Legacy Vulcan Corp. v. Superior Court, B215713.
| Decision Date | 30 April 2010 |
| Docket Number | No. B215713.,B215713. |
| Court | California Court of Appeals Court of Appeals |
| Parties | LEGACY VULCAN CORP., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Transport Insurance Company, Real Party in Interest. |
Covington & Burling, Donald W. Brown, Wendy L. Feng, San Francisco, and Stephen E. George for Petitioner.
No appearance for Respondent.
Duane Morris, Ray L. Wong, Paul J. Killion, Michael J. Dickman, San Francisco, and Cyndie M. Chang, Los Angeles, for Real Party in Interest.
In this case, we consider the nature of an insurer's defense obligations under a policy of liability insurance that provides both "excess" and "umbrella" coverage. In addition, we discuss the scope and extent of an insurer's duty to defend in spite of a "retained limit" on the insurer's duty to indemnify.
Legacy Vulcan Corp. (Vulcan) petitioned this court for a writ of mandate, challenging a pretrial order that decided three stipulated legal questions concerning the scope of the duty to defend under a liability insurance policy issued by Transport Insurance Company (Transport). The trial court concluded that the policy provided both excess and umbrella coverage, butthat, for purposes of the duty to defend, Transport's obligations were limited to those of an excess insurer. Specifically, the trial court concluded that a duty to defend could arise under the terms of the policy only upon the exhaustion of all underlying insurance. It also held that a duty to defend could arise only upon a showing that the claims were "actually covered" under the policy.
We conclude that the umbrella coverage was primary coverage and that the existence of a duty to defend with respect to that coverage did not depend on the exhaustion of any underlying insurance. The term "underlying insurance," as used in the provision establishing a duty to defend with respect to the umbrella coverage, is ambiguous; it must be interpreted in Vulcan's favor to encompass only the underlying policies described in a schedule attached to the Transport policy, rather than all of the collectible primary insurance available to Vulcan. Moreover, Vulcan need not show that the claims were actually covered under the Transport policy in order to establish a duty to defend with respect to the primary coverage provided by the umbrella provision, but need only show a potential for coverage.
[1] We also conclude that a "retained limit" or "self-insured retention" provision in a policy providing primary coverage relieves the insurer of the duty to provide an immediate, "first dollar" defense only if the policy expressly so provides. Thus, Vulcan need not have incurred a liability in excess of the "retained limit" described in the Transport policy before the insurer's duty to defend could arise. We therefore will grant the petition.
Vulcan manufactured and sold perchloroethylene. Transport issued liability insurance policies to Vulcan for several years, including an Excess Catastrophe Liability Policy effective from January 1, 1981, to January 1, 1982. Under the terms of that policy, Transport agreed to indemnify Vulcan for the "ultimate net loss in excess of the retained limit" that Vulcan became legally obligated to pay as damages because of personal injury, property damage or advertising injury. Transport also agreed to defend any lawsuit "seeking damages on account of such personal injury, property damage or advertising injury, even if any of the allegations of the suit are groundless," if certain conditions were satisfied.
The insuring agreement stated, in relevant part:
The declarations stated that the retained limit was "Underlying Insurance" or:
"ITEM 3. $100,000 because of personal injury, property damage or advertising injury arising out of any one occurrence not within the terms of coverage of underlying insurance but within the terms of the coverage of this insurance."
The policy stated further under the heading "RETAINED LIMIT-THE COMPANY'S LIMIT OF LIABILITY" that Transport's limit of liability was the "ultimate net loss in excess of the Insured's retained limit defined as the greater of:
"Ultimate net loss" was defined in the policy, generally, as the amount actually paid or payable for Vulcan's liability, excluding "all loss expenses and legal expenses," such as attorney fees. The term "underlying insurance" was undefined. A policy endorsement, however, set forth a Schedule of Underlying Insurance (entitled Schedule A) listing several insurance policies and stating the limits of liability for each policy.
The policy stated under the heading "Other Insurance":
The City of Modesto and others sued Vulcan in three actions, alleging that use of perchloroethylene by the dry cleaning industry had resulted in environmental contamination. Vulcan tendered its defense to several insurers, but none provideda defense. Vulcan paid for its own defense and settled the lawsuits.
[2] Transport filed a complaint against Vulcan for declaratory relief as to the parties' rights and obligations under the policy. Transport alleges in its complaint that it agreed to defend Vulcan under the terms of the policy only as to losses that were actually covered under the policy and only if and after Vulcan established a right of indemnity.4 Other insurers commenced a separate action by filing another complaint against Vulcan for declaratory relief.5 The trial court consolidated the two actions and designated the consolidated case as complex. Vulcan filed a cross-complaint against Transport and other insurers for breach of contract and declaratory relief.
Vulcan and Transport stipulated that the trial court could decide specified legal questions before trial. The first question concerned the meaning of the phrase in clause (1) "within the terms of coverage of this insurance." The second focused on the meaning of the term "underlying insurance," which was used in several provisions of the policy. The third related to the application of the principles of horizontal exhaustion with respect to Transport's duty to defend.
The trial court answered those questions as follows:
(1) The trial court stated further: "...
The trial court explained that clause (1) was an umbrella provision and clause (2) an excess provision. The court stated that absent an express provision to the contrary, an excess insurer has no duty to defend unless the primary coverage has been exhausted. The Transport policy provided indemnity coverage only in excess of the underlying insurance, and Vulcan's liability could be "within the terms of coverage of this insurance," as stated in clause (1), only after the exhaustion of the underlying insurance. The court further stated, "[u]nder the Court's reading of the Insuring Agreement, the requirement that the underlying suit...
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