Insurers do not have to compensate the insured for intentional general inconvenience
A general inconvenience in which a number of former lead painters were ordered to pay $ 1.15 billion to a fund to be used to reduce the general inconvenience caused by lead paint to interiors in California’s jurisdictions. The question posed to the Court of Appeal was whether the district court correctly determined that ConAgra Grocery Products Company (ConAgra), as the successor to the paint manufacturer WP Fuller & Co. (Fuller), was not entitled to compensation from its insurers for its payment to the Insurance Fund due to the Insurance Code section 533 which provides that insurers are not liable for damages caused by an intentional act by the insured.
IN Some underwriters at Lloyd’s London et al. v. Conagra Grocery Products Company et al., A160548, California Court of Appeals, First District, Second Division (April 19, 2022) resolved the dispute over the application of California Insurance Code Section 533’s prohibition of coverage for intentional acts whether or not they are written into the insurance contract.
County of Santa Clara filed a class action lawsuit against a number of lead paint manufacturers. The final form of the complaint claimed that the presence of lead in paint and coatings in and around homes and buildings in California created a massive public health crisis and that defendants created and / or helped create this inconvenience by e.g. promoting lead for internal and external use, even though it has been known for almost a century that such use of lead was dangerous to humans.
Following a lawsuit in 2013, the district court found ConAgra and two other companies (NL Industries, Inc. and Sherwin-Williams Company) jointly and severally liable and ordered the establishment of a fund intended to reduce lead color in houses before 1978. the 10 jurisdictions represented in the case. The court ordered the three companies to pay $ 1.15 billion to the reduction fund. After another appeal, for arrest, the district court recalculated the amount to be paid into the reduction fund to $ 409 million. After a set-off for payment from another lead paint manufacturer that was no longer involved in the case, the total amount to be paid to the fund was reduced to USD 401,122,482.
On July 10, 2019, the parties entered into a Settlement Agreement under which ConAgra, NL Industries, Inc. and Sherwin-Williams Company agreed to pay $ 101,666,666 each with full satisfaction of all claims.
Some insurers at Lloyd’s London and other insurers sought declaratory relief to obtain a decision that they had no liability to ConAgra in respect of or arising from this case under insurances issued to ConAgra and / or its predecessors.
The insurers claimed a summary judgment or, in the alternative, a summary judgment, claiming that they had no obligation to provide cover for four reasons:
- section 533 prohibits coverage for ConAgra’s intentional marketing of lead paint or interior; use in homes with actual knowledge of the health hazard that would result;
- there was no “event” under the policies because the damage was expected or intended and not unintentional;
- the reduction measure was not liable for “damages” or an “expense” under the insurance policies; and or
- ConAgra’s liability was not “due to” or “due to” “bodily injury”, “property damage” and / or “personal injury” under the policies.
The district court issued a summary judgment in favor of the insurers and considered that section 533 of the Insurance Code excluded coverage according to law because it excludes compensation for liability arising from intentional conduct that the insured expected or intended to cause damage an intentional act of the insured performed with the knowledge that injury is highly likely.
Courts in the underlying dispute clearly and repeatedly found that Fuller intentionally promoted lead paint with the knowledge that harm to children was at least very likely. The court specifically rejected ConAgra’s argument that it was only Fuller’s alleged successor; that ConAgra, as successor, could be isolated from the knowledge of its predecessor and that the researchers’ findings in the underlying litigation were insufficient to meet the standard of stubbornness in section 533; that Fuller’s behavior was merely ruthless; that the insurance companies had to, and did not, prove that Fuller’s senior executives were aware of the dangers of lead paint.
Section 533 provides that:
[a]n the insurer is not liable for any damage caused by the insured’s intentional act; but he is not acquitted by the negligence of the insured, or of the insured’s representative or others. ” Section 533 is an implied exception clause which by law must be read into all insurances. [J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1019 (Penney)] The charter reflects a basic public policy of denying coverage for willful misconduct and discouraging intentional tort.
The general insurance against insurance for losses as a result of such intentional unlawful acts is justified by the assumption that such acts would be encouraged, or at least not discouraged, if insurances were available to transfer the financial burden of the damage from the insurer to the insurer. As a statutory exception, section 533 is not subject to the rule of strict construction against an insurer; instead, the court must interpret it according to the intention of the legislature, for which it first refers to the wording of the statutes.
Section 533 excludes compensation for liability arising from intentional conduct that the insured expected or intended to cause damage. The appropriate test for “expected” damage is whether the insured knew or believed that its behavior was substantially certain or would in all probability result in that type of damage.
ConAgra was found responsible in the underlying case as the company’s successor to Fuller; ConAgra itself did not play a role in the lead paint industry. ConAgra was held accountable as Fuller’s corporate successor through a series of mergers and consolidations and Fuller’s debts flowed from Hunt to Norton Simon and through that to ConAgra. That decision is final and binding.
As a successor to Fuller through a series of mergers, ConAgra became responsible for the general inconvenience created by Fuller’s conduct and is therefore in Fuller’s shoes in accordance with Section 533. ConAgra does not support its assertion that Section 533 could not be found to apply in this cases without evidence that specific campaigns from Fuller directly resulted in the need for inspection or reduction in each home for which ConAgra was held liable.
The underlying litigation finally established ConAgra’s liability for general inconvenience based on Fuller’s intentional marketing of lead paint for interior use in homes with knowledge of the danger that such use would create.
The question according to section 533 is whether the damage for which the insured requests compensation has been caused by the insured’s intentional act. The loss in question here is the amount that ConAgra paid into the reduction fund due to its responsibility to create general inconvenience. The insurers’ liability for compensation is determined by the actual basis of liability that rests with the insured, here liability for general inconvenience as a successor to Fuller, whose conduct was an essential factor in creating inconveniences.
The trial court found the findings that Fuller knew that lead paint used on the interior of homes would deteriorate and lead dust as a result of this deterioration would poison children and cause serious harm that complied with Section 533’s intent.
ConAgra was found responsible for creating a general nuisance, not for specific damage to specific properties. Since this type of inconvenience measure is not aimed at damages but rather reduction, a plaintiff can be relieved before the danger causes any physical damage or physical damage to property.
The underlying dispute established that Fuller – the company’s entity – had actual knowledge of the damages associated with lead paint when it promoted lead paint for interior use in homes. This actual finding of knowledge necessarily meant that Fuller acted with the knowledge that lead paint was “substantially safe” or “highly likely” to result in the danger found to exist in the underlying litigation, and therefore determined the deliberate act required to trigger the prohibition under section 533 against insurance coverage.
An insurer’s liability for damages is determined by the actual basis of liability that rests with the insured. As the conclusions establishing this responsibility also establish the willful act required for the application of Section 533, ConAgra’s position is untenable.
By definition, insurance only provides compensation to an insured person for unforeseen or unknown events. California, by adopting section 533, added each liability insurance contract to an exception for the insured’s intentional act. As the underlying measures established that the alleged acts – intentionally selling lead-based paint for residential use – with knowledge of its danger, established that the conduct was intentional and excluded by Section 533.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and firstname.lastname@example.org.
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