Title: County of San Diego v. Ace
Citation: N/A
Docket Number: S114778
State: California
Issuer: California Supreme Court
Date: August 29, 2005

1
Filed 8/29/05 (this opn. should appear after S113295, also filed this date) 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
COUNTY OF SAN DIEGO, 
        ) 
 
 
        ) 
 
Cross-complainant and Appellant,   ) 
 
 
        ) 
S114778 
 
v. 
        ) 
 
 
        ) 
Ct.App. 4/1 D038707 
ACE PROPERTY & CASUALTY 
        ) 
San Diego County 
INSURANCE COMPANY et al., 
        ) 
Super. Ct. No. GIC732418 
 
 
        ) 
 
Cross-defendants and Respondents, ) 
 
 
        ) 
___________________________________ ____) 
 
INTRODUCTION 
In this matter we must determine whether a nonstandard “excess” third 
party liability policy issued by Ace Property & Casualty Insurance Company 
(Ace) to the County of San Diego (County) affords indemnity coverage for 
expenses incurred by the County in responding to an administrative agency order 
requiring it to remediate environmental contamination, and for sums expended by 
the County to settle related third party property damage claims outside the context 
of a lawsuit. 
In Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 
Cal.4th 945 (Powerine I), we held that under the wording of the standard primary 
comprehensive general liability (CGL) policy, the term “damages” limits the 
insurer’s indemnification obligation to “money ordered by a court,” i.e., a money 
judgment entered against the insured in a third party suit for damages.  (Id. at 
 
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pp. 960, 964.)  We went on to conclude that the duty to indemnify does not extend 
to the costs of complying with a governmental agency’s environmental cleanup 
and abatement orders because such administratively imposed liabilities do not 
constitute “money ordered by a court.”  (Id. at p. 966.) 
The central insuring provision in the policy at issue here likewise obligates 
Ace to indemnify the County for all sums the insured becomes obligated to pay by 
reason of liability imposed by law for “damages” resulting from the destruction or 
loss of use of tangible property.  The trial court concluded that the term “damages” 
is controlling and limits the indemnification obligation in the policy to court-
ordered money judgments in the same way this court concluded the term 
circumscribes the scope of coverage under the standard primary CGL policy 
examined in Powerine I.  The Court of Appeal agreed with the trial court’s 
reasoning and affirmed its judgment.  For reasons to follow, we agree with the 
lower courts’ interpretation of the operative term “damages” in Ace’s nonstandard 
policy.  Accordingly, we shall affirm the judgment of the Court of Appeal. 
We reach a contrary conclusion in another decision also filed today—
Powerine Oil Company, Inc. v. Superior Court (Central National Insurance 
Company of Omaha) (Aug. 29, 2005, S113295) ___ Cal.4th ___(Powerine II)—
because the literal insuring language of the excess/umbrella policies at issue in that 
case is materially different than the insuring language in the Ace excess policy and 
the standard primary CGL policy considered in Powerine I. 
FACTUAL AND PROCEDURAL BACKGROUND 
The County as cross-complainant appealed from a judgment entered against 
it after the trial court granted the summary adjudication and summary judgment 
 
3
motions of cross-defendant Ace.1  The County contended that the trial court 
misinterpreted ACE’s nonstandard excess third party liability policy as not 
providing coverage for the County’s settlements of nonlitigated claims, including 
an administrative order to remediate groundwater contamination and third party 
property damage claims arising from the contamination.  Specifically, the County 
asserted that the trial court erred by applying Powerine I, supra, 24 Cal.4th 945, in 
which this court held that the term “damages” in the insuring clause of the 
standard CGL policy is limited to “money ordered by a court.”  (Id. at pp. 960, 
964.) 
The ACE policy here in issue is commonly referred to in insurance industry 
parlance as a nonstandard or “manuscript form” policy.  (See Croskey et al., Cal. 
Practice Guide: Insurance Litigation (The Rutter Group 2004) § 3:38, p. 3-7.)  It 
was in effect from 1974 through 1977.  The policy requires Ace to indemnify the 
County “for all sums which the insured is obligated to pay by reason of liability 
imposed by law or assumed under contract or agreement,” arising from “damages” 
caused by personal injuries or the destruction or loss of use of tangible property.  
Additional pertinent policy provisions are set forth and discussed in detail below. 
The following factual background was set forth in the opinion of the Court 
of Appeal.  In 1969 the County began operating a solid waste facility known as the 
Ramona Landfill.  The Ramona Landfill overlies potable groundwater, and in 
1970 the Regional Water Quality Control Board (Regional Water Board) imposed 
operational requirements on the County. 
In March 1997, the Regional Water Board issued a cleanup and abatement 
order to the County, requiring it to investigate, monitor and remediate 
                                              
1  
The named cross-defendants also included Ace’s predecessor companies, 
Cigna Property & Casualty Company and Aetna Insurance Company. 
 
4
groundwater contamination caused by the Ramona Landfill.  The County waived a 
hearing before the board to challenge imposition of the remedial cleanup order. 
In June 1997, the owners of property (the Sossamans) near the Ramona 
Landfill complained to the County that groundwater contamination would affect 
the property’s marketability and their physical and mental health.  The Sossamans 
requested that the County purchase their property without the necessity of 
litigation.  The County believed it more likely than not that the Sossamans’ 
property was contaminated.  It had the property appraised “and preliminary 
negotiations including the preparation of necessary transfer documentation [were] 
initiated.”  The Atkinsons, also property owners near the Ramona Landfill, filed a 
similar claim in 1997. 
In November 1997, the County settled the Sossamans’ claims by paying 
them $318,000 for the acquisition of their property and relocation benefits.  In 
December 1998, the County settled the Atkinsons’ claims by paying them 
$259,500 for the acquisition of their property and relocation benefits. 
In May 1997, the County began seeking indemnification from Ace for costs 
of complying with the remedial cleanup order.  Ace reserved its right to deny 
coverage on numerous grounds, including the absence of any third party lawsuit.  
In September 1997, the County began seeking indemnification from Ace for the 
Sossaman and Atkinson claims.  Regarding these claims, none of the 
correspondence between the County and Ace is included in the appellate record.  
Ace never indemnified the County for any of the settlements. 
The County then filed a cross-complaint against Ace in a declaratory relief 
action brought against the County by another of its insurers, Pacific Indemnity 
Company.1  The County’s first amended cross-complaint included causes of 
                                              
1  
Pacific Indemnity Company obtained summary judgment in its favor and is 
not involved in this appeal. 
 
5
action for declaratory relief, express indemnity, breach of contract and breach of 
the implied covenant of good faith and fair dealing.  In the breach of contract 
cause of action, the County alleged Ace breached its duty to indemnify the County 
for losses it incurred in complying with the Regional Water Board’s remedial 
cleanup order and in settling the Sossaman and Atkinson claims.  In its cause of 
action for breach of the implied covenant of good faith and fair dealing, the 
County alleged, among other things, that Ace failed to “attempt[] in good faith to 
effectuate a prompt, fair and equitable settlement of the County’s claims for 
indemnification although liability had become reasonably clear” and failed “to pay 
indemnification benefits to the County pursuant to said claims.” 
In an affirmative defense to the cross-complaint, Ace alleged it had no duty 
to indemnify the County for costs incurred in complying with the remedial cleanup 
order or settling the Sossaman and Atkinson claims because the controlling term 
“damages” in the insuring clause of the policy limited coverage to money 
judgments imposed against the insured in a court of law.  The County moved for 
summary adjudication on this affirmative defense.  The trial court initially granted 
the County’s motion, determining that the “language of the policy suggests a 
reasonable interpretation that the County need not suffer a judgment before 
[Ace’s] duty to indemnify takes effect.” 
Ace moved for reconsideration of the ruling on the County’s motion for 
summary adjudication, based on the decision in Powerine I, supra, 24 Cal.4th 945.  
On the same ground, Ace also moved for summary adjudication of its duty to 
indemnify the County for its costs and expenses of complying with the Regional 
Water Board’s remedial cleanup order.  On reconsideration, the trial court 
reversed its ruling and denied the County’s motion for summary adjudication.  The 
court then granted Ace’s motion for summary adjudication of its duty to indemnify 
the County for the costs and expenses of complying with the remedial cleanup 
 
6
order.  The court determined that despite the nonstandard nature of the Ace policy, 
under Powerine I, supra, 24 Cal.4th 945, Ace’s duty of indemnity was limited to 
“damages” imposed in a court suit, i.e., “money ordered by a court.”  (Id. at 
pp. 960, 964.) 
The County in turn moved for reconsideration of the trial court’s order 
granting Ace’s motion for summary adjudication.  Ace countered with a motion 
for summary judgment on the question whether it had a duty to indemnify the 
County for the costs of the Sossaman and Atkinson settlements.  The trial court 
denied the County’s motion for reconsideration and granted Ace’s summary 
judgment motion, explaining “[t]here is no duty to indemnify [the] County for the 
so-called ‘private property expenses’ (purchase and moving expenses) because 
they were not ‘money ordered by a court.’ ”  Judgment was entered for Ace in 
July 2001. 
The Court of Appeal affirmed the trial court’s judgment, determining that 
the motions for summary adjudication and summary judgment were properly 
granted in the insurer’s favor.  The court held that under this court’s decision in 
Powerine I, supra, 24 Cal.4th 945, the term “damages” in the insuring provisions 
of Ace’s policy limits the duty to indemnify to money judgments ordered by a 
court, and that although certain other policy terms make reference to the 
settlement of claims, the policy language read as a whole does not extend the 
indemnification obligation to the costs and expenses of out-of-court settlement of 
claims. 
We granted the County’s petition for review.  Amicus curiae briefs in 
support of the County have been filed by the California State Association of 
Counties, United Policyholders, and the California Cast Metals Association.  
Amicus curiae briefs in support of Ace have been filed by the Complex Insurance 
Claims Litigation Association and the London Market Insurers. 
 
7
DISCUSSION 
1.  Standard of review and rules of insurance policy interpretation 
The issue before both the trial court and Court of Appeal was one of law; 
the interpretation of the indemnification obligation under the nonstandard policy 
language of the policy issued to the County by ACE. “When determining whether 
a particular policy provides a potential for coverage . . . , we are guided by the 
principle that interpretation of an insurance policy is a question of law.  (AIU Ins. 
Co. v. Superior Court (1990) 51 Cal.3d 807, 818.)”  (Waller v. Truck Ins. 
Exchange, Inc. (1995) 11 Cal.4th 1, 18.) 
As explained in Powerine II, supra, __ Cal.4th at pages __-__ [pp. 12-14]: 
“ ‘The insurer is entitled to summary adjudication that no potential for 
indemnity exists . . . if the evidence establishes as a matter of law that there is no 
coverage.  [Citation.]  We apply a de novo standard of review to an order granting 
summary judgment when, on undisputed facts, the order is based on the 
interpretation or application of the terms of an insurance policy.’  (Smith Kandal 
Real Estate v. Continental Casualty Co. (1998) 67 Cal.App.4th 406, 414; see 
Powerine I, supra, 24 Cal.4th at p. 972.) 
“In reviewing de novo a superior court’s summary adjudication order in a 
dispute over the interpretation of the provisions of a policy of insurance, the 
reviewing court applies settled rules governing the interpretation of insurance 
contracts.  We reiterated those rules in our decision in Foster-Gardner [v. National 
Union Fire Ins. Co. (1998) 18 Cal.4th 857 (Foster-Gardner)]: 
“ ‘ “While insurance contracts have special features, they are still contracts to 
which the ordinary rules of contractual interpretation apply.”  (Bank of the West v. 
Superior Court (1992) 2 Cal.4th 1254, 1264; see AIU [Ins. Co. v. Superior Court 
(1990)] 51 Cal.3d [807] at pp. 821-822.)  “The fundamental goal of contractual 
interpretation is to give effect to the mutual intention of the parties.”  (Bank of the 
 
8
West v. Superior Court, supra, 2 Cal.4th at p. 1264.)  “Such intent is to be 
inferred, if possible, solely from the written provisions of the contract.”  (AIU, 
supra, 51 Cal.3d at p. 822.)  “If contractual language is clear and explicit, it 
governs.”  (Bank of the West v. Superior Court, supra, 2 Cal.4th at p. 1264.)’  
(Foster-Gardner, supra, 18 Cal.4th at p. 868.) 
“ ‘ “A policy provision will be considered ambiguous when it is capable of 
two or more constructions, both of which are reasonable.”  (Waller v. Truck Ins. 
Exchange, Inc. (1995) 11 Cal.4th 1, 18; Bay Cities Paving & Grading, Inc. v. 
Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 867.)  The fact that a term is not 
defined in the policies does not make it ambiguous.  (Bay Cities Paving & 
Grading, Inc. v. Lawyers’ Mutual Ins. Co., supra, 5 Cal.4th at p. 866; Bank of the 
West v. Superior Court, supra, 2 Cal.4th at p. 1264; Castro v. Fireman’s Fund 
American Life Ins. Co. (1988) 206 Cal.App.3d 1114, 1120.)  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.’ ”  
(Castro v. Fireman’s Fund American Life Ins. Co., supra, 206 Cal.App.3d at 
p. 1120.)  “ ‘[L]anguage in a contract must be construed in the context of that 
instrument as a whole, and in the circumstances of that case, and cannot be found 
to be ambiguous in the abstract.’ ”  (Bank of the West v. Superior Court, supra, 2 
Cal.4th at p. 1265, italics omitted.)  “If an asserted ambiguity is not eliminated by 
the language and context of the policy, courts then invoke the principle that 
ambiguities are generally construed against the party who caused the uncertainty 
to exist (i.e., the insurer) in order to protect the insured’s reasonable expectation of 
coverage.”  (La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. 
(1994) 9 Cal.4th 27, 37.)’  (Foster-Gardner, supra, 18 Cal.4th at p. 868.)” 
 
9
2.  The Ace policy language and this court’s decisions in 
     Foster-Gardner, Powerine I, and Powerine II 
The County argued in the Court of Appeal that the trial court erred in 
determining, under this court’s holding in Powerine I, supra, 24 Cal.4th 945, that 
the term “damages” in the insuring agreement of the ACE policy limits indemnity 
coverage to court-ordered money judgments against the insured.1 
As noted, in Powerine I we held that “the insurer’s duty to indemnify the 
insured for ‘all sums that the insured becomes legally obligated to pay as 
damages’ under the standard [CGL] insurance policy is limited to money ordered 
by a court.”  (Powerine I, supra, 24 Cal.4th at p. 960, italics added.)  We based 
this conclusion in part on what we termed “Foster-Gardner’s syllogism.”  (Ibid.)  
Several years earlier, in Foster-Gardner, supra, 18 Cal.4th 857, this court held 
that the insurer’s duty to defend the insured in a “suit seeking damages” under the 
wording of the same standard CGL policy is likewise limited to civil suits 
prosecuted in court.  (Id. at pp. 878-888.)  In the analysis that followed in 
Powerine I, we explained that the insurer’s obligation to indemnify for “damages” 
is limited to “money ordered by a court” in part because the provisions in the 
standard CGL policy imposing both a duty to defend and a duty to indemnify on 
the insurer each “link[] ‘damages’ to a ‘suit,’ i.e., a civil action prosecuted in a 
court.”  (Powerine I, supra, 24 Cal.4th at p. 962.) 
                                              
1  
Alternatively, the County argued in the Court of Appeal that Ace’s 
reservation of rights to deny coverage and certain other allegedly wrongful 
conduct allowed the County to protect its interests by settling the claims without 
Ace’s consent and then obtain reimbursement for the settlements.  This latter 
claim was rejected by the Court of Appeal as a matter of law, and the County did 
not seek review of that aspect of the court’s holding. 
 
10
Here, however, the Ace nonstandard third party liability policy is an 
“excess” policy1 providing the County as the insured with excess liability 
coverage over and above its “self-insurance program or a self-insured retention 
arrangement for any part of the underlying limits of liability.”  Ace’s nonstandard 
excess policy does not contain a duty to defend suits.  Accordingly, the Foster-
Gardner syllogism is not directly implicated in this case. 
However, the scope of the indemnification obligation under this policy 
remains governed by our holding in Powerine I.  The central insuring language of 
the Ace policy obligates Ace to indemnify the County for “all sums which [the 
County] is obligated to pay by reason of liability imposed by law or assumed 
under contract or agreement” for “damages . . . by reason of injury of any nature 
sustained by any person or persons” and “damages because of injury to or 
destruction of tangible property.”  (Italics added.)  The Court of Appeal below 
correctly concluded that the reasoning of our decision in Powerine I regarding the 
limitation the term “damages” imposes on the scope of indemnity coverage under 
the standard CGL policy applies perforce to the insuring provisions of this 
nonstandard excess insurance policy which, like the standard CGL policy 
considered in Powerine I, utilizes “damages” as the sole term of limitation of the 
indemnity obligation under the insuring agreement. 
As we observed in Powerine I, “the duty to indemnify ‘entails the payment 
of money’ (Aerojet-General Corp. v. Transport Indemnity Co. [(1997)] 17 Cal.4th 
[38 ] at p. 56; accord, Buss v. Superior Court [(1997)] 16 Cal.4th [35] at p. 46),” 
                                              
1  
As a general matter, the term “excess coverage” refers to indemnity 
coverage that attaches upon the exhaustion of underlying insurance coverage for a 
claim.  (See 2 Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, 
¶ 8:76, p. 8-39 [“ ‘Excess’ means ‘insurance that begins after a predetermined 
amount of underlying coverage is exhausted and that does not broaden the 
underlying coverage.’  [Citations.]”].) 
 
11
“has as its purpose ‘to resolve liability . . . after liability is established’ ([Aerojet-
General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th] at p. 56, italics 
added),” and “can arise only after damages are fixed in their amount (see Aerojet-
General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th at p. 56; Buss v. 
Superior Court, supra, 16 Cal.4th at p. 46)”  (Powerine I, supra, 24 Cal.4th at 
p. 958, some italics omitted.) 
We explained further in Powerine I why the term “damages” in the policy 
provision imposing the duty to indemnify, both in its legal and commonly 
understood or “ ‘ordinary and popular sense,’ ” is limited to “money ordered by a 
court” separate and apart from the deductive reasoning of Foster-Gardner’s 
syllogism.  (Powerine I, supra, 24 Cal.4th at p. 969.)  It is limited to money 
judgments in part because “within the legal and broader culture,” “ ‘harm’ exists 
traditionally outside of court [citations],” whereas “ ‘[d]amages’ exist traditionally 
inside of court.  [Citations.]”  (Id. at p. 962.)  We observed that inclusion of the 
term “damages” in the insuring agreement of the standard CGL policy precluded a 
finding that a broad right to indemnification outside the context of a lawsuit was 
intended under the policy language:  “[O]ne would not speak of any ‘sum that the 
insured becomes legally obligated to pay as damages’ apart from any order by a 
court. . . . That is because, as a sum that the insured becomes legally obligated to 
pay, ‘damages’ presuppose an institution for their ordering, traditionally a court, 
albeit no longer exclusively.  [Citations.]  ‘Damages’ do not constitute a 
redundancy to a ‘sum that the insured becomes legally obligated to pay,’ but a 
limitation thereof.”  (Id. at p. 963, fn. omitted.) 
The County argues that the definition of “ultimate net loss” contained in the 
limits of liability provision of the Ace policy, when read together with the central 
insuring language, creates an independent basis for extending the insurer’s 
indemnification obligation under the policy beyond damages to the costs and 
 
12
expenses of responding to adminstratively issued environmental cleanup orders or 
settling related third party liability claims outside the context of a lawsuit. 
The language on which the County relies is contained in the policy’s “limits 
of liability” provision, which in turn makes reference to a definition of “ultimate 
net loss.”  The provision reads as follows: 
 
“LIMITS OF LIABILITY:  Liability under this policy shall attach to the 
company only after . . . the named insured [has] paid or [has] been liable to pay, 
the full amount of [its] respective ultimate net loss liabilities as follows: 
 
“100,000 EACH OCCURRENCE 
 
“250,000 ANNUAL AGGREGATE 
 
“Personal Injury or Property Damage or Personal Injury and Property 
Damage combined 
 
“[A]nd the company shall then be liable to pay only such additional 
amounts as will provide the insured with a total coverage under the policy . . . 
and/or whatever portion of coverage is self-insured by the named insured, and this 
policy combined of:  
 
“$1,000,000.00 each occurrence combined single limit for Personal Injury 
or Property Damage . . . .  
 
“It is hereby agreed that should the named insured utilize a self-insurance 
program or a self-insured retention arrangement for any part of the underlying 
limits of liability, then the named insured’s salaried employees or their designee 
shall be used as adjusters on behalf of the named insured.  It is further agreed that 
all legal matters concerning claims under this policy in excess of any self-insured 
portion of underlying coverage shall be coordinated through a firm or person 
mutually agreed upon.”  (Italics added.) 
“Ultimate net loss” in turn is defined in the policy as “the sum or sums 
which the assured shall become legally obligated to pay in settlement or 
 
13
satisfaction of claims, suits or judgements . . . includ[ing] all expenses from the 
investigation, negotiation and settlement of claims . . . and shall include legal 
costs.” 
A similar argument was raised by the insured in Powerine II, supra, ___ 
Cal.4th ___.  In that decision, we have concluded that the literal wording of the 
central insuring agreement and incorporated definition of “ultimate net loss” in 
nine excess/umbrella policies issued to the insured over the course of 10 years did 
unambiguously extend the indemnification obligation under those policies beyond 
“damages,” i.e., a court-ordered money judgment against the insured, to the 
“expenses” or liability of administratively imposed environmental response costs 
outside the context of a court suit.  (Powerine II, supra, __ Cal.4th at p. __ [p. 2].) 
The Court of Appeal that authored the now superseded opinion in 
Powerine II agreed with the insured’s reading of the indemnification obligation 
under the nine standard form excess/umbrella policies therein concerned.  The 
Court of Appeal in this case had before it for consideration the published decision 
of the Court of Appeal in Powerine II, as review in that matter had not yet been 
granted as of the time the Court of Appeal filed its decision in this case.  The 
Court of Appeal below expressly considered and distinguished the policy language 
at issue in Powerine II from the policy language at issue in this case. 
There are several key distinctions between the central insuring provision 
and incorporated definition of “ultimate net loss” in the standard excess/umbrella 
policies at issue in Powerine II, and the central insuring provision and referenced 
definition of “ultimate net loss” found in this nonstandard third party liability 
policy. 
First, the term “expenses” was expressly contained in the central insuring 
clause of the excess/umbrella policies at issue in Powerine II (“The Company 
hereby agrees . . . to indemnify the Insured for all sums which the Insured shall be 
 
14
obligated to pay by reason of the liability . . . imposed upon the Insured by law . . . 
for damages, direct or consequential and expenses, all as more fully defined by the 
term ‘ultimate net loss’ on account of: . . . property damage . . . caused by or 
arising out of each occurrence covered hereunder . . . .”  (Italics added.)  
(Powerine II, supra, __ Cal.4th at p. __ [p. 6].)  In contrast, the term “expenses” is 
not found in the central insuring provision of the Ace policy—the obligation to 
indemnify extends only to “all sums which the insured is obligated to pay by 
reason of liability imposed by law or assumed under contract or agreement” for 
“damages” resulting from personal injuries or the destruction or loss of use of 
tangible property. 
Second, the central insuring provision of the standard excess/umbrella 
policies at issue in Powerine II, supra, __ Cal.4th at p. __ [p. 6] expressly purports 
to “more fully define[]” “damages, direct or consequential and expenses” through 
incorporation of a definition of “ultimate net loss” into the insuring clause itself.  
In contrast, the definition of “ultimate net loss” here is neither incorporated into, 
referenced, nor a part of the central insuring clause of the Ace policy.  Instead, as 
explained, it is referenced in the “limits of liability” policy provision, the main 
function of which appears to be the setting forth of limits of excess liability 
coverage over the insured’s “self-insurance program or a self-insured retention 
arrangement for any part of the underlying limits of liability.”  In that specific 
context, the definition of “ultimate net loss” merely serves to define the insured’s 
total loss that will count toward such policy limits.  “Insurance policies are written 
in two parts:  an insuring agreement which defines the type of risks being covered, 
and exclusions, which remove coverage for certain risks which are initially within 
the insuring clause.”  (Rosen v. Nations Title Ins. Co. (1997) 56 Cal.App.4th 1489, 
1497.)  Nothing in the “limits of liability” provision of the Ace policy purports to 
 
15
expand Ace’s indemnification obligation, once triggered, to anything other than 
“damages.” 
These two distinctions were not lost on the Court of Appeal below, which 
court, in the course of rejecting the County’s argument for an expansive 
construction of indemnity coverage under the Ace policy, distinguished the policy 
language in Powerine II when observing, “In contrast to Powerine II, the Ace 
policy’s insuring clause does not include the term ‘expenses’ to broaden the 
coverage beyond that provided by the word ‘damages.’ . . .  Further, the insuring 
clause does not define the term ‘damages’ by reference to the ‘ultimate net loss’ 
provisions, in which the references to the settlement or satisfaction of claims 
appears.” 
Finally, the Ace policy contains a “no-action” provision.  As the Court of 
Appeal below explained, “[T]he Ace policy provides that ‘[n]o action shall lie 
against the company unless, as a condition precedent thereto, . . . the amount of the 
insured’s obligation to pay shall have been finally determined either by judgment 
against the insured after actual trial or by written agreement of the insured, the 
claimant and the company.’  The Ace policy also provides that the County ‘shall 
not, except at [its] own cost, voluntarily make any payment, assume any obligation 
or incur any expense other than for such immediate medical and surgical relief to 
others as shall be imperative at the time of the occurrence.’  Conditions such as 
these ordinarily appear in policies including the duty to defend, and they are 
intended to invest the insurer with the right to control the defense and preclude 
collusion between the insured and the third party claimant.  (2 Croskey et al., Cal. 
Practice Guide: Insurance Litigation, supra, ¶ 7:439.6, p. 7A-116.)  These 
conditions belie the notion that the term damages in the Ace policy extends the 
indemnity duty to any settlement entered into by the County.” 
 
16
In Powerine I, supra, 24 Cal.4th 945, we briefly discussed the standard 
form CGL policy’s “so-called no-action provision, which, in typical language, 
generally states that ‘no action’ by a third party ‘shall lie’ against the insurer 
unless the insured’s ‘obligation to pay shall have finally been determined’ either 
by a ‘judgment’ against the insured ‘obtained after an actual trial’ or by a 
‘settlement’ reduced to contract to which the insurer ‘agrees.’ ” (Id. at p. 962, 
fn. 4.)  We explained that the “no-action” clause implies that the insurer may owe 
a duty to indemnify, but in its further reference to a “judgment,” “implies as well 
that [the] duty is limited to money ordered by a court.”  (Ibid.) 
In sum, we agree with the Court of Appeal below that the insuring language 
of the standard CGL policy discussed in Powerine I and the insuring clause of the 
Ace nonstandard third party liability policy are substantively the same.  The 
central insuring provision in the Ace policy, like the policy considered in 
Powerine I, contains only the “damages” limitation standing alone, makes no 
express reference to “expenses,” and does not purport to further define the scope 
of indemnity coverage set forth in the insuring provision by reference to the 
definition of “ultimate net loss,” as was the case with the nine excess/umbrella 
policies scrutinized in Powerine II.  We conclude that costs and expenses 
associated with responding to administrative orders to clean up and abate soil or 
groundwater contamination outside the context of a government-initiated lawsuit 
seeking such remedial relief, and property buy-out settlements negotiated with 
third party claimants outside the context of a court suit, do not fall within the 
literal and unambiguous coverage terms of the Ace policy’s insuring agreement. 
3.  Out-of-state authorities cited by the County 
In supplemental briefing, the County has relied on several recent out-of-
state decisions purportedly supporting its contention that the term “damages” in 
 
17
the Ace policy should be construed more broadly than it was in Powerine I.  We 
are unpersuaded. 
The County first draws our attention to the Illinois Supreme Court’s recent 
decision in Central Illinois Light Co. v. Home Ins. Co. (Ill. 2004) 821 N.E. 2d 206, 
216-218 (CILCO).  The plaintiff in CILCO brought a coverage action against its 
excess liability insurers for indemnification of funds expended to investigate and 
remediate environmental coal tar contamination at several of its sites that formerly 
manufactured gas, creating coal tar as a by product, in the era before natural gas 
pipelines became the predominant source of such fuel.  (CILCO, supra, 821 
N.E.2d at pp. 208-209.)  The CILCO policies expressly excluded coverage for 
expenses.  The Illinois Supreme Court nonetheless concluded the insured’s costs 
incurred in investigating and remediating environmental contamination at its 
facilities were covered under the policies, not as “expenses,” but as sums the 
insurer was legally obligated to pay “as damages.” 
The CILCO court based that conclusion in large part on its belief that it is 
“generally understood” in the insurance industry that “funds paid to resolve . . . 
claims” in the absence of a lawsuit constitute “damages,” although the court 
offered no support whatsoever for this observation.  (CILCO, supra, 821 N.E.2d at 
p. 218.)  In contrast, in Powerine I this court provided an extensive and 
authoritative analysis of why the term “damages” has legally, commonly, and 
traditionally been understood to denote “money ordered by a court,” which 
conclusion was supported by a wide range of sources drawn from both legal and 
nonlegal authorities. 
The CILCO court discussed and distinguished this court’s Powerine I 
decision on the ground that the primary CGL policies at issue in Powerine I 
contained a duty to defend, while the excess policies before it for interpretation did 
not.  (CILCO, supra, 821 N.E.2d at pp. 215-216.)  That distinction is of no 
 
18
consequence here, since Ace’s policy likewise contains no duty to defend, and we 
are not relying on the presence of such a clause in the policy to conclude that the 
term “damages” limits indemnity to money ordered by a court. 
Insofar as the policies at issue in CILCO expressly excluded coverage for 
“expenses,” rather than conclude that the costs of complying with administrative 
clean-up orders are “expenses,” the CILCO court concluded such costs fall within 
the meaning of “damages,” and for that reason were covered under the policies 
there in issue.  Indeed, in concluding that “damages” are not limited to money 
ordered by a court, the CILCO court placed heavy reliance on the decision of the 
Maryland Court of Appeals in Bausch & Lomb v. Utica Mutual Insurance 
Company (Md. 1993) 625 A.2d 1021, noting “[w]e find Bausch & Lomb highly 
persuasive and not readily distinguishable on its facts.”  (CILCO, supra, 821 
N.E.2d at p. 223.)  In contrast, we expressly rejected the reasoning of Bausch & 
Lomb and other similar cases in Powerine I, concluding our research revealed that 
the term “damages” has legally and traditionally always been understood as 
limited to money ordered by a court.  (Powerine I, supra, 24 Cal.4th at p. 965.) 
CILCO is thus not availing to the County’s position, particularly given the 
presence of a “no action” clause in this policy, which reinforces our conclusion 
that the indemnification obligation set forth under the literal terms of the policy 
was intended to be limited to money judgments for damages against the insured. 
Next, the County draws our attention to the South Carolina Supreme 
Court’s recent decision in Helena Chemical Corp. v. Allianz Underwriters Ins. Co. 
(S.C. 2004) 594 S.E.2d 455 (Helena Chemical).  In the portion of the opinion cited 
by the County, the Helena Chemical court overturned the trial court’s conclusion 
that sums expended to remediate soil contamination are not “damages” because 
they are not paid as compensation for property damage to a third party.  This, in 
essence, is the same conclusion unanimously reached by this court over 14 years 
 
19
ago in AIU, supra, 51 Cal.3d at pages 821-822.  Moreover, Helena Chemical, like 
CILCO, places considerable reliance on the Maryland Court of Appeals decision 
in Bausch & Lomb v. Utica Mutual Insurance Company, supra, 625 A.2d 1021, 
and as explained above, this court has already expressly rejected the reasoning of 
Bausch & Lomb and similar cases in Powerine I. 
The court in Helena Chemical further concluded that the very fact that 
different courts across the nation have construed the term “damages” differently is 
“some indication of ambiguity.”  (Helena Chemical, supra, 594 S.E.2d at p. 459.)  
But “some indication of ambiguity” (ibid.) is not the legal standard of review in 
California by which we determine whether the express terms of an insurance 
policy are ambiguous.  (See, e.g., California Casualty Ins. Co. v. Northland Ins. 
Co. (1996) 48 Cal.App.4th 1682, 1694; Castro v. Fireman’s Fund American Life 
Ins. Co., supra, 206 Cal.App.3d at p. 1120.)  Our standard for declaring ambiguity 
in insurance policy language is a good deal more discriminating—language 
“capable of two or more constructions, both of which are reasonable” (Waller v. 
Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 18) is required before ambiguity 
will be declared and construed against the insurer in order to protect the insured’s 
reasonable expectation of coverage.  (La Jolla Beach & Tennis Club, Inc. v. 
Industrial Indemnity Co., supra, 9 Cal.4th at p. 37.)  In Powerine I, supra, 24 
Cal.4th at page 971, we expressly rejected the reasoning of out-of-state cases that 
have found the “damages” limitation in third party liability policies ambiguous 
under different standards.  The term, having been judicially construed by this 
court, is not ambiguous.  (Bartlome v. State Farm Fire & Casualty Co. (1989) 208 
Cal.App.3d 1235, 1239.) 
Next, the County also draws our attention to the Vermont Supreme Court’s 
recent decision in Hardwick Recycling & Salvage, Inc. v. Acadia Insurance 
Company (Vt. 2004) 869 A.2d 82.  That decision appears to have little if anything 
 
20
to do with the case at bench.  It involved a “claims made” third party liability 
policy, which is a different type of policy than the “occurrence based” policies at 
issue in Powerine I, Powerine II, and the instant case.  The Acadia insurance 
policy in Hardwick Recycling covered damages arising from “pollution liability 
hazard” in the event a third party claim was made against the insured during the 
period the policy was in effect.  The State of Vermont had issued a potentially 
responsible party letter (PRP) to Hardwick Recycling pursuant to the 
Comprehensive Environmental Response, Compensation, and Liability Act of 
1980 (CERCLA) (42 U.S.C. § 9601 et seq.), and thereafter formally brought suit 
against the insured five years later.  Overturning the trial court’s summary 
judgment order in favor of the insurer, the Vermont Supreme Court concluded that 
the state’s 1995 PRP letter constituted a claim for damages within the 1995 policy 
period, thereby triggering the insurer’s duty to defend the state’s lawsuit 
subsequently filed in the year 2000.  In reaching this ruling, the Vermont high 
court stated that the term “damages” could reasonably be understood to include 
money the insured must pay out to remediate environmental pollution.  (Hardwick 
Recycling, supra, 869 A.2d at p. 90.)  Once again, that holding is functionally the 
same as this court’s unanimous holding to that effect 14 years ago in AIU. 
Finally, in a footnote in its supplemental brief, the County has cited the 
Connecticut Supreme Court’s recent decision in R.T. Vanderbilt Co., Inc. v. 
Continental Casualty Company (Ct. 2005) 870 A.2d 1048.  Here again, as far as 
we can discern, the decision in R.T. Vanderbilt has little if anything to do with the 
interpretation of the duty to indemnify in a third party liability policy.  The 
decision does hold that the issuance of a PRP letter to an insured in and of itself 
can trigger the duty to defend in primary CGL policies under Connecticut law 
because, as the R.T. Vanderbilt court concluded, the term “suits” in the “duty to 
defend” clause, in the opinion of that court and several other sister-state courts, is 
 
21
ambiguous.  Of course, this court held just the opposite in Foster-Gardner, supra, 
18 Cal.4th 857, in which we found nothing ambiguous about the standard duty to 
defend clause that limits the defense obligation to “suits for damages.”  In any 
event, as explained, since Ace’s nonstandard excess third party liability policy 
issued to the County does not contain a duty to defend provision, our holding in 
Foster-Gardner is not directly implicated in this case. 
4.  The County’s claim of detrimental reliance 
Last, the County asserts that Ace’s payment history under the policy in 
question establishes that the parties reasonably believed the policy provides the 
expanded indemnity coverage sought by the County.  Indeed, the County, in its 
reply brief, suggests that Ace has “conceded” (in its answer brief) that it paid the 
County’s claims in the 1970s, including claims that the County presented to Ace 
after settlements were consummated.  Thus, the County argues, “in the years 
directly after the issuance of the Ace Policy, Ace paid the County’s claims after 
resolution, thereby confirming the County’s reasonable expectations that ‘claims’ 
are covered.” 
We do not read Ace’s briefs as containing the concession described by the 
County.  To the contrary, Ace argued that “The parties’ alleged course of dealing 
does not support the county’s proposed interpretation of the policy.”  As Ace 
explained, a third party adjuster was retained to adjust liability claims within the 
County’s self-insured retention during the three years that the Ace policy was in 
effect.  During that time, the County submitted third party claim summaries, 
compiled by the adjuster and identifying sums the County had paid under its self-
insurance program, to Ace.  That is precisely what the express terms of this policy 
required.  Under those terms, the independent adjuster was not establishing the 
value of claims for purposes of submission for payment by Ace.  Rather, the 
adjuster was establishing the aggregate value of claims for purposes of allocating 
 
22
covered losses to the County’s self-insured retention.  Covered claims that must be 
paid up to a specified aggregate limit by the insured under its self-insured 
retention are not, by definition, subject to indemnification by the insurer. 
Ace reports that it generally agreed with the valuation of the settlements of 
the claims as reported in the claim summaries.  Third party claims paid by the 
County and reported to Ace for this purpose, we are told by Ace, involved 
routinely covered third party liability matters such as automobile accidents and 
false arrests.  Ace has represented in its answer brief that “there is no evidence that 
the County ever reported payment of any costs associated with an administrative 
order or cleanup and abatement order . . . in these claim summaries, nor is there 
any evidence that [Ace] agreed to pay any such costs.” 
Apparently there was one instance in which the County asked for, and Ace 
agreed to reimburse the County for, amounts reflected in the claim summaries that 
were in excess of the County’s annual self-insured retention requirement under the 
policy.  We agree with Ace that, on such facts, at most, the record establishes that 
Ace willingly reimbursed the County for sums paid to settle such claims before 
judgment.  That is plainly within the insurer’s discretion, and it is entirely 
consistent with other policy provisions recognizing the insurer’s discretionary 
right to approve and fund any out-of-court settlement of claims, e.g., the “no 
action” clause. 
 
23
CONCLUSION 
The judgment of the Court of Appeal is affirmed, and the matter remanded 
to that court for further proceedings consistent with the views expressed herein. 
  
 
 
 
 
 
 
BAXTER, J. 
WE CONCUR: 
 
GEORGE, C.J. 
CHIN, J. 
 
 
 
1
 
 
 
 
 
CONCURRING OPINION BY WERDEGAR, J. 
 
 
I concur in the judgment under the compulsion of Certain Underwriters at 
Lloyd’s of London v. Superior Court (2001) 24 Cal.4th 945 and Foster-Gardner, 
Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, decisions from which I 
dissented and which in my view deserve reconsideration. 
 
 
 
 
 
 
 
WERDEGAR, J. 
 
1
 
 
 
CONCURRING OPINION BY MORENO, J. 
 
 
I concur in the judgment.  We were not asked to grant review to decide 
whether Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 
Cal.4th 945 (Powerine I) and Foster-Gardner, Inc. v. National Union Fire Ins. Co. 
(1998) 18 Cal.4th 857, should be overruled, nor were these issues addressed by the 
parties.  (Cf. Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 
287, 292 [noting the arguments of counsel and amici curiae that our decision in 
Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 should be 
reconsidered].)  I therefore concur under compulsion of the principles set forth in 
those cases.  I am uncertain, however, of the soundness of these two decisions.  
(See Powerine I, supra, 24 Cal.4th 945, 975 (dis. opn. of Kennard, J.); Foster-
Gardner, supra, 18 Cal.4th 857, 888 (dis. opn. of Kennard, J.).) 
 
 
 
 
 
 
MORENO, J. 
 
 
1
 
 
 
 
CONCURRING AND DISSENTING OPINION BY KENNARD, J. 
 
 
In my dissenting opinion in Certain Underwriters at Lloyd’s of London v. 
Superior Court (2001) 24 Cal.4th 945, 975, I explained why, in my view, the word 
“damages” in a standard comprehensive general liability insurance policy’s 
indemnity provision does not refer only to judgments rendered in judicial 
proceedings but includes also the costs of complying with an administrative order 
to mitigate and remediate the effects of environmental pollution.  Although the 
policies at issue here are excess/umbrella policies rather than comprehensive 
general liabilities policies, that difference is not material to the issue presented 
here.  Therefore, unlike the majority, I would not limit the word “damages” in the 
indemnity provisions of these policies to money ordered by a court.  Instead, I 
would hold that it includes expenses that the County of San Diego incurred to 
comply with the Regional Water Quality Control Board’s cleanup and abatement 
order. 
I agree with the majority, however, that the insurer was not obligated to 
indemnify the county for its costs of settling the claims of adjoining property 
owners, in the absence of the insurer’s consent to the settlements, at least to the 
extent those costs were not mandated by any administrative order. 
 
 
 
 
 
 
 
 
KENNARD, J. 
 
 
1
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion County of San Diego v. Ace Property & Casualty Ins. Co. 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 106 Cal.App.4th 349 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S114778 
Date Filed: August 29, 2005 
__________________________________________________________________________________ 
 
Court: Superior 
County: San Diego 
Judge: William R. Nevitt, Jr. 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
John J. Sansone, County Counsel, William A. Johnson, Jr., and William L. Pettingill, Deputy County 
Counsel; Massie, Berman & Millerick, LaSala & Millerick, Michael F. Millerick; Latham & Watkins, 
David L. Mulliken and Christine G. Rolph for Cross-complainant and Appellant. 
 
Anderson Kill & Olick, Alex D. Hardiman, William G. Passannante; Law Offices of Amy Bach and Amy 
Bach for United Policyholders as Amicus Curiae on behalf of Cross-complainant and Appellant. 
 
Zevnik Horton and David S. Cox for ITT Industries, Inc., and Rayonier, Inc., as Amici Curiae on behalf of 
Cross-complainant and Appellant. 
 
Daley & Heft and Margaret A. Hendrick for California State Association of Counties as Amicus Curiae on 
behalf of Cross-complainant and Appellant. 
 
Stanzler Funderburk & Castellon, Jordan S. Stanzler and William W. Funderburk, Jr., for California Cast 
Metals Association as Amicus Curiae on behalf of Cross-complainant and Appellant. 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Crowell & Moring, Jonathan H. Pittman, Mark D. Plevin; Chapin Shea McNitt & Carter, Edward D. 
Chapin, Maria C. Roberts, Shirley A. Gauvin; Berman & Aiwasian and Deborah A. Aiwasian for Cross-
defendants and Respondents. 
 
Wiley Rein & Fielding, Laura A. Fogan, John C. Yang, Paul J. Haase; Sinnott, Dito, Moura & Puebla, 
Randolph P. Sinnott and John J. Moura for Complex Insurance Claims Litigation Association as Amicus 
Curiae on behalf of Cross-defendants and Respondents. 
 
Hancock Rothert & Bunshoft, Patrick A. Cathcart, William J. Baron and Kathryn C. Ashton for London 
Market Insurers as Amicus Curiae on behalf of Cross-defendants and Respondents. 
 
 
 
2
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
David L. Mulliken 
Latham & Watkins 
600 Broadway, Suite 1800 
San Diego, CA  92101 
(619) 236-1234 
 
Jonathan H. Pittman 
Crowell & Moring 
1001 Pennsylvania Avenue, N.W. 
Washington, D.C.  20004 
(202) 624-2500