$101M Lead Settlement Gets Conflicting Ruling

WEDNESDAY, MAY 11, 2022


Just weeks after a New York ruling, the California First Division Court of Appeal ruled on April 19 that Lloyd’s of London and other carriers that insured W.P. Fuller & Co. would not be liable for a $101.7 million settlement.

The appellate panel said Section 533 of the California Insurance Code prohibits insurers from paying for intentional acts that cause harm.

Case Background

In 2000, Santa Clara County filed a lawsuit against NL Industries, ConAgra Grocery Products Co. and The Sherwin-Williams Company under the California’s public nuisance law. At the time, nine other California cities and counties were reported to join the action. Those plaintiffs included Alameda County, the City of Oakland, the City and County of San Francisco, the City of San Diego, Los Angeles County, Monterey County, San Mateo County, Solano County and Ventura County.

In a trial that began July 15, 2013, before Santa Clara Superior Court Judge James P. Kleinberg, the plaintiffs argued that the defendant-manufacturers marketed, promoted and profited from lead-based paint despite knowing it was toxic to children and sought the payment of nearly $1 billion to strip lead paint from more than five million pre-1979 affected California homes.

According to reports from that time, California governments claimed that the paint makers were aware of the dangers of lead-based paint as early as the late 1890s, but sold lead-based paint to consumers without warning for decades.

According to the Centers for Disease Control (CDC) and California's Childhood Lead Poisoning Prevention Branch, lead paint is the primary cause of lead exposure for children who live in older homes, the plaintiffs noted.

Later that year, in December, Kleinberg ruled that Sherwin-Williams, NL Industries and ConAgra Grocery Products would have to pay $1.1 billion to remove lead paint from millions of California homes. The fund was slated to be administered by the Director of the California Childhood Lead Poisoning Prevention Branch program for the benefit of residents within the 10 jurisdictions.

Los Angeles County was to receive up to 55% of the fund, or $605 million; Santa Clara and Alameda would receive up to $99 million; San Diego and San Francisco, up to $77 million; San Mateo, up to $55 million; Ventura, up to $44 million; and Monterey and Solana, up to $22 million, according to the distribution schedule.

“There is a clear and present danger that needs to be addressed,” the judge wrote in his 114-page landmark ruling. “The defendants sold lead paint with actual and constructive knowledge that it was harmful.”

During this time, judge also dismissed claims against co-defendants Atlantic Richfield Company and DuPont in the 13-year-old case. DuPont’s claim was dismissed in part because its interior residential paint products never contained white lead pigments. Moreover, the company did not sell paint in California until 1924 and never manufactured white lead pigments in the state, the decision said.

“The People’s own experts were unable to make the case that ARCO promoted lead paint in the jurisdictions,” Kleinberg said. “At most ARCO promoted paints containing lead for only two years and that was to the trade, not the general public.”

Some years later, in February, it was announced that Sherwin-Williams, NL Industries and ConAgra Grocery Products were trying to reverse Kleinberg’s decision. The companies filed briefs Feb. 6, 2015, with the California Court of Appeals Sixth Appellate District.

Representatives for the companies said amici curiae briefs needed to be filed by Friday (Feb. 20, 2015). Any party to the suit was permitted to respond to the amicus brief within a time specified by the appellate court.

In ConAgra’s appeal, the company argued that that trial court failed to apply correct legal standards in the case. NL Industries argued that the plaintiffs “tried to sidetrack” the appeal with an “inaccurate story” about the companies’ “place in the evolving knowledge of lead paint toxicity.” And Sherwin-Williams said that the plaintiffs failed to present evidence to support essential elements of the case and that the trial court misapplied legal standards to hold the company liable.

The companies eventually agreed to resolve the actions for $305 million with NL agreeing to pitch in one-third of the amount.

In 2020, it was reported that San Francisco Superior Court ruled that Fuller’s insurers were not liable for the public nuisance law violations because of the Section 533 prohibition against insuring damages caused by intentional acts.

NL Industries Insurers, New York Court Ruling

On March 24, a five-judge panel from the New York Appellate Division concurred with Judge Masley's December 2020 finding that coverage was triggered under at least some policies that did not have an exclusion for expected or intended losses—ruling that Lloyd’s of London and other insurers were liable to pay over $100 million into a California abatement fund regarding the sale of Dutch Boy lead paint by NL Industries.

The settlement share was to be used for damage to California homes. According to reports, the five-judge panel rejected the insurers’ argument that the award was excluded from coverage because the paint manufacturer promoted the use of lead paint despite knowing that it posed a serious risk.

The decision concurs with New York County Supreme Court Judge Andrea Masley's finding that coverage was triggered under at least some policies that did not have an exclusion for expected or intended losses.

The case is Certain Underwriters at Lloyd's London et al. v. NL Industries Inc. et al., case number 2021-00241, in the First Judicial Department of the Supreme Court of New York, Appellate Division.

According to reports, relationship issues between NL Industries and its insurers developed after the paint maker sought coverage for its share of the settlement amount from its insurers. As a result, the carriers filed suit in an attempt to peel out of paying any amount of the settlement.

The carriers moved for summary judgment, arguing that the expected or intended loss exclusions barred coverage. The insurers also contended that the use of the settlement funds to establish an abatement fund did not trigger coverage since liability was not imposed for or because of bodily injury or property damage.

When that ruling was made to deny the insurers’ motion for summary judgment, Judge Masley noted that New York narrowly construed the exclusions' language. Additionally, the trial court judge pointed out that the California state court judge presiding over underlying public nuisance claims against lead paint makers never ruled that the companies acted intentionally.

“The court correctly rejected the insurers' argument that the rulings in the Santa Clara action mandated the conclusion that NL's creation of the public health hazard by promoting lead paint use in homes constituted knowing and intentional conduct uninsurable under public policy and the terms of the policies,” the panel wrote.

Justices Judith J. Gische, Cynthia S. Kern, Peter H. Moulton, Tanya R. Kennedy and Julio Rodriguez III were on the panel. The underwriters are represented by Jonathan D. Hacker of O'Melveny & Myers LLP and Carl S. Kravitz of Zuckerman Spaeder LLP.

NL is represented by Joel L. Herz of the Law Offices of Joel L. Herz.

Recent California Ruling

In recalling the 2020 ruling made by the San Francisco Superior Court, a California court has recently ruled that Lloyds of London and other insurance companies are not liable for covering the portion of the settlement involving W.P. Fuller.

In its ruling, the court pointed out that Section 533 of the California Insurance Code prohibits insurers from paying for damages when they are a result of willful harmful acts.

The court further stated,  “The underlying litigation established that Fuller—the corporate entity—had actual knowledge of the harms associated with lead paint when it promoted lead paint for interior residential use….[T]his actual knowledge finding necessarily means Fuller acted with knowledge that lead paint was ‘substantially certain’ or ‘highly likely’ to result in the hazard found to exist in the underlying litigation, and therefore established the willful act required to trigger section 533 prohibition against insurance coverage.”

Due to that fact, the insurance company could not be required to cover the damages. In conclusion, because ConAgra had assumed the liabilities of Fuller through a series of acquisitions, the court ruled that it is now responsible for the settlement, even though it has never manufactured paint.

Conagra is a publicly owned holding company based in Chicago with $11 billion in annual revenues. It assumed Fuller’s liabilities through a 1991 acquisition.

   

Tagged categories: Good Technical Practice; Government; Health & Safety; Health and safety; Laws and litigation; Lawsuits; Lead; Lead; Lead paint abatement; Lead rule; NA; North America; Program/Project Management; Residential; Safety

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