The California Supreme Court's Decision in Foster-Gardner and Its Impact on Insurance for Environmental Defense and Remediation Expenses

Michel Y. Horton and Meredith M. Newton

Editors' Summary: In environmental insurance litigation, coverage is often determined by the court's interpretation of key policy terms. This was just the case in Foster-Gardner, Inc. v. National Union Fire Insurance Co. of Pittsburgh, a recent suit decided by the California Supreme Court. Under the standard-form comprehensive general liability policies at issue, the insurer was required to defend a "suit" but not a "claim." The court was asked to resolve a dispute — whether administrative proceedings constituted a claim or a suit-over these two terms. In an unexpected decision, the California Supreme Court held that a suit is triggered by the filing of a complaint that initiates a civil action, and, thus, defense costs incurred in responding to a state environmental administrative order are not covered by the policies at issue. This Article reviews the facts and procedural history surrounding Foster-Gardner and details the California Supreme Court's analysis, holding, and remodification of its decision. While Foster-Gardner is sure to affect environmental enforcement and insurance recovery efforts in California, the ultimate impact of the decision on policyholders and insurers remains uncertain. Nevertheless, the Article discusses the potential ramifications of the Foster-Gardner decision. Included in this discussion are the likely impacts on environmental enforcement, access to umbrella and excess insurance, indemnity coverage, past defense costs, and judicial temperament in environmental insurance coverage litigation. The Article concludes that the California Supreme Court's decision in Foster-Gardner created more insurance coverage issues than it resolved.

Michel Y. Horton is a partner and Meredith (Mimi) Newton is an associate in the Los Angeles office of Zevnik Horton Guibord McGovern Palmer & Fognani, L.L.P. Mr. Horton regularly represents insureds in environmental and other insurance coverage litigations. Ms. Newton, a former Resource Conservation and Recovery Act enforcement attorney with the U.S. Environmental Protection Agency, practices environmental and insurance coverage law.

[29 ELR 10129]

Over the years, environmental law has taken more than a few twists and turns. One of them resulted in a head-on collision with insurance law. The impact has resulted in a vast array of legal decisions and principles that were previously undetected by practitioners. Today, on almost a daily basis, courts are unraveling and deciphering the legalistic anomalies created through the convergence of these two rapidly developing areas of law. Among the more intriguing decisions is the Foster-Gardner, Inc. v. National Union Fire Insurance Co. of Pittsburgh¹ case recently decided (and redecided through modification) by the California Supreme Court. In Foster-Gardner, the court unexpectedly held that costs incurred in defending an administrative order imposing environmental obligations are not recoverable from primary-level insurers. This decision stands as a virtual case study regarding the complexities resulting from a seemingly simple resolution of a dispute over two words — "claim" and "suit" — decided in the unpredictable arena of environmental insurance coverage litigation. This Article examines the Foster-Gardner decision and its impact on insurance for environmental defense and remediation expenses.

The Article begins with a brief description of the issue addressed by the court in Foster-Gardner — whether costs incurred pursuant to an administrative order trigger a primary-level insurer's duty to defend — and the potential ramifications of the court's decision. Next, it discusses the Foster-Gardner case in more detail, highlighting the relevant facts, the procedural history, the court's analysis, and the court's modification of its initial decision. The Article then explores at greater length the insurance coverage issues that the Foster-Gardner decision raised but left unresolved. [29 ELR 10130] It considers how the decision may impact environmental enforcement, whether it will result in expanded access to umbrella and excess insurance, how Foster-Gardner will be applied to indemnity coverage and past defense costs, and whether the decision will cause a shift in judicial attitude that has traditionally favored policyholders over insurers in coverage disputes. The Article concludes that while it is clear that Foster-Gardner limits the recovery of defense costs for administrative proceedings, the ultimate impact of the decision on environmental enforcement and insurance recovery in California remains uncertain.

Background: Potential Ramifications of the Foster-Gardner Decision

The issue before the California Supreme Court in Foster-Gardner was whether costs incurred in defending against environmental actions brought by administrative agencies were recoverable as defense costs under standard-form comprehensive general liability (CGL) policies.² The question turned on the use of the words claim and suit in primary-level liability policies that are commonplace in the insurance market. Under the applicable provisions of the policies at issue, the insurer was required to defend a suit, but had the option to defend a claim. Neither term was defined by the policies. The court viewed its job as arbiter of whether an environmental administrative proceeding brought pursuant to state statutory authority would be considered a suit, which would, therefore, be covered under the defense provisions, or a claim, which would not be covered.

In an unexpected decision, the court ruled that the defense costs incurred as a result of administrative fiat were not recoverable absent an actual civil lawsuit.³ Accordingly, under California law after Foster-Gardner, policyholders will largely be precluded from seeking insurance coverage from their primary-level insurers for the defense costs incurred in responding to federal and state environmental agency proceedings. The decision, startling in many respects, has begun to ripple through the California court system and is bound to have profound effects on both environmental enforcement law and insurance recovery efforts in California.

In its attempt to answer the question at issue in Foster-Gardner, the court's decision raised more questions than it answered. Among them are:

(1) Environmental Enforcement — "So Sue Me?" By limiting coverage for environmental costs incurred in defending against administrative proceedings, the court left policyholders that need their primary-level insurance for environmental liabilities with little choice but to require environmental agencies to bring lawsuits. Like the bumper sticker says, "So sue me" will become the coverage-triggering strategy for dealing with environmental authorities. No longer can the rational policyholder cooperate with environmental authorities, absent a lawsuit, without jeopardizing substantial insurance assets.

(2) Expanded Coverage Opportunities? The Foster-Gardner decision was based on the interpretation of specific policy provisions typically found only in primary-level liability policies. The court did not consider or address the abundant insurance coverage provided by umbrella and excess insurance policies that contain broader insuring provisions than the underlying primary policies at issue in Foster-Gardner. To the extent that coverage is limited in primary-level policies, the typical umbrella and excess insurance policy should respond. Typically, these policies, unlike the primary policies before the court, explicitly cover both claims and suits for both defense and indemnity costs. Accordingly, the result of the Foster-Gardner decision may relieve primary insurers of defense obligations but shift those costs to the excess insurers above them.

(3) Impact on Indemnity Coverage? Although the issue in Foster-Gardner was limited to defense costs, California insurers are seeking to expand the decision to embrace indemnity (e.g., remediation) costs as well. In courts throughout the state, insurers are arguing that environmental liabilities imposed by an administrative proceeding, rather than by way of a lawsuit, are excluded from coverage, regardless of whether the costs are defensive, investigative, or remediative. Although policyholders thought this issue was favorably and dispositively settled by the California Supreme Court 10 years ago in AIU Insurance Co. v. Superior Court of Santa Clara County,⁴ the insurance industry contends that Foster-Gardner has sub silento over-ruled this earlier decision.

(4) Disgorgement of Past Defense Costs? For at least the past decade, since AIU, California courts have typically found coverage for environmental actions without distinguishing between administrative proceedings and civil lawsuits.⁵ As a result, many insurers have paid defense costs — typically under reservation of rights — for environmental investigations. In light of Foster-Gardner's holding, however, California insurers are now seeking reimbursement of these defense costs previously paid.⁶ Their success will depend on the application of Foster-Gardner in light of another recent decision by the California Supreme Court in Buss v. Superior Court of Los Angeles County,⁷ which allowed the recovery of defense costs previously paid under limited circumstances.

(5) Judicial Shift? Foster-Gardner surprised both the policyholder and insurance industry bars. Traditionally, California has been preeminent among [29 ELR 10131] the nation's jurisdictions in pro-policyholder insurance coverage issues. The issue in Foster-Gardner was neither new nor novel. A number of courts throughout the country had addressed coverage for environmental defense costs, with diametrically opposite decisions almost evenly split among the courts that had considered the identical insurance provisions and environmental circumstances.⁸ Accordingly, the California Supreme Court had ample precedent to rule in favor of coverage. In an unexpected shift in judicial temperament, however, the court chose to follow a narrow interpretation of the insurance policies at issue — a so-called literal approach to policy interpretation — and rejected an easily supportable position favoring coverage.

The California Supreme Court's Initial Decision in Foster-Gardner

On August 3, 1998, in a four to three decision, the California Supreme Court ruled that an administrative proceeding is not a suit for purposes of triggering a primary-level insurer's defense obligations and, therefore, defense costs incurred in responding to an administrative order imposing environmental obligations are not recoverable. The question addressed in Foster-Gardner was a narrow one. The court framed the issue as follows:

In this case we determine whether environmental agency activity prior to the filing of a complaint, in this case an order notifying the insured that it is a responsible party for pollution and requiring remediation, is a "suit" triggering the insurer's duty to defend under a [CGL] policy.⁹

The holding was equally narrow. In the split decision, the majority held: "We conclude the Order did not initiate a 'suit' within the meaning of the policies. Accordingly, it did not give rise to the insurers' duty to defend."¹⁰

The Facts and Procedural Posture of Foster-Gardner

Foster-Gardner, Inc., the insured, operated a pesticide and fertilizer business in California for many years. In the early 1990s, Foster-Gardner received various requests and directives from California environmental agencies to investigate and remediate environmental contamination on, under, and around its property. The environmental claims were tendered to Foster-Gardner's insurers, who either refused to defend or agreed to defend only under a reservation of rights.¹¹ The specific policy language at issue read as follows:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of … bodily injury or … property damage to which [this] insurance applies, caused by an occurrence … and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage … and may make such investigation and settlement of any claim or suit as it deems expedient ….¹²

In 1994, Foster-Gardner sued its insurers for declaratory relief regarding coverage obligations and sought to recover its defense costs in responding to the administrative directives. On summary judgment, the trial court held that there was no duty to defend because the administrative orders under consideration did not constitute suits for the purposes of triggering primary insurer defense obligations. The California Court of Appeals reversed, holding that the defense obligation was sufficiently broad under traditional California insurance principles and precedent to embrace an administrative order, regardless of whether an actual civil lawsuit had been filed.¹³

Shortly after the court of appeals decision in Foster-Gardner, a different panel of justices from the same court of appeals (second district) took the opposite position in Fireman's Fund Insurance Co. v. Superior Court of Los Angeles County¹⁴ and held that an administrative order is not sufficient to trigger defense obligations because it does not constitute a traditional lawsuit.¹⁵ The California Supreme Court granted review in both Foster-Gardner and Fireman's Fund to resolve the conflicting decisions. The Foster-Gardner case was used for the analysis.

The Court's Analysis

The Foster-Gardner decision, written by Justice Brown and joined by Justices George, Baxter, and Chin, was based substantially on a review of authorities from other jurisdictions. There appeared to be little independent analysis. In applying the policy language to the administrative order facing Foster-Gardner, the court looked primarily to other jurisdictions for precedent. Drawing heavily from the appellate decision in Foster-Gardner, the California Supreme Court identified the three approaches other courts had used to resolve whether an administrative proceeding is a suit for the purpose of triggering a primary insurer's duty to defend.

[] Literal Meaning Approach. Under the literal meaning approach, the term suit is deemed unambiguous, and refers solely to actual court proceedings initiated by the filing of a complaint. Unless a complaint has been filed, there is no suit to defend.¹⁶ The court noted that the standard policy language differentiates between the terms suit and claim, requiring a defense for a suit but making defense optional for a claim. The court cited case law from Colorado, Delaware, Illinois, Louisiana, Michigan, Missouri, and Wisconsin in support of this approach.¹⁷ Applying the literal meaning approach, [29 ELR 10132] according to the court, required a finding that there is no duty to defend an administrative proceeding or order because there is no actual complaint on file to initiate civil litigation.

[] Functional Approach. Under the functional approach, the receipt of a potentially responsible party (PRP) notification constitutes a suit triggering the duty to defend because the impact of the notification is the functional equivalent of civil litigation.¹⁸ The functional approach is typically based on a finding that the term suit is ambiguous and should be interpreted in a manner that promotes coverage. Particularly in light of the serious ramifications that stem from a PRP (or equivalent) notification letter, it is reasonable for the insured to expect a defense. The court cited case law from Idaho, Iowa, Michigan, Minnesota, New Hampshire, New York, North Carolina, and Vermont in support of this approach.¹⁹ This approach was adopted by the court of appeal in Foster-Gardner.²⁰ However, it was specifically rejected by the California Supreme Court, which found that the term suit is not ambiguous.²¹

[] Hybrid Approach. Under the hybrid approach, agency notifications will trigger a defense obligation once they reach a certain level of coerciveness.²² Like the functional approach, the hybrid analysis typically starts with a finding that the term suit is ambiguous. The court cited case law from Indiana, Massachusetts, New York, and Ohio in support of this approach.²³ Ultimately, the supreme court rejected the hybrid approach as too difficult to determine on a case-by-case basis, and instead opted for the socalled bright-line guidance provided by the literal meaning approach.

The Court Adopts the Literal Meaning Approach

In reaching its decision, the California Supreme Court departed from traditional California insurance principles and followed the literal meaning approach to find that, without a complaint filed in a court of law, there is no duty to defend. The court based its decision on a number of considerations. First, CGL policies typically use both the terms suit and claim. Although the policies at issue do not define either term, the court found that both terms are clear and unambiguous. A suit is an action filed in a court, and a claim is something less than a formal action.²⁴ The court also noted that the policies use the terms suit and claim in different ways. For a suit, there is a duty to defend. For a claim, there is a right but not a duty to defend. Thus, the court reasoned that insurers must have intended the terms to be used differently.²⁵ Moreover, because there are different forms of directives and coercion available to administrative agencies, an insurer should not face the difficulty of attempting to distinguish between those directives that require a defense and those that do not. Instead, the court opted for a bright-line distinction provided by an actual lawsuit initiated by the filing of a complaint in a court of law.

A dissenting opinion was authored by Justice Kennard and joined by Justices Mosk and Werdegar. The dissent argued for a functional approach to the question that would focus on the legal implications of an administrative proceeding.²⁶ Considering the potential severity of an administrative order, the dissent argued that a defense reasonably would be expected by an insured.²⁷ Additionally, the dissent noted that the terms suit and claim are ambiguous.²⁸

The California Supreme Court's Modification of Foster-Gardner

The initial decision, in several passages, implied that environmental liabilities of any type — defense or indemnity — may not be recoverable when imposed by an administrative order. For example, the initial decision stated:

Moreover, in AIU, we did not conclude that cleanup costs ordered by a state agency prior to any civil suit being filed are "damages" …. Furthermore, in AIU, we interpreted the phase "legally obligated" to refer to relief ordered by a court of law …. Thus, there is also coverage pursuant to this language only for those "damages" ordered by a court of law.²⁹

This language was immediately embraced by the insurance industry as precluding coverage for indemnity, in addition to defense, costs imposed by administrative order. The insurance industry argued that by virtue of these passages, the court's earlier decision in AIU was limited to actual lawsuits. It was also these passages that primarily precipitated an onslaught of petitions for rehearing and, in the alternative, for modification. Amicus briefs were filed by numerous corporate policyholders. California's Environmental Protection Agency, through its Department of Toxic Substances Control, also filed an amicus brief, requesting rehearing or modification of the decision. Ultimately, the court declined to rehear the decision but, in response to the policyholder urgings, on September 23, 1998, the court modified the decision to delete language that could be construed to expand the decision to embrace indemnity as well as defense costs.³⁰

As it stands, the explicit rule of Foster-Gardner is that (i) the defense provision (ii) in a standard-form primary CGL policy is not triggered (iii) by an administrative proceeding or order. Despite this bright-line rule, the California Supreme Court's decision in Foster-Gardner leaves unanswered many questions relating to environmental enforcement and insurance coverage in California.

[29 ELR 10133]

Discussion of the Potential Ramifications of the Foster-Gardner Decision

Impact on Environmental Enforcement

The Foster-Gardner decision inevitably will influence the manner in which policyholders react to environmental authorities. If there is coverage for a suit but not for an administrative order, there is little incentive for policyholders to continue the cooperative practices with environmental agencies that have developed over the past two decades, and litigation will increase. Consequently, the enforcement mechanisms for environmental compliance certainly will shift from the administrative proceeding to the courthouse.

At the federal level, certain environmental statutes delegate to the U.S. Environmental Protection Agency (EPA) the authority to enforce the nation's environmental laws administratively. In accordance with the Administrative Procedure Act (APA),³¹ EPA has promulgated a series of regulations that control the processes and procedures for implementing these enforcement efforts within the context of administrative adjudication.³² When EPA brings an administrative enforcement action against policyholders pursuant to the authority delegated to EPA by a specific environmental statute, such as the Resource Conservation and Recovery Act (RCRA),³³ such policyholders are legally obligated to comply with the administrative orders issued as a result of such enforcement actions. For example, RCRA specifically states that "if a violator fails to take corrective action within the time specified in a compliance order, [EPA] may assess a civil penalty of not more than $ 25,000 for each day of continued noncompliance with the order …."³⁴ In addition to the substantial monetary penalties that may be imposed for failure to comply with the legal obligations imposed on policyholders through administrative environmental enforcement processes, the administrative procedures themselves reflect the legal nature of these proceedings. Under EPA regulations, an administrative complaint must first be issued.³⁵ The policyholder may then formally answer the complaint.³⁶ A hearing may then be held before an administrative law judge (ALJ). At this hearing, evidence may be admitted, and witnesses, including experts, may be examined.³⁷ The ALJ will issue an initial decision, which becomes the final order of the Environmental Appeals Board (EAB) within 45 days after its service unless an appeal is taken to the EAB.³⁸ These formal legal procedures clearly reflect the adjudicative nature of the federal EPA's administrative enforcement processes. States, such as California, are similarly structured and utilize similar procedures.

In California, for example, the Department of Toxic Substances Control may issue an order specifying a schedule for remediating a release of hazardous waste from a facility. The person who receives the order may request a public hearing within 15 days of receiving the order, and the hearing must be held within 90 days of that request.³⁹ The request for the public hearing is called a "notice of defense" and is basically the functional equivalent of an answer to a complaint.⁴⁰ Similar to the federal administrative hearing process, discovery may be taken by the parties in the California administrative action, and witnesses may be subpoenaed to attend and testify at the hearing.⁴¹ Moreover, as the Department of Toxic Substances Control pointed out in its August 20, 1998, amicus brief filed in the Foster-Gardner action:

The very same statutory duty or obligation — to pay for the costs of studying and cleaning up a hazardous substance release site or to remedy a discharge of contaminants into state waters — is in effect in both an administrate order setting and in a civil litigation setting …. Administrative orders … must be followed or stiff penalties may be imposed.⁴²

The majority of state and federal environmental enforcement efforts across the country are carried out in the administrative context as opposed to the judicial context. According to EPA's Enforcement and Compliance Assurance Accomplishments Report for Fiscal Year 1997,⁴³ from fiscal year 1987 through fiscal year 1997, roughly 93 percent of state actions to enforce hazardous waste laws were brought administratively. Similarly, statistics complied for fiscal years 1981 through 1997 demonstrate that roughly 93 percent of EPA's own efforts to enforce RCRA were brought administratively.⁴⁴

It is unrealistic to expect corporate policyholders facing tens of millions of dollars of liability to continue cooperation with administrative agencies when to do so surrenders their insurance rights. The agency can accomplish its responsibilities by way of lawsuit without jeopardizing the responsible party's insurance rights. If, as Congress and the California legislature have often acknowledged, the goal of environmental enforcement is to spread the costs of cleanup among various parties and industry sectors, the inclusion of the insurance industry in the efforts to attain environmental compliance is equitable and consistent with this goal. Most [29 ELR 10134] importantly, it is also consistent with the contractual language of standard-form primary CGL policies.⁴⁵

Expanded Access to Umbrella and Excess Insurance

The Foster-Gardner court interpreted the application of the standard-form defense language in a primary-level CGL policy. The court's focus was on the terms claim and suit. The specific holding of Foster-Gardner (i.e., that an administrative proceeding is a claim) appears to require that umbrella and excess policies provide full coverage. These policies, which feature insuring provisions broader than those of the primary policies addressed in Foster-Gardner, specifically cover both claims and suits for both defense and indemnity costs. By their literal terms, and by underwriting intent, umbrella and excess policies cover both claims and suits for defense and indemnity costs.

Umbrella and excess policies have broader insuring provisions than the standard-form primary policies at issue in Foster-Gardner. These policies are not keyed to the same terminology as the underlying primary policies. The typical insuring provision of an umbrella policy states as follows:

[The insurer] agrees … to indemnify the Assured for all sums which the Assured shall be obligated to pay by reason of the liability, [imposed upon by law or assumed by agreement] for damages, direct or consequential and expenses, all as more fully defined by the term "ultimate net loss" on account of: — Property Damage … caused by or arising out of each occurrence happening any-where in the world.⁴⁶

The typical umbrella policy goes on to define the key term "ultimate net loss" as embracing both defense and indemnity costs for claims and suits as follows:

The total sum which the Assured … becomes obligated to pay by reason of … property damage … either through adjudication or compromise, and shall also include … all sums paid … for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder ….⁴⁷

Under the umbrella policy language, coverage is triggered by liability "imposed by law." Clearly, an administrative proceeding or order involves liability imposed by law. Once triggered, the coverage provided by these policies specifically includes coverage for damages and expenses, all as defined by ultimate net loss. Accordingly, the scope of coverage is found in the expansively defined term ultimate net loss, which explicitly includes both indemnity costs and defense costs.

Umbrella policies also typically provide "drop-down" coverage for occurrences that are not covered by the underlying policies. The significance of these umbrella policy provisions is that the policies attach at a lower point than they would if they were responding to an occurrence covered by the underlying primary policy.⁴⁸ Under the Foster-Gardner decision, defense costs arising from administrative proceedings may not be covered by the primary policies because of the distinction between claims and suits. If that is the case, then the umbrella policy will specifically drop down to provide this coverage. The same drop-down obligation would hold true to the extent that Foster-Gardner is interpreted to eliminate indemnity coverage under the primary policies.

The pertinent provision of the umbrella policy typically states:

Underwriters hereon shall only be liable for the ultimate net loss the excess of either

(a) the limits of the underlying insurances as set out in the attached schedule in respect of each occurrence covered by said underlying insurances, or

(b) $ 25,000 ultimate net loss in respect of each occurrence not covered by said underlying insurances, (hereinafter called the "underlying limits") ….⁴⁹

This provision describes when and at what level the umbrella policy will attach. When the umbrella policy is responding to an occurrence covered by underlying insurance, the umbrella policy will typically attach at the level of the underlying insurance. However, when the umbrella policy is responding to an occurrence not covered by underlying insurance, the umbrella policy has a much lower attachment point — in the example above, $ 25,000. This coverage provision should be triggered to the extent that Foster-Gardner precludes defense or indemnity coverage under the primary policy.

That umbrella policies afford broader coverage than straight primary insurance is a fundamental characteristic of umbrella insurance. As one court explained, a typical umbrella policy is a hybrid: "Umbrella policies … are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage)."⁵⁰ This function of umbrella policies is suggested by the very use of the term umbrella — "its very nomenclature suggests a purpose to protect against gaps in the underlying policies and indicates more than mere excess coverage."⁵¹

[29 ELR 10135]

The broad insuring provisions provided by umbrella insurers typically are incorporated explicitly into the excess insurer's policies that sit above them. Most excess policies generally contain few independent insuring provisions. Instead, these policies are "follow form" policies that typically adopt and incorporate the provisions of underlying umbrella policies. Accordingly, excess insurers are often bound by the same expansive insuring provisions as umbrella insurers.

The practical effect of the broad coverage provided by umbrella (and, through incorporation, excess) carriers is that the umbrella carriers become, in effect, primary insurers covering an "occurrence not covered by said [primary] insurances."⁵² As California Court of Appeal Justices Croskey and Kaufman have observed:

An umbrella policy may provide broader coverage than the underlying insurance; i.e. umbrella coverage may "fill any gaps in coverage left open by the primary coverage in addition to increasing the total possible recovery by the insured." An umbrella policy thus may provide "primary coverage" (with consequential duties to indemnify and defend) for claims not covered under the underlying policy or policies.⁵³

Although not addressed (or likely even considered) by the California Supreme Court in Foster-Gardner, the ultimate impact of this decision may be to shift responsibility for payment of environmental defense and investigation liabilities from the primary insurers to the umbrella and excess insurers.

Impact on Indemnity Coverage

The Foster-Gardner court was presented with the issue of whether there was a duty to defend administrative orders as opposed to lawsuits. It was not presented with questions regarding indemnity costs, such as remediation expenses after an approved remedial order or consent decree. In its initial decision, the court occasionally drifted into the area of indemnity costs. For example, in attempting to distinguish its holding in AIU, the court stated:

Furthermore, in AIU, we interpreted the phrase "legally obligated" to refer to relief ordered by a court of law. We stated that if the insured was not "legally obligated" to pay the relevant costs, the insurers had no duty to provide coverage under the policies …. Thus, there is also coverage pursuant to this language only for those "damages" ordered by a court of law. The administrative activity for which Foster-Gardner asserts there is a duty to defend has occurred prior to a lawsuit ever being filed.⁵⁴

Although this dicta has largely been eliminated in the modified version of the decision, insurers are continuing to argue that the effect of Foster-Gardner is to eliminate indemnity coverage unless there is a lawsuit.⁵⁵

Most of the language that insurers were relying on to expand Foster-Gardner to include indemnity liabilities, as opposed to defense liabilities, was deleted by virtue of the September 23, 1998, modification. The modification can be construed two ways. On the one hand, as argued by policy-holders, the court deleted the indemnity language to indicate its intent that the decision was not meant to affect indemnity coverage. On the other hand, as argued by insurers, the court deleted the language because the issue was not presented, but its initial decision is a precursor to how it will rule in the future. Only time will tell who is correct.

The policyholders rely on AIU Insurance Co. v. Superior Court of Santa Clara County⁵⁶ in which the California Supreme Court found coverage for environmental liabilities under primary-and excess-liability policies. Although AIU did not specifically address liabilities imposed by administrative proceedings, it did not distinguish between administratively imposed costs and judicially imposed costs in its broad rulings in favor of coverage. Additionally, all of the appellate court cases to address the issues since AIU have interpreted the case in a manner that provides for coverage of indemnity costs, regardless of whether they were imposed by administrative order or civil lawsuit.⁵⁷

AIU was comprehensive in its discussion and conclusive in its determination that environmental response costs were damages covered by CGL and umbrella policies.⁵⁸ Although AIU mentioned the lawsuits against the insured, the decision did not restrict coverage to lawsuits but clearly embraced liabilities imposed by administrative agencies. No-where in the AIU decision did the court distinguish between administrative proceedings and judicial lawsuits. For example, the court held:

Costs of compliance must be interpreted as "damages" in the environmental context, because to hold otherwise would make insurance coverage hinge on the "mere fortuity" of the way in which governmental agencies seek to enforce cleanup requirements, would unreasonably constrain [29 ELR 10136] the agencies' choice of cleanup mechanisms, and would introduce substantial inefficiency into the cleanup process.⁵⁹

The AIU court's reasoning reflected the inherent intent of the CGL policy to allocate both known and unknown risks to the insurer, for example, in the context of newly created environmental laws:

Because the policies in question here are "comprehensive," it was within the insured's reasonable expectation that new types of statutory liability would be covered, as long as they were within the ambit of the language used in the coverage provision. As one court has pointed out, failure to cover new liabilities would create a "discordant result, for it would mean that where courts enlarge liability during the effective period of a liability policy, an insured who contracted for complete coverage of a possible risk would be left without coverage because the scope of the risk had been enlarged by decisional law." [Citation omitted.] The same is true when legislatures create entirely new forms of liability. The sole relevant inquiry in determining whether such types of liability are covered is whether, in view of the reasonable expectations of the insured, policy language can be interpreted to embrace the liability that may accrue under new statutory schemes.⁶⁰

A decade of state and federal decisions applying AIU have uniformly established that environmental liabilities imposed by governmental order — administrative proceeding or judicial lawsuit — are covered under general liability policies. Most recently, the appellate court reviewing the trial in AIU of multiple underlying actions, including administrative proceedings, found that the "amounts the insured is required to pay to reimburse agencies and to comply with government orders under statutes such as [CERCLA] and similar statutes … are sums the insured is obligated to pay by reason of liability for property damage."⁶¹ Less than a year ago, the California Supreme Court described AIU as follows:

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.'" [Citation omitted.] We concluded that the phrase "legally obligated" means required of the insured, whether in law or in equity. [Citation omitted.] 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.⁶²

As it stands, the Foster-Gardner decision should be limited to the specific holding that primary liability policies are not required to cover defense costs incurred in defending against administrative proceedings. Particularly considering the modifications, Foster-Gardner should be interpreted in a manner that is consistent with AIU and its progeny.⁶³

Disgorgement of Past Defense Costs

Over the past decade, many insurers have assumed the defense of environmental claims subject to reservation of rights. In light of the Foster-Gardner decision, it is likely that insurers will immediately withdraw from the defense of those claims that do not involve a lawsuit and may seek to recover from the insured the costs of defense previously paid.

In Buss v. Superior Court of Los Angeles County,⁶⁴ the California Supreme Court held that an insurance company that has defended its insured under proper reservation may seek reimbursement for defense costs relating solely to claims that were not potentially covered. The court placed the burden of proving such reimbursable defense costs on the insurer under a preponderance standard.

The Buss court ruled that insurers may obtain reimbursement for certain defense costs. The court reiterated California's long-standing rule that in a "mixed action," (i.e., an action in which some of the claims are at least potentially covered [29 ELR 10137] and the others are not) an insurer must defend the action in its entirety despite the existence of noncovered claims.⁶⁵ It qualified this general rule, however, by holding that an insurer that has provided such defense may seek reimbursement solely as to defense costs for those claims that were not potentially covered.⁶⁶ According to Buss, there is no reimbursement for costs incurred to defend potentially covered claims. The court, therefore, concluded that an insurer may obtain reimbursement only for expenses that can be allocated solely to the claims that were not even potentially covered.⁶⁷ In so holding, the court reasoned that an insurer receives premiums for defending potentially covered claims but receives no premiums for noncovered claims.⁶⁸ Defense costs that were required in any event or that would have been incurred to defend actually or potentially covered claims cannot be recovered whether or not joined with noncovered claims. The court further held that the insurer has the burden of proof by a preponderance of the evidence to demonstrate reimbursable defense costs.⁶⁹ Thus, in seeking reimbursement for defense costs allocated solely to claims that were not even potentially covered, the insurer bears the burden of proof by a preponderance of evidence.

The question that will arise from the Foster-Gardner decision is whether there was a "potential" for cover-age — as defined by Buss — when the defense costs were paid. Because of ambiguity in the law, there clearly was a potential that administrative proceedings would trigger the defense obligation. It can be expected, however, that insurers will argue that legal uncertainty is not sufficient to create the potential for coverage envisioned by Buss; rather, an insured must show a factual uncertainty as to potential coverage.

The Buss court did not distinguish between potential coverage based on legal questions versus factual questions. Accordingly, policyholders faced with an insurer demand for reimbursement of defense costs can legitimately retain those costs based on the potential for coverage prior to the Foster-Gardner rulings.

Shift in Judicial Attitude

Insurers argue that the court's decision in Foster-Gardner represents a doctrinal departure from the traditional insurance principles that have favored policyholders over insurers in coverage disputes. Policyholders must admit that the decision unquestionably clouded an area of California law that had finally achieved a comfortable level of predictability. The ultimate impact of Foster-Gardner on coverage for environmental and other liabilities will require many years of trial, appellate, and supreme court litigation. Bedrock principles of California law are at stake.

For example, the duty to defend has traditionally been broader than the duty to indemnify.⁷⁰ This is so because the policyholder cannot know whether it is liable until the underlying proceeding is resolved, at which time the duty to indemnify could arise under its policies. The insurance carrier has promised to defend regardless of whether the defense is to be successful or unsuccessful. The defense obligation is triggered by the mere potential for coverage, regardless of whether actual indemnity coverage is established. And, if there are various claims, some of which are covered while others are not, the insurer must defend the entire action.⁷¹

A broad defense obligation has been consistently upheld by the California Supreme Court and applied in the context of environmental liabilities.⁷² The result of Foster-Gardner, however, is to preclude the defense obligation under primary policies while leaving intact the indemnity obligation. Accordingly, in a paradoxical shift, the application of Foster-Gardnerresults in an indemnity obligation broader than the defense obligation.

To prevail in their position that Foster-Gardner precludes indemnity costs as well as defense costs, insurers must challenge the expansive holdings of the California Supreme Court's decade-old unanimous decision in AIU.⁷³ The court in AIU held that environmental liabilities were covered under general liability policies and constituted "damages" imposed by law. In AIU, the court found:

Costs of compliance must be interpreted as "damages" in the environment context, because to hold otherwise would make insurance coverage hinge on the "mere fortuity" of the way in which governmental agencies seek to enforce cleanup requirements, would unreasonably constrain the agencies' choice of cleanup mechanisms, and would introduce substantial inefficiency into the cleanup process.⁷⁴

The AIU court also addressed the inherent intent embodied by the CGL policy in connection with newly-created environmental laws:

Because the policies in question here are "comprehensive," it was within the insured's reasonable expectation that new types of statutory liability would be covered, as long as they were within the ambit of the language used in the coverage provision. As one court has pointed out, failure to cover new liabilities would create a "discordant result, for it would mean that where courts enlarge liability during the effective period of a liability policy, an insured who contracted for complete coverage of a possible risk would be left without coverage because the scope of the risk had been enlarged by decisional law." [Citation omitted.] The same is true when legislatures create entirely new forms of liability. The sole relevant inquiry in determining whether such types of liability are [29 ELR 10138] covered is whether, in view of the reasonable expectations of the insured, policy language can be interpreted to embrace the liability that may accrue under new statutory schemes.⁷⁵

Accordingly, the AIU decision broadly and unequivocally determined that coverage is available for environmental liabilities imposed by law. The case neither addressed nor distinguished between administrative proceedings and lawsuits. It is clear, however, from the AIU language that the court did not parse the policy language or the insurer arguments narrowly; rather, it looked to traditional insurance principles and the reasonable expectations of coverage to find in favor of California policyholders. The approach adopted by the AIU court stands in stark contrast to the so-called literal approach to policy interpretation followed by Justice Brown in Foster-Gardner. Whether the Foster-Gardner shift away from the practical application of insurance policies to a hypertechnical application will persist remains to be seen.

Conclusion

The ultimate impact of the Foster-Gardner decision on California policyholders and insurers remains uncertain. Clearly, primary-level insurers with standard-form policies have prevailed in their efforts to avoid defense obligations for environmental administrative proceedings. However, the primary insurers remain responsible for broad defense obligations if environmental enforcement is pursued by way of lawsuit, which in many cases will be the policyholder's only alternative in dealing with environmental authorities. Furthermore, if the literal approach to policy interpretation utilized by the Foster-Gardner court is applied to umbrella and excess insurers, coverage for defense costs will be shifted to the higher level policies with broader insuring provisions. Where past defense costs have been paid, only litigation will determine if the insurers are entitled to reimbursement.

It is also clear that insurance carriers at both the primary and excess levels will characterize the Foster-Gardner decision as a sea change in the California Supreme Court that heralds a new age in insurance law and more restrictive readings of standard-form general liability policies. Policy-holders, on the other hand, will argue that Foster-Gardner is a "duty to defend" case, limited to administrative proceedings and primary policies — no more, no less. Accordingly, the decision lays the groundwork not only for heightened environmental enforcement efforts, including the potential for an increase in the amount of environmental lawsuits filed against policyholders, but it undoubtedly also will engender plenty of additional disputes between policyholders and their insurance carriers over issues that, up until the Foster-Gardner decision, had been thought to have been resolved by the California Supreme Court's decision in AIU.

In sum, in its attempt to establish bright-line certainty to the defense cost issue and presumably to avoid further litigation, the California Supreme Court has created more insurance coverage issues than it resolved. Oh, what a tangled web they weave ….

1. 18 Cal. 4th 857 (1998).

2. Id. at 857, 860 (1998).

3. Id. at 889.

4. 51 Cal. 3d 807, 21 ELR 20315 (1990).

5. See, e.g., Aerojet-General Corp. v. Transport Indem. Co., 17 Cal. 4th 38, 43 (1998); FMC Corp. v. Plaisted & Cos., 61 Cal. App. 4th 1132, 1142 (1998); Martin-Marietta Corp. v. Insurance Co. of N. Am., 40 Cal. App. 4th 1113, 1136 (1995); Haskel v. Superior Court of Los Angeles County, 33 Cal. App. 4th 963, 970 (1995).

6. See, e.g., Buss v. Superior Court of Los Angeles County, 16 Cal. 4th 35 (1997).

7. Id.

8. Compare, e.g., Hartford Accident & Indem. Co. v. Dana Corp., 690 N.E.2d 285 (Ind. Ct. App. 1997) and C.D. Spangler Constr. Co. v. Industrial Crankshaft & Eng'g Co., 388 S.E.2d 557 (N.C. 1990) with Joslyn Mfg. Co. v. Liberty Mut. Ins. Co., 836 F. Supp. 1273 (W.D. La. 1993), aff'd, 30 F.3d 630, 25 ELR 20150 (5th Cir. 1994) and Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842 (Ill. 1995).

9. Foster-Gardner, Inc. v. National Union Fire Ins. Co. of Pittsburgh, 18 Cal. 4th 857, 860 (1998).

10. Id. at 889.

11. Id. at 865.

12. Id. at 864.

13. Id. at 864-65 (recounting trial court and appellate court decisions).

14. 65 Cal. App. 4th 1205 (1997).

15. Id. at 1207.

16. Foster-Gardner, 18 Cal. 4th at 870.

17. Id. at 871.

18. Id. at 871-72.

19. Id. at 872.

20. Id. at 873.

21. Id. at 879-80.

22. Id. at 873.

23. Id.

24. Id. at 879.

25. Id. at 880.

26. Id. at 890.

27. Id. at 894.

28. Id. at 892-93.

29. Id. at 886-87 (emphasis in original) (citing AIU Ins. Co. v. Superior Court of Santa Clara County, 51 Cal. 3d 807, 824, 21 ELR 20315, 20320 (1990)).

30. Foster-Gardner, Inc. v. National Union Fire Ins. Co. of Pittsburgh, 19 Cal. 4th 253E (1998).

31. 5 U.S.C. §§ 500-596, available in ELR STAT. ADMIN. PROC.

32. See 40 C.F.R. pts. 22 and 24 (1998).

33. 42 U.S.C. §§ 6901-6992k, ELR STAT. RCRA §§ 1001-11012.

34. Id. § 6928(c), ELR STAT. RCRA § 3008(c); see id. § 6928(h)(2), ELR STAT. RCRA § 3008(h)(2) (imposing penalties of up to $ 25,000 for each day of noncompliance with an "interim status" corrective action order, issued pursuant to RCRA § 3008(h)(1)).

35. 40 C.F.R. § 22.13 (1998).

36. Id. § 22.15 (1998).

37. Id. §§ 22.19, 22.21, and 22.22 (1998); see also 42 U.S.C. § 6928(b), ELR STAT. RCRA § 3008(b) (granting EPA the authority to issue subpoenas for the attendance and testimony of witnesses and the production of relevant papers, books, and documents and authorizing EPA to promulgate rules for discovery procedures).

38. 40 C.F.R. § 22.27 (1998).

39. CAL. HEALTH & SAFETY CODE § 25187 (West 1998).

40. CAL. GOV'T CODE § 11506 (West 1998).

41. Id. §§ 11507.6, 11507.7, 11510.

42. Department of Toxic Substances Control Request for Rehearing or Modification at 2, Foster-Gardner, Inc. v. National Union Fire Ins. Co. of Pittsburgh, 18 Cal. 4th 857 (1998) (No. S063425) (emphasis in original).

43. U.S. EPA, EPA-300-R-98-003, ENFORCEMENT AND COMPLIANCE ASSURANCE ACCOMPLISHMENTS REPORT FOR FISCAL YEAR 1997 at app. A, tbl. A-6 (July 1998).

44. Id. at app. A, tbls. A-3 and A-5.

45. The CGL policy was, and always has been, intended to avoid gaps in coverage and cover all perils within the basic insuring agreement (i.e., perils resulting in bodily injury and property damage) that were not specifically excluded. Unlike the "specified peril" policies that preceded the CGL policy, the risk of an unknown or unknowable hazard is borne by the insurer in the CGL policy. See, e.g., 1 H. WALTER CROSKEY ET AL., CALIFORNIA PRACTICE GUIDE: INSURANCE LITIGATION § 1:68 (1997). In fact, the insurer collected an additional premium for the "comprehensive" coverage for such unknown and unspecified perils. The contemporaneous discussion of the CGL policy makes it clear that the insurer, not the insured, bears the risk of unknown, unknowable, and unspecified liabilities. Accordingly, defense and indemnity coverage for administratively-imposed environmental property damage liabilities — a peril that is not specifically excluded from coverage and that, in large part, may have been unknown and unknowable at the time of contracting — is provided by the CGL policy. See, e.g., AIU Ins. Co. v. Superior Court of Santa Clara County, 51 Cal. 3d 807, 822 n.8, 21 ELR 20315, 20319 n.8 (1990).

46. FMC Corp. v. Plaisted & Cos., 61 Cal. App. 4th 1132, 1147 (1998) (emphasis added).

47. Id. at 1149 (emphasis added).

48. See, e.g., id. at 1192. (Provisions in an umbrella policy required "the umbrella coverage to 'drop down' [citation omitted] below the coverage limits of underlying policies to provide coverage (in excess of the … self insured retention) not provided by the underlying policies.")

49. Id. at 1148.

50. Commercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053 (1st Cir. 1993).

51. Bryan Constr. Co. v. Employers' Surplus Lines Ins. Co., 290 A.2d 138, 139-40 (1972).

52. FMC Corp., 61 Cal. App. 4th at 1148.

53. 2 H. WALTER CROSKEY ET AL., CALIFORNIA PRACTICE GUIDE: INSURANCE LITIGATION § 8:84 (1997) (emphasis in original) (citing Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 812 (1982); Wells Fargo Bank v. California Ins. Guar. Assoc., 38 Cal. App. 4th 936, 940 n.2 (1995); Aetna Cas. & Sur. Co. v. Centennial Ins. Co., 838 F.2d 346 (9th Cir. 1988)); see FMC Corp., 61 Cal.App. 4th at 1192.

54. Foster-Gardner, 18 Cal. 4th at 886-887 (second emphasis added) (citing AIU Ins. Co. v. Superior Court of Santa Clara County, 51 Cal. 3d 807, 818, 21 ELR 20315, 20320 (1990)).

55. At least one California appellate court has already relied on Foster-Gardner to hold that indemnity costs are not recoverable in the absence of a civil judicial lawsuit. In San Diego Hous. Comm'n v. Industrial Indem. Co., tenants in a state subsidized housing project began complaining to the Housing Authority over certain defects in the project. No. D027060, 1998 Daily Journal D.A.R, Dec. 14, 1998, at 12597, available in 1998 WL 851130. These complaints consisted solely of informal complaints; no lawsuit or administrative action was ever initiated. The Housing Authority voluntarily corrected the housing defects and later submitted the costs to its liability insurer. The insurer denied coverage on, among others, the grounds that the Housing Authority had not been "legally obligated" to pay the claims. The appellate court agreed with the insurer and based its decision largely on passages from the original, pre-modification language of Foster-Gardner. Id. at 12597-603. The appellate court cited, as persuasive authority, the original dicta in the Foster-Gardner decision that was deleted by modification. A few weeks later, the appellate court modified the San Diego Hous. decision, removing the references to the language that had been deleted from the Foster-Gardner decision. Id. at 13006. Nonetheless, the appellate court's holding, that indemnity costs were not covered absent a lawsuit, was unchanged.

In San Diego Hous. there was no order, administrative or otherwise, that required the insured to incur the liabilities for which it sought coverage. Id. at 12597-98. This fact alone is sufficient to distinguish San Diego Hous. from AIU and the circumstances facing policyholders to whom environmental agencies issue administrative orders. However, the decision in San Diego Hous. will undoubtedly be hailed by the insurance carriers as yet another basis for denying policyholders' environmental liability claims.

56. 51 Cal. 3d 807, 843-44, 21 ELR 20315, 20327 (1990).

57. See supra note 5 and accompanying text.

58. AIU, 51 Cal. 3d at 807 passim, 21 ELR at 20315 passim.

59. Id. at 840-41, 21 ELR at 20326.

60. Id. at 822 n.8, 21 ELR at 20319 n.8 (quoting Travelers Ins. Co. v. Industrial Indem. Co., 18 Cal. App. 3d 628, 632, 96 Cal. Rptr. 191 (1971)).

61. FMC Corp. v. Plaisted & Cos., 61 Cal. App. 4th 1132, 1142 (1998).

62. Aerojet-General Corp. v. Transport Indem. Co., 17 Cal. 4th 38, 70 Cal. Rptr. 2d 118, 132 (1997); see Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1564, 22 ELR 20968, 20974 (9th Cir. 1991) (applying California law: "That the insured voluntarily assumed the obligation to conduct cleanup, rather than forcing the government to assume the expenses of a coercive suit or of cleanup itself, should not change the analysis that a legal obligation to be responsible for cleanup does exist."); Martin-Marietta Corp. v. Insurance Co. of N. Am., 40 Cal. App. 4th 1113 (1995) (reversing grant of summary judgment to an insurer concerning coverage for, inter alia, administrative environmental remediation proceedings); Haskel v. Superior Court of Los Angeles County, 33 Cal. App. 4th 963, 970 (1995) (response costs incurred pursuant to purely administrative environmental proceeding were damages under CGL policy language); Aerojet-General Corp. v. Superior Court of San Mateo County, 211 Cal. App. 3d 216, 228 (1989) ("Petitioners have become legally obligated to clean up their pollution by virtue of the polite but puissant compulsion of CERCLA.").

63. Although no California appellate court has addressed the question of whether the Foster-Gardner holding extends to the insurers' duty to indemnify in the environmental context, at least three trial courts have squarely addressed this issue. In Southern Pac. R.R. Corp. v. Certain Underwriters at Lloyds of London, No. BC 154722, L.A.S.C. (Kough, J.), the court rejected insurers' argument that the duty to indemnify arose only where the "court makes a determination of liability and imposes damages," noting:

Under this interpretation of the terms "liable" or "legally liable," a person is not liable to perform under a contract they have signed unless they are sued and a court makes a determination of liability. Clearly, this is not the law. While a lawsuit may be brought to enforce liability or to determine liability, it is not required to create liability.

The court in Pacific Gas & Electric Co. v. Lexington Ins. Co., No. 948209 S.F.S.C. (Bea, J.), reached the opposite result, concluding that "the carriers become obligated to indemnify … only for suits as that term is defined in Foster-Gardner [sic] …." Most recently, the court in Highland Ins. Co. v. Powerine Oil Co., No. CV 731752, L.A.S.C. (McKnew, J.), found in favor of policyholders on the indemnity issue. The court observed that the insurers' argument led ineluctably to a result at odds with the California's Supreme Court's AIU decision:

To require that an insurer must indemnify the insured for expenses related to environmental cleanup when a court issues the order but not when the order is lawfully issued by some other government agency "would make insurance coverage hinge on the mere 'fortuity' of the way in which government agencies seek to enforce cleanup requirements …."

AIU, 51 Cal. at 840-41, 21 ELR at 20326. Notably, the Powerine court found that San Diego Hous., see supra note 55, "is distinguishable from the present case in that no government agency filed a claim against the insured."

64. 16 Cal. 4th 35, 50 (1997).

65. See id. at 49-50; see also Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993).

66. Buss, 16 Cal. 4th at 50.

67. Id. at 49-53.

68. Id. at 50-53.

69. Id. at 53.

70. See Gray v. Zurich Ins. Co., 65 Cal. 2d 263 (1966) (the duty to defend requires the carrier to defend any claim creating the potential for indemnity coverage under the carrier's policy and is, in that sense, broader than the duty to indemnify).

71. See Buss, 16 Cal. 4th at 48-49 (insurer has a duty to defend the entire "mixed" action prophylactically, as an obligation imposed by law in support of the policy); Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993).

72. See, e.g., Aerojet-General Corp. v. Transport Indem. Co., 17 Cal. 4th 38 (1998) (expansive definition of defense costs in environmental coverage dispute in favor of policyholder position); Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645 (1995) (continuous trigger of coverage applied to environmental coverage dispute so as to trigger defense obligation of multiple insurers); Montrose Chem. Corp. v. Superior Court of Los Angeles County, 6 Cal. 4th 287 (1993) (insurer's defense obligation triggered by mere potential for coverage in an environmental coverage dispute).

73. 51 Cal. 3d 807, 21 ELR 20315 (1990).

74. Id. at 840-41, 21 ELR at 20326.

75. Id. at 822 n.8, 21 ELR at 20319 n.8 (quoting Travelers Ins. Co. v. Industrial Indem. Co., 18 Cal. App. 3d 628, 632, 96 Cal. Rptr. 191 (1971)).