18 Cal. App. 5th 881
Cal. Ct. App. 5th2017Background
- SCWW owned a wastewater treatment facility; GCES (its subsidiary) operated a trucking unit that transported wastewater. Both applied for insurance with Allied and represented they did not accept, process, transport, or discharge hazardous waste.
- Allied issued a $2M primary environmental liability policy and a $5M umbrella policy with an "intentional noncompliance" exclusion (no coverage for damages resulting from intentional disregard or willful noncompliance with law/regulations).
- A GCES vacuum truck exploded when wastewater mixed with sodium chlorite stored at the facility; SCWW submitted a claim and Allied refused payment. The parties mediated and Allied paid $2.5M under a Payment Term Sheet that required reimbursement if Allied later proved it was not obligated to pay.
- Allied sued and filed applications for prejudgment attachment against SCWW and GCES for $2.5M (reimbursement) based on unjust enrichment (implied reimbursement) and rescission; it presented evidence of intentional noncompliance and material misrepresentations in the insurance application (concealed/altered lab results, hiding chemicals from inspectors).
- The trial court granted attachment writs, finding Allied established probable validity of its unjust enrichment and rescission claims. SCWW/GCES appealed; the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument (Allied) | Defendant's Argument (SCWW/GCES) | Held |
|---|---|---|---|
| Whether Allied established "probable validity" for prejudgment attachment | Allied: showed more-likely-than-not entitlement to reimbursement via unjust enrichment because the intentional noncompliance exclusion bars coverage | SCWW/GCES: Allied failed to prove probable validity of its claims | Court: Affirmed — substantial evidence supports probable validity based on noncompliance and unjust enrichment |
| Applicability of intentional noncompliance exclusion | Allied: evidence of illegal/unreported storage and deliberate concealment of sodium chlorite caused the loss | SCWW/GCES: dispute hazard status and challenge sufficiency of evidence | Court: Held exclusion applies; evidence shows unlawful storage, concealment, and causal link to explosion |
| Rescission based on misrepresentation/concealment in application | Allied: misrepresentations about hazardous-waste activities were material and grounds for rescission | SCWW/GCES: Allied did not separately plead rescission and failed to give notice/offer to restore premiums | Court: Held rescission claim was properly asserted; service of pleading satisfied notice/offer requirement under Civ. Code §1691 |
| Whether prejudgment attachment or interest require a prior coverage determination | Allied: attachment proper after showing probable validity; prejudgment interest accrues from payment date | SCWW/GCES: recovery requires prior judgment of noncoverage; interest should start from judgment | Court: Attachment does not require prior merits adjudication; prejudgment interest correctly runs from payment date |
Key Cases Cited
- Lorber Indus. v. Turbulence, Inc., 175 Cal.App.3d 532 (substantial-evidence standard for review of attachment finding)
- Buss v. Superior Court, 16 Cal.4th 35 (insurer's implied right of reimbursement under unjust enrichment)
- Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., 61 Cal.4th 988 (relief on implied contract available when terms don't conflict with express contract)
- Village Northridge Homeowners Assn. v. State Farm Fire & Cas. Co., 50 Cal.4th 913 (requirements for rescission and related notice issues)
- Resure, Inc. v. Superior Court, 42 Cal.App.4th 156 (service of pleading seeking rescission satisfies notice/offer-to-restore requirement)
- Ohio Cas. Ins. Co. v. Garamendi, 137 Cal.App.4th 64 (prejudgment interest accrues from date obligation to pay arises)
- Tudor Ranches, Inc. v. State Comp. Ins. Fund, 65 Cal.App.4th 1422 (failure to raise issue in trial court forfeits appellate review)