Court Ruling Shifts Brunt Of Cleanups.

Insurance Claims Forbidden Except Under Judicial Order

Sue me, please!

That will likely be the urgent plea of countless businesses throughout California, following a recent state Supreme Court decision that shifts billions of dollars in potential environmental cleanup costs off the shoulders of insurers and onto the shoulders of business.

In a decision last month hailed by the insurance industry, the state high court ruled that standard commercial general liability insurance policies carried by businesses do not cover cleanup costs incurred under "administrative orders."

Rather, by a 5-2 decision, the court ruled that coverage is triggered only when the cleanups are done under a court order.

The ruling stemmed from a dispute between a Santa Fe Springs oil refinery and its insurers. It comes as a major blow to companies that have already cleaned up oil, chemical and other spills and have claims pending with their insurers.

Meanwhile, critics of the decision said it will serve as a deterrent to new cleanups being undertaken, as businesses drag their feet, waiting to be hauled into court so their insurers will be required to pick up the cleanup tab.

"All in all, this is a very bad decision for California businesses and for environmental cleanup," said attorney David Goodwin, who argued the case for Powerine Oil Co., which is facing $10 million in cleanup costs at its Santa Fe Springs refinery.

The California Attorney General's Office, which submitted a brief in the case on behalf of the refinery, found that the state's water boards and its toxic control agency issued about 600 administrative clean-up orders from 1994 to 1999. Under such orders, businesses would be legally required to clean up the designated site, but their insurance policy would not cover the cost of the cleanup.

Locally, the Los Angeles Regional Water Quality Control Board, which has responsibility for protecting the region's groundwater, issued 26 such clean-up orders in the 1999-2000 fiscal year ended June 30.

Jorge Leon, the water board's general counsel, said that even before the recent decision, businesses facing clean-up orders had been asking the board for court orders to help them get their insurance claims paid. Leon said he is unsure if, under the ruling, obtaining a court order in the form of a voluntarily consent decree would be enough to trigger insurance coverage.

Patrick Cathcart, a Los Angeles attorney who represented Lloyd's of London in the case, agreed that a consent decree may not suffice. Still, he said, the high-court decision makes good sense.

"If there is a government agency and they want a cleanup, they don't care who pays for it and (they) like the idea of insurance money being available. It takes the blame away from the dirty polluter," he said.

Cathcart maintained that the decision largely refers to incremental pollution "knowingly" emitted by companies over years, while accidental spills would be covered by general liability policies unless there were a specific exclusion for all environmental costs.

"The companies who have generally been doing these (clean-up) actions are Fortune 500 companies who, through their operations for 30 or 40 years, have polluted and knew they were doing it," he said.

Howard Gest, an attorney who represents businesses in clean-up cases, said he is concerned that the regional board and other governmental agencies, when pressed, might pursue administrative orders, despite statements that they will work cooperatively to get court orders.

"If there is something that has to happen on an emergency basis, or they feel there is an imminent danger, they often prefer to proceed by administrative orders," he said. "And if it is a large company-with a lot of assets, then (regulators) might feel they are big enough (to absorb the costs)."