Lockheed Corp. v. Continental Ins. Co.

35 Cal.Rptr.3d 799

134 Cal.App.4th 187

LOCKHEED CORPORATION, Cross-Complainant and Appellant, v. CONTINENTAL INSURANCE COMPANY et al., Cross-Defendants and Respondents.

No. H026867.

Court of Appeal, Sixth District.

November 22, 2005.

Curtis D. Porterfield, Stephen V. Masterson, William T. Um, Howrey Simon Arnold & White, for Cross-Complainant/Appellant Lockheed Martin Corporation.

Edward T. Clifford, Greve Clifford Wengel & Paras, for Defendant/Respondent Commercial Union Insurance Co., as successor in interest to Employers Surplus Lines Insurance Co., Employers Surplus Lines Insurance Co. and Stonewall Insurance Co.

John C. Holmes, Jennifer S. Yu, Barger & Wolen, for Defendant/Respondent AIU Insurance Company, Granite State Insurance Company, Insurance Company of the State of Pennsylvania, Landmark Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, New Hampshire Insurance Company and Old Republic Insurance Company.

Smith Ellison, Michael W. Ellison, Khai LeQuang, for Cross-Defendants/Respondents First State Insurance Company and Twin City Fire Insurance Company.

Roger W. Sleight, Sedgwick Detert Moran & Arnold, for Cross-Defendant/Respondent Allianz Underwriters Insurance Company.

K. Stephen Tang, Knapp, Petersen & Clarke, for Cross-Defendant and Respondent Associated Aviation Underwriters.

Alan S. Berman, Steven P. Haskell, Berman & Aiwasian, for Respondents Central National Insurance Company of Omaha and Century Indemnity Company.

Steven M. Crane, Barbara S. Hodous, Berkes Crane Robinson & Seal, Frank

Kaplan, Kenneth S. Meyers, Alschuler Grossman Stein & Kahan, for Respondent Continental Insurance Company, Transcontinental Insurance Company, Continental Casualty Company.

Laura A. Foggan, John C. Yang, Anthony E. Orr, Wiley Rein & Fielding, Randolph P. Sinnott, J. Karren Baker, Sinnott Dito Moura & Puebla, for Amici Curiae Brief of the of The Complex Insurance Claims Litigation Association in support of respondents Continental Insurance Company, Transcontinental Insurance Company and Continental Casualty Company.

PREMO, J.

In this insurance coverage matter, Lockheed Martin Corporation (Lockheed) seeks coverage under numerous policies for pollution-related liability totaling hundreds of millions of dollars. (See Travelers Casualty & Surety Co. v. Superior Court (1998) 63 Cal.App.4th 1440, 1444-1445, 75 Cal.Rptr.2d 54 (Travelers).) After 10 years of litigation, the trial court entered judgment for the insurers and Lockheed has appealed.

Lockheed raises five issues on appeal. The first three issues involve interpretation of certain comprehensive general liability (CGL) policies issued by Harbor Insurance Company for the period from January 1, 1969 through March 1, 1978 (the Harbor policies). The Harbor policies are not standard form policies but are "manuscript" policies drafted especially for Lockheed. We hold that within the meaning of the particular policies at issue: (1) The duty to defend "any suit or action" does not obligate the insurer to defend administrative actions that have not ripened into lawsuits; (2) provisions that define "personal injury" as "wrongful entry" or "violation or infringement of property or contract rights" do not cover liability for pollution-related property damage; and (3) the term "accident" means "a sudden, unintended, and unexpected happening that is identifiable in time and place." Lockheed has the burden to prove that the property damage liability for which it seeks coverage was caused by an accident that took place during the policy period. Where nonaccidental property damage and accidental property damage exist at the same site, Lockheed has the burden to show that an appreciable amount of the damage, over and above that caused by nonaccidental means, was caused by accident.¹ On these points we agree with the trial court.

We also agree with the results of the challenged Cottle proceedings. (Cottle v. Superior Court (1992) 3 Cal.App.4th 1367, 5 Cal.Rptr.2d 882 (Cottle).) Lockheed did not submit sufficient evidence to support a prima facie case for coverage under the Harbor policies of the pollution-related liability Lockheed incurred in connection with its Burbank facility.

We part company with the trial court on the fifth issue. We hold that based upon our decision in Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 98 Cal.Rptr.2d 277 (Ludgate), it was error to have sustained the demurrers of certain excess insurers (collectively, Excess Insurers).² For reasons we shall explain the error does not warrant reversal but does require that we modify the judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

Lockheed is an aerospace manufacturer with operations at many different locations throughout the country. At all relevant times Lockheed maintained a primary CGL policy and additional layers of excess insurance. From at least 1952 through the end of 1968, Lockheed obtained its primary and excess insurance coverage from Certain Underwriters at Lloyd's of London and other British insurance companies (collectively, the London Insurers). Harbor issued Lockheed's primary CGL policies from 1969 through 1978.³

Beginning in the 1980s, the United States Environmental Protection Agency (EPA), the California Regional Water Quality Control Board (Water Board), and environmental agencies in other states identified Lockheed as responsible for contamination of the soil and groundwater at a number of locations. Some of the contaminated sites were hazardous waste disposal sites such as the Stringfellow Acid Pits in southern California where Lockheed, along with other companies, had routinely disposed of hazardous waste. Other sites were storage yards or research, development, and manufacturing facilities such as the Burbank site where Lockheed had manufactured airplanes for over 60 years. The environmental agencies ordered Lockheed to participate in the investigation and remediation of pollution at all these sites. In addition, the United States and some private individuals sued Lockheed for damages related to contamination at several of the locations.

In 1993, as Lockheed's potential liability was mounting, Leslie Walpole Procter filed this case on behalf of the London Insurers, seeking a declaration that pollution claims were not covered under their policies. Lockheed filed a cross-complaint against the London Insurers and against numerous other insurance companies, including Continental Insurance Company (Continental), the successor in interest to Harbor. The operative pleading is the fifth amended and supplemental cross-complaint filed in March 1997, which seeks declaratory relief and damages for breach of contract and bad faith related to environmental claims at 13 different sites. The pleading estimates that Lockheed's liability for contamination at these 13 sites will exceed $500 million.

Given the size and complexity of the case, the trial court organized it into phases. In Phases II and IV, issues of law were tried to the court. Phase III was to have been a jury trial of Lockheed's indemnity claims, but, prior to trial, the trial court conducted a hearing pursuant to Cottle, supra, 3 Cal.App.4th 1367, 5 Cal.Rptr.2d 882, requiring the parties to produce evidence to support a prima facie case on every issue for which the party had the burden of proof. Lockheed was unable to produce sufficient evidence to satisfy the trial court that it could prove its claim for coverage of the Burbank contamination. As a result, the trial court excluded the evidence. This ruling presaged the dismissal of all of Lockheed's indemnity claims.

The trial court's orders on these and other dispositive motions, combined with a collection of stipulations, disposed of the matter.⁴ The court incorporated its prior orders into a final judgment entered October 22, 2003. Lockheed has timely appealed.⁵

II. DISCUSSION

A. Rules of Interpretation and Standard of Review

The first three issues before us involve the interpretation of the Harbor policies. Our standard of review is well settled. "The interpretation of an insurance contract, as with that of any written instrument, is primarily a judicial function. [Citation.] Unless the interpretation of the instrument turns upon the credibility of conflicting extrinsic evidence, a reviewing court makes an independent determination of the policy's meaning." (Cooper Companies v. Transcontinental Ins. Co. (1995) 31 Cal.App.4th 1094, 1100, 37 Cal.Rptr.2d 508.)

In conducting our independent review, we apply the equally well-settled rules governing interpretation of insurance contracts. The fundamental rule is that interpretation of an insurance contract, like any contract, is governed by the mutual intent of the parties at the time they form the contract. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822, 274 Cal.Rptr. 820, 799 P.2d 1253.) The parties' intent is found, if possible, solely in the contract's written provisions. (Id. at p. 822, 274 Cal.Rptr. 820, 799 P.2d 1253.) "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' [citation], controls judicial interpretation." (Ibid.) If a layperson would give the contract language an unambiguous meaning, we apply that meaning. (Ibid.)

Ambiguity exists when a policy provision is reasonably susceptible of two or more interpretations. (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 912, 226 Cal.Rptr. 558, 718 P.2d 920.) "The fact that a term is not defined in the policies does not make it ambiguous. [Citations.] Nor does `[d]isagreement concerning the meaning of a phrase,' or `"the fact that a word or phrase isolated from its context is susceptible of more than one meaning."' [Citation.]" (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 868, 77...