Vandenberg v. Superior Court

Eugene and Kathryn Boyd (plaintiffs) leased an automobile dealership to John Vandenberg (defendant). When the lease ended, the Boyds discovered underground tanks that contaminated the groundwater. The Boyds sued Vandenberg. Vandenberg’s commercial general-liability insurance was through Centennial Insurance Company (Centennial) and United States Fidelity and Guaranty Company (USF&G) (collectively, insurers). The policies contained exclusions for contamination except if contamination occurred suddenly and accidentally. USF&G agreed to defend, with coverage and indemnification to be determined later. Vandenberg, the Boyds, and USF&G settled all claims with the exception of the claim that contamination breached the lease agreement, which was to be resolved between Vandenberg and the Boyds at arbitration. The Boyds prevailed at the arbitration. The arbitrator reasoned that contamination was from Vandenberg’s improper tank installation and maintenance and did not occur suddenly or accidentally. The award was confirmed by the superior court and reduced to a judgment. The insurers denied coverage and indemnification. Vandenberg filed a coverage lawsuit against the insurers, who moved to dismiss, arguing that the arbitration award triggered the policy’s exclusion and that the issue was thus precluded from being relitigated under collateral estoppel. The trial court granted the motion, which was reversed on appeal. The court of appeal held that the issue could be litigated because it arose in a separate case and claim and against a different party. The insurers appealed.