SAN FRANCISCO--When a loss results from both insured and uninsured causes and the policyholder cannot allocate the costs between the causes, the policyholder is entitled to coverage for the whole loss up to its policy limit if the covered cause is substantial, the California Supreme Court ruled Monday.

The court further ruled that in those situations, the burden of allocation shifts to the insurer.

Ruling in the longstanding coverage dispute over the Stringfellow hazardous waste site near Glen Avon, Calif., the state high court also said that sudden and accidental pollution exclusions under commercial general liability policies are triggered when waste material is discharged from a site, not when waste is deposited to it.

The coverage litigation stems from the state's operation of the Stringfellow hazardous waste site for several years.

In 1998, a federal judge determined that the state was 100% liable for environmental damage the site caused, because the state had negligently designed and operated the site. Environmental contamination occurred when pollutants leaked into groundwater, when heavy rains washed waste into the environment and when a deteriorating dam wall at the site forced the state to release 1 million gallons of contaminants to prevent the dam from collapsing.

Between 1972 and 1978, the state purchased comprehensive general liability coverage from 24 insurers. The policies contained pollution exclusions, but those exclusions allowed coverage for sudden and accidental pollution incidents.

Monday's decision involved four of the state's excess CGL insurers: Allstate Insurance Co., Century Indemnity Co., Columbia Casualty Co. and Westport Insurance Corp.

The insurers denied coverage, citing their policies' pollution exclusions. A trial court initially granted them summary judgment.

In upholding the appeals court reversal, the state Supreme Court ruled that because the basis for the state's liability was the escape of pollutants into the environment from contaminated ponds on the site, the release of the wastes after they had been deposited was the "relevant discharge" for purposes of determining whether it was a sudden and accidental. The insurers argued that the initial disposals of the waste into the unlined ponds were the relevant discharge and were neither sudden nor accidental.

In regard to the state's inability to separate out the cost of remediating sudden and accidental releases from those attributed to the gradual seepage of pollutants from the evaporation ponds into the groundwater, the high court agreed with the appeals court that the CGL policies covered the state's liability.

The court said if multiple acts cause a single injury or an "indivisible amount of property damage," a policyholder's inability to allocate the damages by cause doesn't allow the insurer to avoid payment. The insurer may present evidence that the damages are divisible and that "only a limited portion of them resulted from covered events," the court said.

Robert M. Horkovich, an attorney with Anderson Kill & Olick P.C., who represented California in the case, noted that the state Supreme Court expressly rejected a 2001 lower court decision in Golden Eagle Refinery Co. vs. Associated International Insurance Co. that required policyholders to show how much of an indivisible amount of damages resulted from covered causes.

"When all is said and done, the legacy of this case will be the burden of proof and allocation," said Randy Maniloff, an insurer attorney with White & Williams L.L.P. in Philadelphia. "The sudden and accidental pollution exclusion is a dodo bird of a coverage issue--it is on the road to extinction," he said, referring to the once-common pollution exclusion that has largely been replaced by the absolute pollution exclusion.

"But the burden of proof aspect will be around for a long time and will be important in all type of cases--whether they involve pollution or otherwise," he said.

Attorneys representing the four insurers were not immediately available for comment.