Lead Paint Litigation Raises Coverage Questions for Policyholders
A recent California decision tackles one issue: Is a public nuisance claim based on the willful acts of the insured’s predecessor barred from coverage?
- Rob Tugander
- September 2022
State and local governments have been pursuing “public nuisance” claims against companies responsible in some way for societal problems. We've seen cases against manufacturers and distributors of guns, lead paint and opioids. And this theory is being tested in climate change cases against energy companies.
As new legal theories and trends emerge, so do insurance cases addressing coverage for those liabilities. A recent California decision tackles one issue: Is a public nuisance claim based on the willful acts of the insured's predecessor barred from coverage?
The case—Certain Underwriters at Lloyd's London v. ConAgra Grocery Products Co.—addresses California Insurance Code Section 533. That law says an insurer is not liable for a loss caused by the policyholder's willful act. The ruling derives from a California statute, but the court's reasoning can be applied to similar disputes elsewhere involving “expected or intended” policy language.
ConAgra was one of several paint manufacturers accused of creating a public health crisis by promoting the use of lead paint for interior use despite knowing that lead was hazardous to humans. After a trial, ConAgra was ordered to pay into a lead paint abatement fund.
ConAgra itself did not promote lead paint for interior use. But its predecessor, W.P. Fuller & Co., did. And evidence showed Fuller knew that using lead paint indoors would likely harm children.
The coverage dispute centered on whether Fuller's knowledge could be imputed to ConAgra and whether the findings in the underlying case were sufficient to meet the willfulness standard under Section 533.
ConAgra argued that Section 533's deterrence policy didn't apply to it, an innocent insured on the hook for a predecessor's conduct over which it had no control. It analogized to vicarious liability cases that allowed innocent insureds to be indemnified for the wrongful acts of others. But the court disagreed that the successor's knowledge mattered. ConAgra became liable for the public nuisance that Fuller caused, and thus stood in Fuller's shoes for purposes of Section 533.
With Fuller's knowledge imputed to it, ConAgra proffered two reasons why Section 533's willful standard wasn't met. The court rejected both.
The first rested on causation. ConAgra contended that Section 533 required a direct causal relationship and a close temporal connection between the willful act and the loss. As Fuller's conduct happened decades ago, the loss was too attenuated from Fuller's lead paint promotions. The court disagreed, finding that Section 533 applies whenever the loss is caused by a willful act. Fuller's willful conduct was adjudged to be a substantial factor in creating a public nuisance; there's no reason why Section 533 should not apply.
ConAgra next argued that Section 533 applies only if it was shown that Fuller's high-level managers knew of the hazards. Again, the court was unpersuaded. It was established that Fuller, the corporate entity, knew that lead paint was highly likely to cause harm when it promoted it for residential use. This was enough to trigger Section 533's prohibition against insurance coverage.
The point here is straightforward. Policyholders in the crosshairs of public nuisance litigation should not expect to be bailed out by their insurers. This is so, even where an insured's liability arises solely from the deliberate acts of its corporate predecessor.