Southland insurers waging toxic-liability battles with polluters, attorneys clean up.

Many of the largest and highest-stake battles being fought by Southland insurance companies today involve who's going to pay for the multibillion-dollar cleanup of industrial America. Indeed, local insurers will likely spend much of the 1990s mired in toxic-liability suits.

Two of L.A.'s largest companies, in fact, are waging massive court battles with a slew of different insurance companies over who will get stuck with the tab for mopping up toxics.

Teledyne Inc., the multiproduct manufacturer of consumer and industrial items ranging from Water-Piks to unmanned aircraft, filed a lawsuit in July 1989 against 23 insurers requesting coverage in excess of $100 million. That $100 million represents Teledyne's estimate of what it will cost to clean up 19 sites across the nation for contamination dating back to the 1960s.

In a similar case, Atlantic Richfield Co. filed a lawsuit against 70 insurers in December 1990, seeking coverage of $1 billion to restore 50 hazardous-waste sites contaminated as long ago as the 1930s.

Both cases are expected to be mired in the courts for one to three more years, according to Nancy Sher Cohen, an attorney with the L.A. office of Heller, Ehrman, White & McAuliffe. She is one of 30 lawyers representing both L.A. companies in their protracted battles.

She expects the Teledyne case to go to trial in the fall of 1993, with a judgment handed down in early 1994. She said the Arco case is still in the discovery stage and won't likely be decided for some time.

Richard Seabolt, an attorney with the San Francisco firm Hancock, Rothert & Bunshoft, which is representing Lloyd's of London, the underwriter in both suits, said insurance policies were never intended to cover intentional contamination and accused "creative lawyering" for dragging these cases through the courts.

"You don't discharge chemicals in the environment for 30 years and, once the government objects, say, 'Now we want you (insurers) to pay for it.'"

The battle between polluters and their insurance companies really began heating up after passage of the Comprehensive Environmental Compensation and Liability Act of 1980 (CERCLA), also known as the Superfund law. That legislation requires companies to clean up any past contamination. It also calls for the Environmental Protection Agency to recover the cleanup costs from any responsible parties. Obviously, chief among those responsible are the companies that created the waste.

These companies, in turn, seek to recover the cleanup costs from their insurance companies, which had issued standard comprehensive general liability policies to the polluting companies.

Insurers have resisted paying the enormous cleanup claims, citing "pollution exclusion" clauses that were written into policies as early as the 1970s. Those clauses were written to help insurers avoid toxic liability, except in cases where the pollution was caused by a "sudden and accidental" event -- such as with the Exxon Valdez spill or the Southern Pacific Railroad derailment that dumped chemicals in the Sacramento River.

One of the most significant decisions rendered so far in the expanding environmental tug-of-war came in November 1990, when the California Supreme Court ruled that cleanup costs can be recovered from insurers under a company's standard liability policy.

Since that ruling, companies have been dragging out their old insurance policies and fighting their cases in court.

Environmental attorney Cohen said each case becomes a pitched battle in which the insurance companies try to prove to a jury that the polluting company intentionally dumped toxics on "the back 40," in violation of the law. Many insurers have engaged teams of investigators to hunt down present and former employees who will testify that the companies illegally dumped toxics, Cohen added.

So far, the courts have differed on the question of whether or not senior management must know about illegal dumping for a company to be held responsible for intentionally contaminating their property.

Two different cases which are expected to shed light on the issue of cleanup costs are currently before the California Supreme Court. Both involve insurance companies' responsibility in defending Montrose Chemical Corp., a former manufacturer of the now-banned pesticide DDT. Rulings in the Montrose cases are expected to deal with "trigger of coverage," meaning how many insurance policies can be held liable for coverage of cleanup costs.

Cohen said the outcomes of toxic liability cases across the nation so far have been "a draw," with insurance companies and polluters winning about an equal number of cases. But insurance industry defense attorney Seabolt declared that the insurers are ahead.

Seabolt said he expects both the Arco and Teledyne cases to go to a jury trial, in which case insurers will have the advantage.

Seabolt's firm also successfully represented insurance companies in two similar cases in California, which were both won in jury trials.

Shell Oil Co. lost its case in 1988 and Aerojet-General Corp., the Sacramento-based rocket manufacturer and subsidiary of GenCorp. Inc., lost its case at the beginning of the year.

In both cases, Seabolt said, the defense was successful in proving that the companies knowingly polluted.

He said the Aerojet case, which sought coverage for cleaning an 8,500-acre rocket manufacturing and testing site 14 miles east of Sacramento, involved testimony that a man died while digging a trench on the site because he was overcome with trichloroethylene (TCE) fumes -- a degreasing solvent.

Seabolt said after three months in trial, the jury reached a unanimous verdict in favor of the insurance companies in four hours.

Cohen pointed out, however, that Teledyne has already had one victory in its case. She said the court ruled that insurers have a "duty to defend" Teledyne at its site in Mountain View, Calif. This means that CNA Insurance Cos. and Pacific Indemnity Co. must pay more than $1 million in legal fees to defend Teledyne against the government, Cohen said.

Just how important is a victory to either side?

Cohen said a victory in either the Teledyne or Arco case would "give heart" to other companies faced with expensive cleanup costs. She said a win also might make insurers "less likely to stiff their insureds."

Seabolt said a victory for the insurance companies in either of these two L.A. cases would deter other companies from suing. He said a victory would also be an important step to the survival of the insurance industry.

"The cost of cleaning up America far exceeds the capital of insurance companies that write liability insurance," he said.

While polluters and insurers argue over which side is ahead in the high-stakes toxic derby, one group is clearly outdistancing them both. That group is environmental attorneys.

Indeed, downtown Los Angeles is now chock-full of lawyers "who are sending their kids to college on these cases," Cohen said.

Insurance companies typically employ 30 separate law firms to represent their interests in each of these cases, local attorneys reported.

Further illustrating the extent to which law firms are cleaning up on toxic cleanup, a study conducted by Rand Corp. last April found that almost 90 percent of insurance companies' expenditures for cleaning up toxic waste sites went to cover legal costs.

The primary reason toxic cleanup cases are being dragged out in court, local attorneys said, is because billions of dollars are at stake, and no clear consensus has been reached on who is liable to pay the cleanup costs.