(Article from Insurance Law Alert, April 2022)
For more information, please visit the Insurance Law Alert Resource Center.
A California appellate court ruled that insurers were not obligated to indemnify a payment to a lead paint abatement fund under California Insurance Code section 533, which precludes indemnification for losses caused by the insured’s willful acts. Certain Underwriters at Lloyd’s London v. ConAgra Grocery Products Co., 2022 WL 1164981 (Ct. App. Cal. Apr. 19, 2022).
Multiple government agencies in California sued lead paint manufacturers, alleging representative public nuisance. The complaint alleged that the defendants created or assisted in creating a public health crisis by promoting lead for paint use despite knowledge that lead was hazardous to human health. That matter resulted in a final judgment against the defendants, requiring payments to be made into a lead abatement fund. Insurers sought a declaration that they had no duty to indemnify for several reasons, including that section 533 prohibits coverage for the intentional act of promoting lead paint. A California trial court agreed and granted the insurers’ summary judgment motion. The appellate court affirmed.
Section 533, which provides that “[a]n insurer is not liable for a loss caused by the willful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others,” is an implied exclusionary clause in all insurance policies. The appellate court concluded that section 533 applied because the underlying litigation established that Fuller (the corporate predecessor to ConAgra) intentionally promoted lead paint for interior use with knowledge of the harmful nature of such use.
ConAgra argued that section 533 did not apply because it precludes coverage for losses due to willful acts of the insured and ConAgra, the insured, committed no wrongful acts and was liable only as Fuller’s corporate successor. The court rejected this assertion as unsupported by case law. Alternatively, ConAgra contended that even if application of section 533 turns on Fuller’s conduct (rather than ConAgra’s) the statute is inapplicable because there is an insufficient causal connection between Fuller’s willful acts and the abatement fund payment for which ConAgra sought indemnification. Rejecting this argument, the court stated: “ConAgra provides no support for its contention that section 533 could not be found to apply in this case absent proof that specific promotions by Fuller directly resulted in the need for inspection or abatement in each home for which ConAgra was liable for payment.”
Finally, the court ruled that the underlying findings established as a matter of law that Fuller acted with the knowledge required for section 533 to apply. In particular, the court held that the finding in the underlying case that Fuller promoted lead paint with actual knowledge that it would deteriorate and result in injury was sufficient to satisfy the “willful act” requirement of section 533.