Pillsbury Celebrates 100 Years of Success in Insurance Recovery

As a major law firm that dates back to 1868, Pillsbury can claim credit for a number of notable litigation victories over its history. Among the most interesting is a precedent-setting case that led to major, enduring changes and variation in disaster insurance laws and policies across the United States.

The same case helped establish Pillsbury as a standout in insurance recovery and advice for policyholders. The firm's reputation for top-drawer work in insurance recovery has likewise endured, as most recently noted by Law360, which named Pillsbury's team as one of the top five Insurance Groups of 2010. In March 2011, Pillsbury gained even greater strength with the addition of a marquee group of litigators with an emphasis on resolving disputes for general construction and engineering, real estate and infrastructure projects and securing insurance coverage for those matters.

Much has changed over 100 years, of course, as exemplified by Pillsbury's substantial experience in previously nonexistent areas such as environmental liability and nuclear liability coverage.

But as the firm celebrated the recent centennial of the landmark California Wine Association decision—most notably with historical reviews penned by Pillsbury partners Rob James, Rene Siemens and Peter Gillon—one surprise was the ongoing relevance of the insurance issues Pillsbury had tackled in the early 1900s.

The 'Great Fire' of 1906

The genesis of Pillsbury's victory was one of biggest disasters of the 20th century. The earthquake that struck San Francisco on the morning of April 18, 1906, together with the fires that raged on for the next three days, leveled the city. Some 28,000 buildings were destroyed, establishing a record for U.S. casualty losses that stood until Sept. 11, 2001.

The official estimate of the time said a full 90% of the damage to the city was caused by fires. Burst water mains made it impossible to quell the flames, which grew to a wall of over a mile and a half wide, visible across the entire San Francisco Bay.

Fire insurance policies of the day typically excluded fires caused by earthquake, but policyholders pressed ahead with their claims. The city's Real Estate Board weighed in with a resolution passed just days after the temblor, stating that "the calamity should be spoken of as 'the great fire' and not as 'the great earthquake.'"

Many insurers denied claims, and many policyholders in turn sued. Cases stemming from the disaster would wend through state and federal courts for the rest of the decade. The biggest of these was California Wine Association v. Commercial Union Fire Insurance Company of New York, in which Pillsbury represented the plaintiffs.

With multiple policies from various insurers, the vintners were insured for a total of around $5 million (roughly $120 million in today's dollars). They filed several claims for damage to a number of grand warehouses they owned throughout the city and the many millions of gallons of wine that were lost.

The Litigation

The California Wine Association case went to trial in state court in 1908, with Pillsbury's Alfred Sutro as the lead litigator. Over 100 witnesses were called to attest to the origins and progress of individual fires, making the trial record an invaluable reference to future historians.

The defendant, Commercial Union Fire Insurance Company of New York, rested its case on the policy's exclusion of damage due to fires caused by earthquake. Sutro, in turn, invoked the concept of "ensuing loss" when he convinced the jury that damage came from fires legally distinguishable from the quake.

In an account published by the San Francisco Museum & Historical Society, Pillsbury partner Rob James writes that Sutro "outfoxed" his opponents by getting the trial judge to approve, without objection, 27 special verdicts—asking the jury to decide factual questions such as whether any of the fires that started on the day of the quake were "not caused directly or indirectly by the earthquake," and if it was necessarily one of the quake-caused fires that had burned the Wine Association's warehouse.

At least 30 separate fires had been identified, including the so-called Ham and Eggs Fire that was a focal point of the trial. It was sparked by someone cooking breakfast in a fireplace whose chimney had been damaged that morning.

The jury returned all the verdicts in favor of the vintners. On appeal, the insurance company unsuccessfully contested the inclusion of the special verdicts in the trial transcript. Commercial Union's appellate argument was thus limited to questions about courtroom antics, such as Sutro's casual references to "welching insurance companies that refused to pay the California Wine Association."

The California Supreme Court upheld the jury's verdict on December 28, 1910. It was a victory not only for the Wine Association but for San Francisco policyholders in general, who saw their unresolved claims paid and the rapid rebuilding of their city.

A New Concept in Insurance Law

California Wine Association also helped give rise to a new and enduring concept in insurance law. The principle of "concurrent causation," as summarized by Pillsbury partners Rene Siemens and Peter Gillon in the December 2010 issue of Risk Management, is "that when a loss is caused by a combination of excluded causes (earthquake, flood) and covered causes (fire, hurricane), the insured is entitled to coverage."

Insurers looking to preempt a repeat of their massive '06 liabilities quickly added boilerplate "anti-concurrent causation" clauses to their policies, stating that if damage is a result, even partly, of an excluded cause, then there is no coverage.

The State of California soon changed its insurance laws to make such anti-concurrent causation clauses unenforceable against resident policyholders. But such clauses remain legally enforceable today across most of the U.S., in 48 out of 50 states.

Thus, the issue of concurrent causation "has continued to dominate almost every dispute over insurance coverage for man-made or natural disasters," as noted by Siemens in a Bloomberg Law article co-authored by senior associate Gevik Baghdassarian.

The issue has risen to the fore recently in litigation over property damage from Hurricane Katrina, where claims for billions of dollars in losses have been denied because the governing insurance policies included windstorm protection but excluded concurrent flood damage.

Still Leading the Way Today

Sutro's work for the Wine Association helped to establish what is now one of the oldest insurance recovery practices in the United States. Since that time, Pillsbury has helped policyholder clients recover billions from their insurance carriers through arbitration, mediation and informal claims negotiations, as well as litigation in federal and state trial and appellate courts around the country.

In designating Pillsbury's Insurance Recovery & Advisory practice as an Insurance Group of the Year, Law360 singled out the firm's unique expertise in several areas, including insurance insolvencies, environmental liability, directors and officers insurance, and nuclear liability coverage.

"Pillsbury Winthrop Shaw Pittman LLP secured victories for clients on a wide range of coverage issues in the past year, including a landmark victory that struck down a 'pollution exclusion' that has been standard in nuclear liability policies since 1990," wrote Law360 in its announcement.

That victory, won by Rene Siemens for client Whittaker Corp., potentially affects nuclear insurance claims around the country.

Law360 also cited a victory Siemens achieved for the descendants of Holocaust victims, recovering more than $500 million in life insurance claims from European insurers. The statute of limitations in such cases is normally four or five years, but was extended by decades under California law because the policies had been concealed from potential plaintiffs.

In particular, defendant Assicurazioni Generali SpA had denied the existence of any WWII records. But in fact, "they had an entire warehouse in Trieste, Italy, with the policies neatly arranged in binders," Siemens noted.

Pillsbury also continues to work on insurance recoveries related to the world's biggest disasters, like the Icelandic volcano eruption that shut down European air traffic for a number of days in 2010. Practice leader Peter Gillon has advised clients that insurance coverage is indeed afforded under the property policies purchased by airlines.

"I have represented airlines for 25 years, and I have yet to come across a volcanic ash exclusion," Gillon said recently. "It is not surprising that insurers are taking the position that there is no coverage here, as this is a rather severe and unanticipated loss, but they should read the fine print in their policies. The coverage is there."