Ameron International Corporation v. Insurance Company of the State of Pennsylvania et al.
(2007) __Cal.App.4th.__
07 C.D.O.S. 5372

Coverage May Exist For Subcontractor Insured Who Settles Government Claim Before Federal Board Of Contract Appeals Only If Policy Defines "Suit" As "Civil Proceeding" Or "Arbitration Proceeding"

The First District Court of Appeal reversed in part and affirmed in part the trial court's decision to grant demurrers to various primary and excess insurers. In doing so, the Court held that coverage may exist for a subcontractor who settled a claim before a Federal Board of Contract Appeals only if the policy at issue defined the term "suit."

In 1975, the United States Department of the Interior, Bureau of Reclamation ("Bureau") contracted with Peter Kiewit Sons' Company ("Kiewit") for the manufacture and installation of concrete siphons to be used in the Central Arizona Project, an aqueduct system. Kiewit hired plaintiff Ameron International Corporation ("Ameron") as a subcontractor to manufacture the siphons. Defendant insurers provided Ameron with primary, excess and/or umbrella insurance coverage between 1978 and 1995.

Ameron completed the project in 1980. In 1995, after discovering defects in the siphons, the Bureau sought approximately $40 million in damages from Ameron and Kiewit. Pursuant to their private contractual remedy, Ameron and Kiewit elected to challenge the claims of the Bureau's contracting officer in a protracted administrative hearing before the United States Department of Interior Board of Contract Appeals (IBCA). Ameron provided timely notice to defendant insurers of the Bureau's claims and proceedings against Ameron and Kiewit. During trial, Ameron and Kiewit settled the government's claims for $10 million.

Defendant insurers denied coverage of the claims. Ameron filed suit against the defendant insurers for failure to defend or indemnify Ameron. The trial court granted the defendants' demurrers, and Ameron appealed. The appellate court reversed the demurrers for all the insurers except for Transcontinental Insurance Company ("Transcontinental"). The appellate court later issued an order denying a rehearing, and modified its opinion to qualify some of the language. The court's rulings, however, remained essentially the same.

Transcontinental Insurance Company

Ameron alleged Transcontinental issued a first layer excess/umbrella policy from 1985 to 1986, and that coverage under this policy depended on whether the underlying primary policy issued by Truck Insurance Exchange ("Truck") provided coverage. Ameron failed to attach or plead the legal effect of the Truck policy. The Court held because it could not determine whether Transcontinental's policy provided coverage for the IBCA litigation, the trial court correctly sustained Transcontinental's demurrer, with leave to amend.

INA Insurance Company

INA Insurance Company ("INA") issued successive primary policies between 1988 to 1992. The policies stated INA would pay those sums the insured became legally obligated to pay as "damages," and that INA would have the right and duty to defend any "suit" seeking those damages.

The 1988 policy did not define the term "suit." The Court cited Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, in which the California Supreme Court held that a "suit," if undefined in a policy, means a civil action commenced by filing a complaint. Thus, despite the fact the IBCA hearing was presided over by a judge governed by federal evidence rules and charged with setting damages for an alleged contract breach, the Court followed the Foster-Gardner court's narrow interpretation and held the hearing did not constitute a "suit."

The Court reversed the trial court's decision to sustain INA's demurrer based on the INA policies issued from 1989 to 1992, which did define "suit" as a "civil proceeding... includ[ing] an arbitration proceeding alleging...damages." The Court rejected INA's argument that the $10 million settlement from the IBCA hearing did not result from a "suit," as it found a "civil proceeding" reasonably susceptible to more than one interpretation, including a governmental hearing. The Court explained an insured could reasonably expect that the IBCA proceeding was a covered "suit" under the policies.

The policies did not define the term "damages." The Court held the broad definition of "suit" compelled an equally broad definition of "damages," which embraced the $10 million settlement that resulted from the IBCA proceedings.

International Insurance Company

International Insurance Company ("International") issued Ameron five successive first layer commercial excess/umbrella policies between 1987 and 1991. The three policies issued for the period 1988 to 1991 incorporated the underlying INA policies for the same period. The Court held coverage may exist under these International policies based on its interpretation of the underlying INA language.

The 1988 International policy incorporated the INA 1988 primary policy, which did not define "suit" and therefore afforded no coverage. However, it also provided umbrella coverage that served as primary indemnity coverage for a "loss" not covered by the underlying INA policy. After looking at the common usage for the term "loss," the Court found it was arguably broader than the common meaning of "damages." As such, "loss" was not limited to money ordered by a court. The Court reversed the trial court's ruling to sustain International's demurrer.

St. Paul Insurance Company

St. Paul Insurance Company ("St. Paul") issued Ameron a second layer excess liability policy from 1988 to 1989, above International's first layer excess/umbrella policy for the same period. The policy incorporated the language of the 1988 International policy. As it found the 1988 International policy provided coverage, the Court reversed the trial court's ruling to sustain St. Paul's demurrer as well.

Twin City Insurance Company

Twin City Insurance Company ("Twin City") issued Ameron three successive first layer excess/umbrella liability policies from 1982 to 1985. The Court's analysis was similar to that applied to the 1982 to 1992 INA policies. The Twin City policies required the insurer to defend the insured against "any suit... seeking damages" and defined a "suit" as including an "arbitration proceeding." Thus, the Court held Twin City, like INA, agreed to defend an arbitration proceeding seeking damages, which requires a broader definition of damages than simply money ordered by a court, potentially triggering coverage.

Insurance Company of the State of Pennsylvania

Insurance Company of the State of Pennsylvania ("ICSOP") issued Ameron five successive excess/umbrella policies between 1990 and 1995. The Court held Ameron was not entitled to coverage under the 1992 to 1995 ICSOP policies. Like the 1988 INA policy, the 1992 to 1995 ISCOP policies did not define "suit," thus, under Foster-Gardner, supra, the IBCA hearing did not trigger coverage. The Court reversed the trial court's decision to grant ISCOP's demurrer for the 1990 to 1991 ICSOP policy.

This opinion is not final. Should a petition be filed, the opinion would be unavailable for use as authority in other cases.

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