Montrose Chemical Corp. v. Admiral Insurance
10 Cal. 4th 645, 42 Cal. Rptr. 2d 324, 897 P.2d 1 (1995)
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Rule of Law:
In third-party comprehensive general liability (CGL) insurance policies, the 'continuous injury' trigger of coverage applies to continuous or progressively deteriorating bodily injury and property damage, meaning all policies in effect during the period of injury are potentially triggered. The loss-in-progress rule, codified in Insurance Code sections 22 and 250, does not bar coverage if, at the time the policy was issued, there remained uncertainty about the imposition of liability or the extent of damage that might occur during the policy period.
Facts:
- From 1947 until 1982, Montrose Chemical Corporation of California (Montrose) manufactured the pesticide dichlorodiphenyl-trichlorethane (DDT) at its plant in Torrance, California.
- Between 1968 and 1972, Montrose paid a hauling company to transport byproducts of its DDT manufacturing process for disposal at the state-licensed Stringfellow acid pits in Riverside County.
- As early as 1970, toxic wastes were detected seeping from the Stringfellow site, and in 1975, the Santa Ana Regional Water Quality Control Board declared the site a public nuisance.
- In 1981, Parr-Richmond Terminal Co. sold real property in Contra Costa County to Levin Metals, which was later found to be contaminated by hazardous waste, allegedly from Montrose's chemical shipments to the site prior to 1964 or 1965.
- On August 31, 1982, six weeks prior to the commencement of Admiral’s first policy term, Montrose was notified by the federal Environmental Protection Agency (EPA) that it considered Montrose a potentially responsible party (PRP) for response activities at the Stringfellow site.
- Admiral Insurance Company (Admiral) issued four comprehensive general liability (CGL) policies to Montrose covering the period from October 13, 1982, to March 20, 1986.
Procedural Posture:
- In 1983, the United States and the State of California sued Montrose and numerous other businesses in federal district court (United States v. J.B. Stringfellow) under CERCLA, seeking reimbursement for response costs and damages for natural resources at the Stringfellow site.
- A second lawsuit, Newman v. J.B. Stringfellow, a consolidated private party toxic tort action, was initiated in Riverside County Superior Court, seeking damages from Montrose and other defendants for bodily injury and property damage alleged to have resulted from contaminants at the Stringfellow site.
- Three interrelated lawsuits (Parr-Richmond Terminal Co. v. Levin Metals Corp., Levin Metals Corp. v. Parr-Richmond Terminal Co. (two in federal district court, one in Contra Costa County Superior Court)) were filed, alleging hazardous waste contamination on property sold to Levin Metals, with cross-complaints against Montrose for contribution and indemnity.
- Montrose tendered the defense of these five underlying actions to its seven CGL insurers, including Admiral, who all agreed to defend subject to a reservation of rights except for Admiral.
- In 1986, Montrose sued the carriers, including Admiral, in a declaratory relief action in state trial court, seeking a declaration that the insurers had a duty to both defend and indemnify Montrose in all five underlying actions.
- In 1989, Admiral moved for summary judgment and summary adjudication of issues in the trial court, arguing (i) it had no duty to defend or indemnify Montrose in the Levin Metals cases because the contamination was discovered before Admiral's policy periods, and (ii) it had no duty to defend or indemnify Montrose in the Stringfellow cases because the contamination was an uninsurable loss-in-progress prior to the effective date of its first policy.
- The trial court granted summary judgment in favor of Admiral on both grounds.
- Montrose appealed to the Court of Appeal, which reversed the summary judgment order, rejecting a "manifestation of loss" or "discovery" trigger of coverage analysis and holding that the loss-in-progress rule did not bar coverage.
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Issue:
Does a standard comprehensive general liability (CGL) policy obligate an insurer to defend an insured in lawsuits alleging continuous or progressively deteriorating bodily injury and property damage that occurred during successive policy periods, even if the underlying causative events predated the policy periods or the insured received notice of potential liability before the policies commenced?
Opinions:
Majority - Lucas, C. J.
Yes, a standard comprehensive general liability (CGL) policy obligates an insurer to defend an insured in lawsuits alleging continuous or progressively deteriorating bodily injury and property damage that occurred during successive policy periods, even if the underlying causative events predated the policy periods or the insured received notice of potential liability before the policies commenced. The court concluded that the standard CGL policy language unambiguously provides coverage for bodily injury and property damage that "occurs during the policy period." This means that bodily injury and property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods (the "continuous injury" trigger). The court distinguished third-party CGL policies from first-party property policies (which follow a "manifestation of loss" rule), highlighting differences in the nature of risks, causation analysis, and policy expectations. It noted that CGL policies cover injuries and damage caused by an "occurrence," defined to include "continuous or repeated exposure to conditions," without requiring discovery at a particular time. The drafting history of the standard CGL policy, which shifted from "accident-based" to "occurrence-based" in 1966, confirmed that drafters intended coverage when damage or injury occurred during the policy period, not necessarily when the precipitating event happened. Citing Remmer v. Glens Falls Indem. Co. (1956) and California Union Ins. Co. v. Landmark Ins. Co. (1983), the court affirmed that coverage is triggered when the complaining party was actually damaged. The court also rejected Admiral's argument that the "loss-in-progress" rule (Insurance Code §§ 22, 250) barred coverage. It held that for third-party CGL policies, an insurable risk exists as long as there is uncertainty about the imposition of liability upon the insured and no legal obligation to pay third-party claims has been established. Montrose's receipt of a PRP letter from the EPA before Admiral's policies began did not establish a legal obligation, and thus did not defeat coverage under the loss-in-progress rule. The court expressly disapproved of Fireman's Fund Ins. Co. v. Aetna Casualty & Surety Co. and Pines of La Jolla Homeowners Assn. v. Industrial Indemnity, which had incorrectly applied the first-party manifestation trigger to third-party CGL cases.
Concurring - Baxter, J.
Yes, a standard comprehensive general liability (CGL) policy obligates an insurer to defend an insured in lawsuits alleging continuous or progressively deteriorating bodily injury and property damage that occurred during successive policy periods, even if the underlying causative events predated the policy periods or the insured received notice of potential liability before the policies commenced. Justice Baxter concurred in the judgment but disagreed with the majority's assertion that the policy language was unambiguously in Montrose's favor, finding it "nebulous and undefined" regarding continuous injury. However, he agreed that because the language could plausibly be read as Montrose suggested (each increment of harm occurring during a policy period is covered), and this interpretation aligns with the insured's objectively reasonable expectations and the drafting history of CGL policies (which rejected a "manifestation of injury" trigger and recognized the possibility of multiple-policy coverage for continuous exposure), the majority's construction was acceptable. Regarding the loss-in-progress rule (Insurance Code §§ 22, 250), Justice Baxter disagreed with the majority's reasoning that uncertainty about legal liability alone is sufficient. He argued that the plain language of the statutes requires the events that produce liability (the act or omission and the resulting damage) to remain "contingent or unknown." However, he agreed that the rule does not preclude coverage for future or unknown harm from a past act or omission, as long as any increment of compensable damage or injury has not yet occurred or is unknown to the insured. Since the lawsuits alleged new or progressive injury during Admiral's policy periods, and Admiral's summary judgment motion did not negate this, the loss-in-progress rule did not bar potential coverage or the duty to defend.
Analysis:
This case establishes a critical distinction in California insurance law between first-party property and third-party liability insurance for trigger of coverage issues. By adopting the "continuous injury" trigger for CGL policies, the court broadens insurer responsibility for long-tail liabilities stemming from environmental contamination and toxic torts, making multiple insurers potentially liable for a single, ongoing harm. The ruling clarifies that the "occurrence" of damage or injury during the policy period, rather than the initial causative event or manifestation of harm, is the operative trigger. Furthermore, the court's interpretation of the loss-in-progress rule for third-party liability—requiring uncertainty about the imposition of legal liability rather than just the damage event—significantly limits an insurer's ability to deny coverage based on the insured's prior knowledge of a potential problem, impacting risk assessment and coverage disputes in complex, long-developing harm cases.
