San Diego v. Ace Property & Cas. Ins.

• Decision Date: 29 August 2005
• Docket Number: No. S114778.,S114778.
• Citation: 118 P.3d 607,37 Cal.4th 406,33 Cal.Rptr.3d 583
• Court: California Supreme Court
• Parties: COUNTY OF SAN DIEGO, Cross-complainant and Appellant, v. ACE PROPERTY & CASUALTY INSURANCE COMPANY et al., Cross-defendants and Respondents.

33 Cal.Rptr.3d 583

37 Cal.4th 406

118 P.3d 607

COUNTY OF SAN DIEGO, Cross-complainant and Appellant, v. ACE PROPERTY & CASUALTY INSURANCE COMPANY et al., Cross-defendants and Respondents.

No. S114778.

Supreme Court of California.

August 29, 2005.

John J. Sansone, County Counsel, William A. Johnson, Jr., and William L. Pettingill, Deputy County Counsel; Massie, Berman & Millerick, LaSala & Millerick, Michael F. Millerick; Latham & Watkins, David L. Mulliken and Christine G. Rolph, San Diego, for Cross-complainant and Appellant.

Anderson Kill & Olick, Alex D. Hardiman, William G. Passannante; Law Offices of Amy Bach and Amy Bach, Mill Valley, for United Policyholders as Amicus Curiae on behalf of Cross-complainant and Appellant.

Zevnik Horton and David S. Cox, Los Angeles, for ITT Industries, Inc., and Rayonier, Inc., as Amici Curiae on behalf of Cross-complainant and Appellant.

Daley & Heft, Solano Beach, and Margaret A. Hendrick, for California State Association of Counties as Amicus Curiae on behalf of Cross-complainant and Appellant.

Stanzler Funderburk & Castellon, Jordan S. Stanzler and William W. Funderburk, Jr., San Francisco, for California Cast Metals Association as Amicus Curiae on behalf of Cross-complainant and Appellant.

Crowell & Moring, Jonathan H. Pittman, Mark D. Plevin, Washington, DC; Chapin Shea McNitt & Carter, Edward D. Chapin, Maria C. Roberts, Shirley A. Gauvin, San Diego; Berman & Aiwasian and Deborah A. Aiwasian, Los Angeles, for Cross-defendants and Respondents.

Wiley Rein & Fielding, Laura A. Fogan, 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 Cross-defendants and Respondents.

Hancock Rothert & Bunshoft, Patrick A. Cathcart, William J. Baron and Kathryn C. Ashton, San Francisco, for London Market Insurers as Amicus Curiae on behalf of Cross-defendants and Respondents.

BAXTER, J.

INTRODUCTION

In this matter we must determine whether a nonstandard "excess" third party liability policy issued by Ace Property & Casualty Insurance Company (Ace) to the County of San Diego (County) affords indemnity coverage for expenses incurred by the County in responding to an administrative agency order requiring it to remediate environmental contamination, and for sums expended by the County to settle related third party property damage claims outside the context of a lawsuit.

In Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94 (Powerine I), we held that under the wording of the standard primary comprehensive general liability (CGL) policy, the term "damages" limits the insurer's indemnification obligation to "money ordered by a court," i.e., a money judgment entered against the insured in a third party suit for damages. (Id. at pp. 960, 964, 103 Cal.Rptr.2d 672, 16 P.3d 94.) We went on to conclude that the duty to indemnify does not extend to the costs of complying with a governmental agency's environmental cleanup and abatement orders because such administratively imposed liabilities do not constitute "money ordered by a court." (Id. at p. 966, 103 Cal.Rptr.2d 672, 16 P.3d 94.)

The central insuring provision in the policy at issue here likewise obligates Ace to indemnify the County for all sums the insured becomes obligated to pay by reason of liability imposed by law for "damages" resulting from the destruction or loss of use of tangible property. The trial court concluded that the term "damages" is controlling and limits the indemnification obligation in the policy to court-ordered money judgments in the same way this court concluded the term circumscribes the scope of coverage under the standard primary CGL policy examined in Powerine I. The Court of Appeal agreed with the trial court's reasoning and affirmed its judgment. For reasons to follow, we agree with the lower courts' interpretation of the operative term "damages" in Ace's nonstandard policy. Accordingly, we shall affirm the judgment of the Court of Appeal.

We reach a contrary conclusion in another decision also filed today—Powerine Oil Company, Inc. v. Superior Court (Central National Insurance Company of Omaha) (Aug. 29, 2005, S113295) ___ Cal.4th ___, 33 Cal.Rptr.3d 562, 118 P.3d 589(Powerine II)—because the literal insuring language of the excess/umbrella policies at issue in that case is materially different than the insuring language in the Ace excess policy and the standard primary CGL policy considered in Powerine I.

FACTUAL AND PROCEDURAL BACKGROUND

The County as cross-complainant appealed from a judgment entered against it after the trial court granted the summary adjudication and summary judgment motions of cross-defendant Ace.¹ The County contended that the trial court misinterpreted ACE's nonstandard excess third party liability policy as not providing coverage for the County's settlements of nonlitigated claims, including an administrative order to remediate groundwater contamination and third party property damage claims arising from the contamination. Specifically, the County asserted that the trial court erred by applying Powerine I, supra, 24 Cal.4th 945, 103 Cal.Rptr.2d 672, 16 P.3d 94, in which this court held that the term "damages" in the insuring clause of the standard CGL policy is limited to "money ordered by a court." (Id. at pp. 960, 964, 103 Cal.Rptr.2d 672, 16 P.3d 94.)

The ACE policy here in issue is commonly referred to in insurance industry parlance as a nonstandard or "manuscript form" policy. (See Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2004) § 3:38, p. 3-7.) It was in effect from 1974 through 1977. The policy requires Ace to indemnify the County "for all sums which the insured is obligated to pay by reason of liability imposed by law or assumed under contract or agreement," arising from "damages" caused by personal injuries or the destruction or loss of use of tangible property. Additional pertinent policy provisions are set forth and discussed in detail below.

The following factual background was set forth in the opinion of the Court of Appeal. In 1969 the County began operating a solid waste facility known as the Ramona Landfill. The Ramona Landfill overlies potable groundwater, and in 1970 the Regional Water Quality Control Board (Regional Water Board) imposed operational requirements on the County.

In March 1997, the Regional Water Board issued a cleanup and abatement order to the County, requiring it to investigate, monitor and remediate groundwater contamination caused by the Ramona Landfill. The County waived a hearing before the board to challenge imposition of the remedial cleanup order.

In June 1997, the owners of property (the Sossamans) near the Ramona Landfill complained to the County that groundwater contamination would affect the property's marketability and their physical and mental health. The Sossamans requested that the County purchase their property without the necessity of litigation. The County believed it more likely than not that the Sossamans' property was contaminated. It had the property appraised "and preliminary negotiations including the preparation of necessary transfer documentation [were] initiated." The Atkinsons, also property owners near the Ramona Landfill, filed a similar claim in 1997.

In November 1997, the County settled the Sossamans' claims by paying them $318,000 for the acquisition of their property and relocation benefits. In December 1998, the County settled the Atkinsons' claims by paying them $259,500 for the acquisition of their property and relocation benefits.

In May 1997, the County began seeking indemnification from Ace for costs of complying with the remedial cleanup order. Ace reserved its right to deny coverage on numerous grounds, including the absence of any third party lawsuit. In September 1997, the County began seeking indemnification from Ace for the Sossaman and Atkinson claims. Regarding these claims, none of the correspondence between the County and Ace is included in the appellate record. Ace never indemnified the County for any of the settlements.

The County then filed a cross-complaint against Ace in a declaratory relief action brought against the County by another of its insurers, Pacific Indemnity Company.² The County's first amended cross-complaint included causes of action for declaratory relief, express indemnity, breach of contract and breach of the implied covenant of good faith and fair dealing. In the breach of contract cause of action, the County alleged Ace breached its duty to indemnify the County for losses it incurred in complying with the Regional Water Board's remedial cleanup order and in settling the Sossaman and Atkinson claims. In its cause of action for breach of the implied covenant of good faith and fair dealing, the County alleged, among other things, that Ace failed to "attempt[] in good faith to effectuate a prompt, fair and equitable settlement of the County's claims for indemnification although liability had become reasonably clear" and failed "to pay indemnification benefits to the County pursuant to said claims."

In an affirmative defense to the cross-complaint, Ace alleged it had no duty to indemnify the County for costs incurred in complying with the remedial cleanup order or settling the Sossaman and Atkinson claims because the controlling term "damages" in the insuring clause of the policy limited coverage to money judgments imposed against the insured in a court of law. The County moved for summary adjudication on this affirmative defense. The trial court initially granted the County's motion, determining that the "language of the policy suggests a reasonable interpretation that the County need not suffer a judgment before [Ace's] duty to indemnify takes effect."

Ace moved for reconsideration of the ruling on the...