Santa Clara Valley Water District v. Century Indemnity Company

• Published date: 13 June 2023
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Michael Velladao, Monica Kalunian and Aaron Knapp

(No Duty to Indemnify Water District Under Excess and Primary Policies for Consent Decree Entered Without Notice to Insurer Under No Voluntary Payments Clauses in Policies)

(June 2023) - In Santa Clara Valley Water District v. Century Indemnity Co., 89 Cal.App.5th 1016 (March 30, 2023), the California Sixth District Court of Appeal affirmed the entry of summary judgment in favor of Century Indemnity Company ('Century') against Santa Clara Valley Water District ('District') in connection with a dispute related to a consent decree for the cleanup of a river watershed, wherein the District entered into the Decree without notice to Century. The Court of Appeal found that the 'no voluntary payments' clauses in primary and excess policies issued to the District barred coverage of the amounts paid out under the Decree by the District for the cleanup of the watershed.

The parties dispute arose out of the following events transpiring over 19 years:

• The year 2000 - Notice is given by the District to Century that the District had been advised in writing by the United States Department of the Interior's Fish & Wildlife Service ('Fish & Wildlife') of potential claims for natural resource damages resulting from mercury contamination in the Guadalupe River Watershed (the 'watershed') (the 'NRD Claim'). Century requested additional information regarding the NRD Claim for a period of two years and advised that it had no duty to defend the District under its primary policies against the NRD Claim as a 'suit' had not been filed against it, and there was no indemnity coverage afforded under its excess policies absent exhaustion of the primary policies.
• July 28, 2005 - The claimants, Fish & Wildlife, and other entities (the 'Trustees') filed a lawsuit in United States District Court against the District ('federal action'). Two months prior to the lawsuit, the District and Trustees had negotiated a settlement of the NRD Claim. A Consent Decree was filed in the federal action memorializing the parties' settlement. Pursuant to the Consent Decree, the Court entered a judgment on November 16, 2005 permitting it to oversee the enforcement of the Consent Decree. The District did not notify Century of the federal action or entry of the Consent Decree.
• April 22, 2008 - The District notified Century of the federal action and entry of the Consent Decree and that it had incurred approximately $4 million in costs in complying with the terms of the Decree.
• July 2008 - Century responded to the District's notice of the federal action and entry of Consent Decree by reserving rights and advising the District that the 'No Voluntary Payments' ('NVP') clauses in its policies may apply to bar coverage of the NRD claim and amounts incurred in complying with the Consent Decree.
• 2014 - The District completed the cleanup of the watershed and provided Century with a demand for indemnity for the costs of the cleanup incurred in complying with the Consent Decree.
• January 14, 2015 - Century reserved its rights and advised the District that the NVP potentially barred coverage of the District's claims.
• October 5, 2015 - The District filed a complaint against Century alleging claims for breach of contract and bad faith based on Century's refusal to pay for $8.4 million in clean-up costs under four primary policies and two excess policies.
• March 2, 2018 - The trial court entered summary adjudication in favor of Century and held that the NVP clauses in the Century excess policies barred coverage of the District's claims.
• February 2019 - The District filed a first amended complaint contending that it was insured under four primary policies and three excess policies...