Court Opinion

ID: 5118570
Source: CourtListenerOpinion
Date Created: 2021-10-14 22:02:57.474344+00
Date Added: 2024-06-11T08:22:07.978496
License: Public Domain

Filed 10/14/21 Nat. Union Fire Ins. Co. etc. v. Mid-Century Ins. Co. CA1/5
       NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
opinions not certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         FIRST APPELLATE DISTRICT

                                    DIVISION FIVE

 NATIONAL UNION FIRE
 INSURANCE COMPANY OF
 PITTSBURGH, PA.,                                      A156889
      Plaintiff and Respondent,
                                                        (City & County of San
 v.                                                     Francisco Super. Ct. No.
 MID-CENTURY INSURANCE                                  CGC-14-540942)
 COMPANY, et al.,
    Defendants and
 Appellants.

        CalPortland Company (CalPortland) has been sued many
times over the years by claimants alleging it is legally liable for
their asbestos exposure. Since 2012, CalPortland has been
defended and indemnified by National Union Fire Insurance
Company of Pittsburgh, PA. (National Union). National Union
obtained a judgment against Continental Insurance Company
(Continental) and Mid-Century Insurance Company (Mid-
Century) establishing their obligation to contribute to past and
future defense costs and future indemnity. With one adjustment
to the allocation of these costs, we affirm.

                                                1
             I. FACTS AND PROCEDURAL HISTORY
      CalPortland manufactures and distributes cement products
for construction purposes, at least two of which contain
asbestos—Colton Gun Plastic Cement1 and Arizona Portland
Mortar Cement. Since 1983, CalPortland has been named as a
defendant in more than 1,700 asbestos-related lawsuits.
      Truck Insurance Exchange (Truck) issued primary
insurance policies with aggregate limits of $300,000 or $100,000.
Mid-Century issued nine umbrella polices during that same
period which had either a $200,000 or $400,000 limit per
occurrence, and which sat directly above the Truck policies,
providing coverage for “the excess of loss over $300,000 [or
$100,000] for each and every accident or series of accidents
arising out of one occurrence. . . up to $200,000 [or $400,000]. . . .”
      National Union provided CalPortland with liability
insurance coverage for the five-month period from February 1,
1985–July 1, 1985. The policy had a $500,000 per occurrence
limit but lacked any aggregate limit.
      Continental issued a primary policy to CalMat Co. (CalMat)
and numerous affiliated companies including CalPortland for the
period of July 1, 1985–July 1, 1986.2 This policy had indemnity
limits of $1,000,000 per occurrence and in the aggregate,

      1Gun plastic cement is a different product than plastic
cement, which is also manufactured by CalPortland. (Collin v.
CalPortland Co. (2014) 228 Cal.App.4th 582, 589.)

      2CalPortland and an entity named Conrock merged to form
CalMat, and both CalPortland and CalMat were named insureds
under the Continental policy.

                                  2
exclusive of defense costs, and contained an endorsement
excluding coverage for bodily injury and property damage arising
from the use of a gun plastic product. It also contained an
exclusion for claims arising from exposure to asbestos on the
premises. The Continental policy had a retrospective premium
plan, which allowed Continental to calculate the premium based
on losses actually incurred.
      Beginning in the 1990s, CalPortland’s asbestos-related
defense and indemnity costs were paid on a pro-rata,
time-on-the-risk3 basis by four primary insurance carriers: (1)
National Union; (2) Truck; (3) OneBeacon Insurance Company,
formerly known as Commercial Union Insurance Company
(OneBeacon); and (4) Continental. Truck acted as lead primary
insurer and assumed CalPortland’s defense for several years.
Mid-Century began paying a pro-rata share of indemnity as
Truck’s policies exhausted. OneBeacon declared exhaustion in
June 2012. The declarations of exhaustion by Truck and
OneBeacon have not been challenged in this case.
      In 2012, with the exhaustion of the Truck policies
imminent, CalPortland gave notice that it was selecting National

      3 The “ ‘time on the risk’ ” method of allocating liability
among primary insurers covering the same liability has been
defined as “[a]pportionment based upon the relative duration of
each primary policy as compared with the overall period during
which the ‘occurrences’ ‘occurred’. . . .” (Stonewall Ins. Co. v. City
of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1861
(Stonewall).)

                                  3
Union to provide a defense.4 At approximately the same time,
Mid-Century stopped contributing to the costs of defense and
indemnity, claiming that its umbrella policies were subject to
aggregate limits and that those limits had exhausted.
Continental also stopped contributing to the costs of defense or
indemnity in 2012. It offered to pay a pro rata share (based on its
historic percentage of contribution) until it was able to determine
in any given case whether the gun plastic exclusion applied, but
National Union wanted it to contribute a greater amount and did
not accept the offer. From June 2012 to September 2017,
National Union paid 100 percent of the defense and indemnity
costs on CalPortland’s behalf.
      National Union brought the current action seeking
declaratory judgment, contribution, equitable subrogation and
reimbursement against Continental and Mid-Century.5 The
court held a multi-phase bench trial between 2016 and 2018, and
it issued an individual statement of decision after each phase.
      In Phase I (Continental) National Union sought a
declaration that Continental had a duty to defend and indemnify
CalPortland. The court rejected Continental’s argument that its

      4  National Union was selected because its policy did not
have aggregate limits or exclusions for premises liability or gun
plastic.

      5The first amended complaint filed in January 2015 also
sought declaratory relief and reimbursement against CalPortland
based on the recovery of retention premiums and a declaration
that CalMat owed it a duty of indemnification as a subrogee of
CalPortland. These claims are not before us.

                                 4
policy did not cover CalPortland due to the gun plastic exclusion.
It ruled that the underlying claims were potentially covered by
the underlying policy and Continental’s duty to defend “continues
unless and until it is established that the gun plastic product is
the exclusive [CalPortland] product that allegedly caused the
underlying plaintiff’s injury.”
        In Phases I (Mid-Century) and II, the court found (1) the
Mid-Century policies did not have aggregate limits; (2)
exhaustion of the Truck policies triggered the Mid-Century
policies, regardless of whether there had been “horizontal”
exhaustion of all primary policies; and (3) the statute of
limitations did not bar National Union’s contribution claims. The
court concluded that Mid-Century’s policies included a duty to
defend, which commenced when the Truck policies exhausted by
2012.
        In the Final Phase of the trial, the court addressed the
allocation of defense costs and indemnity among the parties and
the question of whether National Union was entitled to
prejudgment interest. The court adopted a pro-rata
“time-on-the-risk” allocation method, with a “slight modification”
of past defense costs to be paid by Continental: a 10 percent
reduction to reflect that had Continental kept contributing to
defense costs, it would likely have been excused from
contributing in many cases where its gun plastic exclusion
applied. The court calculated the percentages that each carrier
would owe for past and future defense costs and future indemnity

                                   5
costs, recognizing that not all the carriers were liable for all of
the risks.
      The court entered a judgment awarding National Union
$823,968.32 in damages against Continental, plus prejudgment
interest of $258,176.93. It awarded National Union
$8,215,534.24 against Mid-Century, plus prejudgment interest of
$2,523,477.16. Continental appealed and Mid-Century filed a
cross-appeal
                               II. DISCUSSION
     i. General Principles Applicable to Equitable Contribution
      “ ‘In the insurance context, the right to contribution arises
when several insurers are obligated to indemnify or defend the
same loss or claim, and one insurer has paid more than its share
of the loss or defended the action without any participation by the
others. Where multiple insurance carriers insure the same
insured and cover the same risk, each insurer has independent
standing to assert a cause of action against its coinsurers for
equitable contribution when it has undertaken the defense or
indemnification of the common insured. . . . The purpose of this
rule of equity is to accomplish substantial justice by equalizing
the common burden shared by coinsurers, and to prevent one
insurer from profiting at the expense of others.’ ” (Scottsdale Ins.
Co. v. Century Surety Co. (2010) 182 Cal.App.4th 1023,
1031–1032 (Scottsdale II).)
      Equitable contribution “assumes the existence of two or
more valid contracts of insurance covering the particular risk of
loss and the particular casualty in question.” (Fireman’s Fund

                                  6
Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279,
1295.) If one insurer has no duty to defend or indemnify, then it
cannot be held liable for equitable contribution. (See, e.g.,
Community Redevelopment Agency v. Aetna Casualty & Surety
Co. (1996) 50 Cal.App.4th 329, 332, 342 [where insurer's duty to
defend was never triggered, it had no obligation to contribute to
insured’s defense costs].)
                        ii. Continental’s Appeal
      A. Share of Past Defense Costs
   1. Underlying Facts
      The trial court concluded in Phase I of the trial that
Continental had a duty to contribute to defense costs in an
underlying lawsuit unless and until it was established that the
sole basis for CalPortland’s liability was its production of a gun
plastic product that fell within the gun plastic exclusion under
Continental’s policy. In anticipation of the Final Phase of the
trial (allocation), the parties filed a set of stipulated facts in May
2018 that included a list of the dates (between 2009 and 2015) in
which gun plastic had been determined to be the only
CalPortland product at issue in 100 underlying lawsuits.6

      6Paragraph 13 of the Stipulation provided, “Exhibit EX-
2000 attached hereto identifies the dates on which the parties
agree that gun plastic cement was identified as the exclusive
CalPortland Company product that allegedly caused the
underlying plaintiff’s injury in certain of the Underlying Suits on
EX-NU321. Documents identifying gun plastic cement, including
the documents relied upon by the Parties to determine the date
on which gun plastic was identified as the exclusive CalPortland
Company product that allegedly caused the underlying plaintiff’s

                                   7
Continental argued at trial that the trial court should not require
it to contribute defense costs beyond these dates because at that
point there was no possibility of coverage and its duty to defend
and indemnify had ceased. (See Buss v. Superior Court (1997) 16
Cal.4th 35, 46 (Buss) [insurer does not have duty to defend
further when it is shown that no claim can be covered].)
      The trial court disagreed, reasoning that Continental had a
duty to defend the lawsuits at their outset and “an insurer can
properly terminate disputed defense obligations in only one
way—institution of declaratory relief proceedings, where the
appropriate facts are brought to light so that a court can
determine whether the potential for indemnity continues.”
Continental had not brought a declaratory relief action on or
about the dates that gun plastic was discovered to be the sole
CalPortland product at issue, and the court ruled it could not
retrospectively rely on the 2018 stipulation as a substitute for
that procedure. Continental argues this aspect of the ruling was
erroneous, and that it was entitled to a full offset for defense
costs incurred after it was determined that gun plastic was the
sole CalPortland product at issue. We agree.

injury, and the date of each document, are also reflected on
Exhibit EX-2000. The parties dispute the legal issue of when, if
at all, any obligation Continental may owe to National Union for
equitable contribution terminated after gun plastic cement was
identified as the exclusive CalPortland Company product that
allegedly caused the underlying plaintiff’s injury in the actions
identified as Exhibit EX-2000.”

                                  8
   2. Standard of Review
      A trial court’s order regarding equitable contribution
between insurers is generally reviewed for abuse of discretion.
(Centennial Ins. Co. v. United States Fire Ins. Co. (2001) 88
Cal.App.4th 105, 111.) Here, however, the challenged aspect of
the court’s ruling arises from its determination that the
stipulation to facts necessary to prove an exclusion under an
insurance policy did not terminate an insurer’s duty to defend
absent a declaratory relief action. This is a question of law
subject to de novo review. (Certain Underwriters at Lloyds,
London v. Arch Specialty Ins. Co. (2016) 246 Cal.App.4th 418,
429 [equitable contribution may call for judicial discretion, but de
novo review is proper when an issue is decided as matter of law].)
      Even if we were to agree with National Union that the
proper standard of review is abuse of discretion, “ ‘[t]he scope of
discretion always resides in the particular law being applied; i.e.,
in the “legal principles governing the subject of the action. . . .”
Action that transgresses the confines of the applicable principles
of law is outside the scope of discretion and we call such action an
“abuse of discretion.” ’ ” (GuideOne Mutual Ins. Co. v. Utica
National Ins. Group (2013) 213 Cal.App.4th 1494, 1501.) If the
trial court was wrong about whether a declaratory relief action
was required to terminate the duty to defend, this was an abuse
of discretion.
   3. Analysis
      The duty to indemnify runs to claims that are actually
covered, while the duty to defend “runs to claims that are merely

                                   9
potentially covered.” (Buss, supra, 16 Cal.4th at p. 46.) “Implicit
in this rule is the principle that the duty to defend is broader
than the duty to indemnify; an insurer may owe a duty to defend
its insured in an action in which no damages ultimately are
awarded.” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th
1076, 1081.)
      The duty to defend generally lasts “until the third party
litigation ends, unless the insurer sooner proves, by facts
subsequently developed, that the potential for coverage which
previously appeared cannot possibly materialize, or no longer
exists.” (Scottsdale Ins. Co. v. MV Transportation (2005) 36
Cal.4th 643, 657 (Scottsdale I).) “Normally, the insurer must
defend until the underlying action is resolved by settlement or
judgment. However, circumstances may change such that there
is no longer a potential for coverage by, for example, (1) the
discovery of new or additional evidence, (2) a narrowing or partial
resolution of claims in the underlying action, or (3) the
exhaustion of the policy. [Citations.] When any such
circumstances exist, an insurer may bring a declaratory relief
action, in order to conclusively establish that there is no longer a
duty to defend.” (Great American Ins. Co. v. Superior Court
(2009) 178 Cal.App.4th 221, 234–235, fn. omitted.)
      But although it is typical for an insurer to seek a judicial
declaration that it has no duty to defend, “there is no particular
requirement that an insurer ask the permission of a trial court
before withdrawing from a defense, once the insurer has
determined that no potential for indemnification liability exists.

                                 10
Although—in order to avoid any possibility of liability for bad
faith—it may be prudent for an insurer to obtain a declaratory
judgment that it has no defense duty before unilaterally
withdrawing from a defense, it is not required to do so.” (Ringler
Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th
1165, 1192 (Ringler); see also Minkler v. Safeco Ins. Co. of
America (2010) 49 Cal.4th 315, 320, 327, fn. 4 (Minkler) [duty to
defend may terminate if an insurer’s investigation shows an
exclusion applies].)
      In this case, the parties stipulated that as of certain dates,
in certain lawsuits, gun plastic cement was identified as the
exclusive CalPortland Company product that allegedly caused
the underlying plaintiff’s injury. This fact had the effect of
triggering the gun plastic exclusion in Continental’s policy as of
the date specified and was binding as to the parties. (Bechtel
Corp. v. Superior Court (1973) 33 Cal.App.3d 405, 411–412
[stipulation in proper form is binding upon the parties].)
      Although Continental could have brought a declaratory
relief action or a motion for summary judgment on these dates for
the purpose of obtaining a ruling that it had no duty to defend, it
was not required to do so if in fact there was no coverage.
(Ringler, supra, 80 Cal.App.4th at p. 1192.) By stipulating to the
facts necessary to trigger the exclusion as of a specified date, the
parties obviated the need for any type of judicial declaration on
this issue. Contrary to the suggestions in the nonbinding federal
authorities cited by the trial court in its statement of decision
(Travelers Indem. of Illinois v. Ins. Co. of N. America (S.D. Cal.

                                 11
1995) 886 F.Supp. 1520, 1527; Twin Star Ventures, Inc. v.
Universal Underwriters Insurance Company (N.D. Cal., Mar. 18,
2014, No. 10-4284 MMC) 2014 WL 1092842, at *2), declaratory
relief or summary judgment was not required. (Ringler, supra,
80 Cal.App.4th at p. 1192.)
      National Union acknowledged at the last phase of the trial
that if Continental had been defending CalPortland it would have
been entitled to stop doing so when gun plastic was identified as
the sole CalPortland product at issue, but it argued that since
Continental had not been defending, it was not entitled to rely on
the gun plastic exclusion. We disagree. Continental would not be
entitled to retroactively claim that it had no duty to contribute to
defense costs incurred before gun plastic was determined to be
the only CalPortland product at issue, because before the date
that gun plastic was identified, there was still a potential for
coverage and a duty to defend. (Buss, supra, 16 Cal.4th at p. 46;
Scottsdale I, supra, 36 Cal.4th at p. 657; Fireman’s Fund
Insurance Co. v. Chasson (1962) 207 Cal.App.2d 801, 807.) But it
was relieved of the duty to defend as of the dates specified in the
stipulation, and is not liable for defense costs beyond that date.
(Ibid.) National Union cites no controlling California authority to
support its suggestion that by failing to defend, Continental was
estopped from asserting the gun plastic exclusion, even when the
parties agreed to the facts giving rise to the exclusion. (See
Safeco Ins. Co. of America v. Superior Court (2006) 140
Cal.App.4th 874, 879–881 [in an equitable contribution action,

                                 12
nonparticipating insurer may raise coverage defenses as
affirmative defenses although it has burden of proof in doing so].)
      We emphasize that this is an action for contribution among
insurers. Whatever duties an insurer might owe the insured
before attempting to withdraw from an ongoing defense after
discovering there is no coverage, the equities of this case are
considerably different. There is no reason not to bind the parties
to their stipulation regarding gun plastic.
      B. Effect of Retrospective Premiums
      The Continental policy contains a retrospective premium
endorsement under which the premium would be calculated
based on losses actually incurred. The amount of the premium
that could be billed included actual defense and indemnity costs,
up to a maximum of $250,000 per occurrence plus taxes and fees,
and was subject to a maximum of 1.4 times the standard
premium, of which about $1.3 million remained at the time of
trial. Continental argues it cannot be required to pay equitable
contribution for costs within this amount, because to do so would
effectively require the insured to contribute to its own defense.
We reject the claim.
      Continental relies primarily on Aerojet-General Corp. v.
Transport Indemnity Co. (1997) 17 Cal.4th 38, 71–73 (Aerojet).
There, the insured was covered by a number of policies, including
one “fronting” policy in which the insured assumed all

                                 13
responsibility for payment of defense costs and indemnity.7 (Id.
at pp. 69–70.) In such a situation, the court held, an insured
could not be required to contribute in an action for equitable
indemnity because only insurance companies could be held liable
for equitable indemnity and contribution. (Id. at pp. 71–73.)
“Although insurers may be required to make an equitable
contribution to defense costs among themselves, that is all: An
insured is not required to make such a contribution together with
insurers” when a fronting policy is involved. (Id. at p. 72.)
Aerojet recognized that fronting policies were a form of
self-insurance, which is really not insurance at all. (Ibid., fn. 20.)
      Continental argues the retrospective premium in this case
was also a form of self-insurance and is indistinguishable from
the fronting policy in Aerojet; consequently, awarding equitable
indemnity for any amount for which it was entitled to seek
retrospective premiums from CalPortland is the same thing as
ordering equitable indemnity against an insured. We disagree.
Although retrospective premiums might be broadly characterized

      7 “Fronting policies. . . guarantee [] the claims of injured
third parties with the insured being liable to the fronting insurer
for reimbursement of anything it might pay out by way of both
indemnification and defense.” (Padilla Construction Co., Inc. v.
Transportation Ins. Co. (2007) 150 Cal.App.4th 984, 1001, fn. 17.)
A “ ‘fronting policy’ ” is “a policy which does not indemnify the
insured but which is issued to satisfy financial responsible laws
of various states by guaranteeing to third persons who are
injured that their claims . . . will be paid.” (Columbia Casualty
Co. v. Northwestern Nat. Ins. Co. (1991) 231 Cal.App.3d 457,
471.)

                                 14
as a form of self-insurance in some contexts, the right to collect
retrospective premiums from CalPortland8 did not obviate
Continental’s duty to defend and indemnify in the first instance.
The Continental policy did in fact transfer risk from the insured
to the insurer, even if the insurer could subsequently bill the
insured additional premiums to make up the cost of claims
actually made. (See Legacy Vulcan Corp. v. Superior Court
(2010) 185 Cal.App.4th 677, 694 [self-insured retention by which
insured agreed to bear certain amount of loss before coverage
would arise under policy did not limit insurer’s duty to defend].)
In Aerojet, by contrast, the fronting policy placed the obligation to
pay defense and indemnity costs on the insured. (Aerojet, supra,
17 Cal.4th at p. 71.)
      Moreover, in Aerojet, the insurance companies were directly
seeking contribution for defense costs from an insured based on
its obligations under a fronting policy. (Aerojet, supra, 17 Cal.4th
at pp. 71–72.) Here, National Union is seeking contribution not
from the insured, but from Continental, which, the court found,
“has exactly the same defense obligations as the other insurers.”
The point of Aerojet is that an insured is not a proper party to an
action for equitable contribution because it is not an insurer even
when it has some variety of self-insurance. (Ibid.) Although
Aerojet forbids a contribution action directly against an insured,
even when it is self-insured through a fronting policy, it does not

      8 We do not need to decide whether the trial court was
correct that only CalMat, rather than CalPortland, was
responsible for the retrospective premiums.

                                 15
insulate an insurer from paying its share of defense costs in
claims it is obligated to defend.
      Continental relies on two federal district court opinions
which stand for the proposition that an order against an insurer
in an equitable contribution action may not allocate costs in such
a way that liability is imposed on the insured. (Detrex Chem.
Indust., Inc. v. Employers Ins. (N.D. Ohio 1990) 746 F.Supp.
1310, 1325; Air Prods. & Chems., Inc. v. Hartford Acc. & Indem.
Co. (E.D. Pa. 1989) 707 F.Supp. 762, 770–771, aff’d. in part &
vacated in part (3d Cir. 1994) 25 F.3d 177.) But under Aerojet,
what is forbidden is not the imposition of any liability upon the
insured, but the application of equitable indemnity principles to
an insured. Any attempt by Continental to recover the
retrospective premium would be based on the contract between
Continental and CalPortland, not on principles of equitable
contribution. Nothing in that decision precludes an insurer from
seeking to directly recover from its insured under the insurance
contract. Should Continental seek to recover its retrospective
premium from CalPortland (or an affiliated entity) there might
well be defenses to that effort—but that is not before us.9
      C. Motion to Preclude National Union from Abandoning
          Indemnity Claim
      National Union sought reimbursement for past defense
costs but did not seek past indemnity costs from Continental or
Mid-Century. Before the final phase of the trial, Continental

      9The evidence suggests that CalPortland has opposed
paying the retrospective premiums.

                                    16
filed a motion asking the court to preclude National Union from
“abandoning” its past indemnity claims. It argued that allowing
CalPortland to forego a claim for past indemnity would change
the nature of the action and be inequitable to Continental. The
court denied this motion in its statement of decision, concluding
“Continental cannot compel National Union to pursue a claim it
does not wish to pursue, and as to which it has given timely
notice it will not pursue.” The court noted that National Union
had advised the parties as early as 2015 (three years before the
final phase of trial) that it would not pursue a claim for past
indemnity, and indeed, it indicated in an interrogatory response
that it was not presently aware of past indemnity costs for which
it sought reimbursement.
      While it may at first blush appear unusual that a party will
complain when its opponent elects not to pursue a claim against
it, Continental’s reason for doing so here is apparent.
Continental’s policy had a $1 million aggregate limit exclusive of
defense costs. When Continental reached the $1 million
aggregate amount through indemnity payments, it would cease to
have any further liability to defend or indemnify under the policy:
“[Continental] shall not be obligated to pay any claim or
judgment or to defend any suit after the applicable limit of
[Continental]’s liability has been exhausted by payment of
judgments or settlements.” Thus, by not pursuing a claim for
past indemnity, which might have caused the aggregate limit to

                                 17
exhaust, National Union stretched out the time that Continental
would be liable to contribute defense costs.10
      Continental cites no authority for the proposition that the
court could compel National Union to bring a claim for past
indemnity. True, the decision not to seek past indemnity appears
to have prolonged the time that Continental would remain liable
for defense costs. But this does not mean the court had the power
to control what was apparently a strategic decision on the part of
National Union. Continental could have avoided this result by
contributing to the defense all along, which would have entitled it
to intervene in the various settlements, possibly exhausting its
policy limits. (See United Service Automobile Assn. v. Alaska Ins.
Co. (2001) 94 Cal.App.4th 638, 644.)
      Continental argues that National Union’s decision to forego
a claim for contribution of past indemnity costs effectively meant
there was no possibility of coverage for those costs under the
policy. It argues that if there was no possibility of coverage,
there was no duty of defense, and it could not be required to
contribute to defense costs when contribution for indemnity was
not sought. We disagree. Whether there was a potential for
coverage is a different question than whether contribution for
indemnity will be sought. One does not depend on the other and
Continental cites no law to the contrary.

      10Continental entered the final phase of the trial having
already contributed $835,422 toward the settlement of
CalPortland’s liabilities, leaving only $164,578 of the aggregate
amount that it could be required to pay for indemnity costs.

                                 18
      D. Prejudgment Interest
      Continental argues the court erred by including mandatory
prejudgment interest in the judgment. Having reviewed the
claim independently (Watson Bowman Acme Corp. v. RGW
Construction, Inc. (2016) 2 Cal.App.5th 279, 296), we disagree.
      Civil Code section 3287, subdivision (a), provides for the
recovery of mandatory prejudgment interest when damages are
“certain, or capable of being made certain by calculation.” The
primary purpose of this provision “ ‘is to provide just
compensation to the injured party for loss of use of the
[underlying] award during the prejudgment period—in other
words, to make the plaintiff whole as of the date of the injury.’ ”
(Flethez v. San Bernardino County Employees Retirement Assn.
(2017) 2 Cal.5th 630, 643.)
      Under Civil Code section 3287, prejudgment interest is
allowable where the amount due plaintiff is fixed by the terms of
a contract. “ ‘If damages are “certain,” interest must be awarded
as a matter of right.’ ” (State of California v. Continental Ins. Co.
(2017) 15 Cal.App.5th 1017, 1038 (Continental II).) Courts
generally apply a liberal construction in determining whether a
claim is certain. (Ibid.)
      Like the trial court, we are guided by Continental II, in
which a mandatory award of prejudgment interest was affirmed
in an action by the state seeking to recover costs from several of
its insurers for cleanup of a hazardous waste site despite there
being many unknowns at the time before judgment. (Continental
II, supra, 15 Cal.App.5th at pp. 1038–1039.) The court noted that

                                 19
in insurance cases, “what has been treated as controlling is
whether the uncertainty is legal or factual.” (Id. at p. 1039.)
“What is critical is not whether the defendant actually knows
how much it should pay; rather it is whether the defendant could
have calculated how much it should pay, if it had known how the
court would ultimately rule on the legal issues.” (Id. at p. 1043;
see also Hartford Accident & Indemnity Co. v. Sequoia Ins. Co.
(1989) 211 Cal.App.3d 1285, 1290–1296, 1307 [prejudgment
interest proper in contribution action where amount of damages
are not contingent and only the order of the policies’ priority was
uncertain]; Fireman’s Fund Ins. Co. v. Allstate Ins. Co. (1991) 234
Cal.App.3d 1154, 1172–1174; Shell Oil Co. v. Nat’l Union Fire
Ins. Co. (1996) 44 Cal.App.4th 1633, 1651.)
      In this case, the award of damages was based on past
defense costs, whose amount was undisputed. Although it was
not clear going into this action exactly how these defense costs
would be allocated, the only dispute was of a legal, not factual
nature. If Continental had known how the court would
ultimately rule, it could have calculated its liability as the only
issue was what portion it should pay of the defense costs, and not
the amount of those costs. (Continental, supra 15 Cal.App.5th at
p. 1043.) Mandatory prejudgment interest was appropriate.
      The decision in St. Paul Mercury Ins. Co. v. Mountain West
Farm Bureau Mutual Ins. Co. (2012) 210 Cal.App.4th 645, 665–
666 (St. Paul), on which Continental relies, does not require a
different result. There, the court reversed an award of
prejudgment interest against a subcontractor’s insurer in an

                                 20
action by the general contractor’s insurer for equitable
contribution. The underlying action involved construction defect
litigation and there were factual questions pertaining to the
subcontractor’s work that were relevant in assessing whether the
subcontractor’s insurer was obligated to defend and indemnify
the general contractor as an additional named insured, and
whether it should therefore contribute to amounts paid by the
general contractor’s insurer. (Id. at pp. 652–665.) Although the
amount of the settlement with the injured parties was not in
dispute, the subcontractor’s level of fault was, and this created a
factual issue which rendered the amount of damages uncertain
and precluded an award of prejudgment interest. Continental II
distinguished St. Paul on this basis and found that it did not
preclude an award of prejudgment interest when the measure of
damages turns exclusively on legal issues. (Continental II, supra,
15 Cal.App.5th at p. 1041.)
                     iii. Mid-Century’s Appeal
      A. Aggregate Limit
      An “aggregate” limit on coverage is the total limit that
applies regardless of the number of claims submitted for the
policy period. (See Bay Cities Paving & Grading, Inc. v. Lawyers’
Mutual Insurance Co. (1993) 5 Cal.4th 854, 861–862.) The trial
court rejected Mid-Century’s argument that its policies contained
such a limit, which had been reached by the time it stopped
contributing to CalPortland’s defense in 2012. The court
determined that the Mid-Century policy did not on its face
contain an aggregate limit, and instead contained language

                                 21
clearly stating that there was no limit on the number of accidents
for which claims could be made. It declined to consider extrinsic
evidence suggesting the parties understood the Mid-Century
policies to contain aggregate limits when such an interpretation
was contrary to the plain language of the policy. The trial court
did not err.
      The Truck policies over which the Mid-Century policies sat
as excess insurance contained aggregate limits equal to the per
occurrence limit of $100,000 or $300,000. The Mid-Century
policies contain an endorsement entitled “SINGLE LIMIT
AGGREGATE EXCESS INSURANCE ENDORSEMENT,” which
indicates that Mid-Century would insure against bodily injury
and property damage as insured by the applicable policy “issued
by Truck Insurance Exchange, hereinafter called Primary
Insurer.” Despite the reference to “AGGREGATE EXCESS
INSURANCE” in its title, the endorsement states no aggregate
limit and instead provides, “It is agreed that [Mid-Century] shall
be liable only for the excess of loss over $300,000 [or $100,000] for
each and every accident or series of accidents arising out of one
occurrence, and then only up to $200,000 [or $400,000] of excess
for such accident or occurrence, it being understood, however, that
there is no limit to the number of accidents for which claims may
be made hereunder, provided such accidents occur during the
currency of this policy period.” (Italics added.)
      The interpretation of an insurance policy begins with the
language of the policy. (Minkler, supra, 49 Cal.4th at p. 321.)
The policy language here (“there is no limit to the number of

                                 22
accidents for which claims can be made hereunder”)
unambiguously meant there was no aggregate limit so long as the
amount Mid-Century paid on each loss was no greater than
$200,000 [or $400,000]. The cryptic reference to “AGGREGATE
EXCESS INSURANCE” in the title of the endorsement was not
itself an operative term of the policy and did not purport to set
any aggregate limit on the claims to be paid. (See Hervey v.
Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 965.)
      Mid-Century argues that it should have been allowed to
present extrinsic evidence to show that the parties to the policy
intended an aggregate limit to apply (including course of conduct
and certificates of insurance identifying the types of policies
issued).11 We are not persuaded. We are mindful of the rule that
“[e]ven if a contract appears unambiguous on its face, a latent
ambiguity may be exposed by extrinsic [parol] evidence which
reveals more than one possible meaning to which the language of
the contract is yet reasonably susceptible.” (Wolf v. Superior
Court (2004) 114 Cal.App.4th 1343, 1351.) But the key words
here are “reasonably susceptible.” Extrinsic evidence is not
admissible “to flatly contradict the express terms of the
agreement.” (Winet v. Price (1992) 4 Cal.App.4th 1159, 1167; see
also Thompson v. Asimos (2016) 6 Cal.App.5th 970, 987 [“the use
of parol evidence is always subject to the limitation that parol

      11 A certificate of insurance is merely evidence that a policy
has been issued, but it is not an insurance contract and does not
“amend, extend or alter the coverage afforded by the policies
listed.” (Ins. Code, § 384, subd. (a).)

                                 23
evidence may not be used to vary or contradict the words the
parties agreed upon”].)
      “ ‘An ambiguity exists when a party can identify an
alternative, semantically reasonable, candidate of meaning of a
writing.’ ” (Benedek v. PLC Santa Monica (2002) 104 Cal.App.4th
1351, 1357; accord, Eriksson v. Nunnink (2015) 233 Cal.App.4th
708, 722.) “Courts will not strain to create an ambiguity where
none exists.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11
Cal.4th 1, 18–19.) Here, the language of the contract was not
ambiguous; it expressly provided “there is no limit to the number
of accidents for which claims can be made hereunder.” Any
extrinsic evidence regarding the intent of the parties would not
be offered to show that the words of the contract should be
interpreted in a particular way, but rather, to contradict them
entirely. As the trial court properly found, the extrinsic evidence
was not admissible.
      Mid-Century posits that its policies should be viewed as
extensions of the primary Truck policies with a combined
aggregate limit equal to the amount of the total coverage
($500,000). Hence, once Truck had dropped out because its
$300,000 (or $100,000) aggregate limit had been reached,
Mid-Century would step in until the $500,000 combined
aggregate had been reached, at which point Mid-Century would
also exhaust and CalPortland would be entitled to a defense from
a carrier which provided coverage that was excess to Truck’s and
Mid-Century’s $500,000 in coverage and would kick in only if

                                24
that amount were met.12 Mid-Century notes that if its policies
are interpreted as having no aggregate limits, there would be a
“gap” in coverage, because it was not obligated to indemnify
CalPortland unless the $300,000 (or $100,000) limit for primary
coverage had been met, and if Truck reached its aggregate limit
and exhausted, the insured would be obligated to fill this gap as a
retention amount.13 Mid-Century argues that the policy above it
would not be triggered (and CalPortland would not have the full
benefit of the insurance it had paid for) unless a claim was great
enough to satisfy both the retention amount and the amount Mid-
Century was obligated to pay (which totals $500,000).
      The language in the policies at issue was drafted before the
extent of the asbestos claims was known. The interpretation of
the policy now offered by Mid-Century may well be what its
underwriting department would have offered to CalPortland if
the policy were written today. But we are asked here to

      12One of the insurers that was excess to Mid-Century is
Mission Insurance, which is not a party to this lawsuit. It is
unclear whether that insurer is still solvent. (See Garamendi v.
Mission Ins. Co. (2005) 131 Cal.App.4th 30, 33 [noting Mission’s
insolvency].)

      13 “ ‘The term “retention” (or “retained limit”) refers to a
specific sum or percentage of loss that is the insured’s initial
responsibility and must be satisfied before there is any coverage
under the policy. It is often referred to as a “self-insured
retention” or “SIR.” ’ ” (Forecast Homes, Inc. v. Steadfast Ins. Co.
(2010) 181 Cal.App.4th 1466, 1474.) It differs from a deductible
in that it obligates the insured to pay defense costs as well as
indemnity. (Ibid.) We note the trial court’s final allocation
requires Mid-Century to pay future indemnity costs only when
the retention amount has been met.

                                 25
determine whether the Mid-Century policies as written contain
aggregate limits. Elegant though it might appear, the
interpretation of the policy advocated by Mid-Century is contrary
to its language with respect to this point. “If contractual
language is clear and explicit, it governs.” (Bank of the West v.
Superior Court (1992) 2 Cal.4th 1254, 1264.) It is “ ‘ axiomatic
that an insurance policy is but a contract and that like all other
contracts, it must be construed from the language used; where, as
here, its terms are plain and unambiguous, the courts have a
duty to enforce the contract as agreed upon by the parties.’ ”
(Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th
649, 656.)
      Mid-Century argues that a number of policies which
provided coverage excess to its own referred to the combined
Truck/Mid-Century policies as having a combined aggregate limit
of $500,000, and it argues that the court should have admitted
this as extrinsic evidence showing that the Mid-Century policies
did in fact have aggregate limits. Mid-Century cites the recent
decision in Gull Industries, Inc. v. Granite State Ins. Co. (Aug. 23,
2021, 78277-1-I) __ P.3d ___ [2021 WL 3720967 *10], which in
turn relies on SantaFe Braun, Inc. v. Ins. Co. of North America
(2020) 52 Cal.App.5th 19, 25–27 (SantaFe), and Montrose
Chemical Corp. of California v. Superior Court (2020) 9 Cal.5th
215, for the proposition that “excess policies above Mid-Century
are relevant/admissible to the details/interpretation of
Mid-Century’s policies and limits.”

                                 26
      The new authorities cited by Mid-Century concern whether
excess insurance policies were triggered only when there has
been exhaustion of all underlying layers of insurance (horizontal
exhaustion) rather than exhaustion only of those underlying
policies specified in each overlying policy (vertical exhaustion).
(See SantaFe, supra, 52 Cal.App.5th at p. 21, 29.) While it might
be necessary to look outside an excess policy and into a different
layer of coverage to answer that question, this does not mean
that we are free to interpret a policy that does not have aggregate
limits as having them simply because a policy excess to that one
says it is so.
      B. Statute of Limitations
      Mid-Century argues that National Union’s claim against it
for equitable contribution was barred by the statute of
limitations. Because the relevant facts are not in dispute, we
review the claim de novo. (Sahadi v. Scheaffer (2007) 155
Cal.App.4th 704, 713–714.)
      The statute of limitations in an equitable contribution
action by one insurer against another is two years under Code of
Civil Procedure section 339, subdivision (1) as “[a]n ‘action upon a
contract, obligation or liability not founded upon an instrument
in writing.’ ” (Century Indemnity Co. v. Superior Court (1996) 50
Cal.App.4th 1115, 1117, 1119, fn.4; but see Liberty Mutual Ins.
Co. v. Colonial Ins. Co. (1970) 8 Cal.App.3d 427, 432 [statute of
limitations is four-year period for “action upon any contract,
obligation or liability founded upon an instrument in writing”].)
Although a cause of action for equitable contribution first accrues

                                  27
when the nonparticipating insurer first refuses to participate in
the defense of a common insured, it is tolled until the plaintiff
insurer makes the last payment in the suit for which it seeks
contribution. (Underwriters of Interest Subscribing to Policy
Number AXXXXXXXX v. ProBuilders Specialty Insurance Co. (2015)
241 Cal.App.4th 721, 735–736.)
      Even though Mid-Century claimed exhaustion of its policies
and refused to contribute to CalPortland’s defense in July 2012, it
was not until November 2012 that National Union made a
payment for which it seeks contribution. National Union filed
this action on August 5, 2014, within two years after making this
payment. This action is not time barred.
      C. Duty to Defend
      In its decision following Phase II of the trial, the trial court
found that Mid-Century had a duty to defend CalPortland that
commenced when the Truck policies exhausted. Mid-Century
argues it did not have a duty to defend under its policy, but only
a duty to reimburse in proportion to its indemnity payments. It
suggests that it had no obligation to pay an allocation of the
defense costs unless and until there was a final determination of
liability. We disagree.
      The trial court properly concluded that the operative
Endorsement in the Mid-Century policy incorporated Truck’s
duty of defense by providing, “It is understood and agreed that
this Excess Insurance is subject to the same representations,
terms and conditions (except as regards the premium, the
amount and limit of liability, and the renewal agreement, if any,

                                 28
and except as otherwise provided in this policy and endorsement),
as are contained in, or any amendment to, the above policy of the
Primary Insurer.” The “terms” or “conditions” included Truck’s
obligation, set forth in its policies, “to defend any suit against the
insured seeking damages on account of such bodily injury or
property damage, even if any of the allegations of the suit are
groundless, false or fraudulent.”
      Although the general policy form or jacket of the
Mid-Century policy provides it was “subject to the same
warranties, terms, and conditions (except as regards the
premium, the obligation to investigate and defend, the amounts
and limit of liability and the renewal agreement, it any)” (italics
added), this language does not expressly disavow a duty to
defend. (Cf. FMC Corp. v. Plaisted & Companies (1998) 61
Cal.App.4th 1132, 1199, disapproved on other grounds in State of
California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 201
(Continental I).) At most, it states that it does not incorporate
the defense obligations of the Truck policy. (Aetna Cas. & Sur.
Co. v. Certain Underwriters (1976) 56 Cal.App.3d 791, 800–801
(Aetna) [similar language indicates only that the duty to defend is
“unlike that of the primary insurer” and does not expressly
declare with certainty that there is no obligation to defend].) And
to the extent the language in the general policy form conflicts
with the endorsement, “ ‘the endorsement controls.’ ” (Aerojet,
supra, 17 Cal.4th at p. 50, fn. 4, citing Continental Cas. Co. v.
Phoenix Constr. Co. (1956) 46 Cal.2d 423, 431.)

                                  29
      In support of its argument that it had a duty to contribute
to defense costs after the fact but not a duty to defend,
Mid-Century relies on language in the general policy form or
jacket in a section entitled “Apportionment of Costs” that when a
claim is adjusted for the amount that exceeds the limits of the
primary policy, Mid-Century must “contribute” to costs incurred
by or on behalf of the insured “in the ratio that is its proportion of
the ultimate net loss.” This does not take precedence over the
Endorsement’s language incorporating a duty to defend and, in
any event, does not expressly disavow a duty to defend. (Aetna,
supra, 56 Cal.App.3d at pp. 800–801.) Rather, it clarifies
Mid-Century’s duty as an excess carrier to contribute its pro rata
share of costs only when the amount of primary coverage has
been exceeded (in cases where presumably Truck would be
defending).
      D. Abuse of Discretion in Using Time-on-the-Risk Allocation
         of Costs
      Mid-Century argues the trial court erred in allocating costs
based on a “time on the risk” formulation rather than requiring
all three insurers to contribute equal shares. We review the
claim for abuse of discretion and find none. (Centennial Ins. Co.
v. United States Fire Ins. Co. (2001) 88 Cal.App.4th 105, 112
(Centennial).) As the trial court noted, “California law makes
clear that time-on-the-risk allocation is ‘the approach likely to
lead to the fairest result in most cases.’ ” (Stonewall, supra, 46
Cal.App.4th at p. 1862.) It was also the allocation method

                                 30
employed by the parties for splitting costs for many years, until
the current dispute arose.
      We reject Mid-Century’s argument that the court should
have required contribution based on equal shares because each of
the primary policies (National Union’s, Continental’s, and
Truck’s)14 has an “other insurance” provision stating that if there
were multiple insurers, the company was not liable for a greater
portion of indemnity than if each insurer contributed an equal
share to the loss. As the trial court noted, the insurers did not
have contracts with each other and the right of contribution was
an equitable one, not contractual. (Centennial, supra, 88
Cal.App.4th at pp. 115–116; Axis, supra, 204 Cal.App.4th pp.
1231–1232.) Additionally, the other insurance clauses apply only
to indemnity, not defense costs, and are designed to ensure that
the insured does not recover more than 100 percent of the
indemnity due. (See also Dart Industries, Inc. v. Commercial
Union Ins. Co. (2002) 28 Cal.4th 1059, 1079–1080 [modern trend
is to ignore other insurance clauses and pro rate among the
policies based on equitable considerations].)
      Nor are we persuaded that Mid-Century’s time-on-the-risk
share must be calculated on the basis of only one of its policy
years, rather then the nine years that it insured CalPortland.
Mid-Century claims its policy had “anti-stacking” language which
would have precluded CalPortland from ever recovering against

      14Mid-Century’s policy incorporates the terms and
conditions of Truck’s policies, with exceptions not relevant to this
issue.

                                 31
more than one of its policies for any given claim; consequently, it
argues that it would be unfair to it to allocate costs as though the
coverage under all nine years of its policies could be potentially
triggered.
      Putting aside the trial court’s conclusion that this issue was
not timely raised, we would reject the claim on its merits.
“ ‘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.’ ”
(Continental I, supra, 55 Cal.4th at p. 202.) In the context of a
“long-tail” injury15 such as exposure to asbestos, where the
occurrence can trigger several difference different policies,
stacking is permitted unless there is an explicit “anti-stacking”
provision that limits liability to one of the policies in place during
the continuing injury. (Id. at pp. 195–196, 201; see Haynes v.
Farmers Ins. Exchange (2004) 32 Cal.4th 1198, 1216 [provision
limiting coverage must be “conspicuous, plain and clear”].) No
such language appears in the Mid-Century policy.16

      15 A “long-tail” injury “is characterized as a series of
indivisible injuries attributable to continuing events without a
single unambiguous ‘cause.’ Long-tail injuries produce
progressive damage that takes place slowly over years or even
decades.” (Continental I, supra, 55 Cal.4th at pp. 195–196.)

      16 The Endorsement provided, “It is agreed that [Mid-
Century] shall be liable only for the excess of loss over $300,000
[or $100,000] for each and every accident or series of accidents
arising out of one occurrence, and then only up to $200,000 [or
$400,000] of excess for such accident or occurrence.” This
language unambiguously established the per occurrence limits

                                  32
      Mid-Century also argues it should have received a set-off
for amounts it paid on behalf of CalPortland prior to 2012.
Although these pre-2012 claims would be barred by the two-year
statute of limitations applicable to equitable contribution actions
under Code of Civil Procedure section 339, subdivision (1), Code
of Civil Procedure section 431.70 allows a set-off to be asserted
notwithstanding the statute of limitations. As the trial court
found, however, Mid-Century failed to raise this as an affirmative
defense, and a claim for a setoff of a time-barred claim under
section 431.70 must be raised as an affirmative defense in an
answer to the complaint. (Title Ins. Co. v. State Bd. of
Equalization (1992) 4 Cal.4th 715, 731.) This itself is a
codification of the common law rule that “[a] setoff is generally a
new matter which must be affirmatively pleaded.” (Ibid.)
      E. Prejudgment Interest
      Mid-Century adopts Continental’s challenge to
prejudgment interest. We reject the claim for the reasons stated
in section II(ii)(D) of this opinion.
                          III.   DISPOSITION
      The judgment is reversed and the case is remanded for a
recalculation of the parties’ percentages of responsibility
consistent with our discussion in section II(ii)(A). The judgment
is otherwise affirmed. The parties shall bear their own costs in
the appeal by Continental. (Cal. Rules of Court, rule 8.278(a)(3).)

under the policy for each policy period, and further established
that the Mid-Century insurance was excess insurance, but did
not clearly and conspicuously state that stacking was prohibited.

                                   33
National Union shall recover its costs in the cross-appeal by Mid-
Century. (Id., (a)(1) & (a)(2).)

                                   34
                                        NEEDHAM, J.

We concur.

SIMONS, Acting P. J.

BURNS, J.

Nat. Union Fire Ins. Co. v. Mid-Century Ins. Co./ A156889

                              35