Montrose Chemical Corp. v. Admiral Insurance

*695 BAXTER, J.

I concur in the judgment, though not in everything the majority say. For example, I do not believe the policy language is as plain in plaintiff Montrose’s favor as the majority assert. Defendant Admiral’s comprehensive general liability (CGL) policies cover injury or damage “which occurs during the policy period” as the result of a defined “occurrence,” but this language leaves uncertain which policy periods are implicated when a single “occurrence” produces harm that accumulates, or progresses, or affects an increasing number of persons over time. Indeed, as the majority acknowledge, this ambiguity “[has] spawned ‘a bewildering plethora of authority’ ” about how CGL coverage applies to cumulative or progressive injuries. (Owens-Illinois, Inc. v. United Ins. Co. (1994) 138 N.J. 437 [ 650 A.2d 974, 979 ], quoting Gottlieb v. Newark Ins. Co. (1990) 238 N.J. Super. 531 [ 570 A.2d 443, 445 ].)

What matters is that the coverage language can plausibly be read, as Montrose suggests, to mean that each increment of harm, whether to person or property, which “occurs” during a particular policy period is covered by the policy then in effect. Unless that interpretation exceeds the insured’s objectively reasonable coverage expectations, we must adopt it. (See Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265 [ 10 Cal.Rptr.2d 538 , 833 P.2d 545 ]; AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822 [ 274 Cal.Rptr. 820 , 799 P.2d 1253 ].)

As an abstract proposition, I might question the majority’s claims that the purchaser of CGL insurance, unlike the buyer of first party casualty insurance, may reasonably expect multiple-policy coverage for progressive harm arising from a single source. (Cf. Prudential-LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 693-699 [ 274 Cal.Rptr. 387 , 798 P.2d 1230 ] (Prudential-LMI).) However, the particular circumstances which produced the current standard CGL coverage language persuade me that such an expectation is not unreasonable.

As the majority explain, the standard-form coverage language in Admiral’s policies was developed in the 1960’s after an intense debate within the insurance industry about how to provide fair coverage for long-term “exposure” injuries. This debate provided no explicit solution for all the attendant problems. But two themes of importance to the issue before us did emerge from the drafting process.

First, the drafters plainly rejected a “manifestation of injury” trigger, like that we adopted for first party policies in Prudential-LMI, in favor of the more nebulous and undefined requirement that injury merely “occur” while *696 a policy was in effect. Second, the drafters recognized that by defining a covered “occurrence” to include “continuous or repeated exposure to conditions” (italics added), and by making coverage dependent on the time at which injury or damage “occurs,” they had created the possibility of coverage by multiple successive policies, up to their combined policy limits, for the various harms emanating over time from a single continuous exposure. (See, e.g., American Home Prod. v. Liberty Mut. Ins. Co. (S.D.N.Y. 1983) 565 F.Supp. 1485, 1500-1502 , affd. as mod. (2d Cir. 1984) 748 F.2d 760 ; see also Elliott, The New Comprehensive General Liability Policy, in Liability Insurance Disputes (PLI, Schreiber edit. 1968) pp. 12-3, 12-5; Obrist, The New Comprehensive General Liability Insurance Policy—A Coverage Analysis (Defense Research Inst. Monograph 1966) p. 6.)

This being so, I cannot conclude that the majority exceed the objectively reasonable expectations of either insurer or insured by interpreting the ambiguous policy language to mean that “continuous injury” from exposure triggers coverage by all policies in effect while the harm progressed. I therefore feel compelled to accept that construction.

I also agree that the statutory “loss-in-progress” rule (Ins. Code, §§ 22, 250) does not conclusively eliminate Admiral’s duty to help defend the various contamination-injury suits against Montrose. But the majority appear to offer two separate reasons for this conclusion, and I find only one of them persuasive.

The majority first suggest that because a CGL policy insures against the risk of legal liability to another, insurance of this kind may be purchased for any such legal liability which then remains “contingent” or “unknown.” If I understand the majority correctly, a literal application of this theory would allow the purchase of liability insurance for a completed tort up to the moment a final damage judgment is imposed upon the tortfeasor.

But the plain words of the loss-in-progress statutes suggest otherwise. Insurance Code section 22 provides that “[ijnsurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” (Italics added.) Insurance Code section 250 provides that, with irrelevant exceptions, “any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against . . . .” (Italics added.) As both statutes make clear, it is the event or events which produce liability, not merely the liability itself, which must remain “contingent or unknown” at the time the insurance contract is created.

*697 The majority cite no California case on point, and I see no sound reason to depart from the clear statutory language. Consistent with my understanding of insurance, the loss-in-progress statutes imply that the “contingent or unknown” risk insured against is real-world accidents, events, or hazards which produce insurable loss or damage. In the first party context, the relevant risk is direct casualty damage, injury, or loss to the insured person or property. In the third party context, the relevant risk is the insured’s act or omission, and the resulting damage, injury, or loss to another, which together form the basis of legal liability against the insured.

Thus, for purposes of liability insurance, once both the act or omission and the resulting legally compensable damage are no longer “contingent or unknown,” no insurable risk remains. As the statutes suggest, it would contravene public policy and the nature of the insurance contract to allow a tortfeasor to wait until he has already knowingly caused compensable damage before purchasing protection against his resulting liability.

However, I agree with the majority that the loss-in-progress rule does not preclude liability coverage for future or unknown harm from a past act or omission, even if the insured does know that some harm may already have arisen from his conduct. The insured cannot be held liable for his act or omission except to the extent it causes compensable harm. Thus, so long as any increment of compensable damage or injury has not yet happened, or is unknown to the insured, it remains a “contingent or unknown event . . . which may . . . create a liability against him.” (Ins. Code, § 250.) As such, it is a properly insurable risk.

The various lawsuits against Montrose each allege that new or progressive injury to persons or property occurred during the period of the Admiral policies, and Admiral’s motion for summary judgment did not negate the possibility that such new harm had occurred after its coverage began. I therefore concur in the conclusion that the loss-in-progress rule does not bar Admiral’s potential coverage of these new injuries nor relieve Admiral of its duty to defend Montrose against these suits.

Respondent’s petition for a rehearing was denied August 31, 1995, and the opinion was modified to read as printed above.