Segal McCambridge Legal Blog

In a case of first impression, on August 9, 2012, the California Supreme Court issued its long-awaited decision in State of California v. Continental Insurance Company, et al.  California policyholders with long-tail environmental liabilities are now able to recover more money from their historic commercial general liability insurers.

Rejecting the insurers’ arguments that a pro-rata allocation methodology should be applied, the court ruled that the State of California was allowed to recover up to the total limits of all triggered policies over multiple policy years. But the court did not stop there. It extended its holding to allow the stacking€? of limits across all triggered policy years. The California Supreme Court concluded that the fact that all policies were covering the risk at some point during the property loss is enough to trigger an insurer’s indemnity obligation. As a result, the insurers on the risk were ordered to pay all sums for property damage attributable to the Stringfellow Superfund site, up to their policy limits, if applicable, as long as some of the continuous property damage occurred while each policy was on the loss.

The Supreme Court of California determined that the all sums language in the excess policies’ insuring agreements meant that the insurers had to cover all damage up to their policy limits, even damage that occurred before or after their policy was in effect. The court further held that the during the policy period language that the insurers relied on to limit coverage does not appear in the insuring agreement section of the policies and, therefore, is neither logically [n]or grammatically related to theall sums’ language in the insuring agreement.

The court next found that the State of California could stack the coverage limits of all policies in the absence of any anti-stacking provisions. The court noted that all-sums-with-stacking coverage allocation ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct period of injury. The court found nothing unfair or unexpected in allowing stacking in a continuous long-tail loss.

In reaching its decision, the California Supreme Court reasoned that:

It is often ‘virtually impossible’ for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods in a progressive property damage case. . .If such evidence were required, an insured who had procured insurance coverage for each year during which a long-tail injury occurred likely would be unable to recover.

The court asserted that extending coverage throughout the entirety of the ensuing property damage best reflects the policyholder’s expectations and the insurers’ indemnity obligations under their respective policies. Stacking generally refers to the stacking of policy limits across multiple policy periods that were on a particular risk. In other words, [s]tacking policy limits means that when more than one policy is triggered by an occurrence, each policy can be called upon to respond to the claim up to the full limits of the policy. The California Supreme Court found that an all-sums-with-stacking rule has numerous advantages because:

It resolves the question of insurance coverage as equitably as possible, given the immeasurable aspects of a long-tail injury. It also comports with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits, while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage.?

Today, liability insurers typically include anti-stacking provisions in their policies to avoid an outcome like the California Supreme Court’s decision. Consequently, the State of California v. Continental Insurance Company, et al., ruling is not expected to have a major impact on more recently issued coverage. However, the decision presents significant exposure implications for historic insurers of California insureds. The court’s reasoning could also be extended to apply to other types of long-tail situations such as asbestos bodily injury exposure claims. Further, while many states have already adopted allocation rules, the State of California v. Continental Insurance Company, et al. case may be influential in states without settled insurance allocation coverage law.

As of May 23, 2012 the California Court of Appeals opinion in Barker et al. v. Hennessy Industries, Inccan be found here

From the opinion:

The trial court granted summary judgment in favor of defendant and respondent Hennessy Industries, Inc. (Hennessy) on the asbestos-related wrongful death complaint filed by plaintiffs and appellants Fern Barker, James Barker, Carmen Barker and Tamara Worthen (appellants), the widow and surviving children of decedent Richard Barker (Barker). Hennessy manufactured machines Barker had used in his work. The trial court ruled that Hennessy could not be held liable for Barker's death under the theories of strict liability or negligence because the undisputed evidence showed that any harm was caused by products containing asbestos and not Hennessy's machines. We affirm. The undisputed evidence showed that Hennessy's machines did not contain asbestos and could be operated independently without asbestos-containing
materials.

As of May 22, 2012, the opinion from the California Court of Appeals Second District can be found here

A report from LegalNewsline.com is below
Calif. court rules against woman exposed to asbestos while doing laundry
BY JOHN O’BRIEN
LOS ANGELES (Legal Newsline) – An appeals court in California has ruled that Ford Motor Company had no duty to protect a woman from asbestos brought home on the clothing of her brother and father.

The Monday decision of the Second Appellate District overturned a judgment from Los Angeles County Superior Court that placed 5 percent of the blame for Eileen Honer’s mesothelioma on Ford. A jury ordered the company to pay $40,000.

“While the overall policy of preventing future harm is ordinarily served, in tort law, by imposing the costs of negligent conduct upon those responsible, the policy question is ‘whether that consideration is outweighed, for a category of negligent conduct, by laws or mores indicating approval of the conduct or by the undesirable consequences of allowing potential liability,” Judge Fred Woods wrote.

Woods was citing the 2011 decision of the state Supreme Court in Cabral v. Ralph’s Grocery Company. In that case, a truck driver working for Ralph’s Grocery stopped his tractor-trailer on the side of a highway, and Adelelmo Cabral collided with it and died.

A jury found Ralph’s at fault for 10 percent of the damages, and the Supreme Court agreed with the finding in that case.

Other factors considered, and decided in Ford’s favor, included the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered and the moral blame attached to the defendant’s conduct. Those issues were outlined in a 1968 decision by the Second District.

The court also pointed at a Michigan Supreme Court decision in 2007. It said, “imposing a duty on a landowner to anybody who comes into contact with somebody who has been on the landowner’s property” (and secondarily exposed to asbestos as a result) “would create a potentially limitless pool of plaintiffs.”

Honer said she washed the clothes of her brother and father, who worked as insulators at Ford’s Lincoln-Mercury plant in Metuchen, N.J. She was diagnosed with mesothelioma in 2004.

From Courthouse News Service

http://www.courthousenews.com/2012/01/24/43302.htm

Insurance companies can challenge a $600 million trust created to settle thousands of asbestos-related claims against a California insulation company, the 9th Circuit ruled Tuesday.
     Burdened by some 2,000 asbestos-related lawsuits and with more on the horizon, Thorpe Insulation and its subsidiary, Pacific Insulation, filed for Chapter 11 bankruptcy protection in 2007.
     A family-owned company, Thorpe installed and removed asbestos-insulation products in Southern California from the late 1940s to the early 1970s in both industrial and commercial buildings. During the last 30 years, it has faced about 12,000 lawsuits for wrongful death and personal injury; since 1978, its insurers have paid out more than $180 million defending and settling such claims, according to the ruling.
     A Los Angeles federal judge approved a reorganization plan for the companies in 2009 that established the Thorpe Insulation Settlement Trust to handle present and future asbestos-related claims. Thorpe’s settlements with 13 insurers funded the trust with more than $600 million in cash and securities, the ruling states.
     But objections came from insurance companies that had refused to settle with Thorpe – Continental Insurance Co., National Fire Insurance Co. of Hartford, Motor Vehicle Casualty Co., Central National Insurance Co. of Omaha and Century Indemnity Co. Among their various claims, the insurers said that the court approved a settlement built in bad faith by attorneys with conflicts of interest.
     U.S. District Judge Dale Fisher affirmed the plan nonetheless, finding that it pre-empted any state-law contracts among the non-settling insurance companies. At any rate, those companies did not have standing to challenge the plan in bankruptcy or federal court because it was “insurance neutral, Fisher said.
     But the federal appeals court in Pasadena reached a different conclusion. Though the three-judge panel agreed that the plan overrides state-level contracts, it reversed as to standing Tuesday
     ”Appellants argue that the plan is not insurance neutral because of possible preclusive effects of the plan, because they are responsible for claims channeled to the trust, because the trust permits direct file suits against appellants, because they are a contingent beneficiary of the trust, and because the plan and trust distribution procedure can be changed without court supervision,” Judge Ronald Gould wrote for the unanimous panel. “We conclude that the plan may economically affect appellants in substantial ways. A plan is not insurance neutral when it may have a substantial economic impact on insurers.”
     ”Because the plan had likely effects that would increase economic exposure of the insurer appellants to asbestos claimants, they had a right to be heard fully and fairly before the plan was finalized,” Gould added.
     On remand, the District Court should “return the case to the bankruptcy court to give appellants the opportunity to present their proof and argument.”
     As the plan is already in motion, Gould acknowledged that this decision throws a wrench into the proceedings.
     ”There is no entirely tidy way to resolve this case because the plan has proceeded without stay and without full input from insurer parties who will be economically affected by the plan,” he wrote. “But we have concluded that the starting place is for us to reverse the judgment of the District Court, and to remand to the District Court with instructions that it remand to the bankruptcy court to permit appellants to submit their proof on all issues they previously preserved.”
     No one with the Thorpe Insulation Settlement Trust was immediately available for comment. 

Taken in part from the Wall Street Journal
WASHINGTON—On April 27, 2011, the Supreme Court handed business a powerful shield against consumer class actions, ruling that state laws can’t override contract clauses requiring customers to present complaints individually to a private arbitrator.

In a 5-4 ruling, split along its usual conservative-liberal divide, the court held that a “national policy favoring arbitration” pre-empted California law intended to protect consumers from widespread fraud.

California consumers had sued AT&T Inc. for allegedly defrauding them by charging $30.22 in sales tax on cellphones it advertised as free.

AT&T invoked the arbitration clause of its form contract, which required complaints to be resolved through private arbitration in an “individual capacity” and barred “any purported class or representative proceeding.”

California courts had found such provisions “unconscionable,” legal parlance for a contract term so unfair it is void. In a 2005 opinion, the California Supreme Court said that when a company schemes “to deliberately cheat large numbers of consumers out of individually small sums of money,” class actions may be the only effective form of redress. While the fraud might reap a windfall, the court’s reasoning went, each individual’s loss would be too small to dispute unless grouped into a single claim.

The 1925 Federal Arbitration Act, adopted to force states to honor arbitration clauses, says arbitration clauses can’t be set aside unless they violate the laws governing contracts in general. The question before the Supreme Court was whether the California rule simply applied general fairness principles to arbitration clauses or specifically targeted arbitration.

Writing for the majority, Justice Antonin Scalia said that class actions inherently conflicted with arbitration’s goals of speed and efficiency.

“The switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment,” he wrote in an opinion joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito.

Justice Scalia cited statistics showing that the average individual arbitration was resolved in six months or less, while class arbitrations could drag on for years. Moreover, “class arbitration greatly increases risks” for business, he wrote. “Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.”

In a dissent joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, Justice Stephen Breyer wrote that since the California rule applied equally to class litigation and class arbitration, it can’t “fairly be characterized as a targeted attack on arbitration.”

The Federal Arbitration Act, Justice Breyer wrote, intended to preserve the states’ traditional authority over contract law, insisting only that arbitration receive equal footing with other contracts.

“California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the state does not adopt a special rule that disfavors arbitration,” he added.

Wednesday’s decision was the latest in a series that has given arbitration clauses nearly ironclad protection.

In a statement, AT&T said that individual arbitration “often benefits consumers” because claims can be resolved faster than a more complicated class action. “We value our customers, and AT&T’s arbitration program is free, fair, fast, easy to use, and consumer friendly,” the company said.

Some lawmakers, however, say consumers are powerless when banks, software makers and others condition their products on form contracts whose fine print locks them into arbitration.

“In arbitration, there is no transparency, nor is there an independent arbitrator,” said Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat who has held hearings on consumer arbitration.

After Wednesday’s decision, “Congress needs to respond with legislation to clarify the original intent of the Federal Arbitration Act,” Mr. Leahy said.

The full Wall Street Journal article is here

The Wall Street Journal Law Blog post, “After AT&T Ruling, Should We Say Goodbye to Consumer Class Actions?” can be found here

The SCOTUS opinion, AT&T MOBILITY LLC v. CONCEPCION ET UX, 09-893 can be found here

From SFGate.com

A San Francisco jury has awarded $1.36 million to a terminally ill man who smoked filter-tipped Kent cigarettes in the 1950s that contained asbestos.

Lawyers for Don Lenney and his wife, Monica, said the verdict was a rare victory for plaintiffs who have sued over Kent’s use of asbestos in its Micronite filters from 1952 to 1956. The cigarette’s manufacturer, Lorillard Tobacco Co., says it has won 15 out of 20 trials nationwide and contends the filters released only trace amounts of asbestos that posed no danger.

Lenney, 73, a former Bay Area insurance agent, now lives in Placerville. He was diagnosed with mesothelioma, a form of cancer linked to asbestos, in November 2009 and had a lung removed in early 2010, his attorney said Thursday.

“He tries not to dwell on it too much and just wants to live as long as he can, and be there for his wife and children and grandchildren,” attorney Laurel Simes said.

Lenney started smoking other brands in 1953 at age 16 and soon switched to Kents, Simes said. She said he stopped smoking in 1965, shortly after the U.S. surgeon general warned of the dangers of cigarettes.

Medical groups’ concerns about tobacco in the early 1950s prompted companies to start selling filtered cigarettes. Kent’s ads promoted the Micronite filters as “the greatest health protection in cigarette history” and said they removed seven times as much tar and nicotine as other leading filters. The company removed asbestos from the filters in 1957.

During the seven-week trial in San Francisco Superior Court, lawyers for Lorillard and the filter’s manufacturer, Hollingsworth & Vose, argued that the filters were safe and that the evidence failed to show that Lenney had smoked Kents when they contained asbestos.

Simes said Lenney had testified that he used the brand during that period and was backed up by two former high school classmates.

The jury rejected a claim that the companies had been negligent but voted 9-3 to find that they had violated Lenney’s right to buy and use a safe product. The March 3 verdict apportioned 35 percent of the fault to Lorillard, 25 percent to Hollingsworth & Vose and the rest to other asbestos suppliers, a verdict that makes the two companies responsible for just over $1 million in damages, the Lenneys’ lawyers said.

Defense lawyer Randall Haimovici said the companies would appeal. The negligence verdict shows that jurors agreed “we didn’t do anything wrong by using asbestos in filters back in the 1950s,” he said.

The entire article is here

From Westlaw News & Insight

March 4 (Westlaw Journals) – A California federal court case brought by a man who claimed he was exposed to asbestos on his father's work clothes has been stayed pending transfer to the asbestos multidistrict litigation.

U.S. District Judge Jeffrey White of the Northern District of California granted defendant McDonnell Douglas Corp.'s motion to stay because the same issues have been addressed in other cases in the MDL in the Eastern District of Pennsylvania.

The judge refused to consider the plaintiff's emergency motion for remand to state court.

Timothy Vest says he was exposed to asbestos when his father, employed by World Airways Inc., brought it home on his work clothes. He also says some exposure occurred when he visited his father on the job.

Some McDonnell Douglas aircraft were serviced in World Airways' hangars, the complaint says.

Vest says he developed localized malignant mesothelioma from his exposure to asbestos.

He sued McDonnell Douglas and others in the Alameda County Superior Court in December 2009.

McDonnell Douglas removed the case to the federal court in January based on federal officer jurisdiction. The company said federal jurisdiction was proper because some of its military aircraft were serviced at World Airways hangars.

The company also filed a notice of a tag-along action, in which it argued that Vest's lawsuit should be transferred to the asbestos MDL, In re Asbestos Products Liability Litigation, MDL No. 875 (E.D. Pa.). A tag-along action refers to a civil action pending in a federal district court involving common questions of fact with actions previously transferred to the MDL.

McDonnell Douglas also moved to stay the proceedings pending transfer to the MDL. In December the Judicial Panel on Multidistrict Litigation issued a conditional transfer order. The company said that only in "extremely rare" circumstances has the panel declined to transfer an asbestos case to the MDL.

Vest immediately filed an emergency motion to remand, arguing that McDonnell Douglas failed to establish that it has a military contractor defense against his design-defect and failure-to-warn claims.

Even if the court finds that the company has a colorable federal defense, Vest said, he would agree to limit his claims to exposure to asbestos in non-military aircraft.

Judge White granted McDonnell Douglas' motion to stay and declined to consider Vest's motion to remand.

After giving the remand motion a preliminary assessment, the judge said he could not find that removal was improper.

"In deciding whether to rule on the motion to remand, courts should consider whether the motion raises issues likely to arise in other actions pending in the MDL transferee court," the judge said, citing Conroy v. Fresh Del Monte Produce, 325 F. Supp. 2d 1049 (N.D. Cal. 2004).

Judge White said the jurisdictional issue is both factually and legally difficult and has been raised in the MDL proceeding.

He said that if the MDL proceedings regarding the transfer become unreasonably protracted or if Vest's medical circumstances change, Vest could move to lift the stay.

Vest et al. v. Allied Packing & Supply Inc. et al., No. C 11-00061, 2011 WL 333241 (N.D. Cal. Jan. 31, 2011).

Federal judge grants stay in ‘take-home’ asbestos exposure case

In an unanimous opinion, authored by Justice Breyer, SCOTUS reversed a decision of the California Court of Appeal, holding that state tort suits alleging that car manufacturers should have installed lap-and-shoulder belts, rather than simply lap belts, on rear inner seats were not preempted by federal auto safety standards.

From the opinion:

The question presented here is whether this federal regulation preempts a state tort suit that, if successful,would deny manufacturers a choice of belts for rear inner seats by imposing tort liability upon those who choose to install a simple lap belt. We conclude that providing manufacturers with this seatbelt choice is not a significant objective of the federal regulation. Consequently, the regulation does not preempt the state tort suit.

Justice Sotomayor filed a concurring opinion, while Justice Thomas filed an opinion concurring in the judgment. Justice Kagan recused herself.

Here is the Williamson v. Mazda Motor of America, Inc. opinion

On February 18th, a California appeals court affirmed an $ 8 million judgment to a seaman who blamed benzene exposure aboard oil tankers for the loss of a kidney to cancer, saying that scientific certainty is not required for a toxic tort plaintiff to prevail.

From the opinion:

This is an appeal from the final judgment after the jury awarded plaintiff Mack Shelby $8 million in damages for harm sustained from exposure to petroleum products containing benzene and other hydrocarbons while employed as an able-bodied seaman by defendant SeaRiver Maritime Inc., formerly named Exxon Shipping Company (SeaRiver). SeaRiver seeks reversal of the judgment on grounds that include insufficient evidence of causation, excessive damages, and attorney misconduct during closing arguments. For reasons to be explained, we affirm the judgment.
…
SeaRiver raises three primary arguments on appeal. First, SeaRiver contends the evidence in this case fails to prove plaintiff‟s occupational exposure to benzene or other hydrocarbons caused his kidney cancer or other harm. Second, SeaRiver contends the evidence fails to support the jury‟s award of future economic damages because plaintiff continued to work for SeaRiver and medical doctors declared him fit for duty. Third, SeaRiver contends the jury‟s award of future pain and suffering was excessive as a matter of law, and therefore must be reversed.

Here is the California Court of Appeals opnion in the case of Mack Shelby v. SeaRiver Maritime Inc., No. A122449, Calif. App., 1st Dist., Div. 3

The American Tort Reform Association (ATRA) has released its “JUDICIAL HELLHOLES 2010/2011″ report. This is ATRA’s ninth annual report and it focuses primarily on six areas of the country that have “developed reputations for uneven justice.”
The six areas singled out by ATRA are:
#1 PHILADELPHIA, PENNSYLVANIA
#2 CALIFORNIA, PARTICULARLY LOS ANGELES AND HUMBOLDT COUNTIES
# 3 WEST VIRGINIA
# 4 SOUTH FLORIDA
# 5 COOK COUNTY, ILLINOIS
# 6 CLARK COUNTY, NEVADA

WATCH LIST
MADISON COUNTY, ILLINOIS
ATLANTIC COUNTY, NEW JERSEY
ST. LANDRY PARISH, LOUISIANA
DISTRICT OF COLUMBIA
NEW YORK CITY AND ALBANY, NEW YORK
ST. CLAIR COUNTY, ILLINOIS

The full report can be found online here