Vivian Orlando

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Insurer's Reasonable Denial of Coverage Cannot be Rendered Retroactively Unreasonable Based on Subsequent Change in Law

In Griffin Dewatering Corporation v. Northern Insurance Company of New York, __ Cal. App. 4th __, 2009 WL 2344762 (July 31, 2009), the Court of Appeal in the Fourth Appellate District issued a lengthy opinion explaining that an insurer’s incorrect, but objectively reasonable, claim denial decision cannot be retroactively rendered unreasonable as a result of a post-denial judicial decision. In other words, there can be no bad faith if there is substantial case law in favor of the insurer’s position at the time it makes its decision, even if that case law is later overturned.

Northern Insurance Company of New York (“Northern”) issued a comprehensive general liability policy to Griffin Dewatering Corporation (“Griffin”), a company that was involved in certain sewer bypass projects. The policy contained a “total pollution exclusion,” which Northern contended excluded sewage release from coverage. Northern relied on this provision in denying coverage and defense to Griffin.

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