County of San Diego v. Ace Property & Casualty Insurance Company

• Decision Date: 19 February 2003
• Docket Number: No. D038707.,D038707.
• Citation: 106 Cal.App.4th 349,131 Cal.Rptr.2d 100
• Court: California Court of Appeals Court of Appeals
• Parties: COUNTY OF SAN DIEGO, Cross-Complainant and Appellant, v. ACE PROPERTY & CASUALTY INSURANCE COMPANY et al., Cross-Defendants and Respondents.

131 Cal.Rptr.2d 100

106 Cal.App.4th 349

COUNTY OF SAN DIEGO, Cross-Complainant and Appellant, v. ACE PROPERTY & CASUALTY INSURANCE COMPANY et al., Cross-Defendants and Respondents.

No. D038707.

Court of Appeal, Fourth District, Division 1.

February 19, 2003.

Review Granted April 23, 2003.

John J. Sansone, County Counsel, William L. Pettingill, Deputy County Counsel; Massie, Berman & Millerick, Michael F. Millerick, San Diego; Latham & Watkins, David L. Mulliken and Christine Gregorski

Rolph, San Diego, for Cross-complainant and Appellant.

Anderson Kill & Olick, Alex D. Hardiman, William G. Passannante; Law Offices of Amy Bach, Amy Bach, San Francisco, for United Policyholders; Zevnik Horton and David S. Cox, Los Angeles, as Amici Curiae for Cross-complainant and Appellant.

Crowell & Moring, Jonathan H. Pittman, Mark D. Plevin; Chapin Shea McNitt & Carter, Edward D. Chapin, San Diego, Maria C. Roberts and Shirley A. Gauvin, San Diego, for Cross-defendants and Respondents.

McCONNELL, J.

In this insurance coverage action, cross-complainant County of San Diego (the County) appeals a judgment entered against it after the trial court granted the summary adjudication and summary judgment motions of cross-defendant Ace Property & Casualty Insurance Company (ACE).¹ The County contends the trial court misinterpreted ACE's nonstandard third party liability policy as not providing coverage for the County's settlements of nonlitigated claims, including an administrative order to remediate groundwater contamination and third party property damage claims arising from the contamination. Specifically, the County asserts (1) the court erred by applying Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 103 Cal. Rptr.2d 672, 16 P.3d 94 (Powerine I), in which our Supreme Court held the term damages in the insuring clause of a standard comprehensive general liability (CGL) policy is limited to sums ordered by a court, and alternatively, (2) the County raised triable issues of fact regarding whether ACE's reservation of rights to deny coverage or other allegedly wrongful conduct allowed the County to protect its interests by settling the claims without ACE's consent and then obtain reimbursement for the settlements. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

ACE issued a nonstandard third party liability policy to the County that was effective between 1974 and 1977.² The policy requires ACE to indemnify the County "for all sums which the insured is obligated to pay by reason of liability imposed by law or assumed under contract or agreement," arising from "damages" caused by personal injuries or the destruction or loss of use of tangible property.

In 1969 the County began operating a solid waste facility known as the Ramona Landfill. The Ramona Landfill overlies potable groundwater, and in 1970 the Regional Water Quality Control Board (the Board) imposed operational requirements on the County.

In March 1997 the Board issued a cleanup and abatement order (CAO 97-17) to the County, which required it to investigate, monitor and remediate groundwater contamination caused by the Ramona Landfill. The County waived a hearing before the Board to challenge imposition of CAO 97-17.

In June 1997 the owners of property (the Sossamans) near the Ramona Landfill complained to the County that groundwater contamination would affect the property's marketability and their physical and mental health. The Sossamans requested that the County purchase their property without the necessity of litigation. The County believed it more likely than not that the Sossamans' property was contaminated. It had the property appraised "and preliminary negotiations including the preparation of necessary transfer documentation was initiated." The Atkinsons, also property owners near the Ramona Landfill, filed a similar claim in 1997.

In November 1997 the County settled the Sossamans' claims by paying them $318,000 for the acquisition of their property and relocation benefits. In December 1998 the County settled the Atkinsons' claims by paying them $259,500 for the acquisition of their property and relocation benefits.

In May 1997 the County began seeking indemnification from ACE for costs of complying with CAO 97-17. ACE reserved its right to deny coverage on numerous grounds, including the absence of a third party lawsuit. In September 1997 the County began seeking indemnification from ACE for the Sossaman and Atkinson claims. Regarding these claims, none of the correspondence between the County and ACE is included in the appellate record. In any event, ACE never indemnified the County for any of the settlements.

The County then filed a cross-complaint against ACE in a declaratory relief action brought against the County by another of its insurers, Pacific Indemnity Company (Pacific).³ The County's first amended cross-complaint included causes of action for declaratory relief, express indemnity, breach of contract and breach of the implied covenant of good faith and fair dealing. In the breach of contract cause of action, the County alleged ACE breached its duty to indemnify the County for losses it incurred in complying with CAO 97-17 and in settling the Sossaman and Atkinson claims. In its cause of action for breach of the implied covenant of good faith and fair dealing, the County alleged, among other things, that Ace failed to "attempt [ ] in good faith to effectuate a prompt, fair and equitable settlement of the County's claims for indemnification although liability had become reasonably clear" and failed "to pay indemnification benefits to the County pursuant to said claims."

In an affirmative defense to the cross-complaint, ACE alleged it had no duty to indemnify the County for sums incurred in complying with CAO 97-17 and in settling the Sossaman and Atkinson claims, because the term damages in the coverage clause of the policy is limited to sums imposed by a court of law. The County moved for summary adjudication on this affirmative defense. The court granted the motion, determining the "language of the policy suggests a reasonable interpretation that the County need not suffer a judgment before [ACE's] duty to indemnify takes effect."

ACE moved for reconsideration of the ruling on the County's motion for summary adjudication, based on Powerine I, supra, 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94, in which the court held the term damages in the insuring clause of a standard CGL policy is restricted to sums imposed by a court of law. On the same ground, ACE also moved for summary adjudication of its duty to indemnify the County for its expenses of complying with CAO 97-17.

On reconsideration, the trial court denied the County's motion for summary adjudication. The court granted ACE's motion for summary adjudication of its duty to indemnify the County for cleanup expenses. The court determined that despite the nonstandard nature of the ACE policy, under Powerine I, supra, 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94, ACE's duty of indemnity was limited to sums imposed by a court of law.

The County then moved for reconsideration of the court's order granting ACE's motion for summary adjudication. ACE moved for summary judgment regarding its duty to reimburse the County for the Sossaman and Atkinson settlements. The court reconsidered its ruling in favor of ACE, but on the merits denied the County any relief. The court granted ACE's motion, explaining "[t]here is no duty to indemnify [the] County for the so-called `private property expenses' (purchase and moving expenses) because they were not `money ordered by a court.'" Judgment was entered for ACE on July 20, 2001.

DISCUSSION

I Standard of Review

"The insurer is entitled to summary adjudication that no potential for indemnity exists . . . if the evidence establishes as a matter of law that there is no coverage. [Citation.] We apply a de novo standard of review to an order granting summary judgment when, on undisputed facts, the order is based on the interpretation or application of the terms of an insurance policy." (Smith Kandal Real Estate v. Continental Casualty Co. (1998) 67 Cal. App.4th 406, 414, 79 Cal.Rptr.2d 52.)

II Rules of Policy Interpretation

"While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. [Citation.]" (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264, 10 Cal.Rptr.2d 538, 833 P.2d 545.) "The rules governing policy interpretation require us to look first to the language of the contract . . . to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it. [Citations.]" (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619.) "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. . . . `Such an intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" [citations], controls judicial interpretation. [Citation.]' [Citations.]" (Ibid.)

"Ambiguity exists when an insurance policy provision is susceptible to two or more constructions that are reasonable and not based on strained interpretations." (Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 737, 15 Cal. Rptr.2d 815.) Standing alone, the absence of a definition in the policy for a term does not render it ambiguous. (Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Ins. Co. (1993) 5 Cal.4th 854, 866, 21 Cal. Rptr.2d 691, 855 P.2d 1263.) "`[Language in a contract must be construed in the context of that instrument as a whole,...