Montrose Chemical Corp. v. Admiral Ins. Co., S026013

Decision Date03 July 1995
Docket NumberNo. S026013,S026013
Citation42 Cal.Rptr.2d 324,10 Cal.4th 645
CourtCalifornia Supreme Court
Parties, 913 P.2d 878, 41 ERC 1714, 64 USLW 2079, 95 Cal. Daily Op. Serv. 5148, 95 Daily Journal D.A.R. 8783 MONTROSE CHEMICAL CORPORATION OF CALIFORNIA, Plaintiff and Respondent, v. ADMIRAL INSURANCE COMPANY, Defendant and Appellant.

Latham & Watkins, David L. Mulliken, Mark E. Newell, Richard A. Conn, Jr., Kristine L. Wilkes, L. Susan Odell and Dorn G. Bishop, Washington, DC, for plaintiff and respondent.

Hill, Wynne, Troop & Meisinger, David W. Steuber, Kirk A. Pasich, Martin

D. Katz, Los Angeles, Heller, Ehrman, White & McAuliffe, Barry S. Levin, Stephen N. Goldberg, Robert D. Fram, Wondie Russell, David B. Goodwin, San Francisco, Sharon C. Corda, Los Angeles, Martha Churchill, Chicago, IL, Thomas & Porrazzo, Michael H. Porrazzo, San Jose, Anderson, Kill, Olick & Oshinsky, Eugene R. Anderson, Jerold Oshinsky, Jordan S. Stanzler, Scott P. DeVries, Paul L. Friman, New York City, Burke, Williams & Sorensen, Harold A. Bridges, Virginia R. Pesola, Rufus C. Young, Jr., Timothy V.P. Gallagher, Los Angeles, Sinsheimer, Schiebelhut & Baggett, Martin P. Moroski, Steven J. Adamski, San Luis Obispo, Paul, Hastings, Janofsky & Walker, David M. Roberts, Keith A. Meyer, Munger, Tolles & Olson, Cary B. Lerman, Los Angeles, Covington & Burling, Robert N. Sayler, Marc S. Mayerson, William F. Greaney, William P. Skinner, Jones, Day, Reavis & Pogue, John W. Cochrane, Timothy B. Dyk, Stephen C. Jones, Edwin L. Fountain, Washington, DC, Brobeck, Phleger & Harrison, William R. Irwin, Donald W. Brown, Tom M. Freeman, David R. McDonald, Thomas M. Peterson, Carol B. Sharp, San Francisco, Eric R. Carleson, Sacramento, Nossaman, Guthner, Knox & Elliott, Kurt W. Melchior, San Francisco, Duke, Gerstel, Shearer & Bregante, Alan R. Johnston, San Diego and Roger Simpson, Los Angeles, as amici curiae, on behalf of plaintiff and respondent.

Wilson, Kenna & Borys, Lawrence Borys, Jeffrey Burt, Los Angeles, Horvitz & Levy, Peter Abrahams and Mitchell C. Tilner, Encino, for defendant and appellant.

Gibson, Dunn & Crutcher, Fred F. Gregory, Deborah A. Aiwasian, Los Angeles, Peterson & Ross, Richard L. Blatt, Robert W. Hammersphar, Bruce M. Engel, Chicago, IL, Crosby, Heafey, Roach & May, Raoul D. Kennedy, Peter W. Davis, James C. Martin, Oakland, Coudert Brothers, Pamela G. Ostrager, Seth A. Ribner, Edward T. Schorr, Julie N. Mack, New York City, Hufstedler, Kaus & Ettinger, John P. Olson, Margot A. Metzner, Thomas J. Ready, Los Angeles, Wiley, Rein & Fielding, Thomas W. Brunner, Laura A. Foggan, James M. Johnstone, James P. Anasiewicz, Washington, DC, Mindlin, Tigerman & Holtzman, Michael

Holtzman, Los Angeles, Drinker, Biddle & Reath, John Chesney, S. Elizabeth Dorn, Lawrence A. Nathanson, Paul H. Saint-Antoine, Philadelphia, PA, Kincaid, Gianunzio, Caudle & Hubert, Patrick J. Hagan, Andrew A. Goode, Oakland, O'Melveny & Myers, Ralph W. Dau, Martin S. Checov, Abigail A. Jones, Katherine W. Pownell, Los Angeles, Gray, York, Duffy, Rattet & Mavridis, John J. Duffy, James B. Sanborn, Encino, Haight, Brown & Bonesteel, Roy G. Weatherup, Rita Gunasekaran, Santa Monica, Kaufman & Logan, Jeffrey Kaufman, San Francisco, Selman, Breitman & Burgess, Neil H. Selman, Los Angeles, Buchalter, Nemer, Fields & Younger, Richard de Saint Phalle, Blaise S. Curet, San Francisco, Orrick, Herrington & Sutcliffe, Robert E. Freitas, Jon B. Streeter, Carl W. Chamberlin, William W. Oxley, Gloria P. Flores, Los Angeles, Carroll, Burdick & McDonough and Donald T. Ramsey, San Francisco, as amici curiae, on behalf of defendant and appellant.

LUCAS, Chief Justice.

In Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230 (Prudential-LMI ), we examined the issue of allocation of indemnity among insurers in a first party property insurance case, where a loss had occurred over several policy periods but was not discovered until several years after it commenced. We found the "manifestation of loss rule" applicable, holding that the insurer insuring the property at the time appreciable property damage becomes manifest is solely responsible for indemnifying the insured once coverage is established. (Id. at p. 699, 274 Cal.Rptr. 387, 798 P.2d 1230.) We expressly reserved the question of what rules should apply in third party liability insurance cases involving continuous or progressively deteriorating damage or injury. We recognized there are substantial analytical differences between first party property and third party liability policies, and cautioned that we were intimating no view as to the application of our decision in either the third party liability or commercial liability (including toxic tort) context. (Prudential-LMI, supra, 51 Cal.3d at pp. 679, 694, 274 Cal.Rptr. 387, 798 P.2d 1230; see also Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 405-408, 257 Cal.Rptr. 292, 770 P.2d 704 (Garvey ).)

In this case we address the issue reserved in Prudential-LMI. Specifically, we must determine whether four comprehensive general liability (CGL) policies issued by defendant and respondent Admiral Insurance Company (Admiral) to plaintiff and appellant Montrose Chemical Corporation of California (Montrose) obligate Admiral to defend Montrose in lawsuits seeking damages for continuous or progressively deteriorating bodily injury and property damage that occurred during the successive policy periods. These losses, it is alleged, were caused by Montrose's disposal of hazardous wastes at times predating the commencement of Admiral's policy periods.

As explained below, we conclude that the standard CGL policy language, such as was incorporated into Admiral's policies in issue in this case, provides coverage for bodily injury and property damage that occurs during the policy period. In the case of successive policies, 1 bodily injury and property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods. Stated in the insurance industry's parlance, we conclude the "continuous injury" trigger of coverage should be adopted for third party liability insurance cases involving continuous or progressively deteriorating losses. 2 In this case, because the potential of coverage arose under Admiral's policies, so too did its duty to defend Montrose in the underlying lawsuits.

As will further be explained, we also conclude, with respect to the "loss-in-progress" rule codified in INSURANCE CODE SECTIONS 223 and 250, that in the context of continuous or progressively deteriorating property or bodily injury losses insurable under a third party CGL policy, as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been established, there is an insurable risk within the meaning of sections 22 and 250 for which coverage may be sought under such a policy.

We shall therefore affirm the judgment of the Court of Appeal reversing the summary judgment granted in favor of Admiral.

I FACTS AND PROCEDURAL BACKGROUND

From 1947 until 1982, Montrose manufactured the pesticide dichloro-diphenyl-trichlorethane (DDT) at its plant in Torrance, California. In 1972, the federal government prohibited all domestic use of DDT. Montrose continued to manufacture the chemical for export at the Torrance facility until the plant closed in 1982.

Between January 1960 and March 1986, seven different carriers, ending with Admiral, furnished CGL policies to Montrose. Admiral issued four policies to Montrose, covering the period from October 13, 1982, to March 20, 1986. The remaining six CGL insurers involved in this litigation are not parties to this appeal. 4 Admiral's policies obligate it to "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...." "Occurrence" is defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

The broad issue before the trial court was whether any of the seven CGL carriers, including Admiral, were obligated to defend Montrose in five actions pending against it in connection with Montrose's disposal of toxic or hazardous wastes at several locations in California. Admiral joined in an interim defense agreement to provisionally fund Montrose's defense (to this date the parties apparently still disagree as to whether such agreement was entered into subject to a complete reservation of rights, a matter of no direct concern in this appeal). When Montrose filed its declaratory relief action, Admiral moved for summary judgment on the issue of its duty to defend given the effective dates and terms of coverage of its policies. The trial court found there was no potential for coverage under Admiral's policies, and thus that Admiral had no duty to defend the liability actions. We next briefly summarize the facts of the underlying actions as established by the evidence submitted in support of, and in opposition to, Admiral's summary judgment motion.

1. The Stringfellow Cases.

In an action initiated in 1983--United States of America, et al. v. J.B. Stringfellow, Jr., et al. (Civ. No. 83-2501 (HLH) C.D.Cal.)--the United States and the State of California sued Montrose and numerous other businesses under the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601 et seq.; hereafter CERCLA), as well as various state environmental law provisions, seeking reimbursement for response costs incurred pursuant...

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