IMCERA Group, Inc. v. Liberty Mutual Ins. Co.

• Decision Date: 01 March 1996
• Docket Number: No. B079031,B079031
• Citation: IMCERA Group, Inc. v. Liberty Mutual Ins. Co., 50 Cal.Rptr.2d 583, 42 Cal.App.4th 1754 (Cal. App. 1996)
• Court: California Court of Appeals
• Parties: Previously published at 42 Cal.App.4th 1754, 47 Cal.App.4th 699 42 Cal.App.4th 1754, 47 Cal.App.4th 699, 96 Cal. Daily Op. Serv. 1434, 96 Daily Journal D.A.R. 2495 IMCERA GROUP, INC., Plaintiff and Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant and Appellant.

Page 583

50 Cal.Rptr.2d 583

Previously published at 42 Cal.App.4th 1754, 47 Cal.App.4th 699

42 Cal.App.4th 1754, 47 Cal.App.4th 699,

96 Cal. Daily Op. Serv. 1434,

96 Daily Journal D.A.R. 2495

IMCERA GROUP, INC., Plaintiff and Appellant, v.LIBERTY MUTUAL INSURANCE COMPANY, Defendant and Appellant.

No. B079031.

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

March 1, 1996.

Certified for Partial Publication ^*.

As Modified on Denial of Rehearing March 29, 1996.

Review Granted May 22, 1996.

Review Dismissed and Remanded June 11, 1997.

Sidley & Austin, Amy L. Applebaum, Lee L. Auerbach, Los Angeles, and Robert A. Downing, Chicago, IL, for Plaintiff and Appellant.

Grace, Skocypec, Cosgrove & Schirm, Ronald J. Skocypec, Susan T. Olson, Lisa M. Kralik, Los Angeles, Liberty Mutual Insurance Company and John P. McGann, Boston, MA, for Defendant and Appellant.

MASTERSON, Associate Justice.

INTRODUCTION

PlaintiffIMCERA Group, Inc.("IMCERA") owned property in Santa Clara, California, on which it operated a chemical manufacturing and processing facility from 1934 until 1979, when it sold the property.In 1988, the new owner of the property sued IMCERA, among others, alleging that IMCERA had discharged hazardous substances onto the soil throughout its period of ownership.During many, but not all, of those years IMCERA had purchased insurance, both primary and excess, to cover its operations.It tendered the defense of the action to several of the insurers, who declined to provide a defense.IMCERA then retained counsel and defended the action, which was ultimately settled.IMCERA spent approximately $3.3 million in defending the action and settled the case by paying $4.8 million and agreeing to assume full responsibility for all future cleanup costs, estimated to be several million dollars.

Before the settlement, IMCERA filed this action against the insurers, seeking a declaration of its rights to defense costs and indemnity (i.e., the cost of the settlement).The trial court, in a bench trial, found that four primary insurers were liable for defense costs and that one of those four carriers, Liberty Mutual Insurance Company("Liberty"), was also liable for indemnity.None of the excess carriers was found liable.

As to defense costs, the trial court ruled that IMCERA did not have to bear any portion of such costs with respect to time periods when it was uninsured.The court then apportioned defense costs among the four primary insurers based on the total number of years that each insurer had a duty to defend.Because Liberty had a duty to defend for the greatest number of years, it was liable for over half of the defense costs.As to the costs of indemnity, the trial court found that Liberty was liable for approximately $1.75 million of the settlement.IMCERA and Liberty have appealed from the judgment, challenging various rulings of the trial court.

In the published portion of this opinion, we conclude that Liberty had a duty to defend IMCERA under certain of its policies--those which provided potential coverage for the underlying litigation.However, the trial court erred in concluding that the language of the policies required the insurers to bear defense costs as to property damage that occurred when IMCERA was not insured.We find that IMCERA is responsible for defense costs, if any, which Liberty can prove were attributable to uninsured damage.The trial court also erred in apportioning defense costs among the insurers based on the number of years that each carrier had a duty to defend.Rather, the court should have applied the "other insurance" provisions in the policies and required the primary insurers to contribute equally to defense costs.Finally, the trial court did not properly assess the reasonableness of the attorneys' fees IMCERA incurred in the underlying litigation.

In the unpublished portion of the opinion, we conclude that Liberty was not liable for the costs of indemnity and that it is not entitled to an offset under Code of Civil Procedure section 877 for post-judgment settlements between IMCERA and other insurers.

BACKGROUND

IMCERA's property, known as the Agnew site, consisted of 29.77 acres adjacent to the Guadalupe River in the City of Santa Clara, California.IMCERA's predecessor-in-interest, Commercial Solvents Corporation("CSC"), owned the site from 1934 to 1975, at which time IMCERA acquired all of CSC's outstanding stock.CSC was eventually merged into IMCERA.¹IMCERA owned the property until 1979.

IMCERA operated a chemical manufacturing, processing, drumming, and storage facility at the Agnew site.Operations at the facility included the denaturing of alcohol and the production of metaldehyde (snail bait), phenolformaldehyde, and various alcohol-based chemicals and solvents.Drumming operations included the filling, storage, and transfer of containers ranging in size from a single pint to 55-gallon drums.Beginning in 1972, several tenants leased portions of the site and engaged in chemical storage and drumming activities.

In 1979, IMCERA sold the property to Kimball Small Properties ("Kimball").Seven years later, Kimball sold the property to Prometheus Development Company, Inc.("Prometheus"), which intended to build a residential complex on the site.In 1988, during the excavation phase of the construction, Prometheus found discolored and odorous soils on the property.The testing of soil and groundwater samples disclosed the presence of numerous contaminants.In March 1989, the State of California issued a remedial action order to initiate cleanup of the site.

A.The Underlying Litigation

In July 1988, Prometheus filed a complaint in the United States District Court for the Northern District of California, alleging several causes of action against IMCERA, Kimball, and others based on the contamination of the site.²Prometheus also filed a related action in the Superior Court of Santa Clara County.

In the federal action, Prometheus alleged in its original complaint that IMCERA had "operated one or more ... chemical processing plants on the property at various times in the years 1934 to 1979" and had "released onto the property ... certain hazardous substances, including, but not limited to, chlorinated solvents, volatile aromatic compounds, polynuclear aromatics, phthalates and heavy hydrocarbons."These "hazardous substances" were allegedly present "in the soil, groundwater and the ambient environment."Pursuant to CERCLA, Prometheus sought to recover the costs "to abate the release and threatened release of hazardous substances on the property."

In its cause of action for "negligent disposal," Prometheus alleged that, before 1987, IMCERA had negligently generated, manufactured, stored, and/or transported hazardous substances which were released onto the property.Finally, in its fraudulent concealment claim, Prometheus alleged that Kimball had fraudulently misrepresented the condition of the property at the time of sale by stating that the site was suitable for residential development and that any hazardous substances had been successfully remediated.Prometheus later added a claim alleging that IMCERA had fraudulently concealed the presence of contaminants when it sold the property to Kimball.

In August and September 1988, after service of process, IMCERA notified Liberty and certain other insurers of the existence of the Prometheus litigation and requested that they provide a defense.None of the insurers did so.IMCERA then selected counsel and paid for its own defense.

In May 1991, the defendants in the Prometheus litigation, including IMCERA, reached a global settlement of the federal and state court lawsuits.IMCERA paid approximately $4.8 million out of a total settlement by all defendants of $7.5 million.It also agreed to assume responsibility for all future cleanup costs, estimated to be several million dollars.IMCERA incurred approximately $3.3 million in attorneys' fees and costs in defending the Prometheus litigation.

B.The Present Action

In September 1990, before settling the Prometheus lawsuits, IMCERA filed this declaratory relief action against numerous insurers, seeking to determine its rights to defense costs and indemnity under various primary and excess insurance policies.IMCERA eventually amended the complaint to add a cause of action for breach of contract.

The trial court granted summary judgment to most of the excess insurers.Only three excess carriers--Liberty, Certain Underwriters at Lloyd's London ("Lloyd's"), and The Home Insurance Company("Home Insurance")--proceeded to trial.³The trial court found that there were no excess costs during any year in which an excess policy was applicable and accordingly entered judgment in favor of Lloyd's and Home Insurance.None of the trial court's rulings with respect to the excess insurers is challenged on this appeal.

As to the four primary insurers, National Union Fire Insurance Company("National Union") settled before trial, leaving three primary carriers: Liberty, International Insurance Company("International"), and The Home Indemnity Company("Home Indemnity").⁴International and Home Indemnity settled with IMCERA after trial, so only one insurer, Liberty, is before us on appeal.We therefore turn to the provisions of the Liberty policies relating to primary coverage.

C.The Liberty Policies

Under a series of comprehensive general liability policies, Liberty insured IMCERA from June 30, 1947, through January 1, 1976.⁵

1.The Lost Policies

The Liberty policies covering the period June 30, 1947, through June 30, 1960, were lost.Neither IMCERA nor Liberty had copies of them.Accordingly, IMCERA attempted to establish coverage under these policies through secondary evidence, specifically, through Liberty documents called "national risk coverage bulletins."Although the bulletins indicate the types of coverage under each policy by listing subject matter...