Powerine Oil Co., Inc. v. Superior Court

• Decision Date: 29 August 2005
• Docket Number: No. S113295.,S113295.
• Court: California Supreme Court
• Parties: POWERINE OIL COMPANY, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent, Central National Insurance Company of Omaha et al., Real Parties in Interest.

33 Cal.Rptr.3d 562

37 Cal.4th 377

118 P.3d 589

POWERINE OIL COMPANY, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent, Central National Insurance Company of Omaha et al., Real Parties in Interest.

No. S113295.

Supreme Court of California

August 29, 2005.

Heller, Ehrman, White & McAuliffe, David B. Goodwin, Esta L. Brand, San Francisco; Isola Bowers, David R. Isola and Aaron R. Bowers, Lodi, for Petitioner.

Weston, Benshoof, Rochefort, Rubalcava & MacCuish and Richard Giller, Los Angeles, for United Policyholders as Amicus Curiae on behalf of Petitioner.

Morgan, Lewis & Bockius, Michel Y. Horton, David S. Cox, Los Angeles, and Andrea C. Okura, for ITT Industries, Inc., as Amicus Curiae on behalf of Petitioner.

No appearance for Respondent.

O'Melveny & Myers, Richard B. Goetz, Martin S. Checov, Carlos E. Needham, Eric Y. Kizirian, Los Angeles; Berman & Aiwasian, Los Angeles, and Ray Tamaddon, for Real Party in Interest Central National Insurance Company of Omaha.

Hancock Rothert & Bunshoft, William J. Baron, Kathryn C. Ashton, San Francisco, and Patrick A. Cathcart, Los Angeles, for London Market Insurers as Amicus Curiae on behalf of Real Party in Interest Central National Insurance Company of Omaha.

Wiley, Rein & Fielding, Laura A. Foggan, John C. Yang, Paul J. Haase, Los Angeles; Sinnott, Dito, Moura & Puebla, Randolph P. Sinnott and John J. Moura, Los Angeles, for Complex Insurance Claims Litigation Association as Amicus

Curiae on behalf of Real Party in Interest Central National Insurance Company of Omaha.

No appearance for Real Parties in Interest Century Indemnity Company, ACE Property and Casualty Company and Pacific Employers Insurance Company.

BAXTER, J.

INTRODUCTION

Powerine Oil Company (Powerine), a now defunct oil refinery, faces liability for certain governmentally imposed cleanup and abatement orders requiring it to remediate soil and groundwater pollution resulting from its past refinery operations at various locations. In Certain Underwriters at Lloyd's of London v. Superior Court (Powerine Oil Company) (2001) 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94 (Powerine I), an earlier writ proceeding in the instant case, we held that the insurer's duty to indemnify Powerine, the insured, for "all sums that the insured becomes legally obligated to pay as damages" under the wording of the standard comprehensive general liability (CGL) insurance policy is limited to "money ordered by a court," and does not extend to environmental cleanup costs ordered by an administrative agency pursuant to an environmental statute. (Id. at p. 960, 103 Cal.Rptr.2d 672, 16 P.3d 94.) This conclusion flowed logically both from the literal language of the standard CGL policy, which provides coverage for court-ordered "damages," and from our earlier decision in Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 77 Cal.Rptr.2d 107, 959 P.2d 265 (Foster-Gardner), which held that the insurer's duty to defend the insured in a "suit seeking damages" under the wording of the same standard CGL policy is likewise limited to civil suits prosecuted in court. (Id. at pp. 878-888, 77 Cal.Rptr.2d 107, 959 P.2d 265.)

In this matter, following on the heels of the earlier writ proceeding, we are called upon to decide whether the obligation of another insurer to indemnify Powerine under the wording of nine excess/umbrella insurance policies is likewise limited to money ordered by a court in a suit for damages against the insured. The Court of Appeal concluded it is not, reasoning that the insuring language of the excess/umbrella policies here in question is broader than that of the standard primary CGL policy at issue in Powerine I, and covers costs that the insured must expend in complying with an administrative agency's pollution cleanup and abatement orders. For reasons to be explained, we agree. Although other policy provisions or exclusion clauses yet to be litigated could ultimately defeat coverage as this litigation progresses, the express wording of the central insuring agreement in these nine excess/umbrella policies goes well beyond mere coverage for court-ordered money "damages," and is broad enough to include coverage for the liability of environmental cleanup and response costs ordered by an administrative agency. Under a literal reading of these policies, we conclude such would be the objectively reasonable expectation of the insured. Accordingly, we shall affirm the judgment of the Court of Appeal directing the trial court to deny the insurer's motion for summary adjudication of the duty to indemnify.

FACTS AND PROCEDURAL BACKGROUND

The parties have stipulated to the underlying facts. The issue before the lower courts and now this court is one of law, and involves the interpretation of the insuring provisions of nine standard form excess/umbrella policies issued by real party in interest Central National Insurance Company of Omaha (Central National) to Powerine over the course of 10 years.

Powerine, through its various owners, was periodically engaged in oil refinery operations in Southern California since the mid-1930's. These included oil refining, oil- and petroleum-related exploration, production, terminaling and transportation operations throughout the western states. At one point Powerine's business occupied over 100 acres at its Santa Fe Springs refinery. In 1985, however, a soft petroleum market forced Powerine into bankruptcy. Since that time, the refinery has not been operated at all and only a skeleton crew of employees has remained for environmental compliance and equipment maintenance purposes.

As a result of its operations, Powerine faces governmentally imposed environmental liabilities arising from alleged soil and groundwater contamination at various locations. The California Regional Water Quality Control Boards for the Los Angeles and San Diego regions (Regional Water Boards) initiated remedial administrative proceedings against Powerine pursuant to an environmental statute, the Porter-Cologne Act. (Wat.Code, § 13000 et seq.) Two cleanup and abatement orders were issued to Powerine requiring it to remediate pollution resulting from its past oil refinery operations at 10 locations. It is undisputed that these orders were not issued as a result of litigation or as part of an injunction. Cleanup and abatement order No. 97-118, issued by the Los Angeles Regional Water Board, allegedly followed negotiations and a series of compromises between Powerine and that Regional Water Board concerning the scope of the order and the nature and extent of investigative activities to be undertaken thereunder. As of the date of the proceedings in the Court of Appeal, Powerine had not incurred any expenses pursuant to either order.

Powerine notified its many insurers of the orders, giving rise to a declaratory relief action against it. (Highlands Insurance Company v. Powerine, etc., et al., Super. Ct. L.A. County, No. VC025771.) Powerine cross-complained against numerous insurers, including certain London Market underwriters which had issued both primary CGL and excess/umbrella policies, and real party in interest Central National, which had issued nine excess/umbrella policies covering periods from 1973 to the expiration of the last policy in February 1983.¹ The cross-complaint alleged that each insurer had a contractual duty to defend and indemnify Powerine for the costs of cleanup and abatement arising from the environmental orders issued by the Regional Water Boards, and sought, inter alia, declaratory relief and damages for breach of contract and of the covenant of good faith and fair dealing.

While the declaratory relief action and cross-complaint were pending, this court decided Foster-Gardner, supra, 18 Cal.4th 857, 77 Cal.Rptr.2d 107, 959 P.2d 265, holding that under the standard CGL policy defense clause language, no duty to defend arises in connection with prelitigation administrative proceedings as it does when a "suit seeking damages" is commenced through the filing of a complaint in court. (Id. at pp. 878-88, 77 Cal.Rptr.2d 107, 959 P.2d 265.) Consequently, the primary insurers in this action (Certain Underwriters at Lloyds of London, hereafter the London Market Insurers) moved for summary adjudication of their duty to defend and duty to indemnify costs resulting from the Regional Water Boards' administrative proceedings and issuance of cleanup and abatement orders under the Porter-Cologne Act.² When the trial court denied the motion, the primary insurers petitioned for a writ of mandate in the Court of Appeal. That court ordered the issuance of a writ directing entry of an order granting the primary insurers' summary adjudication motion on the duty to indemnify.³ As noted, this court affirmed in Powerine I, supra, 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94, holding that the primary insurers had no duty to indemnify Powerine for costs or expenses incurred in connection with the Porter-Cologne administrative proceedings because the insurer's duty to indemnify under the standard CGL policy language is limited to money ordered by a court in a suit for damages. (Id. at pp. 960, 964, 103 Cal.Rptr.2d 672, 16 P.3d 94.)

After Powerine I was decided, Central National moved for summary adjudication of the duty to indemnify under the Central National policies, resulting in the judgment giving rise to the instant writ proceeding. In its motion, Central National sought an order that, pursuant to Powerine I and Foster-Gardner, it has no duty to indemnify Powerine under its excess/umbrella policies for any sums expended by Powerine in connection with the Regional Water Boards' proceedings because no money had been ordered by a court in a suit for damages against the insured within the meaning of those policies. Powerine in turn argued that this court's holding in Powerine I was not controlling because the earlier writ proceeding involved only primary...