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Insurer Entitled To Prejudgment Attachment Against Insured Upon Establishing Probable Validity of Coverage and Recession Defenses

Posted on: January 29th, 2018

By: Rebecca J. Smith

A California Appellate Court recently ruled that an insurer was entitled to a prejudgment attachment on the property of its insured when the insurer provided what the court deemed to be ample evidence to support its argument that an exclusion in a policy barred coverage under the intentional non-compliance exclusion.

Allied World National Assurance Company (“Allied”) issued a primary environmental liability insurance policy for $2 Million and an umbrella policy for $5 Million to Santa Clara Waste Water (“SCWW”). Intentional non-compliance provisions were included which excluded coverage for damage resulting from the intentional disregard of or deliberate willful or dishonest non-compliance with laws or regulations.  In 2014, a huge explosion at the SCWW plant occurred and SCWW made a claim to Allied for payment to clean up the facility from the damages resulting from the chemical spill, explosion and subsequent fire.

Allied initially denied the claim; however, ultimately agreed to pay $2.5 million to cover the facility owner’s cleanup costs with the caveat that the plant owner would have to reimburse the insurer if a court later determined that the policy’s coverage did not apply.  SCWW then sued for the full amount, triggering Allied to file a cross-complaint.  Allied then sought a prejudgment attachment against SCWW for the $2.5 Million plus costs and interest to protect their ability to recover from SCWW should they prevail at trial.  The application for a right to attach order and writ of attachment was granted by the trial court.

Under the statute governing attachments, a party seeking a prejudgment attachment must demonstrate the probable validity of prevailing on its claim.  In affirming that decision, the Second District Court of Appeal recognized that where an insurer pays an amount not covered under the policy, it has a right that is implied at law under an unjust enrichment theory.  The court declared that Allied had established the probable validity under both their unjust enrichment and recession claim because substantial evidence supported the trial court’s finding that SCWW failed to report their Hazardous Materials Plan under the Health and Safety Code, concealed chemicals from inspectors and misrepresented and concealed a material fact – that being that they did not accept, process, transport or discharge hazardous waste.

Accordingly, upon return to the trial court, Allied may attach the property of SCWW pending ultimate determination of the action for the amount they paid, plus pre-judgment interest.

If you have any questions or would like more information, please contact Rebecca Smith at [email protected].

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