Fireman's Fund Ins. Co. v. Superior Court

• Decision Date: 24 September 1997
• Docket Number: No. B113595,B113595
• Citation: 67 Cal.Rptr.2d 585,57 Cal.App.4th 1252
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 57 Cal.App.4th 1252 57 Cal.App.4th 1252, 97 Cal. Daily Op. Serv. 7631, 97 Daily Journal D.A.R. 12,252, 98 Daily Journal D.A.R. 8787 FIREMAN'S FUND INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; VICKERS INCORPORATED, Real Party In Interest.

Page 585

67 Cal.Rptr.2d 585

Previously published at 57 Cal.App.4th 1252

57 Cal.App.4th 1252, 97 Cal. Daily Op. Serv. 7631,

97 Daily Journal D.A.R. 12,252,

98 Daily Journal D.A.R. 8787

FIREMAN'S FUND INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent VICKERS INCORPORATED, Real Party In Interest.

No. B113595.

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

Sept. 24, 1997.

Review Granted Dec. 23, 1997.

Caron, McCormick, Constants & Goldberg; Coran, McCormick, Gordon & Constants, Donald W. McCormick and Jeffrey A. Turkell, Glendale, for Petitioner.

Rodi, Pollock, Pettker, Galbraith & Cahill, Tim G. Ceperley, John F. Cermak, Jr., Los Angeles, Cooper, Walinski & Cramer, Joseph P. Thacker and Terrell A. Allen, Toledo, OH, for Real Party In Interest.

No appearance for Respondent.

MIRIAM A. VOGEL, Associate Justice.

In Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1997), 56 Cal. App.4th 204 65 Cal.Rptr.2d 127, Division Two of our Court held that an insurer's duty to defend any "suit" includes a duty to defend an administrative "claim." In the case now before us, we reach the opposite conclusion.

BACKGROUND

From 1971 to 1985, Vickers Incorporated was insured by Fireman's Fund Insurance Company under four comprehensive general liability (CGL) insurance policies, all of which included the following language: "The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... bodily injury or ... property damage to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage ... and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements." ¹ (Emphasis added.)

In 1991 and 1992, the Regional Water Quality Control Board (RWQCB) and the United States Environmental Protection Agency (EPA) notified Vickers that it is a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, 42 U.S.C. § 9601 et seq.) and, as such, potentially liable for the investigation and remediation of soil and groundwater contamination at Vickers' Los Angeles facility. ² There are several orders to the same effect, but no lawsuits have been filed against Vickers by the RWQCB or the EPA (or, for that matter, by any other agency). ³

In May 1991, Vickers notified Fireman's Fund that it had received the notices and demanded a defense in the administrative proceedings. Fireman's Fund denied any obligation to defend on the ground that the agencies' demands were not "suits" within the meaning of the policy. In April 1996, Vickers sued Fireman's Fund (and others) for declaratory relief and damages for breach of contract. After Fireman's Fund answered, Vickers moved for summary adjudication (Code Civ. Proc., § 437c, subd. (f)), asking the trial court to determine that Fireman's Fund "has a duty to defend Vickers against claims asserted against ... Vickers ... by both the RWQCB and the [ ]EPA concerning groundwater contamination at the [s]ite." Fireman's Fund opposed the motion, admitting the facts relevant to this issue (as summarized above) but disputing Vickers' construction of the policy.

Relying on Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp. (9th Cir.1991) 948 F.2d 1507, ⁴ the trial court granted Vickers' summary adjudication motion, holding that the demands, notices and orders were the "functional equivalent" of a "suit" and that, therefore, Fireman's Fund has a duty to defend Vickers "against claims asserted against [it] by the RWQCB and the EPA concerning groundwater contamination at the site." Fireman's Fund then filed a petition for a writ of mandate, asking us to decide, "What is a suit?" By coincidence, Division Two's opinion in Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 56 Cal.App.4th 204, 65 Cal.Rptr.2d 127, had just been filed, answering Fireman's Fund's question in Vickers' favor by holding that "suit" includes a "claim." Not surprisingly, therefore, Vickers suggested the issue was moot. Since we questioned Foster-Gardner's conclusion, we issued an order to show cause with a briefing schedule and set the matter for argument.

DISCUSSION

I. Foster-Gardner

The facts before the court in Foster-Gardner are substantively indistinguishable from our facts. While Foster-Gardner was insured by National Union and others under several CGL policies, the California Environmental Protection Agency notified Foster-Gardner that it was a party potentially responsible for the cleanup of a specified site and ordered Foster-Gardner to conduct an investigation and remediate the contamination. The order was made under the Carpenter-Presley-Tanner Hazardous Substance Account Act (HSAA, Health & Saf.Code, § 25300 et seq.) which (as relevant) is essentially the same as CERCLA in that the order did not "commence either a lawsuit in court or an adjudicative procedure before an administrative tribunal. Instead, it [was] simply an order from an administrative agency." (Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 56 Cal.App.4th at pp. 206, 208-211, 65 Cal.Rptr.2d 127.) Foster-Gardner gave notice to National Union and demanded that it " 'defend' the 'proceedings' commenced" by the order. (Id. at p. 207, 65 Cal.Rptr.2d 127.) Relying on the same policy language now relied on by Fireman's Fund, National Union refused to provide a defense. (Ibid.)

The issue in Foster-Gardner was whether the HSAA proceedings constituted a "suit" as that term is used in the CGL policies. After noting that a "prominent consideration" in deciding this issue is the "prejudice that an insured can suffer before any proceeding is commenced in court" (Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 56 Cal.App.4th at p. 207, 65 Cal.Rptr.2d 127), Division Two explained the conflicting approaches adopted by the courts of other jurisdictions, the two major ones being the "literal meaning" and the "functional equivalent" approaches.

The "literal meaning" approach is illustrated by the decision in City of Edgerton v. General Cas. Co. (1994) 184 Wis.2d 750, 517 N.W.2d 463, where the Wisconsin Supreme Court found no ambiguity in the term "suit," held that the insured's expectations could not be satisfied in contradiction to policy language that clearly identified the scope of coverage, and concluded that "neither a PRP letter nor a comparable notification letter by a state agency ... triggers the insurers' duty to defend" because these notices do not have the "attributes of a 'suit.' " Although the tone of the letters might be confrontational, they do not "by themselves impose liability ... if the [insureds] fail[ ] to respond...." Instead, "something more in the form of a court proceeding would be required to 'force or compel the insured to take action or suffer serious consequences.' " (Id. 517 N.W.2d at pp. 473-475, emphasis omitted; see also Lapham-Hickey Steel v. Protection Mut. Ins. (1995) 166 Ill.2d 520, 211 Ill.Dec. 459, 464, 655 N.E.2d 842, 847; Patrons Oxford Mut. Ins. Co. v. Marois (Me.1990) 573 A.2d 16, 18-20; Ray Industries, Inc. v. Liberty Mut. Ins. Co. (6th Cir.1992) 974 F.2d 754, 761-762.)

The "functional equivalent" approach is illustrated by the decision in Mich. Millers Mut. Ins. v. Bronson Plat. (1994) 445 Mich. 558, 519 N.W.2d 864, where the Michigan Supreme Court held that the term "suit" could refer to "some legal action other than a court proceeding initiated by a complaint" and should be so construed because "a broader definition of the term 'suit' reflects more accurately the modern realities of our legal system [including the use of] less formal and more expeditious means of dispute resolution. This movement has manifested itself in the ... increased authority given to administrative agencies to resolve disputes, so that the functional equivalents of suits brought in a court of law have developed.... [T]his point is particularly valid in the context of CERCLA actions ... where significant legal prejudice may develop if the PRP fails [to comply]." (Id. 519 N.W.2d at pp. 868, 870; see also Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., supra, 948 F.2d at pp. 1516-1517; Hazen Paper v. U.S. Fidelity and Guar. (1990) 407 Mass. 689, 555 N.E.2d 576, 580-581; Coakley v. Maine Bonding and Cas. Co. (1992) 136 N.H. 402, 618 A.2d 777, 786-787; Avondale Industries, Inc. v. Travelers Indem. Co. (2d Cir.1989) 887 F.2d 1200, 1206.)

Foster-Gardner then discusses the "approach of the AIU case," meaning AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 274 Cal.Rptr. 820, 799 P.2d 1253. (Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 56 Cal.App.4th at pp. 224-227, 65 Cal.Rptr.2d 127.) In AIU, our Supreme Court considered whether CERCLA response costs are "damages" within the meaning of the standard CGL policy (the carrier agreed to pay such sums as the insured "shall become legally obligated to pay as damages") and held that, either by the plain meaning of the term or by application of the usual rules governing interpretation of an ambiguous policy term, "damages" includes coverage for most response costs. (AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d at pp. 825-828, 274 Cal.Rptr. 820, 799 P.2d 1253.) ⁵ As viewed by Foster-Gardner, the important part of AIU is the Supreme Court's refusal to interpret "damages" in a " 'technical or restrictive manner,' " which Foster-Gardner understood to be a permissible approach simply because " 'damages' was not defined in the [AIU] policy." (Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 56...