By: Gina Foran, Bill Baron, and Phil Matthews
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.