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

• Decision Date: 15 November 1993
• Docket Number: A049661,A049665,A049631,A049663,A049672,A049666,Nos. A049419,A049659,A049669,A049664,A049808 and A049875,A049654,A049670,A049667,A049668,A049671,s. A049419
• Citation: 20 Cal.App.4th 296,26 Cal.Rptr.2d 35
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 20 Cal.App.4th 296, 25 Cal.App.4th 1316, 30 Cal.App.4th 1117, 35 Cal.App.4th 192 20 Cal.App.4th 296, 25 Cal.App.4th 1316, 30 Cal.App.4th 1117, 35 Cal.App.4th 192, 62 USLW 2372 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, Respondent, and Appellant, v. COLUMBIA CASUALTY COMPANY et al., Defendants and Appellants.

Page 35

26 Cal.Rptr.2d 35

Previously published at 20 Cal.App.4th 296, 25 Cal.App.4th 1316, 30 Cal.App.4th 1117, 35 Cal.App.4th 192

20 Cal.App.4th 296, 25 Cal.App.4th 1316, 30 Cal.App.4th 1117,

35 Cal.App.4th 192, 62 USLW 2372

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, Respondent, and Appellant, v. COLUMBIA CASUALTY COMPANY et al., Defendants and Appellants.

Nos. A049419, A049631, A049654, A049659, A049661, A049663, A049664, A049665, A049666, A049667, A049668, A049669, A049670, A049671, A049672, A049808 and A049875.

Court of Appeal, First District, Division 1, California.

Nov. 15, 1993.

As Modified on Denial of Rehearing Dec. 13, 1993.

Review Granted Jan. 27, 1994.

Review Transferred to the Court of Appeal, Oct. 19, 1995.

John Endicott, Fred Gregory, Gibson, Dunn & Crutcher, Los Angeles, for appellant Aetna Cas. & Sur. Co.

Nelson C. Barry, Richard Pierce, 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 Cas. Co., and for appellant Columbia Cas. Co.

Marshall Grossman, Frank Kaplan, Alschuler, Grossman & Pines, Los Angeles, Rodney Eshelman, Donald Ramsey, Sarah M. Shields, David M. Rice, Carroll, Burdick & McDonough, San Francisco, Herbert M. Wachtell, David Gruenstein, Wachtell, Lipton, Rosen & Katz, New York City, for appellant and respondent Continental Cas. Co. and for appellants Columbia Cas. Co. and CNA Cas. of California.

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

Jeffrey Kaufman, Peter J. Logan, Michyle A. LaPedis, Jeffrey Gubernick, Kaufman & Logan, San Francisco, for appellant Fireman's Fund Ins. Co.

Robert H. Berkes, Barbara S. Hodous, Bodkin, McCarthy, Sargent & Smith, Los Angeles, for appellant First State Ins. Co.

Martin S. Checov, David Bell, O'Melveney & Myers, San Francisco, John G. Niles, O'Melveney & Myers, Los Angeles, for appellant Ins. Co. of North America.

N. Brooks Weld, Hillsinger & Costanzo, Los Angeles, for appellant Interstate Fire & Cas.

Gerald V. Weigle, Jr., Dinsmore & Shohl, Cincinnati, OH, Frederick D. Baker, Kathleen D. Patterson, Sedgwick, Detert, Moran & Arnold, San Francisco, for appellant Liberty Mut. 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, Thomas McGanney, Richard Sypher, White & Case, New York City, for appellant Pacific Indemnity Co.

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

Philip R. Matthews, Christina Benitez Wilcox, Hancock, Rothert & Bunshoft, San Francisco, for appellants Rokeby-Johnson/Bird & Companies.

Lon Harris, Gary L. Green, Harris & Green, Torrance, for appellants U.S. Fire Ins. Co., Cent. Nat. Ins. Co. of Omaha, and Puritan Ins. Co.

David W. Steuber, Kirk A. Pasich, Martin D. Katz, Glenn Warner, Hill, Wynne, Troop & Meisinger, Los Angeles, for respondent and appellant GAF Corp.

Robert H. Sayler, William Allen, Christina A. Spaulding, William Skinner, Covington & Burling, John E. Heintz, Lisa Latorre, Howrey & Simon, Washington, DC, Cary B. Lerman, Lucy T. Eisenberg, Allison B. Stein, Dennis Brown, Munger, Tolles & Olson, Los Angeles, for respondent Armstrong World Industries.

William R. Irwin, Donald W. Brown, Tom M. Freeman, Thomas M. Peterson, L. Christopher Vejnoska, Laura J. Remington, Edward J. Burke, David E. Weiss, Sara B. Brody, Carol B. Sharp, Brobeck, Phleger & Harrison, San Francisco, for respondent Fibreboard Corp.

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. In Issue Group I we discuss the issues 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; 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.

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.) ²

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.)

Issue Group I: LOST INSURANCE POLICY

In Phase I of this coordinated proceeding, a single jury was impaneled to hear several disputes over missing insurance policies. All but two of the disputes were eventually settled. The first matter decided by the jury was the dispute between Fibreboard Corporation and Pacific Indemnity over the existence and terms of a lost policy, and by special verdict, the jury found that an insurance policy was issued for the period May 4, 1956, to May 4, 1957, with policy limits of $500,000 bodily injury per person and $1 million bodily injury per occurrence but with no aggregate limit. Shortly after rendering its verdict in the dispute between Fibreboard and Pacific Indemnity, the same jury returned to hear a dispute between GAF Corporation and Continental Casualty Company concerning the existence and terms of Continental policy number RD 9972548. By special verdict, the jury found (nine-to-three) that an insurance policy was issued by Continental Casualty but (twelve-to-zero) that the evidence was insufficient to establish that the policy term was, as contended, April 1, 1960, to April 1, 1963. ³

GAF appeals and raises three issues: (1) whether a separate jury should have been impaneled to hear the GAF-Continental trial; (2) whether GAF's proposed instructions and special verdict question should have been given; (3) whether a new trial should have been granted based on newly discovered evidence.

FACTS

The sole evidence of the existence of the missing policy (RD 9972548) was a later policy (RDU 9973220) issued by Continental to GAF's predecessor, Ruberoid Co., Inc., for the policy term April 1, 1963, to April 1, 1966. The declarations page stated that it was a "renewal of number RD 9972548." Three Continental employees testified that the term "renewal of" on a policy meant that the policy was a renewal of the previous policy. Two of the witnesses also testified that mistakes have occurred in labeling a policy a "renewal" instead of a "rewrite."

In 1982, GAF submitted a worker's compensation claim to Continental for which the date of loss (injury) was June 11, 1960. GAF told the Continental claims specialist, James Ferri, that the policy was unavailable. Mr. Ferri then examined the renewal policy and concluded that the missing policy had the same terms; hence, it ran from April 1,...