Foster-Gardner, Inc. v. National Union Fire Ins. Co.

Page 107

77 Cal.Rptr.2d 107

18 Cal.4th 857, 959 P.2d 265, 47 ERC 1098,

29 Envtl. L. Rep. 20,357,

98 Daily Journal D.A.R. 8398

FOSTER-GARDNER, INC., Plaintiff and Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY of Pittsburgh, PA et al., Defendants and Respondents.

No. S063425.

Supreme Court of California

Aug. 3, 1998.

As Modified on Denial of Rehearing Sept. 23, 1998. ^*

Latham & Watkins, Kristine L. Wilkes, Barry J. Shotts, Donna Jones, Diana L. Strauss, Jared G. Flinn, Robert P. Dahlquist and David L. Mulliken, San Diego, for Plaintiff and Appellant.

Anderson, Kill & Olick, Jordan S. Stanzler, San Francisco, Donald J. Baier, Phoenix, AZ, Demetriou, Del Guercio, Springer & Moyer, Gregory D. Trimarche, Kimberly E. Lewand, Los Angeles, Wendy M. Conole, San Diego, Spriggs & Hollingsworth, Marc S. Mayerson, Munger, Tolles & Olson, Cary B. Lerman, Cynthia L. Burch, Los Angeles, Heller, Ehrman, White & McAuliffe, David B. Goodwin, Nossaman, Guthner, Knox & Elliott, Scott P. DeVries, Elaine M. O'Neil, San Francisco, Howrey & Simon, Robert H. Shulman, John E. Heintz and Mindy G. Davis, Washington, DC, as Amici Curiae on behalf of Plaintiff and Appellant.

Sinnott, Ditto, Moura & Puebla, San Francisco, Randolph P. Sinnot, Gail L. Orr, Kearney, Bistline & Cohoon, Bistline & Cohoon, Gregory D. Bistline, Paul Alvarez, Ted H. Luymes, Los Angeles, Knapp, Peterson & Clarke, Kroll & Tract, Paul Woolls, Jo Ann Montoya, Glendale, Charlston, Revich & Williams, Kirk C. Chamberlin, Stephanie H. Scherby, Christine L. Judas and Elizabeth A. Moussouros, Los Angeles, for Defendants and Respondents.

Kinsella, Boesch, Fujikawa & Towle, Michael D. Howald, Los Angeles, Wiley, Rein & Fielding, Laura Foggan, Daniel E. Troy, Washington, DC, Allison R. Hayward, Bien & Summers and Eliot L. Bien, Novato, as Amici Curiae on behalf of Defendants and Respondents.

BROWN, Justice.

In this case we determine whether environmental agency activity prior to the filing of a complaint, in this case an order notifying the insured that it is a responsible party for pollution and requiring remediation, is a "suit" triggering the insurer's duty to defend under a comprehensive general liability insurance (CGL) policy. Two Courts of Appeal have ruled on the issue reaching opposite conclusions. We granted review in both cases, holding Fireman's Fund Ins. Co. v. Superior Court ^** (1997) 65 Cal.App.4th 1205, 78 Cal.Rptr.2d 418, review granted Dec. 23, 1997 (S065447) for resolution of the issue in this case. The Court of Appeal here concluded that the order constituted a "suit." We disagree, and therefore reverse its judgment.

I. FACTS AND PROCEDURAL BACKGROUND

Since 1959, plaintiff Foster-Gardner, Inc. (Foster-Gardner) has operated a wholesale pesticide and fertilizer business in Coachella, California (Site). In August 1992, Foster-Gardner received an "Imminent and Substantial Endangerment Order and Remedial Action Order" (Order) from the Department of Toxic Substances Control (DTSC) of the California Environmental Protection Agency. DTSC issued the Order pursuant to the Carpenter-Presley-Tanner- "Presley"Tanner Hazardous Substance Account Act (HSAA), California's "Superfund" law. (HEALTH & SAFETY CODE SECTION 25300¹ et seq.)

The Order stated the following: As a finding of fact Foster-Gardner was "the owner and operator of the Site, [was] a responsible party, and has incurred liability for cleaning up the Site." As a conclusion of law, Foster-Gardner was a "responsible party" or "liable person" within the meaning of sections 25319, 25323.5, subdivision (a), and 25385.1(g).

In recounting the Site history, the Order stated that "[p]rior to the banning of ... DDT in 1972, Foster-Gardner handled DDT at the Site." In addition, Foster-Gardner stored anhydrous ammonia in tanks at the Site. The Coachella Fire Department had responded to leaks in the tanks. In 1990, the Riverside County Superior Court ordered Foster-Gardner to cease storing anhydrous ammonia. Foster-Gardner continues to handle other chemical products at the Site.

In June 1988, the Riverside County Health Department (RCHD) sampled surface soil at the Site. That investigation revealed extensive contamination with toxaphene, DDT (dichloro-diphenyl-trichloro-ethane) and its products of degradation, DDD (dichloro-diphenyl-dichloro-ethane) and DDE (dichlorodiphenyldichloroethylene). RCHD required Foster-Gardner to conduct a site assessment. Consultants for Foster-Gardner performed a "Preliminary Assessment of DDT in Soil" in January 1990, and "Additional Assessment of DDT in Soil" in March 1990. These studies concluded that the Site was contaminated within and beyond the property boundaries.

Sometime between February and May 1990, Foster-Gardner installed an asphalt cap over high traffic areas of the Site, and treated some Site areas with a dust suppressant. In March 1991, surface soil sampling conducted by consultants at the request of the City of Coachella revealed excessive concentrations of DDT, DDD, DDE, and toxaphene in the combined residential and industrial streets, and lots adjacent to the Site.

In an unrelated investigation of groundwater contamination at the Coachella City Yard from May to September 1989, consultants discovered excessive concentrations of 1, 2-dichloropropane, 1, 2-dichloroethane and ethylene dibromide in the shallow aquifer. A report prepared by consultants for the Colorado River Basin Regional Water Quality Control Board (RWQCB) stated that the source of these contaminants was in all likelihood the Site.

In May 1991, the RWQCB required Foster-Gardner to conduct a preliminary groundwater investigation by installing and sampling three monitoring wells at the Site. In September 1991, the RWQCB required Foster-Gardner to install four additional wells. On October 22, 1991, the RWQCB issued a Cleanup and Abatement Order requiring Foster-Gardner to clean up and abate the effect of the discharge of contaminants from the Site into the groundwater.

As a result of the Site investigations, groundwater, soil, and surface soil data indicated that the Site was a source of contamination for groundwater and surrounding surface soils, and a potential source of contamination for surface water and air. The DTSC determined that during the ownership and operation of the Site by Foster-Gardner, hazardous substances or wastes had been disposed of onto the Site ground, and "there has been a release or threatened release of hazardous substances or hazardous wastes from the Site." The DTSC further determined that actual and/or threatened release of hazardous substances or hazardous wastes at the Site presents an imminent and substantial endangerment to the public health or welfare, or to the environment.

Foster-Gardner was ordered to submit within 10 days of the effective date of the Order a written notice of its intent to comply with the Order's terms. It was ordered to report within 30 days on its compliance with the direction of the DTSC, the RWQCB and/or the RCHD with regard to interim measures, including but not limited to continued groundwater monitoring, complying with the RWQCB's Cleanup and Abatement Order and any subsequent requirements of the RWQCB made pursuant to that order, complying with the RCHD's orders to contain runoff from the Site, and conducting sampling and analysis of off-site surface soils. Within 180 days, Foster-Gardner was ordered to prepare and submit a Remedial Investigation and Feasibility Study (RI/FS) Workplan detailing all of the activities necessary to complete the remedial investigation and feasibility study of the Site and any off-site areas where there was a release or threatened release of hazardous substances from the Site. In accordance with the schedule set forth in the RI/FS Workplan, Foster-Gardner was ordered to at some future time prepare a "Remedial Investigation Report and Feasibility Study Report." Once the Feasibility Study Report was approved, Foster-Gardner was required to submit a draft Remedial Action Plan (RAP). Following approval of the final RAP, Foster-Gardner was ordered to submit a Remedial Design and Implementation Plan (RDIP). Once the RDIP was approved, Foster-Gardner "shall implement the final RAP."

The Order provided, "Nothing in this Order" precludes the DTSC or other agency "from taking any action authorized by law to protect the public health or safety or the environment and recovering the cost thereof." Foster-Gardner was liable for any oversight costs and "any costs incurred by the DTSC in responding to a release or threatened release of hazardous substances." These costs would be recovered by a civil action. Moreover, "[n]othing in this Order shall constitute or be construed as a satisfaction or release from liability for any conditions or claims arising [as] a result of past, current or future operations" of Foster-Gardner. Finally, the Order stated, "You may be liable for penalties of up to $25,000 for each day you refuse to comply with this Order and for punitive damages up to three times the amount of any costs incurred by the Department as a result of your failure to comply, pursuant to" sections 25359 (as enacted by Stats.1983, ch. 1044, § 19, p. 3673) and 25361.

Foster-Gardner tendered defense of the DTSC Order to four of its insurers, National Union Fire Insurance Company of Pittsburgh, PA, and Pacific Indemnity Company (Pacific), Fremont Indemnity Company (Fremont), and Ranger Insurance Company (Ranger) (insurers). ² Pacific's policies were in effect from May 1984 to May 1986, Fremont's policies from June 1983 to July 1984, and Ranger's policies from December 1970 to December 1980. All insurers had issued CGL polices containing the following language with minor nonmaterial differences: "The company will 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,...