Insurer Loses Round in Toxic Cleanup Dispute

Acting in a $100-million legal dispute, the state Supreme Court on Thursday let stand an appellate ruling that the insurer of a company emitting toxic waste may be forced to pay the cost of cleaning it up.

The justices, over one dissent, refused to hear a challenge to a state Court of Appeal decision last April in a widely watched case involving chemical solvents that leaked into ground water near the Sacramento plant of Aerojet-General Corp.

The appeals court upheld Aerojet’s claim that the cost of environmental cleanups is included in the “damages” covered by comprehensive general liability policies held by many companies in the state.

The interpretation of that provision has been at issue in several multimillion-dollar cases in California, as well as high-stakes legal battles in other states.

Aerojet’s insurers and other insurance companies have argued that the provision was not meant to apply to “business expenses” such as environmental cleanups. It is the polluter--not the insurer--that should pay, they contended and warned that if insurers are held responsible, premiums are likely to rise and coverage may become prohibitively expensive.

Thursday’s action came in a brief order issued by the high court. Only one court member--Justice Edward A. Panelli--voted to hear an appeal of the April ruling by a group of 50 insurance companies.

The appellate decision was the first in California on a pivotal question in the hard-fought battle over who pays for removing hazardous waste from the environment. The ruling now becomes binding on trial courts throughout the state.

Thursday’s order does not end the dispute between Aerojet and its insurers. The case must still go to trial, and the insurance companies still may prevail on other issues that will be raised during what is expected to be a lengthy and arduous proceeding.

But lawyers said that the ruling could have broad effects by speeding and facilitating toxic cleanups. The resolution of such an important legal issue also should encourage earlier settlements between government and industry, they said.

Attorneys noted that while large companies could absorb cleanup costs with little difficulty, countless smaller firms that pollute may not be able to afford such costs without the backing of an insurer.

State Deputy Atty. Gen. Timothy R. Patterson, whose office joined in support of Aerojet before the appeals court, said that under the ruling there now is a “greater likelihood” that more toxic sites will be cleaned up faster with the wider availability of private funds.

“This is an important issue because it applies to insurance policies all over the state where hazardous substances have been released,” Patterson said. “We’re very pleased with the Supreme Court’s refusal to hear the matter further.”

Moses Lasky of San Francisco, the attorney for Aerojet, said, “The decision of the Court of Appeal was correct, well-expressed and thoroughly studied,” Lasky said. “The insurers were trying to obfuscate the issue, but the Supreme Court kept its eye on the ball.”

Richard L. Seabolt, a San Francisco lawyer representing Lloyd’s of London and other insurers in the case, voiced disappointment in Thursday’s action but predicted that the insurance companies will still win when the dispute goes to trial. “We still expect to prove that Aerojet was not entitled to the coverage it claims,” he said.

Seabolt said the impact of Thursday’s action is difficult to predict, but lamented the high costs of resolving such issues in the courts.

Aerojet estimated that the cleanup could cost more than $100 million--a significant portion of which will involve legal expenses.

In 1979 it was found that toxic chemicals from the Aerojet rocket plant had been seeping into nearby properties and the American River. Both the state and federal governments filed suit and eventually the company agreed to clean up the site.

The company turned to its insurers to pay for the tens of millions of dollars in anticipated costs. But the insurance firms filed suit.

A San Mateo County Superior Court judge ruled in favor of the insurers, but a state Court of Appeal in San Francisco overturned that decision. The three-judge panel said that under California law, any ambiguities in a policy are generally resolved in favor of the insured party.