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

• Decision Date: 15 May 2007
• Docket Number: No. A109755.,No. A112856.,A109755.,A112856.
• Citation: 150 Cal.App.4th 1050,60 Cal.Rptr.3d 55
• Court: California Court of Appeals
• 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.

60 Cal.Rptr.3d 55

150 Cal.App.4th 1050

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. A109755.

No. A112856.

Court of Appeal, First District, Division 5.

May 15, 2007.

Certified for Partial Publication.^*

As Modified on Denial of Rehearing June 13, 2007.

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

McCurdy & Fuller LLP, Kevin G. McCurdy 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, Joseph J. De Hope, Jr., San Francisco, for Defendants and Respondents Century Indemnity Company (as successor to CCI Insurance Company, as successor to Insurance Company of North America), Pacific Employers Insurance Company, and St. Paul Surplus Lines Insurance Company.

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

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

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

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

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

SIMONS, J.

In this insurance coverage matter, plaintiff/appellant Ameron International Corporation (Ameron) seeks coverage from defendant/respondent insurers (collectively respondents)¹ for its $10 million settlement of a contract dispute with the federal government and for its related defense costs. The settlement occurred during a protracted administrative hearing before the United States Department of Interior Board of Contract Appeals (IBCA). Between 1978 and 1995, respondents issued a series of primary comprehensive and commercial general liability (CGL)² and excess/umbrella policies to Ameron. With respect to these policies, Ameron contends the trial court too narrowly construed respondents' duties to defend and indemnify and, as a result, erroneously granted Harbor's motion for judgment on the pleadings and sustained the other respondents' demurrers, without leave to amend, to Ameron's operative third amended complaint (complaint).³ Resolution of this matter requires an analysis of four Supreme Court decisions issued between 1998 and 2005 that described the limits of the duties to defend and indemnify an insured for its expenses in complying with environmental agency activity prior to the filing of a complaint.

In Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 77 Cal.Rptr.2d 107, 959 P.2d 265 (Foster-Gardner) and Powerine I, supra, 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94, the court examined several primary CGL policies. In Foster-Gardner, the court held that the duty to defend a "suit seeking damages," where "suit" was not defined in the policy, was triggered only by a civil action prosecuted in a court of law. (Foster-Gardner, at pp. 878-882, 77 Cal.Rptr.2d 107, 959 P.2d 265.) In Powerine I, at pages 950-951, the court held that in a policy imposing a duty to defend "`in any suit seeking damages'" and a duty to indemnify the insured for "`all sums that the insured becomes legally obligated to pay as damages,' where neither 'suit' nor `damages' are defined within the policy" the duty to indemnify is "limited to money ordered by a court" and "does not extend to any expenses required by an administrative agency pursuant to an environmental statute." In Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 33 Cal.Rptr.3d 562, 118 P.3d 589 (Powerine II), the court acknowledged the importance of the precise wording of the policies' insuring agreements (id. at p. 389, 33 Cal.Rptr.3d 562, 118 P.3d 589) and concluded that policies which included the word "expenses," as well as "damages" in the insuring agreement provided a duty to indemnify for the cleanup of contaminated sites (id. at pp. 383, 398-405, 33 Cal. Rptr.3d 562, 118 P.3d 589). Finally, in a case decided the same day as Powerine II, the court reached the contrary conclusion because the "literal insuring language" of the excess/umbrella policies in that case neither referenced nor incorporated the term "expenses." (County of San Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406, 411, 33 Cal.Rptr.3d 583, 118 P.3d 607 (Ace).)

Here, the trial court relied on Foster-Gardner and Powerine I and concluded (1) the subject proceeding before the IBCA was not a covered "suit" because a "suit" means a civil action initiated by a complaint in a court of law; and (2) the money paid by Ameron to settle the dispute was not covered "damages" because "damages" are limited to money ordered by a court. As to those policies before us whose insuring agreements are similar to those construed in Foster-Gardner and Powerine I, and where "suit" is not defined, we conclude the bright-line rule announced by the Supreme Court in those two decisions is properly applied, despite the significant differences between the IBCA proceeding, involved here, and environmental remediation orders. However, as to the policies before us that contain a definition of the term "suit,"⁴ and/or provide indemnity for "loss," not damages, there may be a duty on the insurer to indemnify and/or defend. As to those policies, the trial court erred.⁵

PROCEDURAL AND FACTUAL BACKGROUND⁶

Ameron is a Delaware corporation whose principal place of business is Pasadena, California. Respondents are 11 insurance companies who provided Ameron with primary, excess and/or umbrella insurance coverage between 1978 and 1995.

Beginning in 1975, the United States Department of the Interior, Bureau of Reclamation (Bureau), entered into general contracts with Peter Kiewit Sons' Company (Kiewit) for the manufacture and installation of concrete siphons to be used in the Central Arizona Project, an aqueduct system. Pursuant to a subcontract with Kiewit, Ameron manufactured the siphons between 1975 and 1980. Ameron was required by its contracts with Kiewit to defend and indemnify Kiewit, and Kiewit is an insured under Ameron's insurance policies.⁷

In 1990, defects in the siphons were discovered, requiring their replacement or repair. As a result of the defective siphons, in 1992 the Central Arizona Water Conservation District filed an action against Ameron in federal district court in Arizona (hereafter the CAWD action). Ameron provided timely notice of the CAWD action to its insurers. The CAWD action was dismissed, and an appeal taken to the Ninth Circuit Court of Appeals was dismissed in 1996.⁸

In 1995, during the pendency of the CAWD action, the Bureau's contracting officer issued two final decisions finding that Kiewit was responsible for defects in the siphons, necessitating their replacement at a cost of approximately $116 million.⁹ The government sought approximately $40 million in damages from Ameron and Kiewit. Pursuant to their private contractual remedy, Ameron and Kiewit¹⁰ elected to challenge the decisions of the Bureau's contracting officer before the IBCA. The government asserted that it had acted to prevent a "massive explosion" resulting from the rupture of the defective siphons. The defects alleged by the government involved "continuous and progressive deterioration" of the materials used to construct the siphons.

Ameron provided timely notice to respondents of the Bureau's claims and proceedings against Ameron and Kiewit. After 22 days of trial, on January 21, 2003, Ameron and Kiewit settled the government's claims for $10 million. Truck Insurance Exchange (Truck) one of Ameron's primary insurers, paid Ameron "certain sums with respect to the [Central Arizona Project] litigation."¹¹ Respondents failed or refused to pay for defense costs incurred in the litigation and failed or refused to pay for the settlement with the Bureau.

The Complaint

In April 2003, Ameron, in its own right and as an assignee of Kiewit's rights, filed its original complaint against respondents and others for breach of contract and related claims. Ameron filed its operative complaint on July 21, 2004.¹² In essence, the complaint alleges causes of action for breach of contract, breach of the covenant of good faith and fair dealing, declaratory relief, waiver and estoppel and contribution. The thrust of the complaint is that respondents failed or refused to defend Ameron or settle the IBCA litigation, failed to indemnify Ameron for its settlement of the IBCA litigation, and failed to investigate the potential of coverage.

Insurance Coverage¹³

Ameron purchased $15 million in primary insurance coverage¹⁴ between July 1978 and March 1997. Truck issued primary policies between July 1, 1978 and July 1, 1988; INA issued primary policies between August 1, 1988 and August 1, 1992; and Zurich issued primary policies between September 1, 1992 and March 15 1997.

Between July 1,1978 and August 1, 1987, Pacific, Puritan, Old Republic Twin City, Transcontinental and Great American issued Ameron first layer excess and/or excess/umbrella insurance ¹⁵ policies to Truck's primary policies. No second layer excess insurance was in effect as to Ameron during that period.

For the period April 15, 1987 to July 1, 1988, International issued Ameron first layer excess/umbrella policies to Truck's primary...