Ameron Intern. Corp. v. Ins. Co. of State of Pa.

• Decision Date: 19 January 2011
• Docket Number: No. S153852.,S153852.
• Citation: 118 Cal.Rptr.3d 95,50 Cal.4th 1370,242 P.3d 1020
• Court: California Supreme Court
• Parties: AMERON INTERNATIONAL CORPORATION, Plaintiff and Appellant, v. INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, et al., Defendants and Respondents. Ameron International Corporation, Plaintiff and Appellant, v. Harbor Insurance Company, Defendant and Respondent.

50 Cal.4th 1370

242 P.3d 1020

118 Cal.Rptr.3d 95

AMERON INTERNATIONAL CORPORATION, Plaintiff and Appellant,

v.INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, et al., Defendants and Respondents.

Ameron International Corporation, Plaintiff and Appellant,

v.Harbor Insurance Company, Defendant and Respondent.

No. S153852.

Supreme Court of California

Nov. 18, 2010.

As Modified Jan. 19, 2011.

Stanzler Funderburk & Castellon, Stanzler Law Group and Jordan S. Stanzler, San Francisco, for Plaintiff and Appellant.

Weston, Benshoof, Rochefort, Rubalcava & MacCuish and Richard Giller, Los Angeles, for The California Cast Metals Association as Amicus Curiae on behalf of Plaintiff and Appellant.

McCurdy & Fuller, Kevin G. McGurdy and Rosemary J. Springer, Menlo Park, for Defendant and Respondent Insurance Company of the State of Pennsylvania.

Hinshaw & Culbertson, Robert J. Romero, Paul E. Vallone and Joseph J. De Hope, Jr., San Francisco, for Defendants and Respondents Century Indemnity Company, Insurance Company of North America, Pacific Employers Insurance Company, St. Paul Surplus Lines Insurance Company, Insurance Company of the State of Pennsylvania, Harbor Insurance

Company and Transcontinental Insurance Company.

Charlston, Revich & Chamberlin, Charlston, Revich & Wollitz, Ira Revich and Nicholas R. Andrea, Los Angeles, for Defendants and Respondents International Insurance Company and Puritan Insurance Company.

Burnham Brown, Thomas M. Downey, Oakland, Tyler G. Olpin and James Y. Higa for Defendants and Respondents Transcontinental Insurance Company and Harbor Insurance Company.

Ericksen, Arbuthnot, Kilduff, Day & Lindstrom and Andrew P. Sclar, San Francisco, for Defendant and Respondent Old Republic Insurance Company.

Hogan & Hartson, David R. Singer, Los Angeles, Jonathan S. Franklin, William J. Bowman and Catherine E. Stetson for Defendant and Respondent Twin City Fire Insurance Company.

Sonnenschein Nath & Rosenthal, Michael A. Barnes, Sonia Martin, San Francisco, and Lee L. Kaster, Oakland, for Defendant and Respondent Great American Surplus Lines Insurance Company.

O'Melveny & Myers, Richard B. Goetz, Los Angeles, and A. Patricia Klemic for Defendants and Respondents Insurance Company of North America and Pacific Employers Insurance Company.

Foley & Lardner, Eileen R. Ridley and Patrick T. Wong, San Francisco, for Lloyd's and The Reinsurance Association of America as Amici Curiae on behalf of Defendants and Respondents.

Wiley Rein, Laura A. Foggan; Sinnott, Dito, Moura & Puebla, Randolph P. Sinnott and John J. Moura, Los Angeles, for Complex Insurance Claims Litigation Association as Amicus Curiae on behalf of Defendants and Respondents.

Sinnott, Dito, Moura & Puebla, Blaise S. Curet and Stephen R. Wong, San Francisco, for Zurich American Insurance Company as Amicus Curiae on behalf of Defendants and Respondents.

CHIN, J.

This court has defined the term "suit" in a comprehensive general liability (CGL) insurance policy as "a court proceeding initiated by the filing of a complaint." ( Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 887, 77 Cal.Rptr.2d 107, 959 P.2d 265 ( Foster-Gardner ).) Foster-Gardner declined to include an environmental agency's pollution remediation order in that definition, and so we found the insured business was not entitled to coverage under its CGL policy for its cleanup liability. ( Id. at pp. 860-861, 864, 77 Cal.Rptr.2d 107, 959 P.2d 265.) Here, in a case involving numerous primary, excess, and umbrella insurance policies, we must decide the narrow question: Is a federal administrative adjudicative proceeding before an administrative law judge of the former United States Department of Interior Board of Contract Appeals (IBCA),¹ which involved 22 days of trial, numerous witnesses, and substantial evidence, a "suit" for purposes of the duty to defend and potential insurance coverage under those policies that do not define the term " suit." This quasi-judicial adjudicative proceeding, employed to resolve government demands against insured parties, is a "suit" as a reasonable insured would understand that term. We therefore conclude that Foster-Gardner's ruledoes not apply here and reverse the Court of Appeal's judgment to the extent it held otherwise.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant Ameron International Corporation (Ameron) is based in Pasadena, California, and incorporated under the laws of the State of Delaware. Respondent insurers (respondents) are 11 insurance companies that provided Ameron with primary CGL coverage as well as excess/umbrella policies between 1978 and 1995.² Beginning in 1975, the United States Department of the Interior's Bureau of Reclamation (Bureau) contracted with Peter Kiewit Sons' Company (Kiewit) for the fabrication and installation of concrete siphons used in the Bureau's Central Arizona Project aqueduct. Kiewit then subcontracted manufacture of the siphons to Ameron, requiring it to defend and indemnify Kiewit in the event the siphons proved defective. Kiewit is an insured under Ameron's insurance policies.

In 1990, the Bureau discovered defects in the siphons that required their replacement at a cost of approximately $116 million. In1992, the Central Arizona Water Conservation District filed an action against Ameron in federal district court in Arizona for its responsibility in providing the defective siphons. Ameron provided respondents with timely notice of that action, which was eventually dismissed. An appeal in the Ninth Circuit Court of Appeals also was dismissed, and is not a subject of the present coverage action.

In 1995, the Bureau's contracting officer issued two final decisions finding Kiewit responsible for the siphons' defects and seeking almost $40 million in damages from Kiewit and Ameron.³ Under the terms of their indemnity agreement providing for a private contractual remedy, Kiewit and Ameron challenged the contracting officer's decision before the IBCA. In light of the Bureau's action against them, Ameron provided timely notice to respondent insurers.

The IBCA administrative law proceeding lasted 22 days and concluded when Ameron and Kiewit settled the Bureau's claims against them for $10 million. Following the settlement, Truck Insurance Exchange, "one of Ameron's primary insurers, paid Ameron certain sums with respect to the [Central Arizona Project] litigation." ⁴ In addition, INA offered to pay $750,000 towards the settlement, but Ameron rejected this amount as insufficient. The remaining respondents generallyfailed or refused to pay for the cost of defending or indemnifying Ameron in the litigation before the IBCA.

Ameron, in its own right and as the assignee of Kiewit's rights, filed its operative complaint against respondent insurers on July 21, 2004, alleging causes of action for breach of contract, breach of the covenant of good faith and fair dealing, declaratory relief, waiver and estoppel, and contribution. ⁵ Ameron's complaint alleged that the IBCA proceedings are "civil proceedings" in which the IBCA acts in a "judicial capacity" when conducting hearings and deciding contested factual issues. Ameron pointed out that under the Contract Disputes Act of 1978 (Contract Disputes Act) ( 41 U.S.C. § 601 et seq.), it could have chosen to challenge the decision of the Bureau's contracting officer either by appealing that decision to the IBCA, or by bringing an action in the United States Court of Federal Claims (Federal Claims Court). ( 41 U.S.C. §§ 606, 609.) Ameron contended that the Contract Disputes Act refers to an action filed in either the IBCA or the Federal Claims Court as a "suit," thus triggering respondents' coverage duties. Ameron asserted that respondents failed or refused to defend or settle the Bureau's claims against it before the IBCA, failed to indemnify it for the IBCA settlement, and neglected to investigate the potential for coverage. The superior court granted respondents' demurrer and dismissed Ameron's complaint. The trial court relied on Foster-Gardner, supra, 18 Cal.4th 857, 77 Cal.Rptr.2d 107, 959 P.2d 265, which held that an environmental agency's order identifying the insured as a party responsible for remediating environmental pollution was not a "suit" that would trigger an insurer's duty to defend its insured or provide insurance coverage. ( Id. at pp. 860-861, 77 Cal.Rptr.2d 107, 959 P.2d 265.)

The court of appeal partially reversed the trial court's judgment with respect to those policies that defined a "suit" as a "civil proceeding." ⁶ However, after commentingthat it was reluctantly applying Foster-Gardner's reasoning to those policies that did not define the term "suit," the Court of Appeal concluded that similar pre-1986 insurance policies containing language virtually identical to the policies at issue in Foster-Gardner⁷ gave Ameron no defense or liability coverage, because the IBCA adjudicative administrative hearing was before a federal administrative agency and not a court of law. We granted review to decide whether, under the applicable Ameron policies at issue here, the rule announced in Foster-Gardner applies to preclude the obligation to provide a defense and potential indemnity coverage in an administrative law proceeding beforethe IBCA. ⁸

DISCUSSION

A. Background

1. Standard of Review and Insurance Law Principles

In general, interpretation of an insurance policy is a question of law and is reviewed de novo under settled rules of contract interpretation. ( E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470, 9 Cal.Rptr.3d 701, 84 P.3d 385 ( E.M.M.I.); Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619 ( Waller ).) "The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the 'mutual intention' of the parties. 'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the...