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Great American Insurance Co. v. Superior Court of Los Angeles County

October 9, 2009

GREAT AMERICAN INSURANCE COMPANY, PETITIONER,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT;
ANGELES CHEMICAL COMPANY, INC., ET AL., REAL PARTIES IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. Mary Thornton House, Judge. Petition for writ of mandate is granted. (Los Angeles County Super. Ct. No. BC367976).

The opinion of the court was delivered by: Croskey, J.

CERTIFIED FOR PUBLICATION

When a liability insurer providing a defense to its insured believes there is no longer a potential for coverage and, therefore, it is no longer required to defend, it may bring a declaratory relief action to obtain a judicial declaration that it need no longer do so. The insured, however, may seek to stay the insurer's declaratory relief action if proceeding on that action could prejudice its defense of the underlying liability action. In this case, we consider the circumstances in which the trial court must grant a stay, and when the court may exercise its discretion on the issue.

Petitioner Great American Insurance Company (Great American) insured Angeles Chemical Company (Angeles) and its officers and directors. Angeles and a neighboring property owner, McKesson Corporation (McKesson), sued each other for cleanup costs relating to environmental contamination of the groundwater beneath both sites. The complaints also named officers and directors of each company. Various cross-complaints were filed; the subsequent owner of the Angeles site sued some, but not all, of the Angeles owners and directors; those owners and directors sued Angeles.

Great American settled the lawsuits filed against its insureds by McKesson and McKesson-related individuals, leaving actions among the Angeles-related parties still pending. Great American then brought the instant declaratory relief action, seeking a declaration that those settlements had exhausted its policy limits and that it was therefore no longer obligated to defend its insureds in the still-pending litigation. The insureds sought a stay of the declaratory relief action, on the basis that resolution of the issues raised in the declaratory relief action would prejudice it in the still pending underlying litigation. The trial court agreed and granted the stay. Great American sought relief by a petition for writ of mandate. We issued an order to show cause and, for the reasons stated below, now grant that petition.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Parties and the Property

From 1976 to 2001, Angeles operated a chemical repackaging plant on its property (the Angeles site). The Angeles site was not originally owned by Angeles; instead, in 1975, it was leased*fn1 to Angeles by John & Janyce Locke (the Lockes), Robert and Donna Berg (the Bergs), and Pearl and Arnold Rosenthal (the Rosenthals*fn2). In 1994, the Lockes, Bergs, and Rosenthals transferred the property outright to Angeles. In addition to initially owning the property, the Lockes, Bergs, and Rosenthals were each officers of Angeles. As will become apparent, there is now a schism between Angeles and the Lockes on one side, and the Bergs and Rosenthals on the other. The Angeles site is no longer owned by Angeles. In 2001, Angeles sold the Angeles site to Greve Financial Services, Inc. (Greve). Greve appears to have aligned itself with Angeles and the Lockes against the Bergs and Rosenthals. Greve, Angeles and the Lockes are all represented by the same counsel.

Great American is one of many insurers who wrote policies covering Angeles. The policy at issue (the policy) identifies the policy period as November 1, 1976 through November 1, 1977 -- this latter date was later changed by interlineation to read January 1, 1978. Whether these additional two months of coverage constitute a second policy period or merely an extension of a single policy period is an issue which will be resolved in this declaratory relief action.

Under the policy, Great American covered not only Angeles, but "any executive officer thereof and the spouse of such executive officer, while acting within the scope of his duties as such." We therefore use "the insureds" to refer to Angeles, the Lockes, the Bergs, and the Rosenthals collectively; Greve is not an insured. The policy provides for an aggregate limit of $500,000; the language of the policy also provides, however, that the aggregate limit applies separately to property damage arising out of operations and "property damage for which liability is assumed by the named insured under contracts covered by this policy." The nature and extent of the covered claims and whether the policy's aggregate limit has been reached are also issues to be resolved in this declaratory relief action.

Angeles had other insurance policies with other carriers, both primary and excess, which also provide coverage for the claims at issue. Angeles and the Lockes believe that there is an additional $32 million in coverage available, while the Bergs and Rosenthals state that the amount is in excess of $20 million. In our consideration of the issues, we will assume the more conservative figure.

Next to the Angeles site is the property owned by McKesson, which also operated a chemical repackaging facility on its property. The McKesson site is alleged to be owned by Harvey Sorkin, Seymour Moslin, Joseph Sorkin, and the Estate of Paul Maslin (the McKesson owners).

It is undisputed that there has been significant environmental contamination of both the Angeles site and the McKesson site, specifically affecting the groundwater beneath the sites. What is unknown is whether the contamination is due: (1) solely to activities on the Angeles site; (2) solely to activities on the McKesson site; or (3) a combination of activities on both sites.*fn3 The federal and state governments sought substantial cleanup costs for the contamination on both sites.

2. The Lawsuits

The initial complaint was filed in federal court by Angeles, Greve, and John Locke against McKesson and the McKesson owners. The operative pleading is the fourth amended complaint, which alleges 13 causes of action, including liability under CERCLA,*fn4 and related state law causes of action. The complaint also names the Bergs and Rosenthals as defendants. While the general allegations of the complaint seek a declaration that McKesson, the McKesson owners, the Bergs, and the Rosenthals are "jointly and severally liable for the presence of hazardous substances contamination" at the McKesson site and the Angeles site, the only causes of action against the Bergs and Rosenthals are those alleged by Greve alone.*fn5

This complaint resulted in a counterclaim by McKesson against Angeles, Greve, the Lockes, Bergs, and Rosenthals. The operative pleading was the fourth amended counterclaim. In it, McKesson alleged 12 causes of action, including liability under CERCLA, and related state causes of action. McKesson alleged that the Angeles site "is hydrogeologically upgradient of the McKesson [s]ite," and that chemicals released by Angeles's operations migrated from the Angeles site to the McKesson site. While McKesson's causes of action were concerned with the eventual contamination of the McKesson site, they relied on Angeles's initial contamination of its own site. The McKesson owners filed a separate counterclaim against Angeles, Greve and John Locke, based on the migration of chemicals from the Angeles site to the McKesson site.

As the Bergs and Rosenthals had been sued by McKesson for what appears to be Angeles's conduct,*fn6 the Bergs and Rosenthals filed cross-claims*fn7 against Angeles and also named Greve. Two of the causes of action, breach of contract and express indemnity, named only Angeles. Both causes of action were based on the lease of the Angeles site to Angeles by the Lockes, Bergs, and Rosenthals. The lease allegedly required Angeles, as lessee, to indemnify the lessors from claims arising out of Angeles's use of the premises, and to defend against such claims as well. The Bergs and Rosenthals alleged that Angeles breached the lease by failing to defend and indemnify them with respect to the cleanup costs sought by the government, and with respect to McKesson's action against them.*fn8 The Bergs and Rosenthals did not seek contractual indemnity with respect to Greve's action against them. However, remaining causes of action, including several under CERCLA, alleged that Angeles and Greve are responsible for contamination at both the Angeles and McKesson sites, and must therefore reimburse the Bergs and Rosenthals for response costs.

Great American agreed to defend its insureds in each action, subject to a reservation of rights. Specifically, it agreed to defend: (1) Angeles, the Lockes, the Bergs and the Rosenthals against the claims of McKesson; (2) Angeles and John Locke against the claims of the McKesson owners; (3) the Bergs and Rosenthals against the claims of Greve; and (4) Angeles against the claims of the Bergs and Rosenthals. Two other Angeles insurers, Fireman's Fund and Charter Oak, also accepted the tender; each, along with Great American, has been paying a pro rata share of the defense costs.

3. The McKesson Settlements

A settlement was negotiated between Great American and Fireman's Fund on one side and McKesson on the other. The circumstances of the settlement negotiation, and the terms of the settlement itself, are both disputed. This much is clear:

(1) McKesson dismissed its counterclaim against Angeles, the Lockes, the Bergs and the Rosenthals with prejudice; (2) Great American paid McKesson $500,000, out of a total payment of $2,000,000; (3) the complaint of Angeles, Greve and John Locke against McKesson was unaffected; and (4) there was no written release of future claims. Beyond that, the parties dispute nearly every fact surrounding the settlement, including whether the insureds were informed of the settlement negotiations, whether their input was sought, and whether the settlement was memorialized in writing. Indeed, Angeles and the Lockes*fn9 suggest that there may not have been a settlement at all, and that McKesson's dismissal was simply voluntary.*fn10

A settlement was also reached by Great American and Fireman's Fund with the McKesson owners*fn11 with respect to their counterclaims against Angeles and John Locke. This settlement was memorialized in writing. The claims were settled for a payment of $50,000,*fn12 and were voluntarily dismissed with prejudice. Under the written settlement agreement, the insurers also waived any claim for attorney fees ...


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