Aerojet-General Corp. v. Transport Indemnity Co. (1997) · DecisionDepot

Aerojet-General Corp. v. Transport Indemnity Co.

Name: California Superior Court Tentative Rulings
Creator: DecisionDepot
License: https://creativecommons.org/licenses/by-nc/4.0/

California Court of Appeal Dec 29, 1997 No. No. S054501Published

Before: Chin, Kennard, Mosk

AI Brief

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Holding. Site investigation expenses may constitute defense costs if they are reasonable and necessary to avoid or minimize liability, and defense costs may be allocated to the insured for periods during which the insured was self-insured.

Issues

Whether site investigation expenses may constitute defense costs under standard commercial general liability insurance policies.
Whether defense costs may be allocated to the insured under standard commercial general liability insurance policies.

Disposition. Affirmed in part, reversed in part, and remanded.

Quotations verified verbatim against the opinion

“The first question is whether site investigation expenses—broadly, expenses for determining the existence, nature, extent, effect, etc., of the discharge of hazardous substances at a location—may constitute defense costs”

“The second is whether defense costs may be allocated to the insured. As we shall explain, we conclude that, as to each, the answer is qualifiedly affirmative.”

Opinion — Mosk

Opinion

MOSK, J. In this cause, we resolve two issues relating to standard commercial general liability insurance policies, which were formerly called comprehensive general liability insurance policies. The first question is whether site investigation expenses—broadly, expenses for determining the existence, nature, extent, effect, etc., of the discharge of hazardous substances at a location—may constitute defense costs that the insurer must incur in fulfilling its duty to defend. The second is whether defense costs may be allocated to the insured. As we shall explain, we conclude that, as to each, the answer is qualifiedly affirmative.

This is still another chapter in the yet-to-be-completed volume relating the story of Aerojet-General Corporation in Sacramento County. (See, e.g., [46]Mangini v. Aerojet-General Corp. (1996) 12 Cal.4th 1087 [51 Cal.Rptr.2d 272, 912 P.2d 1220]; Aerojet-General Corp. v. Transport Indemnity Insurance (1993) 18 Cal.App.4th 996 [22 Cal.Rptr.2d 862]; Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125 [281 Cal.Rptr. 827]; Aerojet-General Corp. v. Superior Court (1989) 211 Cal.App.3d 216 [257 Cal.Rptr. 621].) Aerojet-General Corporation is, and has been, a leading manufacturer in the aerospace and defense markets. Throughout the course of its operations from the early 1950’s into the 1980’s, it discharged hazardous substances, including trichloroethylene, in an ongoing fashion at its Sacramento site and thereby caused pollution in and around that location as such substances spread onto the ground, into the groundwater, and beyond toward the American River.

In 1982, Transport Indemnity Company and Associated International Insurance Company (hereafter collectively Transport Indemnity) filed a complaint for declaratory relief in the Superior Court of San Mateo County, which was docketed under No. 262425, against, inter alios, numerous other insurers and their common insureds, Aerojet-General Corporation and its wholly owned subsidiary Cordova Chemical Company (hereafter collectively Aerojet), regarding the parties’ rights and duties under various comprehensive general liability and other insurance policies.1 It appears that what was stated above was already known or believed—that, throughout the course of its operations from the early 1950’s into the 1980’s, Aerojet had discharged hazardous substances in an ongoing fashion at its Sacramento site and had thereby caused pollution in and around that location resulting in continuous and/or progressively deteriorating bodily injury and/or property damage. In its complaint, Transport Indemnity sought declarations including that it was not obligated to provide, and Aerojet was not entitled to receive, either indemnification or defense.

Related research

Aerojet later filed an amended cross-complaint—the one operative here— against 54 insurers, under 245 comprehensive general liability and other [47]insurance policies with periods incepting as early as 1950 and. expiring as late as 1984, as to 3 actions brought by either the United States or the State of California and 35 actions brought by private parties, each of which was based on facts, alleged or otherwise disclosed, to the effect that, throughout the course of its operations from the early 1950’s into the 1980’s, Aerojet discharged hazardous substances in an ongoing fashion at its Sacramento site and thereby caused pollution in and around that location resulting in continuous and/or progressively deteriorating bodily injury and/or property damage. The private actions were various. The governmental ones were these: (1) an action instituted by the State of California against Aerojet in the Superior Court of Sacramento County in 1979 under authority of, inter alia, the Porter-Cologne Water Quality Control Act (Wat. Code, § 13000 et seq.), seeking relief including an injunction directing the company to undertake cleanup, abatement, and remedial work as to its pollution, and an order requiring the company to reimburse the state for the costs that the latter had, and would, incur in its own cleanup, abatement, and remedial work; (2) an action instituted by the United States against Aerojet in the United States District Court for the Eastern District of California in 1986 under authority of, inter alia, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (hereafter CERCLA) (42 U.S.C. § 9601 et seq.), seeking relief including an injunction directing the company to abate and remedy its pollution and its effects, and an order requiring the company to reimburse the United States for so-called “response costs,” viz., the costs of removal and/or remediation (see 42 U.S.C. § 9601(25)),2 which the United States had, and would, incur with regard thereto; and (3) a parallel CERCLA action instituted by the State of California against Aerojet on the same day and in the same court, seeking relief including an order requiring the company to reimburse the state for the “response costs” that the latter had, and would, incur; the federal and state CERCLA actions were consolidated. In its amended cross-complaint, Aerojet sought, among other things, a declaration that it was entitled to receive, and the insurers were obligated to provide, both indemnification and defense. In pertinent part, it alleged to the [48]effect that it had tendered the defense, but that the insurers had either refused or had accepted only under “unreasonable” reservations of rights.

In phase IB, the superior court made determinations as to meaning. By way of background: Prior to 1966, in its insuring clause the standard comprehensive general liability insurance policy covered specified harm, such as bodily injury or property damage, caused by “ ‘accident.’ ” (Croskey et al., Cal. Practice Guide: Insurance Litigation 2, supra, ^ 7:26, p. 7A-8 italics omitted.) In 1966, the form was revised in its insuring clause to cover specified harm caused by an “ ‘occurrence,’ ” which was defined as an “ ‘accident, including injurious exposure to conditions, which results during the policy period in’ ” harm of this sort “ ‘neither expected nor intended from the standpoint of the insured.’” (Id., H 7:28, p. 7A-9, italics omitted.) In 1973, the form was further revised: In its insuring clause, it continued to cover specified harm caused by an “ ‘occurrence,’ ” but now defined that term as an “ ‘accident, including continuous or repeated exposure to conditions, which results in’ ” harm of this sort “ ‘neither expected nor intended from the standpoint of the insured.’ ” (Id., ^ 7:29, p. 7A-9, italics omitted.) To return to the superior court’s determinations: Aerojet’s comprehensive general liability insurance policies and similar instruments largely conformed to the standard ones in applicable' aspects. The phrase “neither expected nor intended” was express in the insuring clause of some, reflecting Insurance Code section 533, which states that “[a]n insurer is not liable for a loss caused by the wilful act of the insured . . . .” The phrase was implied in the insuring clause of the rest, through operation of the same provision. The phrase incorporated a subjective standard as to “intent” but, under City of Carter Lake v. Aetna Cas. and Sur. (8th Cir. 1979) 604 F.2d 1052, 1058-1059, an objective standard as to “expectation.” If specified harm is “expected” or “intended” by the insured, it is effectively caused by a “wilful act” within the meaning of Insurance Code section 533, and hence outside of coverage. From 1976 to 1984, Aerojet’s policies, which were issued by the Insurance Company of North America (hereafter INA), essentially took a form similar to that of a so-called “fronting” policy,3 to the following effect: Although, in the body, it was stated that INA had a duty to indemnify Aerojet, by endorsement it was provided that (1) [50]INA had a duty to make payments only beyond stated deductible amounts, which matched or approached indemnification limits, and (2) in case of Aerojet’s default, INA had a duty to make payments within the stated deductible amounts and a corresponding right to obtain reimbursement 4 and although, in the body, it was stated that INA had a duty to defend Aerojet, by endorsement it was provided that Aerojet should pay its own defense costs—under which provision it was understood by Aerojet that it should defend itself.5

[52]At phase III, Aerojet and the insurers presented evidence concerning Aerojet’s site investigation expenses. By then, Aerojet had incurred such expenses in the amount of about $26,655,787.01. In part, it had conducted its site investigation against the private actions, which were ultimately about 38 in number. By around 1986, it had resolved all, or at least almost all, of these proceedings. After prevailing in a test case comprising three such matters, it settled all, or almost all, of the outstanding claims for about $450,000. In other part, it had conducted its site investigation against the state’s action under the Porter-Cologne Water Quality Control Act, or more precisely, against various administrative orders or requests that had been made antecedent thereto. In yet other part, it had conducted its site investigation against the consolidated federal and state CERCLA actions. In 1989, it had become subject to a partial consent decree entered therein, which incorporated an agreement negotiated by the parties.6 Although it denied any and all liability, it was required by the decree to “complete a Remedial Investigation/Feasibility Study” or “RI/FS,” which was subject to oversight and review by the federal and state governments, in order “to determine the nature and extent of public health and environmental problems, if any, presented by the release or threat of release of hazardous substances at or from [its Sacramento site] and to develop and evaluate remedial alternatives so it can subsequently be determined which, if any, is necessary to remedy public health or environmental problems identified.”7 It expressly admitted that it had incurred its site investigation expenses, which it conceded included “costs ... to investigate the extent of the contamination or the viability of cleanup option [sic] or the monitoring of the spread of waste from the site,” “because of government orders or requests to investigate, cleanup or remediate” or “because of [its own] agreement or commitment to perform the investigation, cleanup, or remediation . . . .” But it also impliedly claimed that it had, or would have, incurred such expenses in order to avoid or at least minimize liability. In addition, it had assertedly incurred remediation expenses, more broadly defined, in the amount of about $35,240,495.44 and, more narrowly defined, in the amount of $30,454,495.44.

Specifically, in part III, the Court of Appeal concluded, inter alia, that the superior court erred by instructing the jury to the effect that Aerojet’s site investigation expenses were not defense costs to the extent that they were linked to orders or requests by the United States or the State of California. It held in substance as follows: Generally, site investigation expenses by an insured are defense costs to the extent that they are reasonable and necessary to avoid or at least minimize liability; AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 818-843 [274 Cal.Rptr. 820, 799 P.2d 1253] is not to the contrary, standing as it does only for the proposition that certain site investigation expenses by a third party—such as those included within “response costs” by the United States under CERCLA—may be indemnification costs to the extent that they must be reimbursed by the insured and resolve liability for specified harm; nevertheless, under the approach of the United States District Court in Fireman’s Fund Ins. Companies v. Ex-Cell-O Corp. (E.D.Mich. 1992) 790 F.Supp. 1318, 1338 (hereafter sometimes Ex-Cell-O I), and Fireman’s Fund Ins. Companies v. Ex-Cell-O Corp. (E.D.Mich. 1992) 790 F.Supp. 1339, 1346 (hereafter sometimes Ex-Cell-O II), there is a presumption that an insured’s site investigation expenses in connection with a Remedial Investigation/Feasibility Study or RI/FS responding to an order or request by the United States for specific information under CERCLA are not defense costs, but that presumption may be rebutted by the insured by showing that the site investigation expenses in question were reasonable and necessary to avoid or at least minimize liability and [55]would have been incurred even in the absence of such order or request; the general rule applies to Aerojet’s site investigation expenses against (1) the private actions, (2) the state’s action under the Porter-Cologne Water Quality Control Act and the various administrative orders or requests antecedent thereto, which were determined not to have sought site investigation, and (3) as qualified below, against the federal and state CERCLA actions; the exception applies to Aerojet’s site investigation expenses in connection with the Remedial Investigation/Feasibility Study responding to any order or request by the federal or apparently the state government for specific information under CERCLA. Applying the harmless error rule, it concluded that the superior court did indeed prejudice Aerojet: The erroneous instruction, which was given at the commencement of this phase as well as at its conclusion, effectively prevented Aerojet from presenting available evidence that had a tendency in reason to prove that its site investigation expenses were reasonable and necessary to avoid or at least minimize liability; moreover, it provided the jury with the wrong law to apply to such evidence as Aerojet and the insurers had in fact presented.

In pertinent part, standard comprehensive or commercial general liability insurance policies provide that the insurer has a duty to indemnify the insured for those sums that the insured becomes legally obligated to pay as damages for a covered claim. (E.g., Buss v. Superior Court, supra, 16 Cal.4th at p. 45.) By definition, this duty entails the payment of money (e.g., id. at p. 46), which is expressly limited in amount (see Croskey et al., Cal. Practice Guide: Insurance Litigation 2, supra, ¶ 7:354, p. 7A-76), in order to resolve liability (e.g., Buss v. Superior Court, supra, 16 Cal.4th at p. 46). It is not narrowly confined to money that the insured must give under law as compensation to third parties, but may also include money that the insured must itself expend in equity in order to provide relief of the same sort. (AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d at pp. 818-843.) It runs to claims that are actually covered, in light of the facts proved. (E.g., Buss v. Superior Court, supra, 16 Cal.4th at pp. 45-46.) It arises only after liability is established and as a result thereof. (E.g., id. at p. 46; see Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at p. 659, fn. 9.) It is triggered if specified harm is caused by an included occurrence,9 so long as at least some such harm results within the policy period. (Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at pp. 669-673.) It extends to all [57]specified harm caused by an included occurrence, even if some such harm results beyond the policy period. (See id. at p. 686.) In other words, if specified harm is caused by an included occurrence and results, at least in part, within the policy period, it perdures to all points of time at which some such harm results thereafter.10 To illustrate by a hypothetical similar to the present case: Insurer has a duty to indemnify Insured for those sums that Insured becomes legally obligated to pay as damages for property damage caused by its discharge of hazardous substances, up to a limit of $1 million. Insured discharges such a substance. It thereby causes property damage to Neighbor’s land, in the amount of $100,000 (determined by the cost of returning the soil to its original condition), within the policy period of year 1. It causes further damage of this sort as the substance spreads under the surface, in the amount of $100,000 annually, in year two through year thirty. Insured must pay Neighbor $3 million in damages under judgment. Insurer must pay Insured the limit of $1 million for indemnification.

Standard comprehensive or commercial general liability insurance policies also provide that the insurer has a duty to defend the insured in any [58]action brought against the insured seeking damages for a covered claim. (E.g., Buss v. Superior Court, supra, 16 Cal.4th at p. 45.) By definition, the duty entails the rendering of a service, viz., the mounting and funding of a defense (e.g., id. at p. 46), which is not limited, expressly or otherwise (see Travelers Ins. Co. v. Lesher (1986) 187 Cal.App.3d 169, 191 [231 Cal.Rptr. 791], disapproved on other points, Buss v. Superior Court, supra, 16 Cal.4th at pp. 50, fn. 12, & 52, fn. 14; cf. Croskey et al., Cal. Practice Guide: Insurance Litigation 2, supra, ¶ 7:647, p. 7B-32 [speaking generally and without specific reference to such policies]), in order to avoid or at least minimize liability (see Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 279 [54 Cal.Rptr. 104, 419 P.2d 168]). As such, it requires the undertaking of reasonable and necessary efforts for that purpose (see ibid.), including investigation (see Pacific Indem. Co. v. Universal etc. Ins. Co. (1965) 232 Cal.App.2d 541, 543-544 [43 Cal.Rptr. 26]). It also requires the incurring of reasonable and necessary costs to that end (see Travelers Ins. Co. v. Lesher, supra, 187 Cal.App.3d at p. 191), including investigative expenses (see Pacific Indem. Co. v. Universal etc. Ins. Co., supra, 232 Cal.App.2d at pp. 543-544). It runs to claims that are merely potentially covered, in light of facts alleged or otherwise disclosed. (E.g., Buss v. Superior Court, supra, 16 Cal.4th at p. 46.) It arises as soon as tender is made (e.g., ibid.), before liability is established and apart therefrom (e.g., Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at p. 659, fn. 9). It is discharged when the action is concluded. (E.g., Buss v. Superior Court, supra, 16 Cal.4th at p. 46.) It may be extinguished earlier, if it is shown that no claim can in fact be covered. (E.g., ibid.) If it is so extinguished, however, it is extinguished only prospectively and not retroactively: Before, the insurer had a duty to defend; after, it does not have a duty to defend further. (E.g., ibid.) It is triggered if specified harm may possibly have been caused by an included occurrence, so long as at least some such harm may possibly have resulted within the policy period. (Cf. Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at pp. 669-673 [holding to such effect as to the duty to indemnify].) It extends to all specified harm that may possibly have been caused by an included occurrence, even if some such harm may possibly have resulted beyond the policy period. (Cf. id. at p. 686 [holding to such effect as to the duty to indemnify].) In other words, if specified harm may possibly have been caused by an included occurrence and may possibly have resulted, at least in part, within the policy period, it perdures to all points of time at which some such harm may possibly have resulted thereafter.11 To illustrate again by a hypothetical: Insurer has a duty to defend Insured as to a claim for damages for property damage caused by its discharge of hazardous substances brought by Neighbor. Insured may possibly have discharged such a substance. It thereby may possibly have caused property damage to [59]Neighbor’s land within the policy period of year one. It may possibly have caused further damage as the substance may possibly have spread under the surface in year two through year thirty. Insurer must defend Insured as to the claim in its entirety.

Not to the contrary is AW Ins. Co. v. Superior Court, supra, 51 Cal.3d 807. As pertinent here, that decision stands only for the proposition that certain site investigation expenses by a third party—such as those included within “response costs” by the United States under CERCLA—may be indemnification costs to the extent that they must be reimbursed by the insured and resolve liability for specified harm. (Id. at pp. 824-843.) It simply does not hold or state that such expenses by an insured are not defense costs to the extent that they are reasonable and necessary to avoid or at least minimize liability.13 In AIU Ins. Co. v. Superior Court, we construed standard policy language covering indemnification costs, i.e., “sums which [the. insured] becomes ‘legally obligated’ to pay as ‘damages’ . . . because of ‘[bodily injury or] property damage.’ ” (Id. [62]at p. 824.) We concluded that the phrase “legally obligated” means required of the insured, whether at law or in equity. (Id. at pp. 824-825.) We further concluded that the term “damages” comprehends the insured’s costs of providing the relief required, whether such costs are paid by the insured itself or reimbursed by it to a third party. (Id. at pp. 825-842.) We then concluded that the phrase “property damage” refers to specified harm that the insured has caused. (Id. at pp. 842-843.) It is manifest that site investigation expenses by the insured may not be indemnification costs, i.e., “sums which [the insured] becomes ‘legally obligated’ to pay as ‘damages’ . . . because of ‘[bodily injury or] property damaged ” For example, such expenses may be required of the insured under CERCLA even before it has been proved to have caused specified harm (see, e.g., 42 U.S.C. § 9604(a)(1) [reaching “potentially responsible part[ies]” (italics added)])—and even if it is subsequently proved not to have done so (see American Bumper v. Hartford Ins. (1996) 452 Mich. 440, 443-447, 460-463 [550 N.W.2d 475, 477-479, 485-486]).

Also, the insurers assume that site investigation expenses cannot be defense costs to the extent that the underlying site investigation is ordered or requested by the federal or state government or, it seems, by any other person or entity. Their premise is, apparently, that the effort undertaken by a party in defending itself must be voluntary, as for example initiated and controlled by the party itself. It is unsound. (See Hi-Mill Mfg. Co. v. Aetna Cas. & Sur. Co. (E.D.Mich. 1995) 884 F.Supp. 1109, 1116-1117 [applying Michigan law, but speaking generally]; American Bumper v. Hartford Ins, supra, 452 Mich, at pp. 460-463 [550 N.W.2d at pp. 485-486 [same]; General Acc. Ins. Co. v. State Dept. of Environ., supra, 143 N.J. at p. 476 [672 A.2d at pp. 1161-1162] [applying New Jersey law, but speaking generally].) What matters is what is done, not why. All the same: Typically, the effort undertaken by a defendant in responding to a plaintiff’s interrogatories is not voluntary in any real sense: It is initiated at the plaintiff’s request and is controlled by the plaintiff’s threat of a motion to compel further responses. But, typically, the expenses of responding to interrogatories may indeed be defense costs. The result is unaffected by the fact that a partial consent decree was entered in the consolidated federal and state CERCLA actions, under which Aerojet was required to “complete a Remedial Investigation/Feasibility Study” or “RI/FS,” which was subject to oversight and review by the federal and state governments. (See American Bumper v. Hartford Ins, supra, 452 Mich, at pp. 460-463 [550 N.W.2d at pp. 485-486] [applying Michigan law, but speaking generally].) “To be sure, consent decrees bear some of the earmarks of judgments entered after litigation. At the same time, because their terms are arrived at through [67]mutual agreement of the parties, consent decrees also closely resemble contracts.” (Firefighters v. Cleveland (1986) 478 U.S. 501, 519 [106 S.Ct. 3063, 3073, 92 L.Ed.2d 405].) . Their “most fundamental characteristic,” however, is their “voluntary nature.” (Id. at pp. 521-522 [106 S.Ct. at p. 3075].) “Indeed, it is the parties’ agreement that serves as the source of the court’s authority to enter any judgment at all.” (Id. at p. 522 [106 S.Ct. at p. 3075].) “More importantly, it is the agreement of the parties, rather than the force of the law upon which the complaint was originally based, that creates the obligations embodied in a consent decree.” (Ibid.)15

In the case at bar, the record on appeal discloses this: From 1956 to about 1975, Aerojet had largely typical comprehensive general liability insurance policies and similar instruments, covering specified harm including bodily injury and/or property damage, that were issued by various [70]insurers. From 1976 to 1984, it had “fronting” policies of this sort that were issued by INA. With the exception of INA, as to which Aerojet agreed to pay its own defense costs and indeed to defend itself,17 the insurers each had a duty to defend all the governmental and private actions in their entirety—to be precise, each had such a duty separate and independent from the others (Continental Cas. Co. v. Zurich Ins. Co. (1961) 57 Cal.2d 27, 37 [17 Cal.Rptr. 12, 366 P.2d 455]). In each action, each insurer was presented with what was in substance a single broad “mixed” claim. That claim was predicated on facts, alleged or otherwise disclosed, to the effect that, throughout the course of its operations from the early 1950’s into the 1980’s, Aerojet discharged hazardous substances in an ongoing fashion at its Sacramento site and thereby caused pollution in and around that location resulting in continuous and/or progressively deteriorating bodily injury and/or property damage. That claim, therefore, was at least potentially covered in part under each of the policies pertinent here because it might possibly involve specified harm caused by an included occurrence,18 with triggering harm of that sort within the policy period in question. Each insurer was “on the risk” for at least one such period. None was on the risk for all. Each, as stated, was presented with a “mixed” claim: At least one of the parts was at least potentially covered because it might possibly embrace some triggering harm of the specified sort within the policy period caused by an included occurrence, and at least one of the parts was not even potentially covered because it did not even possibly embrace any triggering harm of the specified sort within the policy period caused by an included occurrence. Nevertheless, each had a duty, prophylactic although not contractual, to defend all the parts.19 It is true that INA had no duty to defend whatsoever. But that fact is immaterial so far as the other insurers are concerned. The “fronting” policies created rights and duties between Aerojet and INA. They did not even purport to create any right or duty in either Aerojet or INA as against the world, including the other insurers. Nor could they. As contracts, they were effective only between Aerojet and INA. (Chandler v. Roach (1957) 156 Cal.App.2d 435, 444 [319 P.2d 776].)

More specifically, the insurers imply that they may allocate defense costs to Aerojet more broadly, apparently based on the “fronting” policies issued by INA to Aerojet, or at least on the fact that Aerojet chose to avail itself of such policies. They are wrong here as well. Whatever duty to defend each may have had was provided for in its own policy or policies, and was not affected by Aerojet’s subsequent agreement to pay its own defense costs, and indeed defend itself, under INA’s. At bottom, their reasoning seems as [72]follows: If Aerojet had been issued policies by INA that were not of the “fronting” kind, they could have sought “equitable contribution” from INA as to the defense costs (Truck Ins. Exchange v. Amoco Corp. (1995) 35 Cal.App.4th 814, 827 [41 Cal.Rptr.2d 551]; see generally, Continental Cas. Co. v. Zurich Ins. Co., supra, 57 Cal.2d at pp. 35-38); because it did not, it should be required to contribute itself. Such an inference fails. At the outset, Aerojet was in fact issued “fronting” policies by INA. Had the situation been different, it might have led to different consequences. But it was not. Be that as it may, let us assume that, if Aerojet had been issued policies by INA that were not of the “fronting” kind, INA might have been required to make an equitable contribution to the defense costs. (See, e.g., CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 620 [222 Cal.Rptr. 276].) That assumption, however, does not compel the conclusion that, because it was issued “fronting” policies by INA, Aerojet should be required to make such a contribution itself. Although insurers may be required to make an equitable contribution to defense costs among themselves, that is all: An insured is not required to make such a contribution together with insurers. (Truck Ins. Exchange v. Amoco Corp., supra, 35 Cal.App.4th at pp. 827-828; County of San Bernardino v. Pacific Indemnity Co. (1997) 56 Cal.App.4th 666, 690-691 [65 Cal.Rptr.2d 657] [following Truck Ins. Exchange].) Equitable contribution applies only between insurers (Truck Ins. Exchange v. Amoco Corp., supra, 35 Cal.App.4th. at p. 828; County of San Bernardino v. Pacific Indemnity Co., supra, 56 Cal.App.4th at pp. 690-691 [following Truck Ins. Exchange]), and only in the absence of contract (see Montrose Chemical Corp. v. Admiral Ins. Co., supra, 10 Cal.4th at p. 687). It therefore has no place between insurer and insured, which have contracted the one with the other. Neither does it have any place between an insurer and an uninsured or “self-insured”20 party. (Truck Ins. Exchange v. Amoco Corp., supra, 35 Cal.App.4th at pp. 827-828; County of San Bernardino v. Pacific Indemnity Co., supra, 56 Cal.App.4th at pp. 690-691 [following Truck Ins. Exchange].)21

Concurrence — Kennard

KENNARD, J., Concurring and Dissenting. In this case, the majority addresses three issues concerning the rights and duties of insurer and insured under a standard commercial general liability (CGL) insurance policy when the insured has been sued for progressive property damage or personal injury caused by toxic pollution. In my view, the majority decides only one of these issues correctly.

The first issue that the majority addresses is whether site investigation costs—that is, costs incurred to determine the origin, nature, and extent of toxic pollution and the most appropriate remedial measures—are defense costs that the insurer must incur in fulfilling its duty to defend. Starting from the premise that defense costs and indemnity costs are mutually exclusive, the majority concludes that site investigation costs are defense costs rather than indemnity costs when the site investigation is conducted “within the temporal limits of the insurer’s duty to defend” and “amount[s] to a reasonable and necessary effort to avoid or at least minimize liability,” provided that the claimed expenses are “reasonable and necessary for that purpose.” (Maj. opn., ante, at pp. 60-61.)

[78]Instead of starting from the premise that defense costs and indemnity costs are mutually exclusive, I would begin by acknowledging that site investigation may serve both to avoid or minimize liability and to discharge a cleanup obligation, and therefore a particular site investigation cost may be both a defense cost and an indemnity cost. Next, I would separately consider the situations of insureds who did not pollute, insureds who polluted but did not expect or intend the resulting harm, and insureds who polluted and did expect or intend the resulting harm.

In the first situation, in which it is ultimately determined, by judgment or settlement, through site investigation or otherwise, that the insured has no liability for toxic pollution, the absence of liability means-that there are no indemnity costs. In this situation, all site investigation costs reasonably incurred as part of the ultimately successful effort to avoid liability should be treated as defense costs that the insurer must pay under its duty to defend. In the second situation, in which it is ultimately determined that the insured is a toxic polluter but one who did not expect or intend the resulting harm, the duty to defend requires the insurer to pay site investigation costs reasonably incurred to avoid or minimize liability, but if those same costs also serve to discharge the insured’s cleanup liability, then they also constitute indemnity costs that the insurer may credit against the liability limits of the policy. In the third situation, in which it is ultimately determined that the insured is a toxic polluter who expected or intended the resulting harm, the public policy against indemnity for willful wrongs must be considered in deciding whether the insurer is obligated to pay site investigation costs. To the extent that site investigation serves to discharge the insured’s cleanup liability, this public policy requires that the insured rather than the insurer bear those cleanup costs.

The second issue that the majority addresses is whether, when the insurer has incurred costs in the defense of what the majority terms a “mixed claim,” meaning a claim having parts that are potentially covered and parts that are not potentially covered, the insurer may obtain reimbursement from the insured for defense costs that may be allocated solely to parts of the claim that are not potentially covered. The majority decides that an insurer may obtain reimbursement from the insured for such costs, treating this issue as controlled by this court’s recent decision in Buss v. Superior Court (1997) 16 Cal.4th 35 [65 Cal.Rptr.2d 366, 939 P.2d 766]. I dissented in Buss (id. at p. 62) and would not further extend the scope of that misguided decision, which ignored clear policy language and standard principles of contract law.

The third issue concerns equitable allocation of defense costs among insurers having defense obligations that overlap because each insurer afforded coverage during part of the time when a progressive property damage [79]or personal injury was occurring. Specifically, the issue is whether, in the process of equitably allocating defense costs among insurers having overlapping defense obligations, an insured who lacked coverage during part of the period in question may be treated as its own insurer and on this basis equitably allocated a portion of the defense costs. The majority concludes that in this situation those insurers having a duty to defend are required to bear all defense costs and that no portion of the defense costs may be allocated to the insured. I agree and concur in this portion of the majority opinion.

Since 1951, Aerojet-General Corporation (Aerojet) has operated a large facility near Sacramento to develop and produce missile and rocket motors under government contracts. Between 1956 to 1984, the time period relevant here, Aerojet purchased liability coverage under a series of CGL policies issued by various insurers. Between 1976 and 1984, Aerojet purchased “cash flow” or “fronting” policies from Insurance Company of North America (INA). These policies contained endorsements that shifted to Aerojet the ultimate cost of both indemnification and defense.

In 1979, it was discovered that the groundwater beneath and around Aerojet’s Sacramento facility had been contaminated with trichloroethylene (TCE), a chemical solvent that Aerojet had used in large quantities. Discovery of the TCE pollution led the federal and state governments and various private parties to sue Aerojet, which sought indemnification and defense from its liability insurers. The insurers (except INA) provided a defense but reserved their rights to dispute indemnity coverage.

Several insurers commenced this action by filing a complaint for declaratory relief to clarify their obligations under the CGL policies they had issued to Aerojet. Aerojet cross-complained against all the insurance companies that had issued CGL policies to it between 1956 and 1984. The insurers’ complaint eventually was dismissed without prejudice, and the case went to trial on Aerojet’s cross-complaint. The action was tried in three phases. In the first phase, the trial court construed the relevant disputed language of the insurance policies. In the second phase, the jury applied the policy language as construed by the trial court to the evidence presented. Specifically, it applied the standard CGL policy language limiting the insurers’ obligations to harm that was “neither expected nor intended from the standpoint of the insured,” and the jury concluded that there was no indemnity coverage for the damages occasioned by the TCE pollution because Aerojet had expected or intended the harm caused by that pollution.

[80]Before the third phase began, the parties entered into a detailed stipulation. They agreed that the insurers had paid or would pay all ordinary defense costs, such as attorney fees and expert witness fees, through the final disposition of any appeal Aerojet would take from the judgment to be entered in the action. They also agreed that in the third phase the parties would litigate only whether site investigation expenses were defense costs, the insurers would not seek reimbursement of any part of the ordinary defense costs, and Aerojet would not seek “bad faith” damages. Finally, they agreed that if the case were to be retried following a reversal on appeal of the judgment that would be entered after the conclusion of the third phase, then upon retrial the insurers would be free to seek reimbursement for defense costs from Aerojet, and Aerojet in turn would be free to seek “bad faith” damages from the insurers.

During the third phase of the trial, the jury determined that costs of government-mandated site investigations were not defense costs, and therefore the insurers were not required to pay these costs to discharge their duty to defend. The trial court entered judgment against Aerojet on its cross-complaint. Aerojet appealed, raising issues relating to each of the three phases of the trial.

The Court of Appeal concluded that although the trial court had committed certain errors in the first and second phases of the trial, Aerojet had not been prejudiced by these errors in light of the overwhelming evidence that Aerojet knew both that TCE was a highly toxic and harmful pollutant and that its disposal practices were causing TCE pollution of the groundwater. Thus, the Court of Appeal upheld the jury verdict at the second phase that, because Aerojet had expected or intended the harm caused by the TCE pollution, the insurers had no indemnity obligation.

As for the third phase, the Court of Appeal reached these conclusions: (1) The jury’s finding that none of the site investigation expenses were defense costs was prejudicially affected by erroneous instructions; and (2) liability for defense costs should be equitably apportioned among the various insurers, and in this apportionment Aerojet should also bear á reasonable share because it chose to be self-insured for defense costs, by means of the INA “fronting” policies, for part of the time during which the harm was occurring. The Court of Appeal reversed the judgment as to the third phase only and remanded for a limited new trial.

Aerojet petitioned this court for review, raising several issues. Three of the insurance carriers also petitioned for review, raising only the issue [81]whether a CGL insurer’s defense obligation includes payment of site investigation costs. This court granted both petitions but ultimately limited the issues on review to those that the majority addresses. This court has declined to address any issue concerning the determination that, because Aerojet expected or intended the harm caused by the TCE pollution, the insurers have no indemnity obligation. Accordingly, that determination is no longer subject to appellate review and will become final.

The standard CGL policy defines the insurer’s indemnity obligation as the duty to pay “all sums that the insured becomes legally obligated to pay as damages” as a result of personal injury or property damage or other covered risk, provided that the damages are to compensate for harm that was “neither expected nor intended from the standpoint of the insured.” In AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 814 [274 Cal.Rptr. 820, 799 P.2d 1253], we held that in this standard language the term “damages” includes cleanup and other “response” costs incurred under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 U.S.C. § 9601 et seq.) and related state and federal environmental laws. Thus, the term “damages” is not limited to money that the insured must pay to an injured third party under a liability judgment, but includes also money that the insured must pay to comply with a legal obligation for cleanup of toxic pollution.

Apart from its duty to indemnify, an insurer under a CGL policy has a duty to defend the insured in any “suit” seeking damages potentially within the policy’s indemnity coverage. (See Buss v. Superior Court, supra, 16 Cal.4th 35, 62-63 (dis. opn. of Kennard, J.).) It is settled, and not disputed here, that an insurer’s duty to defend includes a duty to investigate the factual allegations of a third party’s claim against the insured whenever the investigation constitutes a reasonable effort to avoid or reduce the insured’s liability.

In a standard CGL policy, indemnity coverage is subject to dollar limits specified in the policy, but defense coverage is not subject to any specified dollar limit. Otherwise stated, the policy’s monetary limits have no application to defense costs.

Under CERCLA, once a federal agency identifies a suspected polluter (referred to in CERCLA as a “potentially responsible party” or PRP), the agency may require the PRP to conduct a site investigation (which CERCLA [82]calls a “remedial investigation/feasibility study” or RI/FS) to determine the extent of the pollution and the most feasible method of cleaning it up. If the PRP does not comply with the agency’s request to perform an RI/FS, the agency will perform the RI/FS itself and charge the cost to the PRP. Generally, however, it is advantageous for the PRP to perform the RI/FS itself, because the results of the study are critical in determining whether, and if so how much, the PRP will eventually have to pay for the cleanup.

Because the results of the RI/FS can be used to demonstrate that there is no toxic pollution, that a PRP is not the source of the pollution, or that the pollution is less severe or less extensive than claimed, or to demonstrate the feasibility of cleanup methods less costly than those the agency might otherwise have demanded, Aerojet and other insureds claim that the costs of the RI/FS are entirely defense costs that their insurers must pay. If the costs are treated only as defense costs, they do not count against the policy limits. This is critical in a case like this one, in which some $26 million has been spent on site investigation, including the RI/FS.

The majority states that an insurer, to discharge its duty to defend, “must undertake reasonable and necessary efforts to avoid or at least minimize liability” and for this purpose “must incur reasonable and necessary costs.” (Maj. opn., ante, at p. 60.) From these simple and indisputable propositions, the majority concludes that site investigation expenses are defense costs, and not indemnity costs, whenever the site investigation is “conducted within the temporal limits of the insurer’s duty to defend” and amounts “to a reasonable and necessary effort to avoid or at least minimize liability,” provided only that the particular expense incurred is “reasonable and necessary for that purpose.” (Id. at pp. 60-61.)

The majority states that this court’s decision in AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d 807, is “[n]ot to the contrary” and stands only for the proposition that certain site investigation expenses may be indemnity costs, • not for the proposition that site investigation costs may never be defense costs. (Maj. opn., ante, at p. 61.)

In a footnote, the majority states that defense costs and indemnity costs are mutually exclusive and that the same cost cannot be both an indemnity cost and a defense cost. (Maj. opn., ante, at p. 61, fn. 13.) The majority distinguishes the two by stating that indemnity costs “arise after the insured’s liability is established and as a result thereof’ whereas defense costs “arise before the insured’s liability is established and apart therefrom.” (Ibid.)

[83]Two basic defects permeate the majority’s analysis of this issue.

First, the majority is wrong in its assertion that defense costs and indemnity costs are mutually exclusive and may be readily distinguished by determining whether the cost was incurred before or after the insured’s liability was established. The majority assumes that in every situation that may arise under a CGL policy, there is a single point in time when the insured’s liability is fixed, so that expenses incurred after that point cannot be defense costs (because there is no longer anything to defend) while expenses incurred before that point cannot be indemnity costs (because there was not yet a liability to discharge). But defense and indemnity costs are not so easily separated. In particular, it frequently happens that an insured will admit the fact of liability but dispute the amount or extent of that liability. Here, for example, Aerojet conceded at an early stage that it was the source of the TCE pollution around its Sacramento facility, and it agreed in principle to pay the costs of cleanup; thereafter, the dispute shifted to issues such as the extent of the pollution and the most cost-effective method of cleanup. After conceding the fact of liability, and while disputing the extent of liability, an insured may incur costs that are defense costs as well as indemnity costs because they are incurred for diagnostic or other services that operate both to reduce and to discharge liability. In the context of a CERCLA enforcement action, an RI/FS may serve these dual purposes. In the context of a personal injury claim, the cost of a medical diagnostic procedure may likewise be both a defense cost and an indemnity cost because the procedure may both show that the injury is less serious (and thus the insured’s potential liability is less costly) than claimed and also constitute a necessary and integral part of the treatment for the injury. In brief, a single expense may qualify as an indemnity cost because it serves to partially discharge the insured’s liability and as a defense cost because it assists, or could assist, in limiting the scope of the insured’s liability.

The majority’s “temporal limits” approach, under which defense costs and indemnity costs are mutually exclusive and the categorization of a particular cost is determined by reference to whether it was incurred before or after liability was fixed, cannot be applied successfully to the complex situations that arise under CGL policies. Toxic pollution cases are particularly resistant to this approach because the actual monetary cost of the polluter’s liability is rarely fixed in advance, but is usually determined retrospectively, after the cleanup is finished. If the tab is totaled only at the end, there is room to argue that costs incurred at every step of the process are defense costs because they may reduce subsequent cleanup costs by demonstrating that there are cheaper cleanup methods than those advocated by the government, that the methods used have been effective, or that the pollution is actually [84]less severe than thought. There is also room to argue that none of the costs are indemnity costs that the insurer may charge against the policy limits because all were incurred before the full extent of the insured’s liability was established.

The second global defect in the majority’s approach is that it completely ignores the public policy against indemnity coverage for intentional torts. This policy is embodied in Insurance Code section 533, which provides that an insurer “is not liable for a loss caused by the wilful act of the insured.” (See J. C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1019-1021 [278 Cal.Rptr. 64, 804 P.2d 689].) As the majority recognizes, the standard CGL policy language limiting coverage to harm “neither expected nor intended from the standpoint of the insured” implements Insurance Code section 533. As the majority puts it, “If specified harm is ‘expected’ or ‘intended’ by the insured, it is effectively caused by a ‘wilful act’ within the meaning of Insurance Code section 533, and hence outside of coverage.” (Maj. opn., ante, at p. 49.) Despite its acknowledgment of this important public policy, the majority gives the policy no consideration in deciding whether site investigation costs should be categorized as defense costs, indemnity costs, or both. The majority’s disregard for this policy is remarkable given the determination in this very case that Aerojet expected or intended the harm caused by the TCE pollution. By requiring Aerojet’s insurers to foot the bill for all site investigation that might have proved useful to the defense effort, without regard to whether the site investigation was also necessary to remedy the harm caused by the intentional toxic pollution, the majority effectively compels at least partial indemnity coverage for an intentional tort.

I propose a different approach. I would begin by asking whether the insured is a nonpolluter, a polluter who neither expected nor intended harm, or a polluter who expected or intended harm. I would treat each of these situations differently.

If it is ultimately determined that the insured did not pollute and thus has no cleanup obligation, there can be no overlap between defense costs and indemnity costs because the insured has no liability that could trigger an insurer’s indemnification duty. In this situation, site investigation costs reasonably incurred for a proper defense purpose are defense costs that the insurer must pay, without limitation as to amount, under its duty to defend. As the majority and I agree (maj. opn., ante, at pp. 76-77, fn. 29), this conclusion follows from the standard CGL policy language.

If it is ultimately determined that the insured is responsible for toxic pollution, and thus also that the insured has a cleanup obligation, there may [85]be an overlap between defense costs and indemnity costs because site investigation may serve both to reduce and to discharge the insured’s cleanup liability. But the consequences of this overlap cannot be explained without, distinguishing between, on the one hand, an insured who expected or intended the harm resulting from the pollution, and, on the other hand, an insured who did not expect or intend that harm.

If the insured neither expected nor intended the harm caused by the pollution, the insurer under a standard CGL policy has both a duty to defend and a duty to indemnify. The defense obligation is not subject to policy limits; the indemnity obligation is. In this situation, if a particular site investigation activity serves both a proper defense purpose and to discharge the insured’s cleanup liability, the reasonable cost of that activity is both a defense cost and an indemnity cost. Because it is a defense cost, the insurer must pay the site investigation expense without regard to policy limits (in other words, no amount of such payments can exhaust the duty to defend). Because it is also and equally an indemnity cost, however, the insurer may credit the payment against the policy’s limit on indemnity coverage, thereby reducing its obligation to pay other indemnity costs. These consequences necessarily follow from the language of the standard CGL policy.

The majority disputes this conclusion, apparently based on its stubborn insistence that site investigation costs may be characterized as either defense costs or indemnity costs, but not both. (Maj. opn., ante, at pp. 76-77, fn. 29.) The majority cites no provision of the standard CGL policy precluding dual characterization of costs or precluding the insurer from counting such costs dual-purpose costs against the limits of indemnity coverage. For example, the standard CGL policy might provide, but does not, that indemnity expenses count against the policy limits except when they also serve a proper defense purpose. Absent limiting language of this sort, the unambiguous policy must be construed to provide that insurers may count against the policy limits all indemnity expenses regardless of whether they also serve a proper defense purpose.

The remaining situation is the one at issue here, in which the insured expected or intended the harm resulting from the insured’s own acts of toxic pollution. Because the insured has a cleanup obligation, there is a potential for overlap of defense and indemnity costs because site investigation may serve both to determine and to discharge the insured’s cleanup obligation. But in this situation there is no indemnity coverage, both by virtue of the standard CGL policy exclusion for harm that the insurer expected or intended and by operation of Insurance Code section 533’ s prohibition against [86]indemnity for losses caused for willful acts. Thus, the insured may not require the insurer to pay costs necessary to discharge the cleanup liability. Nevertheless, the insurer is obligated to provide the insured with a defense until it is established that the insured expected or intended the harm. (See Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076 [17 Cal.Rptr.2d 210, 846 P.2d 792].)

If a particular site investigation activity is useful both to reduce and to discharge the insured’s cleanup liability, the reasonable cost of that activity is both a defense cost and indemnity cost. Because it is a defense cost, the insurer is obligated under the standard CGL insurance policy to pay it if it was incurred before the determination was made that the insured expected or intended the harm. But because it is also an indemnity cost, the insurer is prohibited by Insurance Code section 533 from paying it, regardless of when it was incurred. This conflict in the insurer’s obligations—under which it must both pay and not pay the same cost—must be resolved. I would resolve it in favor of enforcing Insurance Code section 533 and relieving the insurer from any contractual obligation it might otherwise have to pay these dual-purpose costs as defense costs. This analysis is based on the standard CGL policy language and on Insurance Code section 533. The resolution of the conflict—a conflict that the majority fails even to acknowledge—is designed to best implement Insurance Code section 533.

Of course, site investigation costs are often incurred before it has been established that the insured expected or intended the harm resulting from the toxic pollution. So long as there is a possibility (because it has not been established that the exclusion for willful harm applies) that the insurer has a duty to indemnify for liability resulting from the pollution, the insurer must pay, as incurred, the reasonable costs of site investigation that serves, or could serve, a proper defense purpose. (See Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275-279 [54 Cal.Rptr. 104, 419 P.2d 168].) Upon a determination that the insured expected or intended the harm resulting from the pollution, the insured should be required to reimburse the insurer for the cost of all site investigation that served to discharge the insured’s cleanup obligation.

The majority asserts that insofar as this reimbursement serves to relieve the insurer of a contractual obligation to pay costs incurred in the defense of its insured against a “wilful act” claim, it is inconsistent with prior decisions of this court. (Maj. opn., ante, at pp. 76-77, fn. 29.) But none of the decisions the majority cites considered the problem of dual-purpose costs, and none required an insurer to pay indemnity costs for harm caused by a willful act of the insured merely because the same costs might also be characterized as [87]defense costs. Indeed, the majority here takes the unprecedented step of establishing a nonstatutory exception to Insurance Code section 533’s prohibition against indemnity for harm caused by a willful act of the insured.

Although the views I have stated provide a somewhat complicated answer to what may have seemed a simple question, they not only follow logically from the standard CGL policy language and from Insurance Code section 533, but also accommodate the various public and private interests implicated. when an alleged polluter with CGL coverage incurs costs for site investigation.

Ill

On the second issue, the majority concludes that a CGL insurer may obtain reimbursement from the insured for defense costs that may be allocated solely to parts of claims that are not potentially covered under the policy. (Maj. opn., ante, at p. 69.) The majority states that this conclusion is logically compelled by this court’s decision in Buss v. Superior Court, supra, 16 Cal.4th 35. (Maj. opn., ante, at p. 69.)

Because the majority offers nothing new on this point, relying instead on its analysis in Buss v. Superior Court, supra, 16 Cal.4th 35, my dissent to that decision (id. at p. 62) explains why the majority’s reasoning is unpersuasive here. Briefly, the standard CGL policy uses language obligating the insurer to defend any “suit” that potentially seeks covered damages, and it contains no provision obligating the insured to reimburse the insurer for the cost of defending particular claims within such a suit that are not potentially covered. Applying standard principles of contract interpretation to the policy language, the conclusion is inescapable that when an action includes both claims that are potentially covered and claims that are not potentially covered, or claims that are potentially covered in some parts and not in others, the insurer is contractually obligated to defend the entire suit.

As it did in Buss v. Superior Court, supra, 16 Cal.4th 35, the majority ignores the policy language obligating the insurer to defend the whole of any “suit” asserting a potentially covered claim, without reserving any right of reimbursement for costs that may be attributable to claims, or parts of claims, that are not potentially covered. Indeed, the majority’s holding is even more troubling than its holding in Buss because it requires acceptance of the proposition that individual claims may be subdivided into parts, each of which can then be characterized as potentially covered or not potentially covered. This minute dissection is likely to be a litigation nightmare for trial [88]courts. Although the decision in Buss is now the law, there is no reason to extend it further, and every reason to limit it to the greatest possible extent.

On the third issue, the majority holds that although insurers having overlapping defense obligations may equitably apportion defense costs among themselves, an insured is not required to make a contribution together with the insurers, even when the insured lacked insurance during part of the time that the progressive loss was occurring. (Maj. opn., ante, at p. 72.) I concur in the reasoning of the majority on this issue only.

Conclusion

Here, the jury determined that Aerojet’s site investigation costs were not defense costs that Aerojet’s CGL insurers were required to pay to discharge their duty to defend Aerojet. Because Aerojet has been determined to have expected or intended the harm cause by the TCE pollution, because public policy precludes indemnification for harm that the insured expected or intended, and because site investigation was a necessary step in discharging Aerojet’s cleanup obligation, I would not require Aerojet’s insurers to pay the site investigation costs but would instead uphold the jury determination on this issue. I dissent from the majority opinion to the extent it reaches a contrary conclusion.

Because an insurer’s contractual defense obligation under the standard language of a CGL policy runs to the whole of any action seeking potentially covered damages, not to individual claims or parts of claims, I dissent from the majority’s holding that Aerojet must reimburse its insurers for any defense costs that may be allocated solely to parts of claims not potentially covered.

I concur in the majority’s holding that in the equitable apportionment of defense costs among insurers having overlapping defense obligations, no share of these costs may be allocated to Aerojet on the theory that it was its own insurer under the INA fronting policies.

I would reverse the judgment of the Court of Appeal and remand the matter to that court with directions to affirm the judgment of the superior court.

Concurrence — Chin

CHIN, J., Concurring and Dissenting. I concur in the majority’s analysis in parts I. and II.B. I dissent, in part, to the majority’s discussion of general [89]insurance principles in part II.A., and in total to part II.C., and the majority’s discussion and judgment on the allocation of defense costs. As the Court of Appeal correctly observed, the various policies governing the occurrence and “principles of contract law” determine the present allocation question. (See Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 681, fn. 19 [42 Cal.Rptr.2d 324, 913 P.2d 878] (Montrose).) From 1976 to 1984, Aerojet-General Corporation (Aerojet) was insured solely by Insurance Company of North America’s (INA) financial responsibility policies, also known as “fronting” or “cash flow” policies (providing limited indemnity and no defense costs for any loss suffered by the insured in exchange for a reduced premium). By adopting this insurance plan, Aerojet made a deliberate decision to assume its own defense costs in exchange for a reduction in premium costs. Indeed, during the eight-year period Aerojet contracted to pay its own defense costs, it was, in essence, acting as its own insurer for that purpose.

The majority, however, chooses to ignore both fundamental contract interpretation rules and our own Montrose opinion to conclude that Aerojet’s contract with INA was irrelevant, and that Aerojet never assumed the risk that a loss might occur during the period it was insured by INA’s limited cash flow policies. But “When periods of no insurance reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable.” (Owens-Illinois, Inc. v. United Ins. Co. (1994) 138 N.J. 437, 479 [650 A.2d 974, 995].) As the trial court and the Court of Appeal held, Aerojet should contribute its pro rata share of defense costs for the period INA provided it with limited cash flow coverage. Instead, the majority hands Aerojet a windfall by forcing successive insurers, including the named defendant here, to pay defense costs they did not contract to provide.

The majority’s faulty reasoning begins with its discussion in part II.A. about the scope of commercial general liability (CGL) insurance coverage. In discussing an insurer’s duty to indemnify its insured, the opinion relies on Montrose, supra, 10 Cal.4th at pages 669-673, to assert that the duty “extends to all specified harm that may possibly have been caused by an included occurrence, even if some such harm may possibly have resulted beyond the policy period.” (Maj. opn., ante, at p. 58.) In other words, the majority explains, “if specified harm may possibly have been caused by an included occurrence and may possibly have resulted, at least in part, within the policy period, it perdures to all points of time at which some such harm may possibly have resulted thereafter.” (Ibid., fn. omitted.) The majority’s [90]reasoning effectively requires an insurer to indemnify a loss occurring outside the policy period as long as the policy covered the loss at some point in time. This is the opposite of what Montrose requires. (Montrose, supra, 10 Cal.4th at p. 673.) Montrose held that, in defining an “occurrence” within the context of a CGL insurance policy, the drafters intended (1) that the occurrence of damage during the policy period is the operative event that triggers an indemnity obligation, and (2) that the CGL policy afford “liability coverage for all property damage or injury occurring during the policy period.” {Ibid., italics added.) Nowhere does Montrose require an insurer to indemnify or reimburse an insured for a monetary loss incurred outside the policy period. To do so would extend coverage beyond the CGL policy scope, hold insurers to joint and several liability, and result in a windfall to the insured.

As the Court of Appeal observed, Montrose specifically rejected a joint and several liability approach to allocating losses among insurers. As Montrose itself pointed out, “Allocation of the cost of indemnification once several insurers have been found liable to indemnify the insured for all or some portion of a continuing injury or progressively deteriorating property damage requires application of principles of contract law to the express terms and limitations of the various policies of insurance on the risk.” (Montrose, supra, 10 Cal.4th at p. 681, fn. 19.) I agree with the Court of Appeal that Montrose’s rejection of joint and several liability in cases involving multiple insurers and successive policies issued over the time period of the developing loss supports allocating the contractual responsibilities in multiple coverage cases. For these reasons, I cannot embrace the majority’s broad introductory reasoning.

More importantly, however, I cannot agree with the majority’s application of its faulty introductory reasoning to part II.C., in which it disagrees with the Court of Appeal’s apportionment analysis and judgment. Here, the majority again ignores fundamental contractual principles. Even though Aerojet contracted to operate, in essence, as a self-insured under INA’s cash flow insurance policy for eight of the thirty years of the loss period, the majority concludes Aerojet owes no duty to pay its pro rata share of the defense costs during that period because the INA policy did not create “any right or duty in either Aerojet or INA as against the world, including the other insurers.” (Maj. opn., ante, at p. 70.) The majority believes that an insurer may not seek a pro rata contribution from its insured even if the insured deliberately assumed its own defense costs during a portion of the loss period. Under the language of the applicable insurance policies here, I cannot agree.

The Court of Appeal recognized the importance of applying contract principles to the allocation question presented. The court stated: “In de[91]termining what impact Aerojet’s self-insured periods should have on its defense entitlements, we consider the scope of the coverage purchased during the insured [or non-INA policy] periods. The policies at issue here all carried similar clauses to those discussed in the allocation cases: (1) ‘other insurance’ clauses; (2) ‘all sums’ clauses; and (3) clauses defining the period of coverage. The ‘other insurance’ clauses here generally state that the insurance provided shall be excess over all such other valid and collectible insurance. The ‘all sums’ clauses typically obligate the insurer to pay on behalf of the insured all sums which the insured is legally obligated to pay as damages because of injury or property damage to which the insurance applies. The clauses defining the period of coverage provide that the insurance applies only to occurrences which happen during the policy period.”

By rejecting the Court of Appeal’s judgment allocating a portion of the defense costs to Aerojet on a pro rata basis for the eight years the insured decided to forgo coverage for defense costs, however, the majority chooses to ignore the language of the specific insurance policies that Aerojet purchased and our own Montrose opinion. Instead, the majority concludes that Aerojet’s contracts with INA and its other insurers were irrelevant, that the language in the “other insurance” clauses was without effect, and that Aerojet never assumed the risk that a loss might occur during the period it was insured by INA’s limited cash flow policies. For this reason, the majority refuses to affirm the judgment allocating defense costs to Aerojet on a pro rata basis during the time INA insured it. By making a risk decision when it originally purchased the INA insurance policies to forgo coverage for defense costs it might incur over an eight-year period, Aerojet had no objectively reasonable expectation of coverage for defense costs for occurrences happening during that period. Just as the insurers were free to contract as they pleased, so was Aerojet.

As the trial court and the Court of Appeal held, Aerojet should contribute its pro rata share of defense costs for the period it contracted to pay its own defense costs in exchange for lower premiums and limited cash flow coverage by INA. Instead, the majority hands Aerojet a windfall by forcing successive insurers, including the named defendant here, to prove on remand what we already know: that Aerojet is responsible for defense costs attributable to the extent of its risk management decision. (Maj. opn., ante, at pp. 73-74.)

[92]I would affirm the Court of Appeal judgment in its entirety.

Baxter, J., concurred.

Appellants’ petition for a rehearing was denied March 11, 1998, and the opinion was modified to read as printed above. Kennard, J., was of the opinion that the petition should be granted.

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