The Court of Appeal for the Fourth Appellate District granted an insured's petition for writ of mandate seeking a stay of its insurer's declaratory relief action.
United Enterprises ("United") operated a shooting range on Otay Mesa on property it owned between 1956 and 1988. Otay Land Company and Flat Rock Land Company sued United in both federal and state courts for recovery of environmental response costs that included cleanup costs, damages, and other equitable relief, alleging that United's activities contaminated the property ("the environmental suits"). United was insured for a three-year period by Royal Indemnity Company ("Royal") under a comprehensive general liability policy.
While defending under a reservation of rights, Royal brought suit for declaratory relief against United. Royal alleged it had no duty to defend the environmental suits and moved for summary judgment. Royal argued the underlying suits did not allege property damage caused by an accident, as required by the Policy and as defined by California law. Royal contended in the motion that its duty to defend turned on whether United could show the underlying actions alleged contamination potentially caused by "unexpected and unintended" conduct.
United moved for a stay of further proceedings in the declaratory relief action. Citing Montrose Chemical Corp v. Superior Court (1993) 6 Cal.4th 287 ("Montrose I"), United argued that responding to the summary judgment motion would force it to collect evidence that established its liability in the environmental suits.
The trial court denied United's request for a stay but ordered that the record relating to the motion for summary judgment motion be sealed. United filed a petition for writ of mandate challenging the court's ruling.
In granting the petition, the court noted that in Montrose I, the Supreme Court addressed the timing of the declaratory relief action. A stay is "appropriate" where the factual issues to be resolved in the declaratory relief action overlap issues to be resolved in the underlying litigation. By contrast, when the coverage determination is "logically unrelated" to the issues of consequence in the underlying case, the declaratory relief action may properly proceed to final judgment. The court described specific ways the insured "is prejudiced by concurrent litigation of the declaratory and third party actions: (1) the insurer will join forces with the plaintiffs in the underlying action as a means to defeat coverage; (2) the insured will be compelled to fight a two front war, doing battle with the plaintiffs in the third party litigation while at the same time devoting its money and its human resources to litigating coverage issues with its carriers; and (3) the insured may be collaterally estopped from relitigating any adverse factual findings in the third party action, notwithstanding that any fact found in the insured's favor could not be used to its advantage."
Relying on this standard, the court found the trial court had no choice but to issue the stay because factual issues to be resolved in the declaratory relief action overlapped factual issues to be resolved in the underlying actions. The court concluded that United would have to defend against Royal's declaratory relief action by collecting evidence which most likely would cause United to establish its liability in the environmental suits. The court granted the petition for writ of mandate and issued a stay of the Royal's suit until the environmental suits were adjudicated.
This opinion is not final. Though it has been certified for publication, it may be modified on rehearing, or granted review by the Supreme Court of the State of California. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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