Opinion ID: 2629057
Heading Depth: 3
Heading Rank: 2

Heading: Foster-Gardner and Subsequent Cases

Text: Respondents assert that the hearing before the IBCA was not the trial of a suit as defined in the insurance policies. They generally rely on language in Foster-Gardner to argue that because the IBCA is not a court of law, any hearing before it is not the trial of a suit unless specifically indicated as such in the pertinent policy. ( Foster-Gardner, supra, 18 Cal.4th at pp. 887-888.) Ameron, in turn, contends that Foster-Gardner either does not apply to the IBCA's civil proceedings, or, if it does, we should overrule it to provide that the IBCA proceedings are considered the trial of a suit. In Foster-Gardner, the Colorado River Basin Regional Water Quality Control Board and the Riverside County Health Department ordered Foster-Gardner to perform a series of preliminary environmental site investigations at its wholesale pesticide and fertilizer business. ( Foster-Gardner, supra, 18 Cal.4th at pp. 861-862.) These investigations confirmed pervasive contamination at the site. ( Id. at p. 862.) California's Department of Toxic Substances Control (DTSC) found that during Foster-Gardner's ownership of the site, it disposed of hazardous substances that impacted groundwater, surface water, soil, and air. ( Ibid. ) The DTSC then issued Foster-Gardner an Imminent and Substantial Endangerment Order and Remedial Action Order (Order) that commanded it to remediate the site. ( Id. at pp. 861-863.) DTSC issued the Order under the Carpenter-Presley-Tanner Hazardous Substance Account Act (HSAA; Health & Saf. Code, § 25300 et seq.), which is California's version of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA; 42 U.S.C. § 9601 et seq.; Foster-Gardner, supra, 18 Cal.4th at p. 861). The Order required Foster-Gardner to continue monitoring contamination at the site, to prepare and submit a remediation plan for DTSC approval, and, after receiving that approval, to implement the plan to remediate the site. ( Foster-Gardner, supra, at pp. 861-863.) Foster-Gardner tendered its proposed defense to the Order to four of its insurers, who either refused to defend or agreed to defend subject to a reservation of rights. ( Foster-Gardner, supra, 18 Cal.4th at pp. 863-864.) All had issued CGL policies containing essentially similar language; none of the policies defined the term suit or claims. ( Ibid. ) Foster-Gardner brought suit against its insurers, asserting they were obligated to defend, and seeking summary adjudication as to their obligation. ( Id. at p. 864.) However, the trial court disagreed and granted the insurers' cross-motions for summary judgment based on its determination that the Order was not a suit. ( Ibid. ) The Court of Appeal reversed the judgment, interpreting the policies using a `nontechnical . . . analysis' ( id. at p. 865) to find the Order was the `functional equivalent' of a suit that triggered the insurers' duty to defend ( id. at p. 879). Rejecting a functional or hybrid methodology that other states had adopted in interpreting the meaning of the term suit ( Foster-Gardner, supra, 18 Cal.4th at pp. 871-874), this court reversed the Court of Appeal judgment, holding that the term in the insurance policies at issue referred, unequivocally, to a lawsuit or, more accurately, a civil action commenced by filing a complaint. ( id. at p. 878). We cited two authorities: Black's Law Dictionary and Webster's Ninth New Collegiate Dictionary. Black's defines suit as `[a] generic term, of comprehensive signification, referring to any proceeding by one person or persons against another or others in a court of law in which the plaintiff pursues, in such court, the remedy which the law affords him . . . .' ( Foster-Gardner, supra, at p. 879, quoting Black's Law Dict. (6th ed. 1990) p. 1434, col. 1.) Similarly, Webster's defines suit as `an action or process in a court for the recovery of a right or claim.' ( Foster-Gardner, supra, at p. 879, quoting Webster's New Collegiate Dict. (9th ed. 1987) p. 1180.) (4) In considering the coverage issue, we observed that other jurisdictions take different approaches to interpreting CGL policies. Some take a functional view, holding that the receipt of any EPA-type cleanup letter or order constitutes a suit. (See Aetna Casualty & Surety Co., Inc. v. Pintlar Corp. (9th Cir. 1991) 948 F.2d 1507, 1517; Michigan Millers Mutual Ins. v. Bronson Plating (1994) 445 Mich. 558 [519 N.W.2d 864, 872].) Other states take a hybrid approach, holding that an agency's letter, order, or precomplaint action is a suit if it is sufficiently coercive and threatening. (See Michigan Millers, supra, 519 N.W.2d at p. 874, fn. 8 (dis. opn. of Griffin, J.) [mere notice of alleged contamination does not trigger coverage under the hybrid test].) Foster-Gardner sided with the jurisdictions taking the third, `literal meaning,' approach and held that a suit refers to an actual court complaint only. ( Foster-Gardner, supra, 18 Cal.4th at pp. 869, 879.) This view emphasized that the insurer has undertaken to defend suits, not mere threats `to initiate legal action' ( id. at p. 882) or a `functional equivalent' ( id. at p. 879). Foster-Gardner reasoned that the literal meaning approach preserves and underscores the distinction between a suit and a claim, as the insurer is required to defend the former but has the discretion to investigate the latter. ( Id. at pp. 878, 880.) Under this literal interpretation, and in the absence of a corresponding definition within a CGL policy, Foster-Gardner determined that a suit is a proceeding brought in a court of law by the filing of a complaint. ( Id. at p. 878.) As the Court of Appeal observed, we extended our `bright-line rule' ( Foster-Gardner, supra, 18 Cal.4th at p. 887) in Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 960-961 [103 Cal.Rptr.2d 672, 16 P.3d 94] ( Powerine I ), to the insurer's duty to indemnify the insured under the same standard CGL insurance policies. Powerine I limited the insurer's duty to indemnify for all sums the insured was `legally obligated to pay as damages' to sums ordered by a court, as opposed to expenses required by an agency's cleanup order. ( Id. at p. 951.) Like policies in Foster-Gardner, the policies in Powerine I used the terms suit and damages but did not define either. Next, in Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377 [33 Cal.Rptr.3d 562, 118 P.3d 589] ( Powerine II ) we emphasized that the specific language used in the policies is determinative; thus, where the coverage provisions included the word expenses, as well as damages, the policy required the insurers to indemnify the insured for cleanup of contaminated sites. ( Id. at pp. 383, 398-405.) We also looked to specific policy language in County of San Diego v. Ace Property & Casualty Ins. Co. (2005) 37 Cal.4th 406 [33 Cal.Rptr.3d 583, 118 P.3d 607], but reached the opposite conclusion to find no coverage because the literal insuring language of the excess/umbrella policies in that case neither referenced nor incorporated the term expenses. ( Id. at p. 411.) In addition, the Court of Appeal considered two appellate decisions applying our authority. ( Lockheed Martin Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 187, 200 [35 Cal.Rptr.3d 799] [concluding that insuring phrase `any suit or action' referred to a court proceeding, and thus there was no coverage for agency cleanup orders]; CDM Investors v. Travelers Casualty & Surety Co. (2006) 139 Cal.App.4th 1251, 1263 [43 Cal.Rptr.3d 669] [insurance clause for `ultimate net loss' which the insured was obligated to pay `as damages' (italics omitted) did not provide coverage for environmental response costs incurred pursuant to an administrative order because the `as damages' phrase limited the duty to court proceedings].) Applying these cases, the Court of Appeal discussed the coverage issues for the multiple types of policies the 11 insurers provided to Ameron over the years. In parts I. through IX. of the opinion, the Court of Appeal found coverage under some insurance policies it likened to that in Powerine II, but found no coverage as to other policies more akin to the Foster-Gardner and Powerine I policies. Of importance here is part I.A. There, the Court of Appeal considered a primary CGL policy issued by INA for the years 1988 to 1989. That policy indemnified Ameron for `all sums which [Ameron] shall become legally obligated to pay as damages' and provided a defense duty for `any suit against the Insured seeking damages ....' The insuring provision also stated the insurer `may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.' `Suit' and `claim' are not defined in the policy. The Court of Appeal observed that the INA policy language was substantially the same as the Foster-Gardner and Powerine I policy language. Although the court held that Foster-Gardner precluded coverage under that INA policy's definition of suit, it did so with obvious dissatisfaction. The Court of Appeal observed that Ameron's IBCA actiona quasi-judicial administrative agency board hearing conducted by an administrative law judgewas significantly different from the environmental cleanup orders of Foster-Gardner and Powerine I. Indeed, the court found much to commend in Ameron's contention that the IBCA hearing is a suit. It also found compelling a similar distinction embraced in Justice Spencer's concurring opinion in Fireman's Fund Ins. Co. v. Superior Court (1997) 65 Cal.App.4th 1205 [78 Cal.Rptr.2d 418], opining that merely an investigative administrative proceeding seeking a negotiated settlement and a consent decree did not qualify as a suit. ( Id. at p. 1222 (conc. opn. of Spencer, P. J.).) But the common, ordinary meaning of `suit' is broad enough to cover ... adjudicatory administrative hearings.... ( Ibid. (conc. opn. of Spencer, P. J.).) In eventually denying Ameron all coverage under those insurance policies that did not define the term suit, the Court of Appeal observed that the IBCA proceeding is trial-like in nature, and that Foster-Gardner 's concerns of uncertainty are not present where the administrative action is adjudicatory. The court noted that [t]he IBCA proceeding at issue here was, by any measure, an adjudicative administrative hearing. It was commenced by the filing of a notice and complaint and was presided over by a judge governed by federal evidence rules and charged with setting damages for an alleged contract breach. The court concluded that because the administrative proceedings in Foster-Gardner involved a pollution remediation order, it could fairly regard its broad rule as dicta when applied to the very different administrative proceedings in this case. But the court observed that `[e]ven if properly characterized as dictum, statements of the Supreme Court should be considered persuasive.' In sum, the Court of Appeal concluded that although a contractor like Ameron would reasonably expect the IBCA litigation to be considered a suit seeking damages, Foster-Gardner 's bright-line rule compelled the court to interpret the word suit as used in that policy as limited to a court proceeding. The Court of Appeal addressed a wide range of insurance policy language and discussed at length the coverage provisions in each of those policies that were applicable to the appeal. Ameron's petition for review, however, focused on the narrow but fundamental question whether an adjudicative administrative action like the IBCA action is a suit for purposes of coverage under a liability policy. Ameron asserts that the rule in Foster-Gardner and its progeny does not apply to the IBCA action. That action, Ameron claims, is a suit even under Foster-Gardner 's bright-line rule approach. The specific post- Foster-Gardner question  whether a liability policy covers adjudicative administrative hearings like the hearing before the IBCA under policies that do not specifically define suit or limit the application of coverage to preclude administrative adjudicative hearings  is one of first impression.