Montrose Chem. Corp. v. Superior Court of L. A. Cnty.

• Decision Date: 06 April 2020
• Docket Number: S244737
• Citation: 9 Cal.5th 215,260 Cal.Rptr.3d 822,460 P.3d 1201
• Court: California Supreme Court
• Parties: MONTROSE CHEMICAL CORPORATION of California, Petitioner, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; Canadian Universal Insurance Company, Inc., et al., Real Parties in Interest.

9 Cal.5th 215
460 P.3d 1201
260 Cal.Rptr.3d 822

MONTROSE CHEMICAL CORPORATION of California, Petitioner,
v.
The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

Canadian Universal Insurance Company, Inc., et al., Real Parties in Interest.

S244737

Supreme Court of California.

April 6, 2020
As Modified May 27, 2020

Latham & Watkins, Brook B. Roberts, John M. Wilson and Drew T. Gardiner, San Diego, for Petitioner.

Morgan Lewis & Bockius, Michel Y. Horton, Los Angeles, Jeffrey S. Raskin, Thomas M. Peterson, San Francisco, Paul A. Zevnik and David S. Cox, Los Angeles, for ITT LLC and Santa Fe Braun, Inc., as Amici Curiae on behalf of Petitioner.

No appearance for Respondent.

Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Julian W. Poon, Jeremy S. Smith, Los Angeles, and Madeleine F. McKenna for Real Parties in Interest Continental Casualty Company, Columbia Casualty Company, American Centennial Insurance Company and Lamorak Insurance Company.

Sinnott, Puebla, Campagne & Curet, Kenneth H. Sumner and Lindsey A. Morgan, San Francisco, for Real Parties in Interest AIU Insurance Company, American Home Assurance Company, Granite State Insurance Company, Landmark Insurance Company, Lexington Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, and New Hampshire Insurance Company.

Sinnott, Puebla, Campagne & Curet, Randolph P. Sinnott, Mary E. Gregory, Los Angeles; Cozen O'Conner and John Daly for Real Party in Interest Zurich International (Bermuda) Ltd.

Duane Morris, Max H. Stern and Jessica E. La Londe, San Francisco, for Real Party in Interest American Centennial Insurance Company.

Craig & Winkelman and Bruce H. Winkelman, Berkeley, for Real Party in Interest Munich Reinsurance America, Inc.

Selman & Breitman, Ilya A. Kosten, Kelsey C. Start; Barbanel & Treuer and Alan H. Barbanel, Los Angeles, for Real Parties in Interest Transport Insurance Company and Lamorak Insurance Company.

Selman & Breitman and Elizabeth M. Brockman, Los Angeles, for Real Party in Interest Federal Insurance Company.

Berkes, Crane, Robinson & Seal, Steven M. Crane and Barbara S. Hodous, Los Angeles, for Real Parties in Interest Continental Casualty Company and Columbia Casualty Company.

Lewis Brisbois Bisgaard & Smith, Peter L. Garchie and James P. McDonald, San Diego, for Real Party in Interest Employers Mutual Casualty Company.

Barber Law Group and Bryan M. Barber, San Francisco, for Real Party in Interest Employers Insurance of Wausau.

McCurdy & Fuller, Kevin G. McCurdy, San Carlos, and Vanci Y. Fuller, Covina, for Real Parties in Interest Everest Reinsurance Company and MT. McKinley Insurance Company.

Chamberlin & Keaster, Chamberlin Keaster & Brockman, Kirk C. Chamberlin, Michael Denlinger, Encino, and Kevin J. Schettig for Real Party in Interest Providence Washington Insurance Company.

Tressler, Linda Bondi Morrison, Irvine, and Ryan B. Luther for Real Party in Interest Allstate Insurance Company.

Archer Norris, Andrew J. King, Walnut Creek, GailAnn Y. Stargardter ; Tressler and Charles R. Diaz, Los Angeles, for Real Parties in Interest Fireman's Fund Insurance Company and National Surety Corporation.

Lewis, Brisbois, Bisgaard & Smith, Jordon E. Harriman, Shannon L. Santos, Los Angeles; Budd Larner and Michael J. Balch for Real Parties in Interest General Reinsurance Corporation and North Star Reinsurance Corporation.

Hinshaw & Culbertson, Thomas R. Beer and Peter J. Felsenfeld, San Francisco, for Real Party in Interest Gerling Konzern Allgemeine Versicherungs-Aktiengesellschaft.

O'Melveny & Myers, Richard B. Goetz, Zoheb P. Noorani, Los Angeles and Michael Reynolds for Real Party in Interest TIG Insurance Company.

McCloskey, Waring, Waisman & Drury and Andrew McCloskey, San Diego, for Real Party in Interest Westport Insurance Corporation.

Simpson Thacher & Bartlett, Peter R. Jordon, Andrew T. Frankel, Deborah Lynn Stein and Tyler Z. Bernstein, Costa Mesa, for Real Parties in Interest Travelers Casualty and Surety Company and The Travelers Indemnity Company.

Covington & Burling, David B. Goodwin, San Francisco, Reynold L. Siemens, Jeffrey A. Kiburtz and Heather W. Habes, Los Angeles, for United Policyholders as Amicus Curiae on behalf of Petitioner.

Opinion of the Court by Kruger, J.

260 Cal.Rptr.3d 825

460 P.3d 1203

9 Cal.5th 221

Montrose Chemical Corporation (Montrose) was sued for causing continuous environmental damage in the Los Angeles

9 Cal.5th 222

area between 1947 and 1982 and subsequently entered into partial consent decrees to resolve various claims. Montrose now seeks to tap its liability insurance to cover amounts it owes in connection with those claims. For each policy year from 1961 to 1985, Montrose had secured primary insurance and multiple layers of excess insurance. This case concerns the sequence in which Montrose may access the excess insurance policies covering this period.

Montrose argues it is entitled to coverage under any relevant policy once it has exhausted directly underlying excess policies for the same policy period. The insurers, by contrast, argue that Montrose may call on an excess policy only after it has exhausted every lower level excess policy covering the relevant years. Reading the insurance policy language in light of background principles of insurance law, and considering the reasonable expectations of the parties, we agree with Montrose: It is entitled to access otherwise available coverage under any excess policy once it has exhausted directly underlying excess policies for the same policy period. An insurer called on to provide indemnification may, however, seek reimbursement from other insurers that would have been liable to provide coverage under excess policies issued for any period in which the injury occurred.

260 Cal.Rptr.3d 826

460 P.3d 1204

I.

We have previously recounted the basic facts underlying this dispute. (See Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 292–294, 24 Cal.Rptr.2d 467, 861 P.2d 1153.) To summarize, Montrose manufactured the insecticide dichloro-diphenyl-trichloroethane (DDT) at its facility in Torrance from 1947 to 1982. In 1990, the United States and the State of California sued Montrose for environmental contamination allegedly caused by Montrose's operation of this facility. Montrose entered into partial consent decrees in which it agreed to pay for environmental cleanup. To meet its obligations, Montrose has now expended millions of dollars—Montrose represents the total is more than $100 million—and asserts that its anticipated future liability could approach or exceed this amount.

Montrose purchased primary and excess comprehensive general liability insurance to cover its operations at the Torrance facility from defendant insurers between 1961 and 1985. Primary insurance refers to the first layer of coverage, whereby "liability attaches immediately upon the happening of the occurrence that gives rise to liability." ( Olympic Ins. Co. v. Employers Surplus Lines Ins. Co. (1981) 126 Cal.App.3d 593, 597, 178 Cal.Rptr. 908.) Excess insurance, by contrast, "refers to indemnity coverage that attaches upon the exhaustion of underlying insurance coverage for a claim." ( County of San Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406, 416, fn. 4, 33 Cal.Rptr.3d 583, 118 P.3d 607.) An

9 Cal.5th 223

excess insurer's coverage obligation begins once a certain level of loss or liability is reached; that level is generally referred to as the "attachment point" of the excess policy. (Rest., Liability Insurance, § 39, com. d, p. 338.) Here, 40 insurers collectively issued more than 115 excess policies during the 1961 to 1985 period, which collectively provide coverage sufficient to indemnify Montrose's anticipated total liability.

Montrose and the insurers, which are the real parties in interest here,¹ agree the dispute before this court presents no issue about the exhaustion of Montrose’s

260 Cal.Rptr.3d 827

primary insurance. Further, the parties have stipulated to the relevant language found in the excess policies.² Specifically, each policy provides that Montrose must exhaust the limits of its underlying insurance coverage before there will be coverage under the policy. The policies describe the applicable underlying coverage in four main ways:

460 P.3d 1205

1. Some policies contain a schedule of underlying insurance listing all of the underlying policies in the same policy period by insurer name, policy number, and dollar amount.

9 Cal.5th 224

2. Some policies reference a specific dollar amount of underlying insurance in the same policy period and a schedule of underlying insurance on file with the insurer.

3. Some policies reference a specific dollar amount of underlying insurance in the same policy period and identify one or more of the underlying insurers.

4. Some policies reference a specific dollar amount of underlying insurance that corresponds with the combined limits of the underlying policies in that policy period.

In a variety of ways, the excess policies also provide that "other insurance" must be exhausted before the excess policy can be accessed. Relevant examples include the following:

• Some policies provide that they will "indemnify the insured for the amount of loss which is in excess of the applicable limits of liability of the [scheduled] underlying insurance," and then define "loss" as "the sums paid as damages in settlement of a claim or in satisfaction of a judgment for which the insured is legally liable, after making deductions for all recoveries, salvages and other insurances (whether recoverable or not) other than the underlying insurance and excess insurance purchased specifically to be in excess of this policy ." (Italics added.)

• Some policies state that the insurer is liable for "the ultimate net loss in excess of the retained limit" and define "retained limit" to mean, among other things, the "total of the applicable limits of the underlying policies listed in [a schedule] [and] the applicable limits of any other underlying

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