Kaiser Cement & Gypsum Corp. v. Ins. Co. of Pa.

126 Cal.Rptr.3d 602

11 Cal. Daily Op. Serv. 6841

2011 Daily Journal D.A.R. 8153Review GrantedPreviously published at: 196 Cal.App.4th 140

KAISER CEMENT AND GYPSUM CORPORATION, Cross-complainant and Respondent,

v. INSURANCE COMPANY OF the STATE OF PENNSYLVANIA, Cross-defendant and Appellant;Truck Insurance Exchange, Plaintiff and Respondent.

No. B222310.

Court of Appeal, Second District, Division 4, California.

June 3, 2011.

Review Granted Aug. 24, 2011.

Background: After making indemnity payments to asbestos manufacturer under commercial general liability (CGL) policies, primary insurer filed action against manufacturer, seeking declaratory judgment that insurer's policies were exhausted and that insurer had no further duty to defend or indemnify manufacturer in asbestos-related litigation. Manufacturer filed cross-complaint against its excess insurers, seeking declaration of coverage under its excess policies. Primary insurer moved for summary adjudication, and the Superior Court, Los Angeles County, No. BC249550, Carl J. West, J., granted the motion. Excess insurer petitioned for writ of mandate. The Court of Appeal granted petition, 146 Cal.App.4th 648, 53 Cal.Rptr.3d 154. The Superior Court, Carl J. West, J., found that manufacturer's excess coverage would “drop down” upon exhaustion of the per-occurrence limit of a single primary policy, and granted summary adjudication against excess insurer on declaratory relief and breach of contract causes of action. Excess insurer appealed.

Holdings: The Court of Appeal, Suzukawa, J., held that:

(1) excess liability insurer's indemnity obligation did not attach until all collectible primary policies were exhausted, and

(2) primary liability insurer's indemnity obligation for continuing injuries was not subject to annual “stacking.”

Reversed.

Lynberg & Watkins, Los Angeles, Randall J. Peters, and Wendy E. Schultz for Cross-defendant and Appellant.

Duane Morris, San Francisco, Brian A. Kelly, Paul J. Killion, Kathryn T.K. Schultz for Amici Curiae Certain London Market Insurers in Support of Cross-defendant and Appellant.

Jones Day, Los Angeles, Philip E. Cook, and J.W. Montgomery III, Pro Hac Vice, for Cross-complainant and Respondent.

Gibson, Dunn & Crutcher, Los Angeles, Scott R. Hoyt, and Sarah Fleisig Powers for Plaintiff and Respondent.

SUZUKAWA, J.

INTRODUCTION

We are well acquainted with this case, having addressed it several years ago in London Market Insurers v. Superior Court (2007) 146 Cal.App.4th 648, 652, 53 Cal.Rptr.3d 154 (LMI ). There, we considered whether thousands of asbestos bodily injury claims brought against respondent Kaiser Cement and Gypsum Corporation (Kaiser) constituted a single annual “occurrence” within the meaning of comprehensive general liability (CGL) policies issued by respondent Truck Insurance Exchange (Truck). We concluded that they did not: Because under the relevant Truck policies “occurrence” meant injurious exposure to asbestos, the thousands of claims against Kaiser could not be deemed a single annual occurrence.

The present appeal concerns a separate but related coverage issue, which arises in part out of the Supreme Court's seminal decision in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 42 Cal.Rptr.2d 324, 913 P.2d 878( Montrose ). In Montrose, the court adopted a “ ‘continuous injury’ trigger of coverage” approach to continuing injury claims. Under that approach, bodily injuries and property damage that occur in several insurance policy periods are potentially covered by all policies in effect during those periods. ( Id. at pp. 654–655, 689, 42 Cal.Rptr.2d 324, 913 P.2d 878.)Montrose provided no guidance, however, as to how to apportion liability among insurers in continuing injury cases.

That question of apportioning liability for continuing injuries is raised squarely by the present case. Between 1947 and 1987, Kaiser purchased primary insurance policies from four different insurers, including Truck. During many of the same years, Kaiser also purchased excess insurance policies. For purposes of this litigation, Kaiser has selected the Truck CGL policy in effect in 1974 (the 1974 primary policy), which has a $500,000 per occurrence limit and no annual liability limit, to respond initially to all claims that allege asbestos exposure in that year. At issue here is who is responsible to indemnify Kaiser for asbestos claims that exceed the 1974 primary policy's $500,000 per occurrence limit. Kaiser and Truck contend that appellant Insurance Company of the State of Pennsylvania (ICSOP), which issued a first-level excess policy to Kaiser for 1974 (the 1974 excess policy), is responsible to pay claims over $500,000.¹ ICSOP disagrees: It contends that primary insurance limits must be “stacked,” such that all available primary insurance policies—that is, all Truck policies issued to Kaiser between 1964 and 1983, as well as primary policies issued to Kaiser by three other carriers between 1947 and 1987—are exhausted before any excess insurer need indemnify Kaiser for asbestos bodily injury claims.

As we now discuss, under the language of the 1974 primary policy and principles of California law, Truck's maximum exposure for asbestos bodily injury claims is $500,000 per occurrence. We thus agree with the trial court that, based on the policy language, once Truck has contributed $500,000 per occurrence, its obligation to Kaiser ceases.

Notwithstanding our conclusion, we cannot affirm the grant of summary adjudication. To grant summary adjudication for Kaiser, the trial court necessarily found that there were no triable issues of fact as to either Truck's maximum exposure under its policies or ICSOP's present duty to indemnify Kaiser for claims over $500,000. That was error, because there is no evidence in the record as to whether the policies issued to Kaiser by primary insurers other than Truck have been fully exhausted. We therefore cannot determine whether ICSOP has a present duty to indemnify Kaiser. Accordingly, we reverse the grant of summary adjudication and entry of judgment for Kaiser and against ICSOP.

STATEMENT OF FACTS AND OF THE CASE

I. The Underlying Asbestos Litigation

Kaiser manufactured a variety of asbestos-containing products, including joint compounds, finishing compounds, fiberboard, and plastic cements, from 1944 through the 1970's. Kaiser manufactured these products at 10 different facilities at various times. ( LMI, supra, 146 Cal.App.4th at p. 652, 53 Cal.Rptr.3d 154.)

Truck provided primary insurance to Kaiser from 1964 to 1983, through four CGL policies covering 19 annual policy periods.² As relevant here, the policy in effect from January 1, 1974, through March 1, 1981, contained a $500,000 “per occurrence” liability limit and, in policy years 1974 and 1975, a $5,000 deductible for “each occurrence.” Until April 1980, the policy did not contain an annual aggregate limit.

Kaiser apparently was also insured by three other primary carriers between 1947 and 1987: Fireman's Fund Insurance Company (Fireman's Fund) from 1947 through 1964; Home Indemnity Company (Home Indemnity) from 1983 through 1985; and National Union Fire Insurance Company of Pittsburgh (National Union) from 1985 through 1987. In 1993, Truck and Kaiser entered into agreements with Fireman's Fund, Home Indemnity, and National Union to share defense and indemnity costs until the aggregate limits of each primary policy was exhausted. According to Truck, by April 2004, all three primary carriers had given notice that their aggregate limits were exhausted; thus, after April 30, 2004, Truck was the only primary carrier continuing to pay defense and indemnity costs for asbestos bodily injury claims.

ICSOP issued a first layer excess policy to Kaiser from January 1, 1974, through January 1, 1977. That policy provided that ICSOP would indemnify Kaiser for its “ultimate net loss” in excess of its retained limit, up to the policy limit of $5,000,000 per occurrence. Other insurers, including amici curiae Certain Underwriters at Lloyd's, London, and certain London Market insurance companies, issued excess insurance policies to Kaiser in other years.

By 2004, more than 24,000 claimants had filed products liability suits against Kaiser alleging that they had suffered bodily injury, including asbestosis and various cancers, as a result of their exposure to Kaiser's asbestos products. Kaiser tendered these claims to Truck. By October 2004, Truck's indemnity payments for asbestos bodily injury claims exceeded $50 million and included at least 39 claims that resulted in payments in excess of $500,000. ( Ibid.)

II. The Present Coverage Action

Truck filed the present action against Kaiser on April 30, 2001, seeking a declaration that its primary policies had been exhausted and it had no further obligation to defend or indemnify Kaiser for asbestos bodily injury claims. It filed a second amended complaint in August 2007, adding causes of action for equitable subrogation and contribution against Kaiser's excess insurers.

Kaiser cross-claimed against its excess insurers, including ICSOP, seeking a declaration that the excess insurers were obligated to defend and indemnify Kaiser for asbestos bodily injury claims once primary coverage was exhausted. As relevant to this appeal, the fifth and sixth causes of action in the operative third amended consolidated cross-complaint allege as follows:

“Fifth Cause of Action

“Declaratory Relief Against All Cross–Defendants

“66. A controversy and dispute currently exists between Kaiser, Truck and the Excess Insurers with Kaiser and Truck contending, and the Excess Insurers failing to acknowledge that the Excess Insurers are currently obligated under the Excess Policies to defend and to make liability payments in response to ABIC [asbestos bodily injury claims] asserted against Kaiser or to indemnify Kaiser for the costs of defending and making liability payments in response to ABIC asserted...