Stonewall Ins. Co. v. City of Palos Verdes Estates

• Decision Date: 15 May 1992
• Docket Number: B045183,Nos. B023805,s. B023805
• Citation: 9 Cal.Rptr.2d 663,13 Cal.App.4th 226
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 13 Cal.App.4th 226, 18 Cal.App.4th 1234, 23 Cal.App.4th 989, 29 Cal.App.4th 98, 34 Cal.App.4th 244, 7 Cal.App.4th 309 13 Cal.App.4th 226, 18 Cal.App.4th 1234, 23 Cal.App.4th 989, 29 Cal.App.4th 98, 34 Cal.App.4th 244, 7 Cal.App.4th 309 STONEWALL INSURANCE COMPANY, an Alabama Corporation, Plaintiff, Appellant and Respondent, v. CITY OF PALOS VERDES ESTATES, etc., et al., Defendants, Appellants and Respondents.

Page 663

9 Cal.Rptr.2d 663

Previously published at 13 Cal.App.4th 226, 18 Cal.App.4th 1234, 23 Cal.App.4th 989, 29 Cal.App.4th 98, 34 Cal.App.4th 244, 7 Cal.App.4th 309

13 Cal.App.4th 226, 18 Cal.App.4th 1234, 23 Cal.App.4th 989,

29 Cal.App.4th 98, 34 Cal.App.4th 244,

7 Cal.App.4th 309

STONEWALL INSURANCE COMPANY, an Alabama Corporation, Plaintiff, Appellant and Respondent, v. CITY OF PALOS VERDES ESTATES, etc., et al., Defendants, Appellants and Respondents.

Nos. B023805, B045183.

Court of Appeal, Second District, Division 7, California.

May 15, 1992.

As Modified on Denial of Rehearing June 11, 1992.

Review Granted Aug. 27, 1992.

Review Transferred to the Court of Appeal, Oct. 19, 1995.

Wilson, Kenna & Borys and Robert L. Wilson, Los Angeles, for respondent and cross-appellant Stonewall Ins. Co.

Burke, Williams & Sorensen and Douglas C. Holland, Acting City Atty., Brian A. Pierik, Deputy City Atty., Los Angeles, Wise, Wiezorek, Timmons & Wise and George E. Wise and Michael J. Pearce Provizer, Lichtenstein, Pearlman & Phillips and Noel F. Beck, Southfield, Mich., Bell & Weissman and Garland O. Bell, Jr., Pasadena, for defendant, appellant and cross-defendant Jefferson Ins. Co. of New York.

Long Beach, for appellant and respondent City of Palos Verdes Estates.

Hillsinger & Costanzo and John H. Walsh, San Diego, for defendant and appellant Admiral Ins. Co.

Knapp, Petersen & Clarke and K. Stephen Tang, Glendale, Nelsen, Tang, Thompson, Pegue, Thornton & Spurling, Los Angeles, for defendant, appellant, cross-complainant and cross-defendant Puritan Ins. Co.

Roper & Folino and John B. Larson and Joseph L. Stark, Los Angeles, for Maine Bonding and Cas. Co.

Cotkin, Collins & Franscell and Joan M. Dolinsky and Lori S. Blitstien, Los Angeles, for respondent Canadian Indem. Co.

Black, Compean, Hall & Lenneman and Robert H. Black and Michael D. Compean, Los Angeles, for respondent Cent. Mut. Ins. Co.

Haight, Brown & Bonesteel and Harold H. Brown, Gary C. Ottoson, Roy G. Weatherup, Michael J. Leahy, J.R. Seashore, Denis J. Moriarty, Jules S. Zeman and Caitlin D. Berfield, Santa Monica, for defendant, cross-complainant, cross-defendant, and respondent Fireman's Fund Ins. Companies.

Sedgwick, Detert, Moran & Arnold and Scott M. Kolod, Los Angeles, for respondent Cent. Nat. Ins. Co. of Omaha.

Keesal, Young & Logan and Robert D. Feighner and E. Scott Douglas, Long Beach, for defendant and respondent Employers Reinsurance Corp.

THOMPSON, Associate Justice, Assigned. ^*

In an underlying action against the City of Palos Verdes Estates (the City) charging negligence, nuisance and inverse condemnation Michael T. Papworth was successful on all theories charged. The jury awarded Papworth $1,188,946 as damages for negligence and nuisance and $1,881,621 as compensation for inverse condemnation, all arising out of a continuous and repeated course of conduct of the City from 1971 into 1981. Judgment was entered for the latter amount. Pending appeal the Papworth matter was settled by payment of $1,600,000 accompanied by a stipulation confirmed in a court order which vacated the judgment "for all purposes." The settlement was funded by $350,000 paid by the City, $300,000 contributed by The Jefferson Insurance Company of New York (Jefferson) which was the City's primary carrier in the period November 1, 1975 until November 1, 1978, and $950,000 contributed by Stonewall Insurance Company (Stonewall) which was its excess carrier for the period November 1, 1976 until November 1, 1977. Other insurers of the City whose policies covered the period of continuous and repeated exposure refused to participate in the settlement.

The two actions which give rise to this appeal followed. The City filed suit against all of its insurers who had issued primary or excess liability policies in the period 1971 through 1983. The City's action asserts joint and several liability for breach of contract of all of its primary and excess liability insurance carriers over the period and seeks recovery of the $350,000 it paid to settle the Papworth claim less a $1,000 deductible. It also seeks damages for bad faith of some of the insurers for failure to settle the Papworth claim. Stonewall filed a contemporaneous action against the City and the other liability insurance carriers. The Stonewall suit contests its liability and seeks recoupment of the $950,000 paid by Stonewall to fund the settlement. This suit and cross complaints filed by the other insurers also seek a declaration of the relative liability, if any, of each of the issuers of liability insurance to the City during the period of exposure to harms resulting from the City's conduct The trial court first consolidated the two actions. Later it bifurcated the proceedings and deferred action in what it denominated "Phase II" dealing with the City's bad faith claims until after determination of the remaining issues in "Phase I." In Phase I the trial court held that the City's liability was covered by insurance save for $53,000 in deductibles and allocated liability for this coverage equally to Jefferson and Admiral Insurance Company (Admiral) which had issued policies the court deemed primary covering the period November 1, 1975 to July 1, 1980. Stonewall was exonerated from liability and adjudged entitled to recover from Jefferson and Admiral the $950,000 it had paid on the theory that as an excess carrier Stonewall had no obligation to indemnify the City until the City's primary insurance was exhausted. Carriers who had issued policies covering periods prior to September 2, 1976 were exonerated because of the trial court's interpretation of the Government Claims Act. Carriers after February 1, 1980 were exonerated because of the trial court's determination that this date, having been stipulated in the Papworth action as the date of taking in inverse condemnation, fixed the time when the Papworth property was a total loss.

and apportionment of the liability among the insurers.

While Phase II has not been tried, appeals from the trial court's judgment in Phase I are now before us. We directed a letter to the parties requesting additional briefing on the question of the appealability of the Phase I judgment in view of the pendency of Phase II of the instant case. All parties who responded argue that the appeal should go forward. As we explain below we accept as correct the parties' argument that the Phase I judgment is appealable.

Fundamental to the determination of the correctness of the trial court's judgment in Phase I are questions to which there are not easy answers. These include: (1) the coverage contracted by successive insurers over a period of years of liability of the insured resulting from continuous and repeated exposure to harms to property; (2) the application of deductible provisions to this coverage; (3) the point at which risk is no longer contingent so to be uninsurable; (4) the effect of a claim filed under the Government Claims Act upon contingency; (5) the effect of the stipulation in the Papworth action fixing the date of taking for purposes of inverse condemnation upon insurance coverage; (6) the impact of inverse condemnation exclusions in policies of comprehensive liability or municipal liability insurance where the involved inverse condemnation is founded in negligence and nuisance; (7) the effect of the limitations bar of the Government Claims Act on the liability of insurers whose policy periods cover occurrences at times when harm to property was occult rather than manifest; (8) the relative liability of the primary and excess insurers who are involved over the period; and (9) the relative liability of primary insurers covering the loss.

We recognize that many of these issues are susceptible to more than one resolution, that at present some are the subject of conflicting appellate court authority, and that the resolution of some of the issues is public policy influenced. Some of these questions are now pending in the Supreme Court as the result of its grant of review in Montrose Chemical Corporation of America v. Admiral Insurance Company (1992), 3 Cal.App. 4th 1511 review granted May 21, 1992 (S026013). Respectfully suggesting that grant of review in this case along with Montrose will contribute to certainty of California law by expanding consideration beyond the area of liability insurance coverage for toxic pollution involved in Montrose, we reach the conclusions which follow. We note instances of conflict in the current decisional law and in some instances note arguments in opposition to our conclusions to aid our Supreme Court's consideration of whether review is appropriate.

1. While Court of Appeal decisions are in conflict on the issue, where liability insurance coverages are of an "occurrence within the policy period" "occurrence" is defined to include "continuous or repeated exposure to conditions which result in property 2. While there may be a good argument to the contrary, respect for stare decisis counsels that for the purpose of determining applicable deductibles the City is entitled to select primary policies which cover its risk and to be subjected only to the deductibles in these policies.

damage", and action by the insured [18 Cal.App.4th 257] periodically and consistently over the period contributes to eventual damage all insurers who are on the risk during the period of continuous or repeated exposure are obligated to indemnify the insured for liability as a consequence of the damage which results.

3. While Court of Appeal opinions are also in conflict on the point, Insurance Code sections 22 and 250 limiting insurability to liability resulting from a contingent or unknown event, past or future, should be construed as follows. So long as liability from the damage causing event is contingent or unknown, liability is insurable. Insurance policy language, such as that present here, which excludes from the definition of occurrence...