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The California Court of Appeal, Third Appellate District, confirmed that excess insurers had no duty to indemnify their insured for amounts agreed to be paid by the insured in settlement of underlying lawsuits where the subject policies required indemnification only for "damages" and there existed no court ordering the payment of any money by the insured.
The Defendant excess carriers issued excess liability insurance policies to Aerojet-General Corporation ("Aerojet"). The subject policies provided that the insurers were required to indemnify Aerojet for "all sums which the Assured shall become legally obligated to pay, or by final judgment be adjudged to pay, to any person or persons as damages...", the excess insurers were not liable to pay until either the underlying insurers admitted liability, or the insured was held liable to pay by a final judgment an amount which exceeded the underlying insurance and the underlying insurers paid or were held liable to pay their full limits, and that no costs could be incurred by the insured without the written consent of the insurer.
Aerojet sought coverage under its excess policies for amounts it agreed to pay in settlement of lawsuits filed by various water entities alleging Aerojet was liable for CERCLA response costs. Although the excess carriers had notice of each lawsuit, no excess carrier accepted Aerojet's tender of defense or indemnity. In connection with the settlements, the water entity lawsuits were dismissed, either voluntarily without prejudice or by order of the court pursuant to a stipulation between the parties. The settlement agreement obligated Aerojet to pay an amount which exceeded the total of its primary and excess insurance coverage during the pertinent time period. Each excess carriers denied liability for the settlement amount. Aerojet then filed suit.
The excess carriers moved for summary judgment, arguing that they owed no duty to indemnify Aerojet because the costs paid pursuant to the settlement agreement were not "damages," as defined in Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 960 [(Powerine I)], in which the California Supreme Court held that an excess carrier is not liable under a policy providing for indemnity upon the insured's payment of damages unless damages have been awarded against the insured by a court. The excess carriers also argued that they owed no duty to indemnify under the attachment of liability clauses because Aerojet could not establish the underlying insurers admitted liability, or that the underlying insurance policies were exhausted by a "final judgment." Finally, the excess insurers argued that Aerojet could not sustain its burden of proof to establish the damages attributable to each of the alleged occurrences at the contaminated site, as required under Golden Eagle Refinery Co. v Associated Internat. Ins. Co. (2001) 85 Cal.App.4th 1300, 1316, and FMC Corp. v. Plaisted & Companies (1998) 61 Cal.App.4th 1132. The trial court granted summary judgment on the grounds that there were no damages and that the underlying policies did not exhaust, thereby rendering the final argument moot. The Court of Appeal affirmed.
The Aerojet Court held that Powerine I governed its decision. In that case, the California Supreme Court limited an insurer's duty to indemnify to "damages" - money ordered by a court - noting that although the duty to defend can arise whenever "damages" are sought by a "suit," the duty to indemnify arose only when "damages" are fixed in their amount. The Court also relied upon Foster-Garner, Inc v. National Union Fire Insurance, (1998) 18 Cal.4th 857, in which the Supreme Court held the phrase "suit seeking damages" limited the insurer's obligation to defend to civil actions prosecuted in a court, and that a proceeding conducted by an administrative agency pursuant to an environmental statute was not a "suit," but rather implicated only a "claim."
The Aerojet Court then turned to a discussion of Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377 [Powerine II], in which the California Supreme Court held that the language of the excess policy at issue therein was broader than the standard policy language interpreted in Powerine I and obligated the excess insurer to indemnify the insured for costs arising from an administrative cleanup order. The Powerine II Court held that the policy's use of the word "expenses" extended coverage beyond the limitation imposed by use of the word "damages" alone. By contrast, the Powerine II Court held that a policy which contained the "damages" limitation, similar to that found in Powerine I, did not require the insurer to indemnify the insured for the costs of settling third party claims for environmental harm that were negotiated outside the context of a suit.
The Aerojet Court applied this precedent and, relying on the express language of the subject excess policies, concluded that the settlement costs incurred by Aerojet were not damages and not within the policies' indemnity obligations.
The Court further noted that the record contained no order by any court directing Aerojet to pay damages nor was there evidence that Aerojet requested that the terms of the settlement agreement be entered as judgments in the water entities' lawsuits.
The Aerojet Court rejected the argument that the "final judgment" clause was rendered redundant by Powerine I's interpretation, noting that money can be expressly ordered by a court as damages in a final judgment, or can also be ordered by a court outside of a final judgment by means of interim orders or awards of costs and attorney fees. Thus, both clauses have independent meaning within the context of court ordered damages.
The Court further held that the doctrine of retraxit did not apply because the water entities did not dismiss their actions with prejudice. Accordingly, there was no legal bar to further litigation, and the settlement agreement could not be interpreted as a final judgment. Finally, the Court of Appeal held that no equitable estoppel could be established as a matter of law.
This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the California Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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