The California Court of Appeal has held that sums an insured agreed to pay in settlement of pollution claims are not “damages” within the meaning of the insured’s excess liability policies. ( Aerojet-General Corporation v. Commercial Union Insurance Company (2007) 155 Cal.App.4th 132)
Facts
In 2000 and 2001, various California water agencies filed lawsuits against Aerojet-General Corporation alleging that Aerojet was responsible for the costs of remediating groundwater contamination in the San Gabriel Valley. Aerojet put its excess insurers on notice of the suits but no excess insurer accepted Aerojet’s request for defense and indemnity.
In 2002, the lawsuits were settled and dismissed. The settlement agreement obligated Aerojet to pay approximately $175 million, which exceeded the total amount of Aerojet’s primary and excess insurance coverage for the period of 1958-1970. Aerojet demanded payment pursuant to its policies, but the excess insurers all denied coverage.
Aerojet then sued its excess insurers to obtain indemnification for the remediation costs Aerojet incurred pursuant to the settlement agreement with the water agencies. The court ruled in favor of the excess insurers and Aerojet appealed.
Holding
The Court of Appeal affirmed. The court reasoned that the excess insurers’ policies only covered “damages” that Aerojet became obligated to pay. Under Certain Underwriters at Lloyd’s of London v. Superior Court (2001) 24 Cal.4th 945 ( Powerine I ), the term “damages” is limited to “money ordered by a court.” Here, no court ever ordered Aerojet to pay money to the water agencies. Rather, Aerojet and the water agencies negotiated a settlement. Because the costs Aerojet incurred in implementing its settlement with the water agencies did not constitute “damages” (i.e., money ordered by a court), those costs were not covered by the excess insurers’ policies.
Moreover, the excess policies contained “attachment of liability” clauses which provided that the excess policies would attach only when the primary insurers admitted liability or a final judgment was entered against the insured. Neither of those events ever occurred.
Last, the excess insurers were not equitably estopped from relying on the terms of their policies. The excess insurers never led Aerojet to believe that it could settle with the water agencies and expect coverage from the excess insurers. To the contrary, the excess insurers all reserved their rights to contest coverage. Thus, there were no grounds for an estoppel.
Comment
This is the latest California case to address the circumstances in which a liability insurer might – or might not – have a duty to indemnify an insured for the costs of remediating environmental pollution claims. The excess policies in this case were very old and thus presumably did not contain “pollution” exclusions. As a result, the excess insurers were left to argue that coverage was barred by other provisions in the policies (e.g., the “damages” clause and the “attachment of liability” clause).