Certain Underwriters at Lloyd's, London v. NL Indus., Inc.

Certain Underwriters at Lloyd's, London v. NL Indus., Inc.

Opinion

In 2000, Santa Clara County and other California municipalities filed an action against, among others, NL, as manufacturer and promoter of Dutch Boy lead paint, asserting, as relevant here, a claim for "representative public nuisance" under California law (see County of Santa Clara v Atlantic Richfield Co., 137 Cal App 4th 292, 299, 304-305, 40 Cal Rptr 3d 313, 320, 324 [Cal App 2006]). The complaint alleged that NL purposefully promoted lead paint for use inside homes with actual knowledge that this was a dangerous use that would poison [*2]  and seriously harm children and result in a public health hazard/nuisance. After a trial of that claim, NL and others were found liable and ordered to abate the nuisance by paying into an abatement fund.

After the judgment was, to the extent relevant here, affirmed on appeal (People v ConAgra Grocery Prods. Co., 17 Cal App 5th 51, 227 Cal Rptr 3d 499 [Cal App 2017], cert denied    US   , 139 S Ct 377 [2018]), the insurers brought this declaratory judgment action pursuant to CPLR 3001 for a declaration that no coverage obligation was owed to NL for the Santa Clara abatement. Supreme Court correctly denied their ensuing motion for summary judgment.

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 Santa Clara courts found that NL's liability for the public nuisance was premised on actual knowledge of "the hazard" that the interior use of lead paint would create, as the product was one that NL "knew to be hazardous," since NL had "actual knowledge of the hazards of lead paint" and "knew" that it would deteriorate and cause serious injury. However, they [*3]  also found that NL's acts "posed a serious risk of harm" or "significant risks of harm" that would "pose a public health hazard." That is not a clear finding that NL either expected or intended to harm any person or property (see Union Carbide v Affiliated FM Ins. Co., 101 AD3d 434, 955 N.Y.S.2d 572 [1st Dept 2012]; Sherwin-Williams Co. v Certain Underwriters at Lloyd's London, 2020 Ohio Misc LEXIS 802 [Ohio Ct Common Pleas, Dec. 3, 2020]; but see Certain Underwriters at Lloyd's of London v ConAgra Grocery Prods. Co., 2020 WL 3096821 [Cal Super, Feb. 26, 2020]).

The court correctly rejected the insurers' argument that there could be no coverage because the settlement payment to the abatement fund on  [**2]  the public nuisance claim did not constitute liability for "damages" or expenses under the policies and New York law. The courts in the Santa Clara action, in the context of rejecting the argument that the settlement order was invalid, made clear that the abatement payment did not compensate losses and was designed solely to prevent future public-health harms from lead paint remaining inside private homes. However, the issue before Supreme Court was whether the payment for this prospective remedy constituted covered damages for insurance recovery purposes, and, in that context, the court correctly reasoned that the abatements payments, under the facts before it, had a compensatory effect, which qualified them as damages under the applicable law and insurance policies. [*4] 

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