Ameron Int'l Corp. v. Ins. Co. Of The State Of Pa.

AMERON INTERNATIONAL CORPORATION, Plaintiff and Appellant,

v.INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA et al Defendants and Respondents.

AMERON INTERNATIONAL CORPORATION, Plaintiff and Appellant,

v.HARBOR INSURANCE COMPANY, Defendant and Respondent.

S153852

Ct.App. 1/5 A109755

Ct. No. 419929

Ct.App. 1/5 A112856

SUPREME COURT OF CALIFORNIA

Filed: November 18, 2010

This court has defined the term "suit" in a comprehensive general liability (CGL) insurance policy as "a court proceeding initiated by the filing of a complaint." (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 887 (Foster-Gardner). Foster-Gardner declined to include an environmental agency's pollution remediation order in that definition, and so wefound the insured business was not entitled to coverage under its CGL policy for its cleanup liability. (Id. at pp. 860-861, 864.) Here, in a case involving numerous primary, excess, and umbrella insurance policies, we must decide the narrow question: Is a federal administrative adjudicative proceeding before an administrative law judge of the former United States Department of Interior Board of Contract Appeals (IBCA), ¹ which involved 22 days of trial, numerous witnesses, and substantial evidence, a "suit" for purposes of the duty to defend and potential insurance coverage under those policies that do not define the term "suit." This quasi-judicial adjudicative proceeding, employed to resolve government demands against insured parties, is a "suit" as a reasonable insured would understand that term. We therefore conclude that Foster-Gardner's rule does not apply here and reverse the Court of Appeal's judgment to the extent it held otherwise.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant Ameron International Corporation (Ameron) is based in Pasadena, California, and incorporated under the laws of the State of Delaware. Respondent insurers (respondents) are 11 insurance companies that provided Ameron with primary CGL coverage as well as excess/umbrella policies between 1978 and 1995.² Beginning in 1975, the United States Department of the Interior's Bureau of Reclamation (Bureau) contracted with Peter Kiewit Sons' Company (Kiewit) for the fabrication and installation of concrete siphons used in the Bureau's Central Arizona Project aqueduct. Kiewit then subcontracted manufacture of the siphons to Ameron, requiring it to defend and indemnify Kiewit in the event the siphons proved defective. Kiewit is an insured under Ameron's insurance policies.

In 1990, the Bureau discovered defects in the siphons that required their replacement at a cost of approximately $116 million. In 1992, the Central Arizona Water Conservation District filed an action against Ameron in federal district court in Arizona for its responsibility in providing the defective siphons. Ameron provided respondents with timely notice of that action, which was eventually dismissed. An appeal in the Ninth Circuit Court of Appeals also was dismissed, and is not a subject of the present coverage action.

In 1995, the Bureau's contracting officer issued two final decisions finding Kiewit responsible for the siphons' defects and seeking almost $40 million in damages from Kiewit and Ameron.³ Under the terms of their indemnity agreement providing for a private contractual remedy, Kiewit and Ameron challenged the contracting officer's decision before the IBCA. In light of the Bureau's action against them, Ameron provided timely notice to respondent insurers.

The IBCA administrative law proceeding lasted 22 days and concluded when Ameron and Kiewit settled the Bureau's claims against them for $10 million. Following the settlement, Truck Insurance Exchange, "one of Ameron's primary insurers, paid Ameron certain sums with respect to the [Central Arizona Project] litigation."⁴ In addition, INA offered to pay $750,000 towards the settlement, but Ameron rejected this amount as insufficient. The remaining respondents generally failed or refused to pay for the cost of defending or indemnifying Ameron in the litigation before the IBCA.

Ameron, in its own right and as the assignee of Kiewit's rights, filed its operative complaint against respondent insurers on July 21, 2004, alleging causes of action for breach of contract, breach of the covenant of good faith and fair dealing, declaratory relief, waiver and estoppel, and contribution.⁵ Ameron's complaint alleged that the IBCA proceedings are "civil proceedings" in which the IBCA acts in a "judicial capacity" when conducting hearings and deciding contested factual issues. Ameron pointed out that under the Contract Disputes Act of 1978 (Contract Disputes Act) (41 U.S.C. § 601 et seq.), it could have chosen to challenge the decision of the Bureau's contracting officer either by appealing thatdecision to the IBCA, or by bringing an action in the United States Court of Federal Claims (Federal Claims Court). (41 U.S.C. §§ 606, 609.) Ameron contended that the Contract Disputes Act refers to an action filed in either the IBCA or the Federal Claims Court as a "suit," thus triggering respondents' coverage duties. Ameron asserted that respondents failed or refused to defend or settle the Bureau's claims against it before the IBCA, failed to indemnify it for the IBCA settlement, and neglected to investigate the potential for coverage. The superior court granted respondents' demurrer and dismissed Ameron's complaint. The trial court relied on Foster-Gardner, supra, 18 Cal.4th 857, which held that an environmental agency's order identifying the insured as a party responsible for remediating environmental pollution was not a "suit" that would trigger an insurer's duty to defend its insured or provide insurance coverage. (Id. at pp. 860861.)

The Court of Appeal partially reversed the trial court's judgment and awarded defense and coverage costs for those policies that defined a "suit" as a "civil proceeding."⁶ However, after commenting that it was reluctantly applying Foster-Gardner's reasoning to those policies that did not define the term "suit," the Court of Appeal concluded that similar pre-1986 insurance policies containing language virtually identical to the policies at issue in Foster-Gardner⁷ gave Ameron no defense or liability coverage, because the IBCA adjudicative administrative hearing was before a federal administrative agency and not a courtof law. We granted review to decide whether, under the applicable Ameron policies at issue here, the rule announced in Foster-Gardner applies to preclude the obligation to provide a defense and potential indemnity coverage in an administrative law proceeding before the IBCA.⁸

DISCUSSION

A. Background

1. Standard of Review and Insurance Law Principles

In general, interpretation of an insurance policy is a question of law and is reviewed de novo under settled rules of contract interpretation. (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470 (E.M.M.I.); Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18 (Waller)) "The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the 'mutual intention' of the parties. 'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" (id., § 1644), controls judicial interpretation. (Id., § 1638.)' " (Waller, supra, 11 Cal.4th at p. 18.)

An insurance policy provision is ambiguous when it is susceptible of two or more reasonable constructions. (E.M.M.I., supra, 32 Cal.4th at p. 470.) If ambiguity exists, however, the courts must construe the provisions in the way the insurer believed the insured understood them at the time the policy was purchased. (Civ. Code, § 1649.) In addition, if, after the court evaluates the policy's language and context, ambiguities still exist, the court must construe the ambiguous language against the insurer, who wrote the policy and is held " 'responsible' " for the uncertainty. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822 (AIU).) Particularly, "[i]n the insurance context,... ambiguities [are resolved] in favor of coverage" so as to protect the insured's reasonable expectation of coverage. (Ibid.; see La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27, 37.) In addition, to prevail on a duty to defend claim, an insured need " 'only show that the underlying claim may fall within policy coverage....' " (Ortega Rock Quarry v. Golden Eagle Ins. Corp. (2006) 141 Cal.App.4th 969, 977.) Insurers have the more difficult burden of proving that the underlying claim cannot fall within policy coverage. (Ibid.)

2. Foster-Gardner and Subsequent Cases

Respondents assert that the hearing before the IBCA was not the trial of a "suit" as defined in the insurance policies. They generally rely on language in Foster-Gardner to argue that because the IBCA is not a court of law, any hearing before it is not the trial of a "suit" unless specifically indicated as such in the pertinent policy. (Foster-Gardner, supra, 18 Cal.4th at pp. 887-888.) Ameron, in turn, contends that Foster-Gardner either does not apply to the IBCA's "civil proceedings," or, if it does, we should overrule it to provide that the IBCA proceedings are considered the trial of a "suit."

In Foster-Gardner, the Colorado River Basin Regional Water Quality Control Board and the Riverside County Health Department ordered Foster- Gardner to perform a series of preliminary environmental site investigations at its wholesale pesticide and fertilizer business. (Foster-Gardner, supra, 18 Cal.4th...