Kaiser Cement & Gypsum v. Ins. Co. of PA 6/3/11 CA2/4

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: B222310

Case Date: 08/24/2011

Preview:Filed 6/3/11

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR

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.

B222310 (Los Angeles County Super. Ct. No. BC249550)

APPEAL from a judgment of the Superior Court of Los Angeles County, Carl J. West, Judge. Reversed. Lynberg & Watkins, Randall J. Peters, and Wendy E. Schultz for Cross-defendant and Appellant. Duane Morris, 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, Philip E. Cook, and J.W. Montgomery III, Pro Hac Vice, for Crosscomplainant and Respondent. Gibson, Dunn & Crutcher, Scott R. Hoyt, and Sarah Fleisig Powers for Plaintiff and Respondent.

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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 (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 Courts seminal decision in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645 (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.) 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 2

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 policys $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, Trucks 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 Trucks maximum exposure under its policies or ICSOPs 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
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As in LMI, the "unusual alignment" of the parties is explained by the policies per occurrence deductible provisions. Under Trucks primary policies, Kaisers deductibles range from $5,000 to $100,000 per occurrence. (LMI, supra, 146 Cal.App.4th at p. 653, fn. 2.) There is no deductible due under ICSOPs excess policies. Accordingly, Kaisers share of the total asbestos bodily injury liability increases if indemnity is provided by Trucks primary policies, rather than by the excess policies issued by ICSOP and others. (Id. at pp. 658-660.)

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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 1970s. Kaiser manufactured these products at 10 different facilities at various times. (LMI, supra, 146 Cal.App.4th at p. 652.) 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: Firemans Fund Insurance Company (Firemans 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 Firemans 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

2

In our prior opinion, we stated that two separate Truck policies were in effect between 1964 and 1983. (LMI, supra, 146 Cal.App.4th at pp. 658-660.) For purposes of the present opinion, we adopt the parties contention that there were four separate policies during these years. 4

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 Lloyds, 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 Kaisers asbestos products. Kaiser tendered these claims to Truck. By October 2004, Trucks 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 Kaisers 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:

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"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 against Kaiser. "67. Truck has alleged in its Second Amended Complaint that Truck has

exhausted its policies by paying the full applicable limits of its insurance in response to ABIC and that Truck owes no further duties and obligations to Kaiser pursuant to its policies with respect to such ABIC. Additionally, those primary insurers with policy periods before and after Trucks policy periods have also exhausted their policies with respect to ABIC. "68. Where, as here, Kaiser has excess insurance coverage extending through

multiple consecutive policy periods and where, as here, insurance coverage in multiple consecutive policy periods covers Kaisers liabilities arising out of the ,,occurrence or ,,accident that resulted in the ABIC asserted against Kaiser . . . , Kaiser is entitled to the protection of the full limits of such policies to the extent necessary to fully indemnify Kaiser. With respect to each individual ABIC, Kaiser is entitled to select, among the triggered policies, the policy or policies to pay the loss. Each Excess Insurer with an Excess Policy immediately in excess of Kaisers primary policies for any given policy period is obligated to provide coverage upon the exhaustion of the primary policy for that policy period. The remaining Excess Insurers are obligated to provide coverage upon the exhaustion of each applicable underlying Excess Policy.

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"Sixth Cause of Action "Breach of Contract Against Cross-Defendant ICSOP ". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "70. [O]nce the Truck policy incepting January 1, 1974 responds to an

individual ABIC by paying its occurrence limit of $500,000, ICSOP is obligated under its Excess Policy incepting January 1, 1974 to indemnify Kaiser for the ,,ultimate net loss in excess of $500,000 for such claim up to $5,000,000 per occurrence. "71. By correspondence dated July 3 and July 13, 2007, Kaiser confidentially

notified the Excess Insurers, including ICSOP, of the existence of a number of claims that have been settled in excess of Trucks per occurrence limit of $500,000, and the amount paid to settle each such claim. "72. [ICSOP] has breached the terms of its first layer Excess Policy incepting

January 1, 1974 (Policy No. 4174-5841) by failing to pay to Kaiser all amounts that Kaiser has been forced to incur to make settlement payments for ABIC that exceed the Truck ,,per occurrence coverage limits for the primary policy incepting January 1, 1974. Kaiser has complied with all conditions precedent to obtain ICSOPs performance under its Excess Policy No. 4174-5841, or such performance has been excused. "73. As a direct and proximate result of ICSOPs breach of its Excess Policy

No. 4174-5841, Kaiser has been damaged in an amount which cannot be fully ascertained at this time, but which currently totals in excess of $15 million, and in an amount to be proven at trial." Truck's Motion for Summary Adjudication In October 2004, Truck moved for summary adjudication, seeking a declaration that its policies had been exhausted and it had no further duty to defend or indemnify Kaiser. According to Truck, under the plain language of its policies, all asbestos-related claims in any given year arose out of a single annual "occurrence" because all had the same underlying cause--",,the design, manufacture and distribution by Kaiser and its subsidiaries of asbestos-bearing products." Truck contended, therefore, that its total 7

III.

liability for asbestos bodily injury claims for all policy years was $8.3 million and its policies were exhausted as of January 1999. (LMI, supra, 146 Cal.App.4th at pp. 652653.) The trial court initially denied the summary adjudication motion. Several months later, however, on its own motion the court ordered reconsideration and supplemental briefing. It then granted summary adjudication for Truck, finding that Truck and Kaiser reasonably intended to treat all asbestos bodily injury claims as a single annual occurrence under the policies. (LMI, supra, 146 Cal.App.4th at pp. 653-654.) We reversed. We concluded that the plain language of the policies was not susceptible of the conclusion that Kaisers design, manufacture, and distribution of asbestos products was an "occurrence." (LMI, supra, 146 Cal.App.4th at p. 672.) Rather, the relevant "occurrence" was injurious exposure to asbestos products. Thus, we held that the trial court erred in granting summary adjudication for Truck. Truck's Motion for Determination of Threshold Coverage Issues Following our ruling, Truck moved for a determination of the number of "occurrences" at issue in the underlying asbestos bodily injury claims. Specifically, Truck asked the trial court to find that: (1) with regard to the "one lot" claims in Trucks policies from 1964 to 1974, all claims arising from exposures to products produced at the same Kaiser manufacturing facility could be aggregated and deemed a single occurrence; and (2) with regard to the "same general conditions" claims in Trucks policies from 1974 to 1983, all claims arising from exposures to products produced at the same Kaiser manufacturing facility could be deemed a single occurrence, or, alternatively, all claims resulting from the same corporate decision to place asbestos into products, or from multiple corporate decisions made at the same location, could be deemed a single occurrence. Truck stipulated that if the court denied all of the legal rulings it sought, then each asbestos bodily injury claim should be treated as a separate occurrence. In a January 24, 2008 order, the court noted that Truck had stipulated to a number of key facts, including that there was no evidence proffered in support of any asbestos 8

IV.

bodily injury claim that connected any claimants alleged injurious asbestos exposure to any particular asbestos purchase, manufacture, or sale. Claims, therefore, could not be aggregated by product line or manufacturing plant. The court concluded that for purposes of further proceedings in the case, "the claim of each asbestos bodily injury claimant shall be deemed to have been caused by a separate and distinct occurrence within the meaning of the Truck policies." (Italics added.)

V.

June 30, 2008 Coverage Ruling Following the January 24 ruling, pursuant to FMC Corp. v. Plaisted & Companies

(1998) 61 Cal.App.4th 1132 (FMC Corp.), Kaiser selected the 1974 primary policy (which had a $500,000 "per occurrence" liability limit, a $5,000 "per occurrence" deductible, and no aggregate limits) to respond to each of the claims alleging injury during that year.3 Kaiser then sought an order declaring that, "if an asbestos bodily injury claim alleged against Kaiser triggers the primary policy of comprehensive general liability insurance issued by Plaintiff Truck Insurance Exchange (,,Truck) for the year 1974, and Kaiser selects that policy year to respond, then the first-level umbrella policy issued by Cross-Defendant [ICSOP] incepting January 1, 1974--and, if necessary, any excess policies directly above it--become liable for that claim once Truck has paid and exhausted its $500,000 per-occurrence limit for that year, and Kaiser has paid its $5,000 deductible for that year." Kaiser asserted that California law was unclear as to whether, in the case of an "occurrence" that triggers multiple successive primary policies, the policyholder is entitled to primary coverage of as much as the combined per occurrence limits of all the triggered policies (i.e., "stacking" of policy limits), or no more than the

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In FMC Corp., the court held that if coverage for an occurrence is triggered in more than one policy period, the insured may select the policy period in which the policy limits are to be fixed. (61 Cal.App.4th at p. 1190; see also Keene Corp. v. Insurance Co. of North America (D.C. Cir. 1981) 667 F.2d 1034, 1049-1050 [same].)

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per occurrence limit of one such policy.4 Kaiser urged that the better view "is that stacking is not appropriate. Consequently, if a claim triggers multiple primary policies, including the 1974 Truck policy, then once Kaiser has exhausted the per-occurrence limits of the 1974 policy year ($500,000), Kaiser will have fully exhausted all primary coverage available for that claim." Alternatively, Kaiser urged that if the court rejected an "anti-stacking" rule, the 1974 excess policy should not be construed to require horizontal exhaustion of all primary policies before triggering ICSOPs policy. Rather, "the ICSOP umbrella policy should be construed, in accordance with its express terms, to require only the exhaustion of a single primary policy limit listed in its Schedule of Underlying Insurances--namely, the single Truck per-occurrence limit of $500,000 available to Kaiser for the 1974 Truck policy period." Truck agreed with most of the positions Kaiser articulated. As relevant here, it agreed that primary occurrence limits should not be "stacked" because stacking is: "(1) contrary to Trucks policy language, (2) contrary to California law . . . , (3) contrary to the law of the majority of jurisdictions that have addressed this issue, including many cases in the asbestos context, and (4) as Kaiser properly argues, contrary to the reasonable expectations of the insured." ICSOP opposed Kaisers motion in its entirety. It urged that under principles of "horizontal exhaustion," an excess insurer could not be required to indemnify an insured before the liability limits of all primary insurance policies were exhausted. ICSOP did not discuss Trucks policy language, but assumed that many of Trucks policies were not

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",,Stacking policy limits means that when more than one policy is triggered by an occurrence, each policy can be called upon to respond to the claim up to the full limits of the policy. Under the concept of stacking . . . the limits of every policy triggered by an "occurrence" are added together to determine the amount of coverage available for the particular claim. Thus, for example, if an insured could establish that each of four consecutive $10 million policies were triggered by a particular claim, the insured could recover $40 million for a single occurrence, rather than the $10 million available under any single policy. (Ostrager & Newman, Insurance Coverage Disputes (9th ed. 1998) Trigger and Scope of Coverage,

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