Court Opinion

ID: 5650408
Source: CourtListenerOpinion
Date Created: 2022-01-11 22:31:11.026486+00
Date Added: 2024-06-11T08:38:33.410936
License: Public Domain

CHIN, J., Concurring and Dissenting.
I concur in the majority’s analysis in parts I. and II.B. I dissent, in part, to the majority’s discussion of general *89insurance principles in part II.A., and in total to part II.C., and the majority’s discussion and judgment on the allocation of defense costs. As the Court of Appeal correctly observed, the various policies governing the occurrence and “principles of contract law” determine the present allocation question. (See Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 681, fn. 19 [42 Cal.Rptr.2d 324, 913 P.2d 878] (Montrose).) From 1976 to 1984, Aerojet-General Corporation (Aerojet) was insured solely by Insurance Company of North America’s (INA) financial responsibility policies, also known as “fronting” or “cash flow” policies (providing limited indemnity and no defense costs for any loss suffered by the insured in exchange for a reduced premium). By adopting this insurance plan, Aerojet made a deliberate decision to assume its own defense costs in exchange for a reduction in premium costs. Indeed, during the eight-year period Aerojet contracted to pay its own defense costs, it was, in essence, acting as its own insurer for that purpose.
The majority, however, chooses to ignore both fundamental contract interpretation rules and our own Montrose opinion to conclude that Aerojet’s contract with INA was irrelevant, and that Aerojet never assumed the risk that a loss might occur during the period it was insured by INA’s limited cash flow policies. But “When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable.” (Owens-Illinois, Inc. v. United Ins. Co. (1994) 138 N.J. 437, 479 [650 A.2d 974, 995].) As the trial court and the Court of Appeal held, Aerojet should contribute its pro rata share of defense costs for the period INA provided it with limited cash flow coverage. Instead, the majority hands Aerojet a windfall by forcing successive insurers, including the named defendant here, to pay defense costs they did not contract to provide.
The majority’s faulty reasoning begins with its discussion in part II.A. about the scope of commercial general liability (CGL) insurance coverage. In discussing an insurer’s duty to indemnify its insured, the opinion relies on Montrose, supra, 10 Cal.4th at pages 669-673, to assert that the duty “extends to all specified harm that may possibly have been caused by an included occurrence, even if some such harm may possibly have resulted beyond the policy period.” (Maj. opn., ante, at p. 58.) In other words, the majority explains, “if specified harm may possibly have been caused by an included occurrence and may possibly have resulted, at least in part, within the policy period, it perdures to all points of time at which some such harm may possibly have resulted thereafter.” (Ibid., fn. omitted.) The majority’s *90reasoning effectively requires an insurer to indemnify a loss occurring outside the policy period as long as the policy covered the loss at some point in time. This is the opposite of what Montrose requires. (Montrose, supra, 10 Cal.4th at p. 673.) Montrose held that, in defining an “occurrence” within the context of a CGL insurance policy, the drafters intended (1) that the occurrence of damage during the policy period is the operative event that triggers an indemnity obligation, and (2) that the CGL policy afford “liability coverage for all property damage or injury occurring during the policy period.” {Ibid., italics added.) Nowhere does Montrose require an insurer to indemnify or reimburse an insured for a monetary loss incurred outside the policy period. To do so would extend coverage beyond the CGL policy scope, hold insurers to joint and several liability, and result in a windfall to the insured.
As the Court of Appeal observed, Montrose specifically rejected a joint and several liability approach to allocating losses among insurers. As Montrose itself pointed out, “Allocation of the cost of indemnification once several insurers have been found liable to indemnify the insured for all or some portion of a continuing injury or progressively deteriorating property damage requires application of principles of contract law to the express terms and limitations of the various policies of insurance on the risk.” (Montrose, supra, 10 Cal.4th at p. 681, fn. 19.) I agree with the Court of Appeal that Montrose’s rejection of joint and several liability in cases involving multiple insurers and successive policies issued over the time period of the developing loss supports allocating the contractual responsibilities in multiple coverage cases. For these reasons, I cannot embrace the majority’s broad introductory reasoning.
More importantly, however, I cannot agree with the majority’s application of its faulty introductory reasoning to part II.C., in which it disagrees with the Court of Appeal’s apportionment analysis and judgment. Here, the majority again ignores fundamental contractual principles. Even though Aerojet contracted to operate, in essence, as a self-insured under INA’s cash flow insurance policy for eight of the thirty years of the loss period, the majority concludes Aerojet owes no duty to pay its pro rata share of the defense costs during that period because the INA policy did not create “any right or duty in either Aerojet or INA as against the world, including the other insurers.” (Maj. opn., ante, at p. 70.) The majority believes that an insurer may not seek a pro rata contribution from its insured even if the insured deliberately assumed its own defense costs during a portion of the loss period. Under the language of the applicable insurance policies here, I cannot agree.
The Court of Appeal recognized the importance of applying contract principles to the allocation question presented. The court stated: “In de*91termining what impact Aerojet’s self-insured periods should have on its defense entitlements, we consider the scope of the coverage purchased during the insured [or non-INA policy] periods. The policies at issue here all carried similar clauses to those discussed in the allocation cases: (1) ‘other insurance’ clauses; (2) ‘all sums’ clauses; and (3) clauses defining the period of coverage. The ‘other insurance’ clauses here generally state that the insurance provided shall be excess over all such other valid and collectible insurance. The ‘all sums’ clauses typically obligate the insurer to pay on behalf of the insured all sums which the insured is legally obligated to pay as damages because of injury or property damage to which the insurance applies. The clauses defining the period of coverage provide that the insurance applies only to occurrences which happen during the policy period.”
By rejecting the Court of Appeal’s judgment allocating a portion of the defense costs to Aerojet on a pro rata basis for the eight years the insured decided to forgo coverage for defense costs, however, the majority chooses to ignore the language of the specific insurance policies that Aerojet purchased and our own Montrose opinion. Instead, the majority concludes that Aerojet’s contracts with INA and its other insurers were irrelevant, that the language in the “other insurance” clauses was without effect, and that Aerojet never assumed the risk that a loss might occur during the period it was insured by INA’s limited cash flow policies. For this reason, the majority refuses to affirm the judgment allocating defense costs to Aerojet on a pro rata basis during the time INA insured it. By making a risk decision when it originally purchased the INA insurance policies to forgo coverage for defense costs it might incur over an eight-year period, Aerojet had no objectively reasonable expectation of coverage for defense costs for occurrences happening during that period. Just as the insurers were free to contract as they pleased, so was Aerojet.
As the trial court and the Court of Appeal held, Aerojet should contribute its pro rata share of defense costs for the period it contracted to pay its own defense costs in exchange for lower premiums and limited cash flow coverage by INA. Instead, the majority hands Aerojet a windfall by forcing successive insurers, including the named defendant here, to prove on remand what we already know: that Aerojet is responsible for defense costs attributable to the extent of its risk management decision. (Maj. opn., ante, at pp. 73-74.)
*92I would affirm the Court of Appeal judgment in its entirety.
Baxter, J., concurred.
Appellants’ petition for a rehearing was denied March 11, 1998, and the opinion was modified to read as printed above. Kennard, J., was of the opinion that the petition should be granted.