seek damages,
but instead sought abatement, which allows a plaintiff to obtain
relief before a hazard causes physical injury or damage to
property.  The trial court in the Santa
Clara 
initially ordered the defendants to pay $1.15
billion into an abatement fund.  On remand after the 2017
appellate opinion, the Santa Clara  trial court
recalculated the amount of the abatement fund to be $409
million.  The parties in that case eventually reached a
settlement, which required ConAgra to pay $101,666,666 to resolve
the plaintiffs’ claims.

While the underlying Santa Clara  action was
pending, in January 2014 certain London Market insurers filed a
declaratory relief action seeking a determination that they had no
coverage obligations to ConAgra under policies issued to ConAgra
and its predecessors, and bringing numerous other insurers into the
case.  The coverage case was stayed while the underlying case
went forward.  The insurers ultimately filed a motion seeking
summary judgment on the grounds that: (1) Cal. Ins. Code Section
533 prohibits coverage for ConAgra’s intentional promotion of
lead paint with actual knowledge of the health hazards that would
result; (2) there was no “occurrence” under the policies
because the harm was expected or intended from the standpoint of
the insured; (3) the abatement remedy was not liability for
“damages” or an “expense” under the policies;
and (4) ConAgra’s liability was not “because of” or
“on account of” “bodily injury,” “property
damage” and/or “personal injury” under the
policies.

The trial court granted summary judgment in favor of the
insurers, ruling that Insurance Code Section 533 barred coverage as
a matter of law where liability arises from deliberate conduct that
the insured expected or intended to cause damage. The court
reasoned that Fuller, ConAgra’s predecessor, intentionally
promoted lead paint for use inside homes with actual knowledge that
damage to children was at least highly probable.

ConAgra appealed the judgment to the California Court of Appeal.
It advanced several arguments in its appeal, including contentions
that: (1) Because it was ConAgra’s predecessor, Fuller, that
committed the wrongful acts, Section 533 did not apply to bar
coverage for ConAgra; (2) Section 533 is inapplicable because the
loss for which ConAgra seeks indemnity was too attenuated from
Fuller’s past promotion of lead paint for Section 533 to apply;
and (3) the underlying findings did not establish as a matter of
law that Fuller acted with the requisite knowledge under Section
533. The Court of Appeal rejected each of these arguments.

With respect to its first argument, ConAgra reasoned that its
predecessor’s knowledge should not be imputed to ConAgra under
Section 533, citing cases that allowed coverage where an insured
was vicariously liable for willful conduct of another person. The
court rejected this argument, holding that cases regarding
vicarious liability do not apply in situations involving successor
liability.  The Court reasoned that, in the event of a merger,
as occurred when Fuller was merged into ConAgra through several
corporate acquisitions over time, the successor is on notice that
it is succeeding to the liabilities of its predecessor and is
therefore responsible as the wrongdoer for purposes of Section
533.

In its second argument, ConAgra contended that even if the focus
is on its predecessor’s conduct, Section 533 should not apply
because the loss ConAgra was being held liable for was too
attenuated from Fuller’s promotions.  ConAgra argued that
Section 533 required both a direct causal relationship and a close
temporal connection between the act and the loss. Because only a
few of Fuller’s promotions were held to be actionable, and the
harm resulted decades after the wrongful conducts, ConAgra argued
that Section 533’s requirements were not satisfied. The court
disagreed, noting examples of environmental contamination cases
where Section 533 applied to bar coverage where the wrongful act
causing damage occurred many years before the damage eventually
resulted. The Court also quoted the lower court for its statement
that the connection between the promotion and current presence of
lead was not too attenuated, as those who were influenced by the
promotions to use lead paint were the “single conduit”
between defendants’ actions and the current hazard. The Court
of Appeal stated that the underlying litigation conclusively
established ConAgra’s liability for public nuisance, and that
the proper inquiry under Section 533 is whether the loss for which
an insured seeks indemnity was caused by a willful act of the
insured.

ConAgra last argued that the underlying findings did not
establish that Fuller acted with the requisite knowledge under
Section 533. ConAgra argued that the “actual knowledge”
found was not the same as the subjective “substantial
certainty” required under Section 533, and that coverage could
be precluded only if evidence showed that Fuller believed the
widespread prevalence of deteriorated lead paint was substantially
certain to result from its few actionable promotions. The Court
rejected this argument, noting that the proper test was whether
there was a willful act of the insured performed with the
expectation that harm would result.  Because the courts in
the Santa Clara  action had found that it
conclusively established that Fuller had actual knowledge that harm
would result from its promotion of lead paint, Fuller necessarily
acted with knowledge that lead paint was “substantially
certain” or “highly likely” to result in a hazard.
This evidence satisfied Section 533’s willful act
requirement.

As part of its last argument, ConAgra asserted that Section 533
could bar coverage only if it was proven that Fuller’s
management had the requisite knowledge to preclude coverage. The
Court of Appeal rejected that argument, citing prior case law
holding that the knowledge of all employees is imputed to the
corporation for purposes of applying Section 533.

Accordingly, the Court of Appeal affirmed the lower court
rulings and upheld summary judgment in favor of the insurers.

See full opinion here.

Disclaimer: This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm’s

full disclaimer.

https://www.mondaq.com/unitedstates/insurance-laws-and-products/1188850/lead-paint-coverage-claim-bites-the-dust

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