Certain Underwriters v. Superior Court

• Decision Date: 25 October 1999
• Docket Number: No. B129909.,B129909.
• Citation: 89 Cal.Rptr.2d 706,75 Cal.App.4th 1038
• Court: California Court of Appeals Court of Appeals
• Parties: CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, et al., Petitioners, v. SUPERIOR COURT of the State of California for the County of Los Angeles, Respondent. Powerine Oil Company, Inc., et al., Real Parties in Interest.

89 Cal.Rptr.2d 706

75 Cal.App.4th 1038

CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, et al., Petitioners, v. SUPERIOR COURT of the State of California for the County of Los Angeles, Respondent.

Powerine Oil Company, Inc., et al., Real Parties in Interest.

No. B129909.

Court of Appeal, Second District, Division 3.

October 25, 1999.

As Modified October 27, 1999.

Review Granted February 16, 2000.

Hancock, Rothert & Bunshoft, Patrick A. Cathcart, Robert J. Zapf and Jo-Ann Horn Maynard, Los Angeles, for Petitioners.

No appearance for Respondent.

Isola & Bowers, David R. Isola and Aaron L. Bowers, Acampo, for Real Party in Interest Powerine Oil Company.

O'Melveny & Myers, Richard B. Goetz, Los Angeles; Wiley, Rein & Fielding, Washington, DC, John Dunfee; Sinnott, Dito, Moura & Puebla, Randolph P. Sinnott, Los Angeles; Greines, Martin, Stein & Richland, Irving H. Greines, Beverly Hills, as Amici Curiae on behalf of Petitioner; and, upon the request of the Court of Appeal.

Heller, Ehrman, White & McAuliffe, Robert S. Venning, David B. Goodwin, Esta L. Brand, San Francisco; Bill Lockyer, Attorney General, Timothy R. Patterson, Deputy Attorney General; Nossaman, Guthner, Knox & Elliott, Scott P. DeVries; Heller, Ehrman, White & McAuliffe, David B. Goodwin, San Francisco; Zevnik, Horton, Guibord, McGovern, Palmer & Fognani, Michel Y. Horton, Los Angeles; Latham & Watkins, Dorn G. Bishop, William C. Tayler, San Diego, Jill N. Willis; Troop, Steuber, Pasich, Reddick & Tobey, Kirk A. Pasich, Los Angeles; City of Oakland Board of Port Commissioner, David L. Alexander, Port Attorney; Irell & Manella, Los Angeles, Thomas W. Johnson, Jr., Newport Beach, as Amici Curiae on behalf of Real Parties in Interest; and, upon the request of the Court of Appeal.

CROSKEY, J.

In this case of first impression, the petitioners, Certain Underwriters at Lloyd's of London and Certain London Market Insurance Companies ("Certain Underwriters") seek to overturn the order of the trial court which denied, in part, their motion for summary adjudication.

In Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, mod. at 19 Cal.4th 253e, 77 Cal.Rptr.2d 107, 959 P.2d 265 ("Foster-Gardner") the Supreme Court recently held that a liability insurer's promise to defend a "suit" did not create a duty to defend administrative environmental proceedings no matter how coercive or determinative of the insured's ultimate liability for toxic cleanup and environmental remediation. Certain Underwriters relied upon that decision to support their argument to the trial court that they likewise had no duty to indemnify their insured, real party in interest herein, the Powerine Oil Company, Inc. ("Powerine"), and therefore Powerine's Second Amended Cross-Complaint seeking a judgment declaring its right to such relief from its several insurers could be summarily adjudicated in favor of Certain Underwriters. The trial court was not persuaded.

However, in reliance upon the holding and reasoning of Foster-Gardner, and settled principles of policy interpretation, we conclude otherwise. We hold that Certain Underwriters' promise, in their primary policy, to indemnify Powerine for all sums for which it becomes "legally obligated" to pay "as damages" because of "property damage" resulting from covered acts, necessarily refers to an obligation established by the judgment of a court of law; an insured could not have an objectively reasonable expectation that such coverage promise extended to coercive administrative environmental orders issued against the insured which have not been reduced to a legal judgment or equitable decree. We therefore will grant the requested writ relief.

FACTUAL AND PROCEDURAL BACKGROUND¹

Powerine was engaged in the oil refining business for approximately 60 years. Through its predecessor, Rothschild Oil, it commenced oil refining operations in Santa Fe Springs, California, in the mid-1930's. Over the years it expanded those operations and by the late 1970's Powerine's business occupied over 100 acres and employed over 500 people. In addition, Powerine also engaged in oil and petroleum-related exploration, production, terminating and transportation operations throughout the western states. However, in approximately 1985, a soft petroleum market resulted in a significant financial reversal, eventually forcing Powerine into bankruptcy. Ultimately, it divested itself of all of its operations except for its refinery in Santa Fe Springs. Even so, that refinery has only been periodically operated between 1986-1995. Since the latter date, it has not been operated at all, and only a skeleton crew of employees has remained, primarily for environmental compliance and equipment maintenance purposes.

This litigation arises from certain administrative environmental proceedings which were commenced against Powerine in 1985 by the California Regional Water Quality Control Board ("CRWQCB").² The record reflects, and Powerine does not dispute, that over the years of its operations substantial soil and groundwater contamination occurred as the result of the leakage of jet fuel, gasoline and other petroleum products from its pipelines, storage facilities, and refinery operations. In 1985, the CRWQCB for the Los Angeles Region issued Cleanup and Abatement Order ("CAO") No. 85-17 against Powerine which required it to conduct a sub-surface investigation of its Santa Fe Springs refinery to detect and assess conditions of soil and groundwater contamination.

Subsequently, the CRWQCB for the San Diego Region issued CAO No. 92-01 which required Powerine to investigate and abate soil and groundwater contamination at, and emanating from, its San Diego storage facility. A third CAO, No. 97-118, was issued in August of 1997 by the CRWQCB for the Los Angeles Region. This order required Powerine to investigate and clean up, or otherwise abate, the effects of soil and groundwater contamination originating from its refinery and its interconnecting network of underground pipelines.³

In addition to these orders issued by the CRWQCB, Powerine also has received two separate potentially responsible party ("PRP") notices from the federal Environmental Protection Agency ("EPA")⁴ relating to the (1) Waste Disposal, Inc. Superfund Site (a 43-acre site in Santa Fe Springs, to which Powerine had sent waste products for dumping) and (2) Operating Industries, Inc. Superfund Site (a 190-acre former landfill located in Monterey Park which had accepted solid and liquid industrial hazardous wastes and municipal trash during the period 1948 to 1984, to which Powerine sent waste products beginning in 1974).⁵

In view of the very substantial exposure which these environmental claims presented, Powerine turned to its several insurers and tendered defense of the pending administrative proceedings. It appears that each of the insurers denied coverage and (with one exception) denied a defense. One of those insurers, Highlands Insurance Company, filed this action on November 18, 1997 seeking a declaratory judgment with respect to the coverage issue. Powerine responded with a cross-complaint⁶ against all of its insurers, including Certain Underwriters.⁷ In that pleading, Powerine also sought a declaratory judgment resolving the coverage issue; in addition, Powerine sought a damage recovery for breach of contract, breach of the implied covenant of good faith and fair dealing and unfair competition. (Bus. & Prof. Code, § 17200 et seq.)

On December 23, 1998, Certain Underwriters responded to Powerine's cross-complaint with a motion for the summary adjudication of four separate issues (referred to henceforth as, respectively, Issues 1, 2, 3, and 4):

1. "Underwriters do not owe Cross-Complainant, Powerine Oil Company ("Cross-Complainant") a `duty to defend' or a `duty to indemnify' under `primary' policy number LAB 2579, because Cross-Complainant's Second-Amended Complaint alleges no `suit' which triggers Underwriters' duty to defend, and because no `damages' within the meaning of that policy have been ordered by a court against Cross-Complainant.

2. "Underwriters do not owe Cross-Complainant a `duty to defend' under `excess' and `umbrella' policy numbers LA 62213, 36098, ST 12754, V 21649 and 12732, because Underwriters have no duty to defend under those policies."

3. "Underwriters do not owe Cross-Complainant a `duty to indemnify' under `excess' and `umbrella' policy numbers LA 62213, 36098, ST 12764, V 21649 and 12732, because no `damages' within the meaning of those policies have been ordered by a court against Cross-Complainant, and there has been no adjudication that Cross-Complainant has become `legally obligated to pay as damages' any claims allegedly covered by those policies."

4. "The only claims at issue in this lawsuit are the administrative cleanup, remediation and investigation orders identified in the Second Amended Complaint as the `Environmental actions'"

The record reflects that Certain Underwriters had issued to Powerine during the relevant period one primary liability policy, four excess policies, and one umbrella policy. Because Powerine concedes that Foster-Gardner precludes any claim against Certain Underwriters under any of the policies for a defense, the only issue with which we will be concerned is whether Certain Underwriters owed Powerine a duty to indemnify it for its costs and expenses incurred in complying with the various administrative environmental cleanup and remediation orders. Therefore, the relevant portions of the insuring clauses of the six policies may be economically summarized as follows:

1. Primary Policy No. LAB 2579 (3-year policy commencing 5/1/58).

"Coverage D. Property Damage Liability-Except Automobile. To pay on behalf of the Assured all sums which the Assured shall become legally obligated to pay as damages because of injury to or destruction of property ... irrespective of whether such damages are imposed by law or assumed...