Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co.

Decision Date30 April 1996
Docket NumberA049654,A049631,A049663,A049661,Nos. A049419,A049659,s. A049419
Citation52 Cal.Rptr.2d 690,45 Cal.App.4th 1
CourtCalifornia Court of Appeals Court of Appeals
Parties, 96 Cal. Daily Op. Serv. 3058, 96 Daily Journal D.A.R. 5048 ARMSTRONG WORLD INDUSTRIES, INC., Plaintiff, Cross-Defendant and Respondent, v. AETNA CASUALTY & SURETY CO. et al., Defendants and Appellants; Reliance Insurance Company, Defendant, Cross-Complainant and Appellant. FIBREBOARD CORPORATION, Cross-Complainant and Respondent, v. PACIFIC INDEMNITY COMPANY et al., Cross-Defendants and Appellants. GAF CORPORATION, Plaintiff, Appellant and Respondent, v. COLUMBIA CASUALTY COMPANY et al., Defendants, Appellants and Respondents. to A049672, A049808 and A049875.

Richard J. Doren, Fred F. Gregory, Gibson, Dunn & Crutcher, Los Angeles, for Appellant Aetna Casualty & Surety Co.

R. Jeff Carlisle, Ellen R. Krakow, Lynberg & Watkins, Los Angeles, for Appellants American Home Assurance Company; National Union Fire Insurance Company of Pittsburgh, Penn.

Nelson C. Barry, Rebecca Barry Aherne, Bishop, Barry, Howe, Haney & Ryder, San Francisco, Daniel U. Smith, Kentfield, for Appellant Commercial Union Ins. Co. Robert A. Muhlbach, Kirtland & Packard, Los Angeles, for Appellant and Respondent Continental Casualty Co. and for Appellant Columbia Casualty Co.

Marshall Grossman, Frank Kaplan, Alschuler, Grossman & Pines, Los Angeles, Rodney Eshelman, Donald Ramsey, David M. Rice, Carroll, Burdick & McDonough, San Francisco, Herbert M. Wachtell, David Gruenstein, Jeffrey R. Boffa, Wachtell, Lipton, Rosen & Katz, New York City, for Appellant and Respondent Continental Casualty Co. and for Appellants Columbia Casualty Co. and CNA Casualty of California.

Steven M. Crane, Morris, Polich & Purdy, Los Angeles, for Appellant Fidelity & Casualty Ins. of New York.

Jeffrey Kaufman, Peter J. Logan, Kaufman & Logan, San Francisco, for Appellant Fireman's Fund Ins. Co.

Robert H. Berkes, Patrick J. Jacobs, Pave, McCord, Jacobs & Berkes, Sherman Oaks, for Appellant First State Ins. Co.

Martin S. Checov, O'Melveney & Myers, San Francisco, John G. Niles, Los Angeles, for Appellant Insurance Comapny of North America.

N. Brooks Weld, Hillsinger & Costanzo, Los Angeles, for Appellant Interstate Fire & Casualty.

Gerald V. Weigle, Jr., Dinsmore & Shohl, Cincinnati, OH, Joseph G. Manta, Mark Manta, Manta & Welge, Philadelphia, PA, Frederick D. Baker, Kathleen D. Patterson, Sedgwick, Detert, Moran & Arnold, San Francisco, for Appellant Liberty Mutual Ins. Co.

Terry L. Croghan, Law Offices of Terry Croghan, San Francisco, Raoul D. Kennedy, Peter Davis, James C. Martin, Crosby, Heafey, Roach & May, Oakland, Paul J. Bschorr, Richard B. Sypher, Dewey Ballantine, New York City, for Appellant Pacific Indemnity Co.

Ronald R. Robinson, Marybeth Jacobsen, Paul S. White, Rosenfeld, Meyer & Susman, Beverly Hills, for Appellant Reliance Ins. Co.

Philip R. Matthews, Paul J. Killion, Hancock, Rothert & Bunshoft, San Francisco, for Appellants Underwriters at Lloyds Rokeby-Johnson, Bird & Companies.

Lon Harris, Gary L. Green, Harris & Green, El Segunda, for Appellants United States Fire Ins. Co., Central National Ins. Co. of Omaha and Puritan Ins. Co.

David W. Steuber, Kirk A. Pasich, Martin D. Katz, Troop, Meisinger, Steuber & Pasich, Los Angeles, for Appellant and Respondent GAF Corporation.

Robert H. Sayler, William Skinner, Covington & Burling, Washington, D.C., John E. Heintz, Lisa Latorre, Howrey & Simon, Washington, D.C., Cary B. Lerman, Munger, Tolles & Olson, Los Angeles, for Respondent Armstrong World Industries.

William R. Irwin, Donald W. Brown, Thomas M. Peterson, Brobeck, Phleger & Harrison, San Francisco, for Respondent Fibreboard Corporation.

DOSSEE, Associate Justice.

This appeal raises a number of complex questions concerning insurance coverage for claims of asbestos-related bodily injuries and property damage. In the proceedings below, separate declaratory relief actions and related cross-actions involving three asbestos manufacturers--Armstrong World Industries, Inc., Fibreboard Corporation, and GAF Corporation--and their various insurance carriers were coordinated and tried in six separate phases over a five-year period. 1

On appeal, the parties submitted briefs on three major "Issue Groups," and our opinion follows that organization. First, in the unpublished portion of the opinion, we discuss the issues of Issue Group I pertaining to a lost insurance policy. In Issue Group II we discuss the issues concerning the bodily injury claims: trigger and scope of coverage; the application of the phrase "neither expected nor intended"; the liability of premerger insurers; the effect of the Wellington Agreement. In Issue Group III, we discuss the issues surrounding the property damage claims: coverage for property damage; trigger and scope of coverage; the duties to defend and indemnify; and, in the unpublished portion of the opinion, the "drop-down" obligation of an INA-Armstrong excess policy.

After this appeal was submitted for decision, we granted a motion of certain parties to sever issues unique to them in order to facilitate a pending settlement. Accordingly, we have deferred decision upon issues pertaining to a lost Fibreboard-Pacific Indemnity insurance policy; the number of occurrences; the effect of the Fibreboard-Continental manuscript policy; and the application of the pollution exclusion clause.

Our previous opinion, filed on November 15, 1993, was vacated by the Supreme Court, and the matter was remanded to us for reconsideration in light of Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 42 Cal.Rptr.2d 324, 913 P.2d 878.

Guiding Principles

At the outset, we set forth the principles guiding our review. Interpretation of an insurance policy is primarily a judicial function. When the trial court's interpretation did not depend upon conflicting extrinsic evidence, the reviewing court makes its own independent determination of the policy's meaning. (Masonite Corp. v. Great American Surplus Lines Ins. Co. (1990) 224 Cal.App.3d 912, 916, 274 Cal.Rptr. 206.)

In interpreting an insurance contract, the court's fundamental goal is to give effect to the mutual intention of the parties. Such intent is inferred, if possible, solely from the written provisions of the contract. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822, 274 Cal.Rptr. 820, 799 P.2d 1253.) "If contractual language is clear and explicit, it governs." (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545.) Words in an insurance policy are to be interpreted as a layperson would interpret them, in their " 'ordinary and popular sense.' " (AIU, supra, 51 Cal.3d at p. 822, 274 Cal.Rptr. 820, 799 P.2d 1253; Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 807, 180 Cal.Rptr. 628, 640 P.2d 764.) A policy should not be read as it might be analyzed by an attorney or an insurance expert. (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 271, 203 Cal.Rptr. 672.) This is so even if the policyholder is a sophisticated insured. (AIU, supra, 51 Cal.3d at p. 823, 274 Cal.Rptr. 820, 799 P.2d 1253.)

If particular policy language is ambiguous, it is to be resolved by interpreting the ambiguous provisions in accordance with the insured's objectively reasonable expectations. (Bank of the West v. Superior Court, supra, 2 Cal.4th at pp. 1264-1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.) Only if application of this rule does not resolve the ambiguity will the policy provision be construed in favor of the insured. (Id. at p. 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.)


A. Trigger and Scope of Coverage

Phase III of the coordinated proceedings below concerned the rights and obligations of insurers to indemnify and defend the manufacturers or distributors of asbestos or asbestos products that are, or have been, defendants in tens of thousands of lawsuits brought by persons who claim to have developed disabling and often fatal asbestos-related diseases as a result of exposure to asbestos products many years ago. It bears emphasizing that the issues do not pertain to the legal rights of those suffering from asbestos-related diseases to recover damages from asbestos manufacturers.

The principal issues before the trial court concerned the trigger and scope of coverage under the comprehensive general liability policies for asbestos-related bodily injury claims: What event triggers an insurer's indemnification and defense obligations? And to what extent must policyholders share in the indemnity and defense costs?

In order to resolve these issues, the trial court heard extensive medical testimony and took documentary evidence concerning the pathogenesis of asbestos-related conditions. The trial court artfully described the insidious nature of asbestos: "Asbestos is a naturally occurring mineral which has long been known to man. Its principal use has been as an insulator against heat because it is incombustible in air. It has been used to insulate against heat since approximately 1866 and has been commercially produced since at least 1874. [Citation.] The health problem caused by asbestos is that when it is mined or used in the manufacturing process it produces quantities of asbestos dust composed of millions of tiny fibers which may be inhaled into the body by those working in and around it. Those fibers that avoid the body's initial natural defense mechanisms are deposited in the human lung and remain there. The very quality that has made asbestos useful for so long, its indestructibility, also accounts for the problems that result in asbestos-related disease."

The Medical Evidence

We adopt the trial court's summary of the medical evidence: "Several diseases may result from...

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