Aerojet-General Corp. v. Transport Indem. Co.

Decision Date29 December 1997
Docket NumberAEROJET-GENERAL,No. S054501,S054501
Citation17 Cal.4th 38,948 P.2d 909,70 Cal.Rptr.2d 118
CourtCalifornia Supreme Court
Parties, 17 Cal.4th 669A, 948 P.2d 909, 46 ERC 1025, 28 Envtl. L. Rep. 20,590, 97 Cal. Daily Op. Serv. 9704, 97 Cal. Daily Op. Serv. 9737, 97 Daily Journal D.A.R. 15,551 CORPORATION et al., Cross-complainants and Appellants, v. TRANSPORT INDEMNITY COMPANY et al., Cross-defendants and Respondents.

[17 Cal.4th 44] [948 P.2d 911] Jose N. Uranga, Nossaman, Guthner, Knox & Elliott, Sacramento, Scott P. DeVries, Kurt W. Melchior, Carl L. Blumenstein and Tad Pethybridge, San Francisco, for Cross-complainants and Appellants.

Anderson, Kill & Olick, Jordan S. Stanzler, Deborah M. Mongan, San Francisco, and John A. MacDonald, Victorville, as Amici Curiae on behalf of Cross-complainants and Appellants.

Francis J. Stillman, Burlingame, Loraine A. Wallace, Redo, Michael Skaggs, Rivkin, Radler & Kremer,Santa Rosa, Donald McMillan, George Keller, Bishop, Barry, Howe, Haney & [17 Cal.4th 45] Ryder, Santa Rosa, Jeffrey N. Haney, Wiliam R. Brown, Boornazian, Jensen & Garthe, Walnut Creek, Bruce Winkleman, Carroll, Burdick & McDonough, Sacramento, James B. Clapp, Horvitz & Levy, Oakland, Barry R. Levy, Mitchell C. Tilner, Gibson, Dunn & Crutcher, Encino, Donald E. Sloan, Crosby, Heafey, Roach & May, Stephen G. Schrey, Louise M. McCabe, Oakland, Gordon & Rees, Donald W. Rees, San Francisco, David C. Capell, Haasis, Pope & Correll, Kenneth E. Goates, Hancock, Rothert & Bunshoft, Richard L. Seabolt, San Francisco, Andrew K. Gordon, Brian A. Kelly, San Francisco, Laura G. Hill, Arthur J. Friedman, Hardin, Cook, Loper, Engel & Bergez, Ralph A. Lombardi, Oakland, Hoge, Fenton, Jones & Appel, Robert Cullen, San Jose,

Jedeikin, Green, Meadows & Schneider, San Jose, Nancy A. Aptekar, Lillick & Charles, Donald E. Dorfman, James Forbes, San Francisco, Long & Levit, Ira Goldberg, San Francisco, Luce, Forward, Hamilton & Scripps, Cathy L. Croshaw, San Francisco, Mitchell L. Lathrop, Lynberg & Watkins, R. Jeff Carlisle, Wendy E. Schultz, Los Angeles, Misciagna & Colombatto, P. Richard Colombatto, San Francisco, Morris, Polich & Purdy, Steven M. Crane, Mike Colliau, J. Burleigh Arnold, Los Angeles, Newton, Kastner & Remmel, Stephen Newton, O'Melveny & Myers, Martin S. Checov, Orrick, Herrington [948 P.2d 912] & Sutcliffe, Jeffrey S. White, San Francisco, Pruess, Walker & Shanagher, Gary T. Walker, San Francisco, Ropers, Majeski, Kohn, Bentley, Wagner & Kane, Ropers, Majeski, Kohn & Bentley, Richard K. Wilson, Redwood City, Sedgwick, Detert, Moran & Arnold, Roger Sleight, Jeffrey Miller, San Francisco, Skadden, Arps, Slate, Meagher & Flom, Irene Sullivan, Thomas R. Harrell, San Francisco, Wilson, Elser, Moskowitz, Edelman & Dicker, Debra S. Sturmer and Stephen P. Randall, San Francisco, for Cross-defendants and Respondents

MOSK, Justice.

In this cause, we resolve two issues relating to standard commercial general liability insurance policies, which were formerly called comprehensive general liability insurance policies. The first question is whether site investigation expenses--broadly, expenses for determining the existence, nature, extent, effect, etc., of the discharge of hazardous substances at a location--may constitute defense costs that the insurer must incur in fulfilling its duty to defend. The second is whether defense costs may be allocated to the insured. As we shall explain, we conclude that, as to each, the answer is qualifiedly affirmative.

I

This is still another chapter in the yet-to-be-completed volume relating the story of Aerojet-General Corporation in Sacramento County. (See, e.g., [17 Cal.4th 46] Mangini v. Aerojet-General Corp. (1996) 12 Cal.4th 1087, 51 Cal.Rptr.2d 272, 912 P.2d 1220; Aerojet-General Corp. v. Transport Indemnity Insurance (1993) 18 Cal.App.4th 996, 22 Cal.Rptr.2d 862; Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 281 Cal.Rptr. 827; Aerojet-General Corp. v. Superior Court (1989) 211 Cal.App.3d 216, 257 Cal.Rptr. 621.) Aerojet-General Corporation is, and has been, a leading manufacturer in the aerospace and defense markets. Throughout the course of its operations from the early 1950's into the 1980's, it discharged hazardous substances, including trichloroethylene, in an ongoing fashion at its Sacramento site and thereby caused pollution in and around that location as such substances spread onto the ground, into the groundwater, and beyond toward the American River.

In 1982, Transport Indemnity Company and Associated International Insurance Company (hereafter collectively Transport Indemnity) filed a complaint for declaratory relief in the Superior Court of San Mateo County, which was docketed under No. 262425, against, inter alios, numerous other insurers and their common insureds, Aerojet-General Corporation and its wholly owned subsidiary Cordova Chemical Company (hereafter collectively Aerojet), regarding the parties' rights and duties under various comprehensive general liability and other insurance policies. 1 It appears that what was stated above was already known or believed--that, throughout the course of its operations from the early 1950's into the 1980's, Aerojet had discharged hazardous substances in an ongoing fashion at its Sacramento site and had thereby caused pollution in and around that location resulting in continuous and/or progressively deteriorating bodily injury and/or property damage. In its complaint, Transport Indemnity sought declarations including that it was not obligated

to provide, and Aerojet was not entitled to receive, either indemnification or defense

Aerojet, which had been represented by independent counsel since about 1979, filed a cross-complaint for declaratory and other relief against, inter alios, Transport Indemnity and other of its insurers--which, for convenience's sake, will generally be referred to without differentiation as "the insurers."

Aerojet later filed an amended cross-complaint--the one operative here--against 54 insurers, under 245 comprehensive general liability and other [17 Cal.4th 47] insurance policies with periods incepting as early as 1950 and expiring as late as 1984, as to 3 actions brought by either the United States or the State of [948 P.2d 913] California and 35 actions brought by private parties, each of which was based on facts, alleged or otherwise disclosed, to the effect that, throughout the course of its operations from the early 1950's into the 1980's, Aerojet discharged hazardous substances in an ongoing fashion at its Sacramento site and thereby caused pollution in and around that location resulting in continuous and/or progressively deteriorating bodily injury and/or property damage. The private actions were various. The governmental ones were these: (1) an action instituted by the State of California against Aerojet in the Superior Court of Sacramento County in 1979 under authority of, inter alia, the Porter-Cologne Water Quality Control Act (Wat.Code, § 13000 et seq.), seeking relief including an injunction directing the company to undertake cleanup, abatement, and remedial work as to its pollution, and an order requiring the company to reimburse the state for the costs that the latter had, and would, incur in its own cleanup, abatement, and remedial work; (2) an action instituted by the United States against Aerojet in the United States District Court for the Eastern District of California in 1986 under authority of, inter alia, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (hereafter CERCLA) (42 U.S.C. § 9601 et seq.), seeking relief including an injunction directing the company to abate and remedy its pollution and its effects, and an order requiring the company to reimburse the United States for so-called "response costs," viz., the costs of removal and/or remediation (see 42 U.S.C. § 9601(25)), 2 which the United States had, and would, incur with regard thereto; and (3) a parallel CERCLA action instituted by the State of California against Aerojet on the same day and in the same court, seeking relief including an order requiring the company to reimburse the state for the "response costs" that the latter had, and would, incur; the federal and state CERCLA actions were consolidated. In its amended cross-complaint, Aerojet sought, among other things, a declaration that it was entitled to receive, and the insurers were obligated to provide, both indemnification and defense. In pertinent part, it alleged to the [17 Cal.4th 48] effect that it had tendered the defense, but that the insurers had either refused or accepted only under "unreasonable" reservations of rights.

In an opinion certified for publication, the Court of Appeal, First Appellate District, Division Five, granted a petition for writ of mandate submitted by Aerojet to compel the superior court to vacate an order granting a motion by the insurers for summary adjudication of certain issues and to enter a new and different order denying that motion. (Aerojet-General Corp. v. Superior Court, supra, 211 Cal.App.3d at pp. 220-238, 257 Cal.Rptr. 621.) In effect, the superior court had summarily adjudicated that "response costs" under CERCLA, and similar costs

under the Porter-Cologne Water Quality Control Act, could not constitute indemnification costs, i.e., expenses to resolve liability, that the insurers had to incur in fulfilling their duty to indemnify. The Court of Appeal concluded to the contrary. It therefore caused issuance of a peremptory writ of mandate as prayed. It did not consider whether costs of this sort could constitute defense costs, i.e., expenses to avoid or at least minimize liability

Following entry of the dismissal without prejudice of the complaint by Transport Indemnity, the superior court effectively transformed Aerojet's cross-action against the insurers into an action in and of itself, ordering Aerojet to be...

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