Aug 02 2013, 6:27 am
FOR PUBLICATION
ATTORNEY FOR APPELLANT: ATTORNEYS FOR APPELLEES:
LAURA S. REED GEORGE M. PLEWS
Riley, Bennett & Egloff, LLP KAREN B. SCHEIDLER
Indianapolis, Indiana Plews Shadley Racher & Braun, LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
NORTHERN ASSURANCE COMPANY OF )
AMERICA, AS SUCCESSOR IN INTEREST )
TO CERTAIN LIABILITIES OF EMPLOYERS )
SURPLUS LINES INSURANCE COMPANY )
)
Appellant-Defendant, )
)
vs. ) No. 49A04-1208-PL-400
)
THOMSON INC. k/n/a TECHNICOLOR, )
USA, INC., TECHNICOLOR INC., and )
TECHNICOLOR LIMITED )
)
Appellees-Plaintiffs. )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Michael D. Keele, Judge
Cause No. 49D07-0807-PL-30746
August 2, 2013
OPINION – FOR PUBLICATION
MATHIAS, Judge
Thomson, Inc. n/k/a Technicolor USA Inc. (“Technicolor”), sued several
insurance companies, including Northern Assurance Co. of America (the successor in
interest to Employers Surplus Lines Insurance Co. (“ESLIC”)), seeking insurance
coverage for environmental damages at three sites owned by Technicolor. The trial court
granted summary judgment in favor of Technicolor, concluding that Technicolor was
entitled to coverage under the policies ESLIC had issued. On appeal, ESLIC argues that
the trial court should have applied California law when interpreting the ESLIC policies
and that, if California law is applied, Technicolor has no coverage under the ESLIC
policies for cleanup costs at the contaminated sites because Technicolor’s cleanup costs
do not constitute damages resulting from a suit brought against Technicolor.
We reverse and remand.
Facts and Procedural History
A. The Parties
Thomson, Inc. (“Thomson”) is a corporation with long-established ties to Indiana.
Technicolor was a California-based corporation that had a U.K.-based subsidiary known
as Technicolor Limited (“UK Technicolor”). Both Technicolor corporations were later
acquired by Thomson, which later changed its name to Technicolor USA, Inc. For
purposes of the current litigation, the parties refer to Thomson/Technicolor as
“Technicolor.” ESLIC was an insurance company subsequently acquired by Northern
Assurance Co. of America. Although Northern Assurance is the named party in the
current litigation, as the successor in interest to ESLIC, the parties refer to the insurer in
this case as “ESLIC.” We will do likewise.
2
B. The Policies
From 1961 to 1969, ESLIC sold three first-level excess policies to the insureds
“Technicolor Inc. and its wholly owned subsidiaries as they are now or may be
hereinafter constituted” and “Technicolor Corporation, Technicolor New York
Corporation and Any Subsidiary or Propriety Corporation Thereof, Now Existing
Assured or Which May Hereafter Exist.” Appellant’s App. pp. 422, 431. The policies,
which will be referred to as the “ESLIC policies,” provided in part:
THIS INSURANCE, to the extent and in the manner hereinafter provided,
is to pay on behalf of the Assured all sums which the Assured shall become
legally obligated to pay, or by final judgment be adjudged to pay, to any
person or persons as damages
***
(b) for damage to or destruction of the property of others, including the
loss of use thereof (hereinafter referred to as “Property Damage”)
caused by an accident occurring during the period mentioned in the
Schedule and arising out of such hazards as are set forth in Item 4 of the
Schedule and which are also covered by and defined in the policy/ies
specified in the Schedule and issued by the “Primary Insurer” stated therein,
PROVIDED ALWAYS THAT: —
(a) Liability attaches to the Underwriters only in respect of such
hazards as are set forth in Item 4 of the Schedule and only for such
coverages and limits against which an amount is inserted in Item 8(b) or
8(c) of the Schedule and then only after the Primary and Underlying
Excess Insurers have paid or have been held liable to pay the full
amount of their respective ultimate net loss liability as set forth in the
Schedule in Item 8 and designated the “Primary and Underlying Excess
Limit(s)” and then
(i) the limits of the Underwriters’ liability will be such amount or
ultimate net loss as will provide the Assured with total limits under
the policy/ies of the Primary and Underlying Excess Insurers and
this Insurance combined as set forth in Item 8(b) of the Schedule
under the designation “Total Limit(s)” or
(ii) if it is not practicable to set forth in Item 8(b) of the Schedule
the Total Limit(s) of liability under this Insurance and all
underlying polices combined then the limits of the Underwriters’
liability shall be those set forth in Item 8(c) under the designation
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“Excess Limit(s)” and the Underwriters shall be liable to pay the
ultimate net loss up to the full amount of such Excess Limit(s).
***
(c) Liability for Property Damage is subject to the limit “Each Accident”
as stated in the Schedule, but as regards Products Liability and any hazard
insured with an aggregate limit under the policy/ies of the Primary Insurer
liability shall not exceed in any one policy year in respect of each such
hazard the limit of liability stated as “Aggregate” in the Schedule.
(d) Neither the inclusion of more than one entity in the name of the
Assured nor the addition of any additional Assureds under this Insurance
shall in any way operate to increase the Underwriters’ limits of liability in
respect of any one person/accident/aggregate beyond those provided for in
Item 8 (Limits of Liability) of the Schedule.
***
DEFINITIONS
(a) ACCIDENT.—The word “accident” shall be understood to mean an
accident or series of accidents arising out of one event or occurrence.
(b) ULTIMATE NET LOSS.— The words “ultimate net loss” shall be
understood to mean the amount payable in settlement of the liability of
the Assured after making deductions for all recoveries and for other
valid and collectible insurances, excepting however the policy/ies of the
Primary and Underlying Excess Insurers, and shall exclude all expenses
and Costs.
***
Said insurance is made and accepted subject to the foregoing stipulations
and conditions, and to the stipulations and conditions printed on the back
hereof, which are herby made a part of said insurance, together with such
other provisions, stipulations and conditions as may be endorsed on said
Certificate of Insurance or added thereto as therein provided.
CONDITIONS
***
4. ATTACHMENT OF LIABILITY.—Liability to pay under this Insurance
shall not attach unless and until the Primary and Underlying Excess
Insurers shall have admitted liability for the Primary and Underlying
Excess Limit(s) or unless and until the Assured has by final judgment been
adjudged to pay an amount which exceeds such Primary and Underlying
Excess Limit(s) and then only after the Primary and Underlying Excess
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Insurers have paid or have been held liable to pay the full amount of the
Primary and Underlying Excess Limit(s).
Id. at 438-39, 449-50, 466-67 (bold emphasis added). Notably, there are no pollution
exclusions in the ESLIC policies. The policies were procured through Marsh and
McLennan-Cosgrove & Co., in California, issued through Sayre & Toso Underwriting
Managers in California, to what was then California-based Technicolor.
C. The Technicolor Sites
Technicolor is seeking coverage for environmental cleanup costs at three sites.
The first of these sites is located in Los Angeles, California and was originally owned and
operated by Consolidated Film Industries (“CFI”). CFI processed, duplicated, and
printed film at this site from 1924 to 2002. Chemicals used at the CFI site included
industrial solvents. Technicolor purchased the CFI business in 2000. In 2004, soil
testing at the CFI site revealed contamination from the chemicals used at the site,
requiring Technicolor to begin cleanup at the site.
The second site involved in the present case is located on Lankershim Boulevard
in North Hollywood, California. Technicolor provided processing, printing, and
duplication services at this site from 1964 to 2011. Like the CFI site, chemicals used in
these processes were leaked and spilled during the operation of the site, resulting in
environmental contamination that has required cleanup.
The last site involved is located in West Drayton, England in the United Kingdom.
UK Technicolor operated film processing services at this site from 1935 to 2009. Again,
5
chemicals used in this processing were leaked and spilled, resulting in soil and
groundwater contamination, requiring extensive and expensive cleanup.1
D. The Current Litigation
As a result of the contamination at the sites and the cleanup costs, Technicolor
brought suit against numerous insurance companies seeking coverage for those cleanup
costs. Among the insurers were ESLIC and Continental Casualty Co. (“Continental”).
Technicolor moved for summary judgment against Continental seeking a
declaration of coverage for the cleanup at the sites. Continental filed a cross-motion for
summary judgment, arguing that, under California law, its umbrella policies did not
provide coverage. Thomson Inc. v. Continental Cas. Co., 982 N.E.2d 4, 6 (Ind. Ct. App.
2012), trans. denied (“Thomson I”). The trial court granted summary judgment in favor
of Continental, finding that, under California law, the umbrella policy “damages” were
limited to those as a result of courtroom litigation and did not provide coverage for costs
and expenses Technicolor incurred in response to “administrative directives to remedy
environmental contamination.” Id. at 5, 6.
On appeal in that case, the parties agreed that California insurance law governed
the merits of the appeal and that remediation was being done pursuant to the directive of
local environmental agencies. Id. Still, Technicolor argued that coverage existed under
the umbrella policies under the definition of “ultimate net loss.” Id. This court held:
Under California insurance law, as it relates to commercial general liability
policies, “damages” are limited to losses resulting from a “suit,” which is
understood to refer, in general, to courtroom litigation. [T]he duty to
1
Technicolor notes in its brief that “past costs at the U.K. site exceed $1.3 million.” Appellant’s Br. p. 9.
6
defend a “suit” seeking “damages” under pre–1986 CGL policies is
restricted to civil actions prosecuted in a court, initiated by the filing of a
complaint, and does not include claims, which can denote proceedings
conducted by administrative agencies under environmental statutes.
Likewise, the duty to indemnify for “‘all sums that the insured becomes
legally obligated to pay as damages’” ([Certain Underwriters at Lloyd’s of
London v. Superior Court, 16 P.3d 94, 105 (2001)]) in the same standard
primary policies is limited to money ordered by a court, and does not
include expenses such as may be incurred in responding to administrative
agency orders. CDM Investors v. Travelers Cas. & Sur. Co., 43
Cal.Rptr.3d 669, 674 (2006). Consequently, unless the Umbrella Policy
provides coverage for proceedings beyond “suits” or for indemnity for
losses beyond “damages,” there is no coverage under California law.
Thomson argues that the policy’s definition of “ultimate net loss” expands
the general definition of “damages,” while Continental argues that the
California Court of Appeal has already addressed and rejected this precise
argument in CDM Investors.
Thomson I, 982 N.E.2d at 7-8.
The Thomson I court agreed with Continental, noting that the coverage language
in the Continental umbrella policy provided that the insurer would “indemnify the
insured . . . for ultimate net loss . . . which the insured shall become obligated to pay as
damages[.]” Id. at 9 (emphasis in original). Thus, the policy limited the “ultimate net
loss” to “damages.” Id. And since “damages” were limited to those ordered by a court in
a civil action, there was no coverage for the cleanup costs incurred by Technicolor in
response to the directives of the local environmental agencies. Id.
In the meantime, in the instant case, on August 15, 2011, ESLIC moved for
summary judgment, claiming that, irrespective of which state’s law applied, there was no
coverage because there were no accidents causing property damage at the sites during the
ESLIC policy periods. Technicolor then filed a cross-motion for summary judgment on
December 7, 2011, claiming that, under Indiana law, there had been accidents resulting in
7
property damage at the sites during the time of the ESLIC policies. In its reply, ESLIC
then argued that California law should be applied when interpreting the ESLIC policies
and that, under California law, there was no coverage. On July 10, 2012, the trial court
issued its order on the parties’ cross-motions for summary judgment, concluding:
Having reviewed the parties’ submissions and being duly advised, the
Court now GRANTS Technicolor’s motion for partial summary judgment
and DENIES ESLIC’s motion. ESLIC’s motion to strike Technicolor’s
expert opinions is DENIED as ESLIC’s assertion of a conflict between the
expert opinions and the deposition testimony is unsupported by the
designated evidence. In addition, ESLIC’s designated deposition testimony
relates only to the U.K. Site and cannot serve as a basis to strike the reports
on the Lankershim or CFI Sites. The amount of coverage proceeds owed
by ESLIC under the Excess Policies for the Lankershim, CFI and U.K.
Sites is reserved for further proceedings.
Appellant’s App. p. 69. ESLIC now appeals.
Standard of Review
Upon review of a grant or denial of summary judgment, we apply the same
standard as that used by the trial court: summary judgment is appropriate only where the
evidence shows there is no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. Newman Mfg., Inc. v. Transco. Ins. Co., 871 N.E.2d 396,
400 (Ind. Ct. App. 2007) (citing Ind. Trial Rule 56(C)). We construe all facts and
reasonable inferences in favor of the non-moving party, and our review is limited to those
materials designated to the trial court. Id. at 400-01. The fact that the parties made cross-
motions for summary judgment does not alter our standard of review; rather, we must
consider each motion separately to determine whether the moving party is entitled to
judgment as a matter of law. Id. at 401.
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I. Choice of Law
The main argument between the parties is whether the trial court erred in applying
Indiana law when interpreting the ESLIC policies. Specifically, ESLIC argues that the
trial court erred when it did not apply California law to interpret the ESLIC policies,
setting forth several reasons why it claims that California law should have been applied.
A. Technicolor’s Initial Claims of Waiver and Failure to Designate Evidence
Technicolor responds by first arguing that ESLIC has waived this argument by
failing to present it to the trial court in ESLIC’s motion for summary judgment.
Technicolor correctly notes the general rule that an issue not presented to the trial court
may not be presented for the first time on appeal. See Commitment of T.S. v. Logansport
State Hosp., 959 N.E.2d 855, 857 (Ind. Ct. App. 2011) (“a party may not present an
argument or issue to an appellate court unless the party raised that argument or issue to
the trial court.”), trans. denied. Here, however, ESLIC claimed in its motion for
summary judgment that there was no conflict of law between California and Indiana on
the issue on which its motion was based. It then specifically noted that, if Technicolor
based its argument on an issue on which there was a conflict of law, it reserved the right
to argue that California law should apply. Then, in its response to Technicolor’s cross-
motion for summary judgment, ESLIC specifically argued that California law should
apply. Under these facts and circumstances, we are unable to conclude that ESLIC
waived its argument regarding the choice-of-law issue.
Technicolor also claims that ESLIC cannot prevail on its choice-of-law argument
because ESLIC failed to designate any evidence to the trial court that would support the
9
analysis required to determine which state’s law should apply. ESLIC does not directly
deny this; instead, it claims that its choice-of-law argument is supported by evidence that
was already designated to the trial court, albeit by other parties. ESLIC claims that it can
rely on evidence designated by Technicolor itself and ESLIC’s co-defendant Continental.
We agree.
It is well settled that a party may rely on evidence designated by an opposing party.
Filip v. Block, 879 N.E.2d 1076, 1081 (Ind. 2008); AutoXchange.com, Inc. v. Dreyer &
Reinbold, Inc., 816 N.E.2d 40, 46 (Ind. Ct. App. 2004) (“Once evidence has been
designated to the trial court by one party, that evidence is deemed designated and the
opposing party need not designate the same evidence.”). We think the same is true with
regard to evidence designated by a co-defendant. Once Continental had designated
evidence in support of its motion for summary judgment, it was deemed designated and
brought to the attention of the trial court, and it was not necessary for ESLIC to re-
designate the same evidence.
Turning now to the merits of the choice-of-law question, ESLIC presents several
arguments in support of its claim that California law should apply to the question of
whether Technicolor’s cleanup costs are covered as damages under the ESLIC policies.
B. Law of the Case
ESLIC first argues that the law-of-the-case doctrine required the trial court to
apply California law. The law-of-the-case doctrine is a discretionary rule that expresses
the practice of courts to refuse to reopen what has previously been decided. Miller v.
Owens, 953 N.E.2d 1079, 1082 (Ind. Ct. App. 2011), trans. denied. In general, facts that
10
are established at one stage of a proceeding, which were part of an issue on which
judgment was entered and appeal taken, are unalterably and finally established as part of
the law of the case and may not be re-litigated at a subsequent stage. Id. Even if a
judgment is erroneous, it nevertheless becomes the law of the case and thereafter binds
the parties unless successfully challenged on appeal. Id. All issues decided directly or by
implication in a prior decision are binding in all further portions of the same case. Id. As
explained by our supreme court:
The doctrine of the law of the case is a discretionary tool by which
appellate courts decline to revisit legal issues already determined on appeal
in the same case and on substantially the same facts. The purpose of this
doctrine is to promote finality and judicial economy. The doctrine of the
law of the case is applied only to those issues actually considered and
decided on appeal.
Cutter v. State, 725 N.E.2d 401, 405 (Ind. 2000) (citations and internal quotations
omitted). But questions that were not conclusively decided in a prior appeal do not
become the law of the case. Id. (quoting Riggs v. Burell, 619 N.E.2d 562, 564 (Ind.
1993)).
In this case, ESLIC argues that the law-of-the-case doctrine requires that the
courts apply California law, referring to the trial court’s earlier judgment in favor of
Continental in this case, which we affirmed on appeal. See Thomson I, 982 N.E.2d at 6.
In Thomson I, the trial court wrote, “Though their reasons differ, Technicolor and
Continental agree that the Court must decide the availability of coverage under the
Umbrella Policy under California coverage law.” Appellant’s App. p. 691. Similarly, on
appeal, this court noted that “[b]oth parties agree that California law governs the merits
11
of this appeal[.]” Thomson I, 982 N.E.2d at 7. ESLIC argues that this is now the law of
the case and that the trial court erred in concluding that Indiana law should apply to the
interpretation of the ESLIC policies.
Technicolor argues that ESLIC’s reliance on the law-of-the-case doctrine is
misplaced. Specifically, Technicolor claims that the earlier appeal arising out of the
present action filed by Technicolor, the Thomson I case, has no bearing on the present
appeal because: (1) the Thomson I court did not decide any choice-of-law issue, and (2)
the Thomson I court considered only the language of the Continental umbrella policy, not
the ESLIC excess policies at issue in the present case. On this issue, we agree with
Technicolor.
The Thomson I court did not actually decide any choice-of-law issue. Instead, as
stated above, the court simply noted that the parties to that appeal, both Technicolor and
Continental, agreed that California law should apply. See Thomson I, 982 N.E.2d at 7
(“[b]oth parties agree that California law governs the merits of this appeal[.]”). The same
is true for the trial court’s order regarding the Continental policy—it simply noted that
the parties agreed that California law applied. See Appellant’s App. p. 691. Because the
Thomson I court did not actually decide a choice of law issue, the law-of-the-case
doctrine does not apply to the present case.
C. Judicial Estoppel
ESLIC also claims that Technicolor is judicially estopped from asserting that
Indiana law applies. Judicial estoppel is a judicially-created doctrine that prevents a party
from asserting a position that is inconsistent with one asserted by that party in the same or
12
a previous proceeding. Morgan Cnty. Hosp. v. Upham, 884 N.E.2d 275, 280 (Ind. Ct.
App. 2008). This doctrine is not intended to eliminate all inconsistencies; instead, it is
designed to prevent litigants from playing “fast and loose” with the courts. Id. The
primary purpose of judicial estoppel is to protect the integrity of the judiciary, not protect
litigants. Id. Thus, absent a good explanation, a party should not be permitted to gain an
advantage by litigating on one theory and then subsequently pursue an incompatible
theory. Id. Judicial estoppel only applies to intentional misrepresentation, so the
dispositive issue supporting the application of judicial estoppel is the bad-faith intent of
the litigant subject to estoppel. Id.ESLIC notes that in Technicolor’s reply in support of its motion for summary
judgment against Continental, Technicolor wrote, “[u]nder the facts of this case, where
California law now governs and legal pressures other than courtroom litigation were
applied by the agencies to force the necessary cleanups, no ‘damages’ covered by the
[Continental] Primary Policies have resulted from the covered ‘occurrences.’”
Appellant’s App. p. 347 (emphasis added). ESLIC claims it relied upon these prior
admissions made by Technicolor, and that Technicolor should now be estopped from
arguing that California law does not apply.
Technicolor acknowledges that it did make a “concession” in its brief regarding
Continental’s umbrella policy by stating that it would not appeal the California court’s
determination of coverage under Continental’s primary policy. But it claims that this
does not establish judicial estoppel because judicial estoppel requires “a prior position
and decision on a contested issue.” Appellee’s Br. at 29. Technicolor again notes that, in
13
both the trial court and on appeal in the Thomson I case, the parties agreed that
California law applied.
Again, we agree with Technicolor that, because the choice-of-law issue was not
contested, decided, or essential to any decision in the Thomson I case, judicial estoppel
should not apply. See Wabash Grain, Inc. v. Smith, 700 N.E.2d 234, 237 (Ind. Ct. App.
1998) (noting that for judicial estoppel to apply the allegations or admissions must have,
at least, been acted on by the court in which the pleadings were filed or by the parties
claiming the estoppel).
D. Choice-of-Law on its Merits
ESLIC also argues that, even if the law-of-the-case doctrine and judicial estoppel
do not prevent Technicolor from arguing that Indiana law should apply to the present
case, California law should still be applied under a standard choice-of-law analysis. Here,
because this suit was filed in Indiana, Indiana choice-of-law rules apply. Nat’l Union
Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 940 N.E.2d 810, 813 (Ind. 2010).
Our supreme court has addressed the choice-of-law issue in environmental
insurance cases, noting that such cases involve “frequently recurring disputes over
insurers’ obligations to defend and indemnify their insureds in the face of demands to
clean up or pay for environmental contamination at multiple sites in multiple states.”
Nat’l Union, 940 N.E.2d at 812. The core of this case is the interpretation to be accorded
certain contractual language contained in the insurance policies. See id. at 812-13.
“Predicate to that interpretation is determining applicable law.” Id. at 813. Our supreme
court noted that:
14
Courts faced with these cases have generally addressed choice-of-law
issues in one of two ways—either by what is called a “uniform-contract-
interpretation” approach or by a “site-specific” approach. The uniform-
contract-interpretation approach applies the law of a single state to the
whole contract even though it covers multiple risks in multiple states; the
site-specific approach applies the law of the state or states where the
insured risks are located, unless another state has a more significant
relationship to the particular issue.
Id. at 813 (citations omitted). In National Union, our supreme court adopted the
“uniform-contract interpretation” approach, as this court had also traditionally done. Id.
at 813, 815.
Since 1945, Indiana has used the following choice-of-law rule in contract cases:
“‘The court will consider all acts of the parties touching the transaction in relation to the
several states involved and will apply as the law governing the transaction the law of that
state with which the facts are in most intimate contact.’” Id. at 814 (quoting W.H. Barber
Co. v. Hughes, 223 Ind. 570, 586, 63 N.E.2d 417, 423 (1945)). This “most intimate
contact” rule is consistent with the approach taken by the Restatement (Second) of
Conflict of Laws (1971). 2 Nat’l Union, 940 N.E.2d at 814. Section 188 of the
Restatement provides that the laws of the state with the “most significant relationship to
the transaction and the parties” should be applied. Id. In determining that relationship,
the Restatement considers certain contacts:
(1) the place of contracting; (2) the place of negotiation of the contract; (3)
the place of performance; (4) the location of the subject matter of the
contract; and (5) the domicile, residence, nationality, place of incorporation
and place of business of the parties. Indeed, the factors provided in this
section have guided our courts in determining the state in most intimate
contact; Restatement (Second) section 193, to which subsection (3) of
2
Indeed, the Reporter’s notes of Section 188 of the Restatement cite to W.H. Barber. See id.
15
section 188 defers, has further guided our courts’ consideration of the
subject matter of the contract. Accordingly, [the Indiana Supreme] Court
has recognized that [a]n insurance policy is governed by the law of the
principal location of the insured risk during the term of the policy. Thus,
when we have considered the state in most intimate contact in insurance
contract cases, we have looked first to the principal location of the insured
risk.
Id. (citing Restatement (Second) of Conflict of Law §§ 188, 193). If the principal
location of the insured risk can be determined, it is given more weight than other factors.
Id. at 816. But if no such location exists, we continue our analysis of the most intimate
contacts. Id.
ESLIC argues that, applying these factors leads to the conclusion that California
has the most intimate contact with the ESLIC policies and that California law should
apply. We agree.
It is undisputed that two of the three pollution sites at issue are located in
California. Thus, at least with regard to the policies involving those sites, the “principal
location of the risk” is in California, as is the subject matter of the policies. Indeed, it is
undisputed that the cleanup at the two California sites was directed by the California state
Environmental Protection Agency. Moreover, all of the ESLIC policies were issued to
Technicolor at a California address, and the broker involved in procuring the policies was
listed on the policy documentation as a Los Angeles, California broker.
The only connection with Indiana that these policies have is that Thomson, a
corporation with long-established ties to Indiana, acquired Technicolor’s assets in 2000,
decades after the policies were issued and years after most of the alleged pollution would
have occurred. Although Technicolor also operated at the U.K. site and ESLIC was a
16
Delaware corporation with its principal office located in that state, we conclude that the
state with the “most significant relationship to the transaction and the parties” is
California, not Indiana, and the laws of California should be applied. See National Union,
940 N.E.2d at 814.
II. Coverage
Having concluded that California law should be applied when interpreting the
ESLIC policies, we now turn to the question of whether the policies provide coverage for
Technicolor’s cleanup costs at the sites. Under California law:
While insurance contracts have special features, they are still contracts
to which the ordinary rules of contractual interpretation apply. The
fundamental goal of contractual interpretation is to give effect to the mutual
intention of the parties. Such intent is to be inferred, if possible, solely
from the written provisions of the contract. If contractual language is clear
and explicit, it governs.
A policy provision will be considered ambiguous when it is capable of
two or more constructions, both of which are reasonable. The fact that a
term is not defined in the policies does not make it ambiguous. Nor does
disagreement concerning the meaning of a phrase or the fact that a word or
phrase isolated from its context is susceptible of more than one meaning.
Language in a contract must be construed in the context of that instrument
as a whole, and in the circumstances of that case, and cannot be found to be
ambiguous in the abstract. If an asserted ambiguity is not eliminated by the
language and context of the policy, courts then invoke the principle that
ambiguities are generally construed against the party who caused the
uncertainty to exist (i.e., the insurer) in order to protect the insured’s
reasonable expectation of coverage.
Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 959 P.2d 265, 272-73 (Cal. 1998)
(citations and internal quotations omitted); see also Wallman v. Suddock, 134 Cal. Rptr.
3d 566, 578 (Cal. Ct. App. 2011) (following Foster-Gardner).
Here, the relevant language in the ESLIC policies provides:
17
THIS INSURANCE, to the extent and in the manner hereinafter provided,
is to pay on behalf of the Assured all sums which the Assured shall become
legally obligated to pay, or by final judgment be adjudged to pay, to any
person or persons as damages . . . (b) for damage to or destruction of the
property of others, including the loss of use thereof (hereinafter referred to
as “Property Damage”) caused by an accident occurring during the period
mentioned in the Schedule[.]
Appellant’s App. pp. 438, 449, 466 (emphasis added).
In Thomson I, we applied California law to policy language that was similar to
this. In that case, the policy language at issue provided:
The company will indemnify the insured with respect to any occurrence not
covered by underlying insurance, or with respect to damages not covered
by underlying insurance but which results from an occurrence covered by
underlying insurance, for ultimate net loss in excess of the insured’s
retained limit which the insured shall become obligated to pay as damages
by reason of liability imposed upon the insured by law or assumed by the
insured under any contract because of . . . personal injury . . . property
damage, or . . . advertising injury . . . to which this coverage applies caused
by an occurrence. . . .
***
“ultimate net loss” means the sums paid as damages in settlement of a
claim or in satisfaction of a judgment for which the insured is legally liable
after making deductions for all other recoveries ... and also includes
investigation, adjustment, appraisal, appeal and defense costs paid or
incurred by the insured with respect to damages covered hereunder.
982 N.E.2d. at 6 (emphasis added). Addressing this issue under California law, we held
that Continental’s policies provided coverage for “all sums or ultimate net loss that the
insured becomes legally obligated to pay as damages,” and that, under California law,
this was limited to money damages ordered by a court and not expenses incurred by
responding to the orders of an administrative environmental agency. Thomson I, 982
N.E.2d at 8.
18
In so holding, we relied upon CDM Investors v. Travelers Cas. & Sur. Co., 43 Cal.
Rptr. 3d 669 (Cal. Ct. App. 2006). In that case, the policy language at issue provided:
“The company will pay . . . the ultimate net loss . . . which the insured shall become
legally obligated to pay . . . as damages.” Id. at 677. The California Court of Appeals
held that “the duty to defend a ‘suit’ seeking ‘damages’ under pre-1986 CGL policies is
restricted to civil actions prosecuted in a court, initiated by the filing of a complaint, and
does not include claims, which can denote proceedings conducted by administrative
agencies under environmental statutes.” Id. at 674 (citing Foster-Gardner, Inc., 959 P.2d
at 274). The CDM Investors court further held that the duty to indemnify the insured for
“‘all sums that the insured becomes legally obligated to pay as damages’” was “limited to
money ordered by a court,” and “d[id] not include expenses such as may be incurred in
responding to administrative agency orders.” Id.The same is true in the case before us. Here the ESLIC policies provide coverage
for “all sums which the Assured shall become legally obligated to pay, or by final
judgment be adjudged to pay, to any person or persons as damages . . . for damage to or
destruction of the property of others[.]” Appellant’s App. pp. 438, 449, 466. Although
not identical to the language in either Thomson I or CDM Investors, the ESLIC policies
provide coverage only for sums Technicolor becomes legally obligated to pay, or by final
judgment be adjudged to pay, as damages for damage to or destruction of the property of
others. As explained in CDM Investors, under California law, such “damages” are
limited to money damages ordered by a court and do not include expenses incurred as a
19
result of responding to the cleanup orders of an administrative agency. 43 Cal. Rptr. 3d
at 674.
We note here that we do not agree with the position California law takes on this
matter. In fact, we agree with the arguments Technicolor made at oral argument that it is
a waste of resources to require an insured to fight an administrative order in court in order
to receive coverage under an insurance policy. Indeed, this court has formally come to
this conclusion when applying Indiana law. See Hartford Acc. & Indem. Co. v. Dana
Corp., 690 N.E.2d 285, 298 (Ind. Ct. App. 1997) (“We hold that the ordinary meaning of
the term ‘damages’ in a CGL policy includes EPA or state-mandated cleanup and
response costs.”). However, under choice-of-law principles, it is our duty to apply
California law to the policy language at issue.
Conclusion
We conclude that ESLIC did not waive its choice-of-law argument. We also
conclude that, under a choice-of-law analysis, California law should apply to the
interpretation of the ESLIC policies because California is the state with the most
significant relationship to the transaction and the parties. Finally, under California law,
the ESLIC policies provide coverage only for money damages ordered by a court and do
provide coverage for expenses incurred as a result of responding to the cleanup orders of
administrative agencies. We therefore reverse the order of the trial court granting
summary judgment in favor of Technicolor and remand with instructions to enter
summary judgment in favor of ESLIC.
Reversed and remanded.
20
MAY, J., concurs.
BAKER, J., concurs in part and dissents in part with opinion.
21
IN THE
COURT OF APPEALS OF INDIANA
NORTHERN ASSURANCE COMPANY OF )
AMERICA, AS SUCCESSOR IN INTEREST )
TO CERTAIN LIABILITIES OF EMPLOYERS )
SURPLUS LINES INSURANCE COMPANY )
)
Appellant-Defendant, )
)
vs. ) No. 49A04-1208-PL-400
)
THOMSON INC. k/n/a TECHNICOLOR, )
USA, INC., TECHNICOLOR INC., and )
TECHNICOLOR LIMITED )
)
Appellees-Plaintiffs. )
BAKER, Judge, concurring in part and dissenting in part.
I concur with the majority’s conclusions that ESLIC did not waive its choice-of
law argument and that under a choice-of-law analysis, California law applies. However, I
part ways with the majority’s application of California law, trusting that if our
environmentally-conscious colleagues to the west were confronted with this issue, they
would no longer permit their environment to go uncleansed.
To begin, Congress passed The Federal Comprehensive Environmental
Responsibility, Compensation, and Liability Act of 1980 (CERCLA) to facilitate the
prompt cleanup of hazardous waste sites. Cnty. of Santa Clara v. U.S. Fidelity & Guar.
Co., 868 F. Supp. 274, 279 (N.D. Cal. 1994). Likewise, the Hazardous Substance
22
Account Act (HSAA),3 California’s version of CERCLA, incorporates many of the same
ideas as CERCLA. For instance, upon finding an imminent or substantial danger because
of a hazardous substance, the California Environmental Protection Agency (C-EPA) can
order the responsible parties to either remediate or pay for the remediation. Cal. Health
& Safety Code § 25358.3.
Then, in Foster-Gardner, Inc. v. National Union Fire Insurance Co., 959 P.2d 265(Cal. 1998), environmental law and insurance law joined, creating a controversial issue,
namely, whether there is a duty to defend under a standard comprehensive general
liability (CGL) policy that is triggered by administrative proceedings against the insured.
Foster-Gardner was a pesticide and fertilizer business, and in 1992, it received an
“Imminent and Substantial Endangerment Order and Remedial Action Order” (the
“Order”) from the C-EPA. 959 P.2d at 267.
The Order stated that Foster-Gardner was “a responsible party, and has incurred
liability for cleaning up the Site.” Id. at 268. Additionally, Foster-Gardner was liable for
oversight costs, expenses incurred in responding to a release of hazardous substances, and
it could be held liable for $25,000 for each day it refused to comply with the Order and
for punitive damages up to three times the amount of any costs incurred by the C-EPA.
Id. at 268-69. In short, Foster-Gardner was facing substantial expenditures in cleaning up
and remediating the site.
3
The Carpenter-Presley-Tanner Hazardous Substance Account Act, Cal. Health & Safety Code §§ 25300et seq.
23
Foster-Gardner submitted its defense of the Order to four of its insurers, who had
issued CGLs containing language that it would pay on behalf of the insured all sums
“which the insured shall become legally obligated to pay as damages.” Id. at 269
(emphasis added). The insurance companies refused to defend or inadequately fund the
defense. Id. at 270.
In a four-to-three decision, the Supreme Court of California observed that “[u]nder
the policies, the insurers are required to defend a ‘suit,’ but have discretion to investigate
and settle a ‘claim.’” Id. at 279. The Court determined that the Order was not a suit, and
it was only if Foster-Gardner refused to comply with the Order that “an enforcement
action in court might follow.” Id. at 280. The Court further reasoned that “the insurers
here did not contract and receive premiums to defend anything but a civil lawsuit,
requiring them to defend the Order would result in an unintended windfall for Foster-
Gardner.” Id. at 283.
Justice Kennard along with two other Justices dissented. Acknowledging that a
lay person would seek out a dictionary to determine the meaning of the “suit,” Justice
Kennard, “canvassed a number of lay dictionaries” and noted that “most definitions of
‘suit’ do include a reference to some type of court proceeding.” Id. at 288. Nevertheless,
Justice Kennard, cited two lay dictionaries that gave alternative definitions, referring to
“legal process.” Id.
Justice Kennard also took issue with the majority’s conclusion that the term “suit”
was unambiguous; instead, concluding that the term “claim” was unambiguous and meant
“a prelitigation demand letter that may be ignored without adverse consequences.” Id. at
24
289. Under this definition, a notification letter from the C-EPA does not fit the definition
of a claim. Id. Indeed failure to respond to this letter results in substantial legal
consequences including fines up to $25,000 per day. Id. Thus, by process of elimination,
the notification letter must be a suit, or the event that initiates the suit. Id.
Drawing on the reasonable expectations of lay persons, Justice Kennard
concluded:
[A] reasonable insured would expect the insurer to pay cleanup costs
whether the insured’s obligation for those costs is determined
administratively or judicially, and a reasonable insured would also expect
the insurer to represent and defend its interest in the forum – whether
administrative or judicial – in which its cleanup costs were determined.
Id. at 290. Put another way, most individuals and businesses who have paid premiums to
an insurance company in exchange for the insurer to defend them against any suit would
not expect to be denied this benefit simply because the environmental law statutes are
enforced through and adjudicated by administrative agencies rather than by the judiciary,
particularly when the consequences could be as dire as a $25,000 per day fine.
Foster-Gardner continued to be the strict law in California governing the
intersection of insurance coverage and administrative proceedings until Ameron
International Corp, v. Insurance Co. of the State of Pennsylvania, 242 P.3d 1020 (Cal.
2010). In Ameron, a contract dispute case over defective siphons proceeded before the
former United States Department of Interior Board of Contract Appeals (IBCA), and the
issue arose whether the duty to defend was triggered by quasi-judicial adjudicative
proceedings before an administrative body. Id. at 1022. The adjudicative proceeding
lasted twenty-two days and involved numerous witnesses and substantial evidence. Id.
25
The California Supreme Court stated that it “would exalt form over substance to
find such a complaint before the IBCA insufficient simply because the IBCA is not a
court of law . . . .” Id. at 1029. The Ameron Court reasoned that the IBCA pleading
requirements met the adequate standard for a complaint, namely appropriate notice of
each claim. Id.
Justice Kennard concurred in the judgment, but wrote separately, observing that
since the Foster-Gardner rule had been announced “no sister state court ha[d] adopted
[it].” Id. at 1031. Justice Kennard noted that the court was limiting Foster-Gardner’s
reasoning that “‘suit’ unambiguously refers only to court proceedings,” by holding that it
does not apply to administrative agency adjudicative proceedings. Id. Justice Kennard
opined that “[a]lthough I would prefer that Foster-Gardner be overruled, the decision here
is at least a step in the right direction.” Id.
Since Ameron was a contract dispute case, the question remains, how the
California Supreme Court would adjudicate an environmental law case such as the one
with which we are now presented. Ann E. Carlson, the Shirley Shapiro Professor of
Environmental Law at the UCLA School of Law, observed in a recent article that “20
years ago, California was an environmental leader. It still is.” Regulatory Capacity and
State Environmental Leadership: California’s Climate Policy, 24 Fordham Envtl. L. Rev.
63, 63 (2012-2013).
Probably one of California’s most impressive examples of its leadership in the
environmental regulatory arena is AB 32, the California Global Warming Solutions Act
of 2002. Id. at 68. AB 32’s goal was quite lofty – to cut California’s emissions by
26
twenty percent to achieve 1990 levels with no adjustment for population or economic
growth. Id. at 68-69. California’s goal is to achieve these levels by 2020. Id.To attain AB 32’s objective, California implemented a renewable electricity
standard, a low carbon fuel standard, regional transportation targets for local
governments, certain vehicle efficiency measures, power requirements for “ocean-going
vehicles,” a solar roofs program, energy efficiency measures for homes, businesses, and
industries, and a cap-and-trade program. Id. at 69-70.
Since AB 32’s adoption, California has met its goal of adopting mandatory
reporting emissions. Id. at 76. The EPA, by contrast, chronically misses deadlines. Id.Perhaps most impressive, California maintained the necessary staffing to continue
implementing AB 32 through the recent recession. Id. at 80. Based on statutory
authorization, fees are imposed on the 300 largest greenhouse gas emitters. Id. These
fees fund all of the program’s administrative needs. Id. AB 32 is just one shining
example of California’s environmental law successes.
Returning to the earlier question of what would California’s Supreme Court do if
presented with the controversy with which this Court is now presented, I cannot turn a
blind eye to the fact that California is indeed a leader in environmental law. This fact
coupled with Justice Chin’s recent limiting of the Foster-Gardner Rule and Justice
Kennard’s firm insistence that it should be overruled entirely certainly show a weakening
of a rule that never received much support from either the California Supreme Court or
the country at large from its inception.
27
But most of all, basic common sense informs me that the Foster-Gardner Rule
does not further the objectives of California law. Indeed it impedes them. By holding
that a remediation order from the EPA or C-EPA is insufficient to trigger the protections
of CGL policies, the California Supreme Court is discouraging the environmental cleanup
of its state, which from the discussion above, is clearly something that its citizens hold in
high regard. “And there comes a point where [the courts] should not be ignorant as
judges of what [they] know as men.” Watts v. Indiana, 338 U.S. 49, 52 (1949).
Accordingly, for all these reasons, I believe that if the California Supreme Court was
presented with this case at this time, it would no longer permit ill-advised precedent from
giving its environmental law the full and complete effect it was intended to have.
Therefore, I respectfully dissent.
28