State of California v. Pacific Indemnity Co.

The State of California purchased one year of coverage under a general comprehensive liability policy issued by Pacific Indemnity Company (Pacific Indemnity). The state and nine of its agencies (collectively the State) were sued for losses that occurred over a period of forty-three years, including the one year of Pacific Indemnity’s coverage. The claims against the State concerned property damage caused by toxic contamination over the entire period. The State tendered the defense to Pacific Indemnity. Pacific Indemnity took the position that it was not required to defend the State. Pacific Indemnity now concedes that it erred in refusing to defend. It argues, however, that its duty to defend is proportional to its one year of coverage as part of the forty-three-year period, so that its liability for defense costs should not exceed approximately 2 percent of the total defense costs. Pacific Indemnity also argues that contract damages for breach of a duty to defend are limited to the amount of defense costs actually incurred by the State. The State was initially represented by the Attorney General. After that it was represented by a private law firm, Irell &…