Montrose Chemical Corp. v. Superior Court, No. S024390

• Court: United States State Supreme Court (California)
• Writing for the Court: PANELLI; LUCAS; KENNARD
• Citation: 24 Cal.Rptr.2d 467,861 P.2d 1153,6 Cal.4th 287
• Parties: , 861 P.2d 1153, 37 ERC 1989 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.
• Docket Number: No. S024390
• Decision Date: 22 November 1993

Page 467

24 Cal.Rptr.2d 467 6 Cal.4th 287, 861 P.2d 1153, 37 ERC 1989 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. No. S024390. Supreme Court of California,
In Bank. Nov. 22, 1993.

Page 468

[6 Cal.4th 291] [861 P.2d 1154] Latham & Watkins, David L. Mulliken, Richard A. Conn, Jr., Kristine L. Wilkes, Donna J. Williams, Daniel E. Butcher and Michael G. Romey, San Diego, for petitioner.

Munger, Tolles & Olson, Cary B. Lerman, Charles D. Siegal and Kristin A. Linsley, Los Angeles, amici curiae on behalf of petitioner.

No appearance for respondent.

Peter W. Davis, Oakland, Barry Ostrager, New York City, Coudert Brothers, Douglas L. Hallett, William M. Samoska, Manfried H. Stucki, Los Angeles, Boornazian, Jensen & Garthe, Charles I. Eisner, Alan E. Swerdlow, Oakland, O'Melveny & Myers, Ralph W. Dau, H. Douglas Galt, Mindlin, Tigerman & Holtzman, Michael Holtzman, Los Angeles, Drinker Biddle & Reath, John Chesney, Richard T. Buchanan, Philadelphia, PA, Jeffrey A. Pott, Wilson, Kenna & Borys, Lawrence Borys, Jeffrey Burt, Los Angeles, Buchalter, Nemer, Fields, & Younger, Marcus M. Kaufman, Adrienne F. Millican and Cheryl A. Orr, Newport Beach, for real parties in interest.

Hufstedler, Kaus & Ettinger, Thomas J. Ready, Los Angeles, Wiley, Rein & Fielding, Christopher D. Cerf, Laura A. Foggan, Washington, DC, and William A. McGrath, San Diego, as amici curiae on behalf of real parties in interest.

PANELLI, Justice.

This declaratory relief action presents issues relating to the scope of a liability insurer's duty to defend its insured in an underlying third party lawsuit. The parties before us--carriers who issued comprehensive general liability (CGL) policies and the pesticide manufacturer to which the policies were sold--disagree on the proper

Page 469

[861 P.2d 1155] use of extrinsic evidence in determining the scope of the defense duty and the nature of the parties' respective burdens on motions for summary adjudication of defense obligations. We conclude that evidence extrinsic to the underlying complaint can defeat as well as generate a defense duty, and that summary adjudication of the defense duty follows the same procedural rules as those applicable in any other type of litigation. Because the Court of Appeal correctly applied the law in this case, we affirm the judgment.

6 Cal.4th 292

FACTUAL AND PROCEDURAL BACKGROUND

From 1947 to 1982, Montrose Chemical Corporation of California (Montrose) manufactured the pesticide dichloro-diphenyl-trichlorethane (DDT) at its facility in Torrance, California. During the 1960's conservationists began to raise serious concerns about the effect of DDT on the environment (see, e.g., Carson, The Silent Spring (1963)), and in 1972 the federal government prohibited its use within this country. Montrose continued to manufacture DDT for export at the Torrance facility until it closed the plant in 1982.

In 1990 the United States and the State of California sued Montrose in the United States District Court for the Central District of California under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. § 9607 et seq.) (CERCLA). (United States, et al. v. Montrose Chemical Corporation of California, et al. (U.S.Dist.Ct.C.D.Cal.), 1990, No. CV 90-3122-AAH (JRx).) The CERCLA action alleges that Montrose's operation of its Torrance facility caused environmental contamination that damaged land, water, and wildlife in the Los Angeles Harbor and neighboring waters. CERCLA imposes liability without fault on present and former owners of hazardous waste disposal sites, transporters of hazardous wastes, and those who arrange for the transport and disposal of hazardous wastes. (42 U.S.C. § 9607(a).) The complaint does not allege that Montrose intentionally caused the alleged contamination. Montrose is also named as a defendant in a cross-complaint filed by the Los Angeles County Sanitation District. The cross-complaint alleges that Montrose's operations at the Torrance facility resulted in property damage over a lengthy period, for which Montrose should be held liable on theories of strict liability and negligence.

Montrose had purchased liability insurance from various carriers ¹ to cover its operations at the Torrance facility from 1960 to 1986. The carriers issued to Montrose CGL policies in which they promised to defend it against "any suit ... seeking damages on account of bodily injury or property damage, even if any of the allegations of the suit are groundless, false, or fraudulent." The carriers also agreed to indemnify Montrose for "bodily injury or property damage ... caused by an occurrence." "Property damage" was defined as "injury to or destruction of tangible property which results during the policy period." "Occurrence" was defined as "an accident, including continuous or repeated exposure to conditions which results in ... property [6 Cal.4th 293] damage neither expected nor intended from the standpoint of the insured...."

Soon after the filing of the original complaint in the CERCLA action, Montrose gave notice to the carriers and requested that they provide it with a defense pursuant to their policies. Each carrier either denied coverage and declined to defend, or conditioned an offer of a defense on terms Montrose contends were inconsistent with applicable law. ²

Page 470

[861 P.2d 1156] Montrose brought a declaratory relief action against the carriers, seeking a declaration that each owed a duty to defend in the federal action and cross-complaint. The carriers denied they owed a duty to defend; each asserted a number of affirmative defenses, including exclusions contained in the various policies.

Montrose moved for summary adjudication of the insurers' duty to defend. It argued that under Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168, it was entitled as a matter of law to have its insurers defend the underlying CERCLA action because the allegations of the complaint, along with the terms of the CGL policies, created a potential for liability, thus triggering a duty to defend. The insurers countered that Montrose had failed to establish that it was entitled to summary adjudication, and that extrinsic evidence revealed a triable issue of fact regarding whether a potential for liability existed, thus defeating Montrose's motion for summary adjudication of the insurers' defense duty.

The trial court denied Montrose's motion. It found that Montrose had failed to make a prima facie showing that the CERCLA action created a potential for coverage, reasoning that Montrose could not simply rely on the allegations of the third party's complaint, which were "neutral" regarding whether the alleged contamination was caused by an "occurrence" within the meaning of the policies or by Montrose's regular business practices (which the trial court evidently viewed as outside the concept of "occurrence"). Absent an affirmative evidentiary showing that the contamination alleged in the CERCLA complaint resulted from an accident or occurrence, the trial court concluded, Montrose could not show a potential for coverage. The trial court also found that the insurers had adduced extrinsic evidence creating a triable issue of fact as to whether the CERCLA complaint alleged acts within the policies' coverage. According to the trial court, the evidence, if believed, [6 Cal.4th 294] could support the inference that the alleged contamination resulted from Montrose's deliberate business management practices rather than from an accident or occurrence; therefore, summary adjudication was inappropriate.

Montrose sought relief by writ in the Court of Appeal. That court first summarily denied Montrose's petition and then, following our order retransferring the cause, granted relief. The Court of Appeal concluded that Montrose had made a prima facie showing of potential liability under the policies. While agreeing with the insurers that facts extrinsic to the underlying complaint may defeat as well as trigger a duty to defend, the Court of Appeal concluded that the insurers' extrinsic evidence did no more than put in dispute whether the acts alleged in the underlying complaint would eventually fall within one or more of the exceptions to the policies' coverage. Such a dispute, the court reasoned, could not defeat the potential for coverage that Montrose had established, and so could not eliminate the duty to defend.

We granted review. ³

Page 471

6 Cal.4th 295

[861 P.2d 1157]

DISCUSSION

Recently we had occasion to restate the familiar principles governing adjudication of the insurer's duty to defend. In Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 17 Cal.Rptr.2d 210, 846 P.2d 792 (Horace Mann ), we observed: "[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. (Gray v. Zurich Insurance Co. [supra, 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168 (Gray) ].) As we said in Gray, 'the carrier must defend a suit which potentially seeks damages within the coverage of the policy.' (Id. at p. 275, 54 Cal.Rptr. 104, 419 P.2d 168, italics in original.) Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. [Citations.]" (Horace Mann, supra, 4 Cal.4th at p. 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.)

"The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy. (Gray, supra, 65 Cal.2d at p. 276, 54...