Stanford Law School - Robert Crown Law Library

Filed 8/29/05 (this opn. should appear before S114778, also filed this date)

IN THE SUPREME COURT OF CALIFORNIA

POWERINE OIL COMPANY, INC.,
Petitioner,
S113295
v.
Ct.App. 2/3 B156216
THE SUPERIOR COURT OF LOS
ANGELES COUNTY,
Los Angeles County
Super. Ct. No. VC025771
Respondent,
)
CENTRAL NATIONAL INSURANCE
COMPANY OF OMAHA et al.,
)

Real Parties in Interest.

INTRODUCTION
Powerine Oil Company (Powerine), a now defunct oil refinery, faces
liability for certain governmentally imposed cleanup and abatement orders
requiring it to remediate soil and groundwater pollution resulting from its past
refinery operations at various locations. In Certain Underwriters at Lloyd’s of
London v. Superior Court (Powerine Oil Company) (2001) 24 Cal.4th 945
(Powerine I), an earlier writ proceeding in the instant case, we held that the
insurer’s duty to indemnify Powerine, the insured, for “all sums that the insured
becomes legally obligated to pay as damages” under the wording of the standard
comprehensive general liability (CGL) insurance policy is limited to “money
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ordered by a court,” and does not extend to environmental cleanup costs ordered
by an administrative agency pursuant to an environmental statute. (Id. at p. 960.)
This conclusion flowed logically both from the literal language of the standard
CGL policy, which provides coverage for court-ordered “damages,” and from our
earlier decision in Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18
Cal.4th 857 (Foster-Gardner), which held that the insurer’s duty to defend the
insured in a “suit seeking damages” under the wording of the same standard CGL
policy is likewise limited to civil suits prosecuted in court. (Id. at pp. 878-888.)
In this matter, following on the heels of the earlier writ proceeding, we are
called upon to decide whether the obligation of another insurer to indemnify
Powerine under the wording of nine excess/umbrella insurance policies is likewise
limited to money ordered by a court in a suit for damages against the insured. The
Court of Appeal concluded it is not, reasoning that the insuring language of the
excess/umbrella policies here in question is broader than that of the standard
primary CGL policy at issue in Powerine I, and covers costs that the insured must
expend in complying with an administrative agency’s pollution cleanup and
abatement orders. For reasons to be explained, we agree. Although other policy
provisions or exclusion clauses yet to be litigated could ultimately defeat coverage
as this litigation progresses, the express wording of the central insuring agreement
in these nine excess/umbrella policies goes well beyond mere coverage for court-
ordered money “damages,” and is broad enough to include coverage for the
liability of environmental cleanup and response costs ordered by an administrative
agency. Under a literal reading of these policies, we conclude such would be the
objectively reasonable expectation of the insured. Accordingly, we shall affirm
the judgment of the Court of Appeal directing the trial court to deny the insurer’s
motion for summary adjudication of the duty to indemnify.
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FACTS AND PROCEDURAL BACKGROUND
The parties have stipulated to the underlying facts. The issue before the
lower courts and now this court is one of law, and involves the interpretation of
the insuring provisions of nine standard form excess/umbrella policies issued by
real party in interest Central National Insurance Company of Omaha (Central
National) to Powerine over the course of 10 years.
Powerine, through its various owners, was periodically engaged in oil
refinery operations in Southern California since the mid-1930’s. These included
oil refining, oil- and pretroleum-related exploration, production, terminaling and
transportation operations throughout the western states. At one point Powerine’s
business occupied over 100 acres at its Santa Fe Springs refinery. In 1985,
however, a soft petroleum market forced Powerine into bankruptcy. Since that
time, the refinery has not been operated at all and only a skeleton crew of
employees has remained for environmental compliance and equipment
maintenance purposes.
As a result of its operations, Powerine faces governmentally imposed
environmental liabilities arising from alleged soil and groundwater contamination
at various locations. The California Regional Water Quality Control Boards for
the Los Angeles and San Diego regions (Regional Water Boards) initiated
remedial administrative proceedings against Powerine pursuant to an
environmental statute, the Porter-Cologne Act. (Wat. Code, § 13000 et seq.) Two
cleanup and abatement orders were issued to Powerine requiring it to remediate
pollution resulting from its past oil refinery operations at 10 locations. It is
undisputed that these orders were not issued as a result of litigation or as part of an
injunction. Cleanup and abatement order No. 97-118, issued by the Los Angeles
Regional Water Board, allegedly followed negotiations and a series of
compromises between Powerine and that Regional Water Board concerning the
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scope of the order and the nature and extent of investigative activities to be
undertaken thereunder. As of the date of the proceedings in the Court of Appeal,
Powerine had not incurred any expenses pursuant to either order.
Powerine notified its many insurers of the orders, giving rise to a
declaratory relief action against it. (Highlands Insurance Company v. Powerine,
etc., et al., Super. Ct. L.A. County, No. VC025771.) Powerine cross-complained
against numerous insurers, including certain London Market underwriters which
had issued both primary CGL and excess/umbrella policies, and real party in
interest Central National, which had issued nine excess/umbrella policies covering
periods from 1973 to the expiration of the last policy in February 1983.1 The
cross-complaint alleged that each insurer had a contractual duty to defend and
indemnify Powerine for the costs of cleanup and abatement arising from the
environmental orders issued by the Regional Water Boards, and sought, inter alia,
declaratory relief and damages for breach of contract and of the covenant of good
faith and fair dealing.
While the declaratory relief action and cross-complaint were pending, this
court decided Foster-Gardner, supra, 18 Cal.4th 857, holding that under the
standard CGL policy defense clause language, no duty to defend arises in
connection with prelitigation adminstrative proceedings as it does when a “suit
seeking damages” is commenced through the filing of a complaint in court. (Id. at
pp. 878-88.) Consequently, the primary insurers in this action (Certain

1
The first four Central National policies, CNU 12-20-39, CNU 12-26-82,
CNU 12-30-08, CNU 12-56-25, were issued in 1973 and provide indemnity limits
of $9.95 million in excess of the limits of the underlying primary CGL policies.
The remaining five Central National policies, CNU 12-79-39, CNU 03-31-78,
CNU 03-49-44, CNU 00-40-80, CNU 00-81-61, each provide indemnity limits of
$9.5 million in excess of the $50,000 self-insured retention and $450,000 limits of
the underlying primary CGL policies. Like the Court of Appeal, we shall refer to
all nine Central National excess/umbrella policies as the Central National policies.
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Underwriters at Lloyds of London, hereafter the London Market Insurers) moved
for summary adjudication of their duty to defend and duty to indemnify costs
resulting from the Regional Water Boards’ administrative proceedings and
issuance of cleanup and abatement orders under the Porter-Cologne Act.2 When
the trial court denied the motion, the primary insurers petitioned for a writ of
mandate in the Court of Appeal. That court ordered the issuance of a writ
directing entry of an order granting the primary insurers’ summary adjudication
motion on the duty to indemnify.3 As noted, this court affirmed in Powerine I,
supra, 24 Cal.4th 945, holding that the primary insurers had no duty to indemnify
Powerine for costs or expenses incurred in connection with the Porter-Cologne
adminstrative proceedings because the insurer’s duty to indemnify under the
standard CGL policy language is limited to money ordered by a court in a suit for
damages. (Id. at pp. 960, 964.)
After Powerine I was decided, Central National moved for summary
adjudication of the duty to indemnify under the Central National policies, resulting
in the judgment giving rise to the instant writ proceeding. In its motion, Central
National sought an order that, pursuant to Powerine I and Foster-Gardner, it has
no duty to indemnify Powerine under its excess/umbrella policies for any sums

2
The United States Environmental Protection Agency (EPA) also instituted
cleanup and abatement proceedings against Powerine pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (CERCLA) (42 U.S.C. § 9601 et seq.) for the cleanup of certain of its
contaminated sites, and for the abatement of the effects of the contamination.
Powerine has conceded it sought declaratory relief in its cross-action respecting its
asserted right of indemnity only with regard to the pending state Regional Water
Board proceedings. The EPA/CERCLA proceedings and any costs potentially
incurred thereunder are not implicated here.
3
In the wake of our holding in Foster-Gardner, Powerine conceded that its
insurers have no duty to defend it in the Regional Water Boards’ administrative
proceedings.
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expended by Powerine in connection with the Regional Water Boards’
proceedings because no money had been ordered by a court in a suit for damages
against the insured within the meaning of those policies. Powerine in turn argued
that this court’s holding in Powerine I was not controlling because the earlier writ
proceeding involved only primary CGL policies which, Powerine argued, are
different in nature, purpose, and wording than the excess/umbrella policies issued
by Central National.
The trial court granted Central National’s motion for summary
adjudication. Pursuant to Powerine I, the trial court ruled that Central National
has no duty to indemnify Powerine under its various policies for sums Powerine
expends pursuant to the cleanup and abatement orders issued by the Regional
Water Boards. The trial court focused on the policies’ inclusion of the term
“damages” in the insuring provisions, concluding, as this court did in Powerine I,
that the term does not encompass environmental response costs ordered by an
administrative agency outside the context of a lawsuit. The trial court rejected
Powerine’s argument based on the difference in purpose between its
excess/umbrella policies and the primary CGL policies at issue in Powerine I,
reasoning it could not apply a meaning to “damages” that changes from policy to
policy.
The insuring language of Central National’s standard form excess/umbrella
policies is identical throughout all nine policies. It provides, in relevant part:
“The Company hereby agrees . . . to indemnify the Insured for all sums which the
Insured shall be obligated to pay by reason of the liability . . . imposed upon the
Insured by law . . . 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 anywhere in the world.”
(Italics added.) “Ultimate net loss” is defined as “the total sum which the Insured,
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or any company as his insurer, or both, become obligated to pay by reason of . . .
property damage . . . either through adjudication or compromise, and shall also
include hospital, medical and funeral charges and all sums paid as salaries, wages,
compensation, fees, charges and law costs, premiums on attachment or appeal
bonds, interest, expenses for doctors, lawyers, nurses and investigators and other
persons, and for litigation, settlement, adjustment and investigation of claims and
suits which, are paid as a consequence of any occurrence covered hereunder . . . .”
Seven of the nine Central National policies also contain defense coverage
endorsements identical in substance to the duty to defend clauses of the primary
CGL policies at issue in Foster-Gardner and Powerine I.4 They obligate Central
National to defend “any suit against the insured alleging liability insured under the
provisions of this policy and seeking damages on account thereof”; “[a]s respects
occurrences covered under this policy, but not covered under the underlying
insurance or under any other collectible insurance . . . .” (Italics added.) Each of
the nine policies further contains an absolute pollution exclusion. Additional
policy provisions deemed relevant to the issues raised herein are set forth and
discussed below.5
Powerine appealed from the trial court’s order granting Central National’s
summary adjudication motion on the duty to indemnify under the policies. In a

4
They differ insofar as the duty to defend is only triggered, or “drops down”
to provide defense coverage, in the event a suit is filed against the insured
respecting an occurrence covered under the policy but not covered under the
underlying primary insurance.
5
Powerine attached copies of all nine Central National excess/umbrella
policies to its cross-complaint in the trial court, although only portions of the
policies were relied on by Central National and referenced in the stipulation of
facts in connection with its motion for summary adjudication in that court. The
nine policies were also made a part of the record and considered by the Court of
Appeal.
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published decision, the Court of Appeal issued a writ of mandate directing the trial
court to vacate its order and to issue a new order denying the motion. The court
held that the duty to indemnify in these excess/umbrella policies is “broader in
scope” than that of the policies in Powerine I and Foster-Gardner, “and includes
the costs Powerine expends in responding to administrative agencies’ cleanup and
abatement orders.” The court found that the term “expenses,” as used in the
insuring and “ultimate net loss” provisions, must be broadly construed to include
costs arising from “compromise” as well as adjudication and third party “claims”
as well as suits. The court concluded that the fact that the duty to defend (in seven
of the nine policies) is limited to “suits seeking damages” under Foster-Gardner
does not foreclose indemnity coverage under the so-called Foster-Gardner
syllogism6 because the wording of these policies is different than the standard
CGL policy examined in Powerine I and Foster-Gardner. Finally, the Court of
Appeal opined that the Central National policies are different in scope and purpose
from the standard primary CGL policy in that they expressly provide umbrella
coverage which can operate to “ ‘fill any gaps’ ” in higher level primary coverage.
We granted Central National’s petition for review. Amicus curiae briefs in
support of Central National have been filed by the London Market Insurers and the
Complex Insurance Claims Litigation Association. Amicus curiae briefs in
support of Powerine have been filed by ITT Industries, Inc., and United
Policyholders/Richard Giller.

6
The “Foster-Gardner syllogism,” a phrase coined in Powerine I, can be
summarized as follows: “The duty to defend is broader than the duty to
indemnify. The duty to defend is not broad enough to extend beyond a ‘suit,’ i.e.,
a civil action prosecuted in a court, but rather is limited thereto. A fortiori, the
duty to indemnify is not broad enough to extend beyond ‘damages,’ i.e., money
ordered by a court, but rather is limited thereto.” (Powerine I, supra, 24 Cal.4th at
p. 961.)
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DISCUSSION
1. Issue preclusion and law of the case
At the threshold we address Central National’s procedural argument that
the judgment of the Court of Appeal in the prior writ proceeding culminating in
Powerine I, which granted the London Market insurers summary judgment on
certain excess/umbrella policies issued by those insurers to Powerine, establishes
law of the case and, under principles of issue preclusion, bars Powerine from here
revisiting the matter of coverage for nonlawsuit expenditures under Central
National’s express/umbrella policies. (See, e.g., Interinsurance Exchange of the
Auto. Club v. Superior Court (1989) 209 Cal.App.3d 177, 181 [“ ‘[A] former
judgment . . . is a collateral estoppel on issues which were raised, even though
some factual matters or legal arguments which could have been presented were
not.’ (7 Witkin [Cal. Procedure (3d ed. 1985) Judgment] § 257, p. 696, original
italics.)”]; Kowis v. Howard (1992) 3 Cal.4th 888, 894 [law of the case doctrine
applicable to writ proceedings]; McCutchen v. City of Montclair (1999) 73
Cal.App.4th 1138, 1144 [doctrine of issue preclusion applicable where issue in
present proceeding is identical to one actually litigated and necessarily decided in
prior proceeding].)
This procedural argument was considered and rejected by the Court of
Appeal on the following basis:
“Central National insists that our [now superseded] decision in Powerine I
. . . precludes Powerine from arguing that the scope of coverage here is not limited
to money ordered by a court. Observing that in our Powerine I decision we
mentioned one umbrella and four excess policies issued by the [Certain
Underwriters] insurers in addition to the primary policy, Central National asserts
that that decision ‘definitively resolved the identical issue,’ namely, that ‘no
coverage exists for administratively imposed costs under [the insurer’s] excess and
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umbrella policies covering damages that the insured is legally obligated to pay.’
Central National argues any references we made to the umbrella policy in that
opinion is law of the case and is binding on Powerine inasmuch as Powerine did
not appeal from that issue and the issue was not addressed by the Supreme Court
in Powerine I. Not so.
“First, we stated clearly in our [superseded] opinion that ‘we are only
concerned with the primary policy issued to Powerine by Certain Underwriters’
. . . and ‘we have no reason to reach or consider the several excess policies which
Certain Underwriters also issued over a 20-year period . . . .’ Such statements
render any comments made about the secondary policies pure obiter dictum.
Second, we quoted from the language of the excess and umbrella policies in that
opinion. . . . The language is materially different from the language at issue here
because, inter alia, the policies’ language does not ‘more fully define’ the term
‘damages’ by reference to another clause in the policy. For these reasons, our
opinion in Powerine I is neither law of the case nor binding on Powerine for
anything involving the excess or umbrella policies there.”
We do not necessarily agree with the Court of Appeal that statements made
in its now superseded opinion in the prior writ proceeding (Powerine I) respecting
the London Market Insurers’ excess/umbrella policies were “pure obiter dictum.”
The Court of Appeal’s judgment in that proceeding did, after all, grant summary
adjudication in favor of those insurers on their excess/umbrella policies in addition
to finding no coverage under their primary CGL policy. But the fact remains that
the Central National policies here at issue were not directly at issue in Powerine I,
nor, indeed, was Central National itself even a party to that earlier writ proceeding.
And, as the Court of Appeal has indicated, the wording of the insuring provisions
of the London Market Insurers’ excess/umbrella policies is different than that of
the Central National excess/umbrella policies here concerned. Finally, given that
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the parties’ appeal in Powerine I presented only the issue of coverage for
administratively ordered environmental cleanup costs under the standard primary
CGL policy issued by the London Market Insurers (Powerine I, supra, 24 Cal.4th
at p. 950), this court had no occasion to directly address coverage issues
concerning those insurers’ excess/umbrella policies.
As will be explained below, while insurance policies are a special category
of contracts, they fundamentally remain contracts to which the ordinary rules of
contractual interpretation must be applied. Whatever the Court of Appeal may
have concluded about coverage under the London Market Insurers’
excess/umbrella policies in the earlier writ proceeding, the fact remains that
Central National’s excess/umbrella policies are distinct contractual policies of
insurance, and the express wording and provisions of Central National’s policies
were not before the lower courts in Powerine I.
As the Court of Appeal below observed, the now superseded opinion of the
Court of Appeal in Powerine I contained statements to the effect that “we are only
concerned with the primary policy issued to Powerine by Certain Underwriters,”
and “we have no reason to reach or consider the several excess policies which
Certain Underwriters also issued over a 20-year period. . . .” We further observe
that in ultimately entering judgment on those excess insurance policies in favor of
the insurers in the prior proceeding, the Court of Appeal appears to have focused
on the circumstance that coverage under the London Market Insurers’ excess
policies could not be triggered because the underlying primary CGL policy was
found not to provide coverage, and exhaustion of the limits of the underlying
primary policy was a prerequisite to coverage under the excess policies. Thus, not
only were Central National’s excess/umbrella policies not directly at issue or
considered in the prior writ proceeding, the umbrella or “drop down” coverage
included in Central National’s policies does not lend itself to the “exhaustion of
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limits” analysis by which the Court of Appeal in that proceeding determined there
could be no indemnity coverage under the London Market Insurers’ policies.
Accordingly, we conclude that Central National’s procedural argument—
that Powerine should be estopped from claiming coverage under the Central
National excess/umbrella policies here at issue as a result of the Court of Appeal’s
judgment in the first writ proceeding—must be rejected.
2. Standard of review and rules of insurance policy interpretation
We next set forth the applicable standard of review and rules of insurance
policy interpretation that govern resolution of the issue before us.
This second writ petition was presented to the trial court upon stipulated
facts. The issue before both the trial court and the Court of Appeal was one of
pure law: the interpretation of the indemnification obligation under the insuring
clauses of Central National’s nine excess/umbrella policies issued to Powerine.
“When determining whether a particular policy provides a potential for coverage
. . . , we are guided by the principle that interpretation of an insurance policy is a
question of law. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 818.)”
(Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.)
“The insurer is entitled to summary adjudication that no potential for
indemnity exists . . . if the evidence establishes as a matter of law that there is no
coverage. [Citation.] We apply a de novo standard of review to an order granting
summary judgment when, on undisputed facts, the order is based on the
interpretation or application of the terms of an insurance policy.” (Smith Kandal
Real Estate v. Continental Casualty Co. (1998) 67 Cal.App.4th 406, 414; see
Powerine I, supra, 24 Cal.4th at p. 972.)
In reviewing de novo a superior court’s summary adjudication order in a
dispute over the interpretation of the provisions of a policy of insurance, the
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reviewing court applies settled rules governing the interpretation of insurance
contracts. We reiterated those rules in our decision in Foster-Gardner:
“ ‘While insurance contracts have special features, they are still contracts to
which the ordinary rules of contractual interpretation apply.’ (Bank of the West v.
Superior Court (1992) 2 Cal.4th 1254, 1264; see AIU [Ins. Co. v. Superior Court
(1990)] 51 Cal.3d [807] at pp. 821-822.) ‘The fundamental goal of contractual
interpretation is to give effect to the mutual intention of the parties.’ (Bank of the
West v. Superior Court, supra, 2 Cal.4th at p. 1264.) ‘Such intent is to be inferred,
if possible, solely from the written provisions of the contract.’ (AIU, supra, 51
Cal.3d at p. 822.) ‘If contractual language is clear and explicit, it governs.’ (Bank
of the West v. Superior Court, supra, 2 Cal.4th at p. 1264.)” (Foster-Gardner,
supra, 18 Cal.4th at p. 868.)
“ ‘A policy provision will be considered ambiguous when it is capable of two
or more constructions, both of which are reasonable.’ (Waller v. Truck Ins.
Exchange, Inc. (1995) 11 Cal.4th 1, 18; Bay Cities Paving & Grading, Inc. v.
Lawyers' Mutual Ins. Co. (1993) 5 Cal.4th 854, 867.) The fact that a term is not
defined in the policies does not make it ambiguous. (Bay Cities Paving &
Grading, Inc. v. Lawyers’ Mutual Ins. Co., supra, 5 Cal.4th at p. 866; Bank of the
West v. Superior Court, supra, 2 Cal.4th at p. 1264; Castro v. Fireman’s Fund
American Life Ins. Co. (1988) 206 Cal.App.3d 1114, 1120.) Nor does
‘[d]isagreement 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.” ’
(Castro v. Fireman’s Fund American Life Ins. Co., supra, 206 Cal.App.3d at
p. 1120.) ‘ “[L]anguage 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.” ’ (Bank of the West v. Superior Court, supra, 2
Cal.4th at p. 1265, italics omitted.) ‘If an asserted ambiguity is not eliminated by
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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.’ (La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994)
9 Cal.4th 27, 37.)” (Foster-Gardner, supra, 18 Cal.4th at p. 868.)
In Powerine I, we explained further that standard form policy provisions
are interpreted under the same rules of construction. “ ‘[W]hen they are examined
solely on a form, i.e., apart from any actual agreement between a given insurer and
a given insured, the rules stated above apply mutatis mutandis. That is to say,
where it is clear, the language must be read accordingly, and where it is not, in the
sense that satisfies the hypothetical insured’s objectively reasonable
expectations.’ ” (Powerine I, supra, 24 Cal.4th at p. 957, quoting Buss v. Superior
Court (1997) 16 Cal.4th 35, 45.)
3. The holdings in Foster-Gardner, Powerine I, and AIU
Powerine’s principal contention is that our holding in Powerine I does not
control the interpretation of Central National’s policies because the literal insuring
language of these excess/umbrella policies is both different and broader in scope
and purpose than the insuring language of the standard primary CGL policy
considered in Powerine I.
Before turning to the specific insuring language of Central National’s nine
excess/umbrella policies, a brief review of this court’s holdings in Foster-
Gardner, Powerine I, and AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d 807
(AIU), is necessary to properly inform our inquiry.
a. Foster-Gardner
Our analysis in Powerine I relied in part on our earlier holding in Foster-
Gardner, the salient points of which we summarized as follows:
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“In Foster-Gardner, we held that the insurer’s duty to defend the insured in
a ‘suit seeking damages’ under the standard comprehensive general liability
insurance policy was limited to a civil action prosecuted in a court. (Foster-
Gardner, Inc. v. National Union Fire Ins. Co., supra, 18 Cal.4th at pp. 878-888.)
“There, we took what we referred to as a ‘literal’ approach to the provision
imposing on the insurer the duty to defend the insured in a ‘suit seeking damages.’
(Foster-Gardner, Inc. v. National Union Fire Ins. Co., supra, 18 Cal.4th at
p. 869.) In doing so, we considered the provision in its full context; we proceeded
to find, in effect, that it was clear in its limitation to a civil action prosecuted in a
court, and that, in such limitation, it did not run counter to the hypothetical
insured’s objectively reasonable expectations. (Id. at pp. 869-871, 878-888.) We
declined to take either a ‘functional’ or a ‘hybrid’ approach (id. at p. 869), each of
which treats the provision as ‘ambiguous’ (id. at p. 872), the former deeming ‘suit’
to reach anything that is equivalent to a suit, apparently without qualification (id.
at p. 871 & pp. 871-872, fn. 7), the latter deeming ‘suit’ to reach anything that is
equivalent to a suit, but ‘only if it is sufficiently coercive and threatening’ (id. at
pp. 871-872 & p. 872, fn. 8). We declined to take either approach because the
duty to defend involved a ‘suit,’ and not something equivalent to a suit or even
something equivalent to a suit that was sufficiently coercive and threatening. (Id.
at pp. 872, 879.)” (Powerine I, supra, 24 Cal.4th at p. 959, fn. omitted.)
“In light of the foregoing, we went on to conclude that the insurer’s duty to
defend the insured did not extend to a proceeding conducted before an
administrative agency pursuant to an environmental statute . . . . (Foster-Gardner,
Inc. v. National Union Fire Ins. Co., supra, 18 Cal.4th at pp. 878-888.) Our
reason was that a proceeding conducted before an administrative agency pursuant
to an environmental statute does not constitute a ‘suit,’ i.e., a civil action
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prosecuted in a court, but rather implicates a ‘claim.’ (Ibid.)” (Powerine I, supra,
24 Cal.4th at pp. 959-960.)
“In arriving at our conclusion, we declined to rewrite the provision
imposing the duty to defend in order to remove its limitation to a civil action
prosecuted in a court. (Foster-Gardner, Inc. v. National Union Fire Ins. Co.,
supra, 18 Cal.4th at pp. 886-888.) We would not do so for the insured itself, in
order to shift to the insurer some or all of the potentially substantial costs that
might be imposed on the insured in the course of a proceeding conducted before
an administrative agency pursuant to an environmental statute. (Id. at pp. 886-
887.) Neither would we do so for considerations of public policy, in order,
perhaps, to bring such a proceeding to a timely and appropriate outcome through
such a shifting of costs. (Id. at p. 888.) Our reason was that we do not rewrite any
provision of any contract, including the standard policy underlying any individual
policy, for any purpose. (Ibid.)” (Powerine I, supra, 24 Cal.4th at p. 960.)
b. Powerine I
While Foster-Gardner interpreted the scope of the duty to defend under the
standard CGL policy, Powerine I addressed the scope of the duty to indemnify
under that same standard policy, in the form utilized by the London Market
Insurers below. (Powerine I, supra, 24 Cal.4th at p. 950.) As noted, we held in
Powerine I that “the insurer’s duty to indemnify the insured for ‘all sums that the
insured becomes legally obligated to pay as damages’ under the standard CGL
insurance policy is limited to money ordered by a court.” (Id. at pp. 960, 964,
italics added.)
In the analysis that followed, we explained that “the duty to indemnify and
its limitation to money ordered by a court is sufficiently supported when we look
to what we may call Foster-Gardner’s ‘syllogism’ alone.” (Powerine I, supra, 24
Cal.4th at p. 960.) The syllogism can be summarized this way: “The duty to
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defend is broader than the duty to indemnify. The duty to defend is not broad
enough to extend beyond a ‘suit,’ i.e., a civil action prosecuted in a court, but
rather is limited thereto. A fortiori, the duty to indemnify is not broad enough to
extend beyond ‘damages,’ i.e., money ordered by a court, but rather is limited
thereto.” (Id. at p. 961.) Put another way, the insurer’s obligation to indemnify
for “damages” is limited to “money ordered by a court” because the provisions in
the standard CGL policy imposing both a duty to defend and a duty to indemnify
on the insurer each “link[] ‘damages’ to a ‘suit,’ i.e., a civil action prosecuted in a
court.” (Powerine I, supra, 24 Cal.4th at p. 962.)
In reaching our holding in Powerine I, we distinguished between the term
“damages” used in the insuring agreement of the standard CGL policy, and the
term “expenses,” which does not appear in the insuring provisions of that standard
policy. The duty to indemnify for “damages,” we explained, “does not extend to
any expenses required by an administrative agency pursuant to an environmental
statute—specifically, here, proceedings conducted before the Regional Water
Boards pursuant to the Porter-Cologne Act. Our reason is that expenses required
by an administrative agency pursuant to an environmental statute, whether for the
cleanup of a contaminated site and the abatement of the contamination’s effects or
otherwise, do not constitute money ordered by a court.” (Powerine I, supra, 24
Cal.4th at p. 966, italics added.)
As the Court of Appeal below correctly observed, “Read together, Foster-
Gardner and Powerine I stand for the proposition that the duty to defend a ‘suit’
seeking ‘damages’ under the standard 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” ’ (Powerine I, supra, 24
17

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Cal.4th at p. 961, italics added) 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.”
c. AIU
In AIU, supra, 51 Cal.3d 807, a unanimous opinion authored by then Chief
Justice Lucas, we were called upon to determine whether various primary and
excess CGL policies issued to real party in interest FMC Corporation (FMC)
obligated the insurers to provide coverage to FMC for contamination cleanup and
other environmental response costs incurred pursuant to CERCLA (42 U.S.C.
§ 9601 et seq.) and related state and federal environmental laws. FMC sought
review of a peremptory writ of mandate issued by the Court of Appeal that had
directed the superior court to enter summary adjudication on this issue in favor of
the insurers. We reversed. (AIU, supra, 51 Cal.3d at pp. 813-814.)
The insurance policies at issue in AIU provided coverage to FMC for all
sums FMC became legally obligated to pay as “damages” (under two standard
policy forms) or “ultimate net loss” (under a third) as a result of “property
damage” within the meaning of the policies. (AIU, supra, 51 Cal.3d at p. 814.)
Several of the policies in the latter category contained insuring language
substantially identical to the insuring provisions in Central National’s
excess/umbrella policies. (Id. at pp. 814-815 & fn. 2.)
We explained in AIU that “under established principles of contract
interpretation, we construe policy language according to the mutual intentions of
the parties and its ‘plain and ordinary’ meaning, resolving ambiguities in favor of
coverage” (AIU, supra, 51 Cal.3d at p. 814) We concluded that all of the policies
at issue afforded coverage for the costs of reimbursing government agencies and
complying with injunctions ordering contamination cleanup under CERCLA and
similar environmental statutes. (Ibid.)
18

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AIU established early on that liability arising from government suits for
injunctive relief and costs incurred in cleaning up polluted sites pursuant to an
environmental statute fall within the definition of “property damage” found in
standard form primary and excess CGL policies. (AIU, supra, 51 Cal.3d at
p. 842.) We explained that “the mere fact that the governments may seek
reimbursement of response costs or injunctive relief without themselves having
suffered any intangible harm to a proprietary interest does not exclude the
recovery of cleanup costs from coverage under the ‘damages’ provision of CGL
policies.” (Ibid., italics added.)
Unlike this case, the government in AIU brought suit against the insured for
remedial relief.7 In Powerine I we explained that “We did not hold [in AIU] that
the duty [to indemnify] extends to any money in addition to that ordered by a
court—including any expenses required by an administrative agency pursuant to
an environmental statute. Indeed, we did not even consider the issue.”
(Powerine I, supra, 24 Cal.4th at p. 966.) We had no occasion to consider the
issue in AIU precisely because the government had brought suit; hence the facts of
that case did not present it. Here, it is undisputed that the two cleanup and
abatement orders were issued to Powerine through administrative proceedings and

7
“The insured in AIU, who had allowed hazardous wastes to contaminate
groundwater, was ordered to reimburse the government for its cleanup and
response costs under [CERCLA.] One of the questions before us was whether the
government’s suit for reimbursement of cleanup costs was an action for ‘damages’
within the meaning of a CGL policy. We held that the suit did seek ‘damages’
because the judgment awarding reimbursement was analogous to a judgment
awarding damages for injury to property, measured by the cost of restoring the
property to its original condition. Under the applicable statutes, the government
could have proceeded against the insured either by requiring the insured to take
remedial action or by taking remedial action itself and suing for reimbursement.
The government chose the latter alternative. (AIU, supra, 51 Cal.3d at pp. 829-
837.)” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1269-1270,
italics added.)
19

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were not the result of court-ordered injunctive relief. The issue is squarely
presented.
4. The insuring agreement in Central National’s excess/umbrella
policies provides indemnity coverage for the liability of
administratively ordered environmental response costs
The insuring language in Central National’s standard form excess/umbrella
policies is identical throughout all nine policies. It provides, in relevant part:
“The Company hereby agrees . . . to indemnify the Insured for all sums which the
Insured shall be obligated to pay by reason of the liability . . . imposed upon the
Insured by law . . . 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 anywhere in the world.”
(Italics added.)
“Ultimate net loss” in turn is defined as “the total sum which the Insured, or
any company as his insurer, or both, become obligated to pay by reason of . . .
property damage . . . either through adjudication or compromise, and shall also
include hospital, medical and funeral charges and all sums paid as salaries, wages,
compensation, fees, charges and law costs, premiums on attachment or appeal
bonds, interest, expenses for doctors, lawyers, nurses and investigators and other
persons, and for litigation, settlement, adjustment and investigation of claims and
suits which, are paid as a consequence of any occurrence covered hereunder . . . .”
(Italics added.)
The mutual intention of the parties is to be inferred, if possible, solely from
the written provisions of the contract. Where contractual language is clear and
explicit, it governs. (Bank of the West v. Superior Court, supra, 2 Cal.4th at
p. 1264; AIU, supra, 51 Cal.3d at p. 822.) Like the Court of Appeal, we conclude
20

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that coverage under Central National’s excess/umbrella policies is unambiguous
and clearly extends beyond money ordered by a court.
The phrase “obligated to pay by reason of the liability . . . imposed upon the
Insured by law” in the insuring agreement of Central National’s excess/umbrella
policies is the functional equivalent of the phrase “sum that the insured becomes
legally obligated to pay” in the standard CGL policy considered in Powerine I.
(See AIU Ins. Co. v. Superior Court, supra, 51 Cal.3d at pp. 814-815 [“legally
obligated” and “obligated . . . by law” treated as similar].) Both connote a legal
obligation in the “abstract.” (Powerine I, supra, 24 Cal.4th at p. 963.) In the
standard primary CGL policy, it is the addition of the single word “damages” that
limits the indemnification obligation to money ordered by a court. (Ibid.)
The insuring clause of the Central National excess/umbrella policies, in
contrast, provides indemnification coverage for “damages, direct or consequential
and expenses . . . .” “The use of both terms raises the inference that they were not
intended to be synonymous.” (Reserve Insurance Co. v. Pisciotta (1982) 30
Cal.3d 800, 811.) In Powerine I we ourselves used the term “expenses” when
explaining that “expenses required by an administrative agency pursuant to an
environmental statute, whether for the cleanup of a contaminated site and the
abatement of the contamination's effects or otherwise, do not constitute money
ordered by a court.” (Powerine I, supra, 24 Cal.4th at p. 966.) Surely then, an
insured would harbor an objectively reasonable expectation that these policies also
afforded coverage for such expenses, something above and beyond court-ordered
“damages.” We agree with the Court of Appeal that the addition of the term
“expenses” in the central insuring clause of these excess/umbrella policies extends
coverage beyond the limitation imposed were the term “damages” used alone, and
thereby enlarges the scope of coverage beyond “money ordered by a court.”
21

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In addition to the inclusion of the term “expenses,” which itself broadens
the scope of coverage beyond that afforded under the standard primary CGL
policy, the central insuring clause of these policies “further define[s]” the
indemnification obligation by reference to and incorporation of a definition of
“ultimate net loss.” “Ultimate net loss” in turn is defined as the total sum which
the insured 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 . . .
as a consequence of any occurrence covered hereunder . . . .” (Italics added.)
Sums that the insured becomes legally “obligated to pay” through
“adjudication” denote court-ordered money damages. But sums the insured
becomes legally “obligated to pay” through “compromise” or the “settlement,
adjustment and investigation of claims” do not necessarily reflect an underlying
court suit. As the Court of Appeal observed, “A compromise may be reached in
order to avert a lawsuit altogether.” And the payment of money pursuant to an
out-of-court settlement even after a lawsuit has been filed is neither “money
ordered by a court” nor “damages.” Moreover, as we explained in Foster-
Gardner, a “claim” is not a “suit.” A “claim” “ ‘can be any number of things,
none of which rise to the formal level of a suit . . . . While a claim may ultimately
ripen into a suit, “claim” and “suit” are not synonymous.’ [Citations.]” (Foster-
Gardner, supra, 18 Cal.4th at p. 879, quoting Fireman’s Fund Ins. Co. v. Superior
Court (1997) 65 Cal.App.4th 1205, 1216, italics added.)
Finally, as explained, this court has already held in AIU, supra, 51 Cal.3d
807, that a court order for payment of expenses to remediate or abate pollution
pursuant to an environmental statute constitutes liability for “property damage”
within the meaning of the standard primary CGL policy. (Id. at pp. 831, 842.) It
follows that where the express insuring language of an excess/umbrella policy
22

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broadens indemnity coverage for sums paid in furtherance of a “compromise” or
“settlement” of a “claim” initiated by an administrative agency for such remedial
relief, the insured’s liability for such expenses falls within the policy’s
indemnification obligation even though no government suit was filed.
We therefore conclude that under a literal reading of Central National’s
excess/umbrella policies, the indemnification obligation is expressly extended
beyond court-ordered money “damages” to include expenses incurred in
responding to government agency orders administratively imposed outside the
context of a government lawsuit to cleanup and abate environmental pollution.
We reach the same conclusion when considering the insuring provisions of
these policies in the context of the policies as a whole. (Powerine I, supra, 24
Cal.4th at p. 961; Bank of the West v. Superior Court, supra, 2 Cal.4th at p. 1265.)
Central National argued in the Court of Appeal that these policies were intended to
operate primarily as excess insurance policies,8 i.e., following the form of the
underlying policies adjudicated in Foster-Gardner and Powerine I. If that were
the case, then the circumstance that the underlying primary CGL policies afforded
no indemnity coverage by virtue of our holding in Powerine I would end the
inquiry, as the limits of those underlying policies were not exhausted for purposes
of triggering “excess” coverage.
But the policies here in question are not merely intended to operate as
excess insurance. Under the limitation of liability provision, Central National has

8
As a general matter, the term “excess coverage” refers to indemnity
coverage that attaches upon the exhaustion of underlying insurance coverage for a
claim. (See 2 Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter
Group 2004) ¶ 8:76, p. 8-39 [“Excess insurance (‘the second layer’) provides
coverage after other identified insurance is no longer on the risk. ‘Excess’ means
‘insurance that begins after a predetermined amount of underlying coverage is
exhausted and that does not broaden the underlying coverage.’ [Citations.]”].)
23

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agreed to pay the excess of “the amount of ultimate net loss . . . in respect of each
occurrence not covered by said underlying insurances.” (Italics added.) Hence,
these policies also provide umbrella coverage,9 i.e., “alternative primary coverage
as to losses ‘not covered by’ the primary policy.” (Reserve Insurance Co. v.
Pisciotta, supra, 30 Cal.3d at p. 812; Century Indemnity Co. v. London
Underwriters (1993) 12 Cal.App.4th 1701, 1707, fn. 5.) The umbrella coverage
here may serve to “ ‘fill any gaps in coverage left open by the [underlying]
coverage . . . .” (2Croskey et al., Cal. Practice Guide: Insurance Litigation, supra,
¶ 8:84, p. 8-33.)
We agree with the Court of Appeal that “The fact these Central National
policies also provide umbrella indemnity tells us that the insured would have
expected the policies to grant broader coverage than that provided by the primary
insurance. [Citation.] Our reading of the Central National insuring clause to be
more expansive than the primary insurance in Powerine I gives effect to the
mutual intent of the parties as evinced by the mechanism of umbrella insurance.
[Citations.]”
5. Central National’s remaining arguments
Central National raises a number of additional arguments in opposition to
the conclusions reached by the Court of Appeal, none of which we find has merit.

9
The term “umbrella” coverage refers to coverage that “drops down” to
cover occurrences that are not covered by underlying policies of insurance. (See
2Croskey et al., Cal. Prac. Guide: Insurance Litigation, supra, ¶ 8:83, p. 8-43
[“Umbrella policies are usually excess policies in the sense that they afford
coverage that is excess over underlying insurance. [Citation]”; id., ¶ 8:84, p. 8-43
[“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.’ [Citations]”].)
24

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a. Redundancy of the term “damages”
First, Central National argues that to interpret the insuring provisions as
affording coverage for the “expenses” of a compromise or settlement of a
government claim for environmental cleanup and response costs would render the
“damages” limitation in these policies redundant. We disagree.
The term “damages” in these policies serves the same purpose that it does
in the standard primary CGL policy—it extends the indemnity obligation to
“money ordered by a court” in a suit against the insured. Were the term not
included in the policy language, the insurer could be heard to argue that coverage
is not provided for court-ordered money judgments. As our decision in Powerine I
implies, one reason the term “damages” limits coverage to money ordered by a
court under the standard CGL policy is that there is no other term contained in the
insuring clause of that policy that could serve to expand coverage. Here, in
contrast, the central insuring provision extends coverage for “damages, direct or
consequential and expenses” (italics added), and “further define[s]” the scope of
the indemnity agreement through the definition of “ultimate net loss,” which in
turn defines coverage for liability for property damage as including sums
expended “either through adjudication or compromise, and shall also include . . .
all sums paid . . . for litigation, settlement, adjustment and investigation of claims
and suits . . .” (Italics added.) There is no merit to Central National’s assertion
that to give effect to the literal terms of these policies would render the term
“damages” in the insuring agreement a redundancy.
b. The insurer’s right to approve out-of-court settlements
Next, Central National argues that to construe the literal language of these
policies as expanding coverage for the “expenses” of a compromise or settlement
of a government claim for environmental response costs would mean that the
insured could settle such claims without Central National’s participation and
25

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obtain coverage under the policies for settlements to which Central National
objected. Central National asserts that it’s right to participate in and approve any
out-of-court settlement would be compromised under such an interpretation of the
scope of coverage. It points to the “assistance and cooperation” clause as the
source of that right. Again, we disagree.
As the Court of Appeal observed, Central National has failed to identify
any language in these particular policies requiring that it approve out-of-court
settlements or compromises as a prerequisite to coverage. Nor do we read the
“assistance and cooperation” clause as linking any such right to the threshold
question of coverage, much less making it a prerequisite to coverage under the
policies. That clause provides, in pertinent part, that the insurer “shall have the
right and shall be given the opportunity to associate with the Insured or the
Insured’s underlying insurers, or both, in the defense and control of any claim, suit
or proceeding relative to an occurrence where the claim or suit involves, or
appears reasonably likely to involve the [Insurer] . . . .”
We believe the question whether these excess/umbrella policies afford
coverage for environmental cleanup and response costs ordered outside the context
of a lawsuit turns on the literal language of the insuring agreement, and is a
separate issue from whether the insured has complied with the terms of the
“assistance and cooperation” clause. Enforcement of the latter clause is not
inherently incompatible with an interpretation of the insuring clauses as affording
coverage for administratively ordered environmental cleanup. To be sure, failure
to comply with the assistance and cooperation clause may furnish a defense to
coverage. On this record, however, we know little about the communication and
interaction, if any, between Powerine and Central National during the period of
negotiations between Powerine and the Regional Water Boards regarding the
26

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terms of the two cleanup and abatement orders. Compliance with the “assistance
and cooperation” clause is a matter that remains to be addressed on remand.
Even assuming the insured has fulfilled its duty under the assistance and
cooperation clause of promptly notifying and attempting to involve the insurer in
its negotiations with the government agency, under Central National’s
interpretation of these policies, if the insurer in its discretion declines to participate
in or approve any settlement, the insurer would have no obligation to indemnify
the insured for administratively ordered cleanup costs. We believe this result
would stand in conflict with the insuring agreement in these policies, which, as has
been shown, by its literal language extends indemnity coverage for such liability.
c. Absence of a “no action” clause
We further find significant the absence of a “no action” clause in the
policies utilized by Central National. In Powerine I, we briefly discussed the
standard form CGL policy’s “so-called no-action provision, which, in typical
language, generally states that ‘no action’ by a third party ‘shall lie’ against the
insurer unless the insured’s ‘obligation to pay shall have finally been determined’
either by a ‘judgment’ against the insured ‘obtained after an actual trial’ or by a
‘settlement’ reduced to contract to which the insurer ‘agrees.’ ” (Powerine I,
supra, 24 Cal.4th at p. 962, fn. 4.) Although the purpose of a “no action” clause is
to discourage collusion between an insured and a third party claimant (see
2Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, ¶ 7:439.6, p.
7A-116), the language of the standardly worded clause does appear to spell out the
insurer’s right to approve any out-of-court settlement, at least for purposes of
making it a condition precedent to any suit brought directly against the insurer.
Central National, however, chose not to include a “no action” clause in its policies.
We will not rewrite the policies to insert a provision that was omitted.
27

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(Powerine I, supra, 24 Cal.4th at p. 960; Foster-Gardner, supra, 18 Cal.4th at
pp. 886-888.)
d. Function of the definition of “ultimate net loss” as “burning limits”
Central National also faults the Court of Appeal’s understanding of the
function served by the definition of “ultimate net loss” in the insuring agreement.
According to Central National, that clause largely serves the purpose of “burning
limits,” i.e., reducing the indemnity limits “dollar for dollar by defense costs until
zero is reached and the duty to indemnify . . . [is] then terminated. [Citation.]”
(Aerojet-General Corp. v. Transport Indem. Co. (1997) 17 Cal.4th 38, 76, fn. 29.)
Central National and its amici curiae argue that where the “ultimate net loss”
clause serves to consume policy limits, the clause cannot also be understood as
expanding coverage. Once again, we disagree.
As the Court of Appeal observed, “these Central National policies lack [an
explicit] provision indicating the policies function as ‘self-consuming’ or ‘burning
limits’ contracts. (See Croskey et al., Cal. Practice Guide: Insurance Litigation,
supra, ¶ 7:357, p. 7A-90, rev.#1 1998.) Had Central National wanted to include a
burning limits clause, it knew how to do so.” In any case, even if the definition of
“ultimate net loss” also serves the function of “burning limits,” it is clear from the
literal wording of the central insuring provision that the “ultimate net loss”
definition also serves the function of “further defin[ing]” the scope of indemnity
coverage under these policies well beyond “damages,” i.e., money ordered by a
court. To conclude otherwise would belie the explicit policy language and hardly
comport with the objectively reasonable expectations of the insured.
28

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e. The “loss payable” clause
Central National’s excess/umbrella policies also contain the standard “loss
payable” clause.10 Central National argued in the Court of Appeal that “where the
underlying policies only indemnify for damages in the form of money ordered by
a court pursuant to Powerine I, the loss payable condition ‘evidences the same
intent to cover damages arising in a judicial context or in a settlement . . . reached
with the insurer’s consent.” (Italics added.) Powerine in turn argued that under
the loss payable clause, the insurer’s obligation to pay can be triggered by the
insured’s payment of any expenses included within the definition of “ultimate net
loss,” without a court-ordered judgment for the payment of money damages or an
insurer-approved settlement.
It does not appear that the “loss payable” clause itself functions to trigger
coverage in the first instance under these policies. The first sentence of the clause
provides that the insurer’s indemnification obligation under the policy does not
commence until any underlying policy limits have been exhausted by actual
payment of a covered loss. (See Span, Inc. v. Associated Internat. Ins. Co. (1991)
227 Cal.App.3d 463, 467-468.) Accordingly, the provision speaks to the timing of
the excess insurer’s obligation to indemnify in relation to the exhaustion of
underlying primary policy limits. (Ibid.) Here, the “excess” coverage afforded
under these policies was not invoked because the limits of the underlying primary

10
The “loss payable” clause provides: “Liability under this policy with
respect to any occurrence shall not attach unless and until the Insured, or the
Insured’s underlying insurer, shall have paid the amount of the underlying limits
on account of such occurrence. The Insured shall make a definite claim for any
loss for which the Company may be liable under the policy within 12 months after
the Insured shall have paid an amount of ultimate net loss in excess of the amount
borne by the Insured or after the Insured’s liability shall have been fixed and
rendered certain either by final judgment against the Insured after actual trial or by
written agreement of the Insured, the claimant, and the Company.” (Italics added.)
29

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CGL policy were neither paid nor exhausted. Rather, it is the umbrella “drop
down” aspect of coverage that is being looked to by the insured for coverage of
liability for “property damage” incurred as a result of the administratively imposed
remediation orders, liability not covered as “damages” by the underlying primary
policy. In any event, whatever be the scope and effect of the “loss payable”
provision contained in these policies which afford both excess and umbrella
coverage, it cannot defeat the scope of coverage established under the literal
language of the insuring clauses.
f. Application of the Foster-Gardner syllogism
As noted, seven of the nine Central National policies contain a defense
coverage endorsement adding a duty to defend to those policies. Central National
argues that those endorsements provide a duty to defend substantially identical to
the duty to defend found in the standard primary CGL policy, and hence, as
regards those seven policies, the Foster-Gardner syllogism announced in
Powerine I must be applied to defeat coverage.
A syllogism is deductive reasoning. (Webster’s 3d New Internat. Dict.
(1981) p. 2315, col. 3.) As the Court of Appeal observed, “The [Foster-Gardner]
syllogism does not apply here for the simple reason that the parties contracted for
full indemnity as declared by the broad language of the excess/umbrella policies
themselves. The actual words used in the Central National policies’ indemnity
provision confer broader coverage than those contained in the defense coverage
endorsement, or in Powerine I and Foster-Gardner. Hence, the conclusion of the
Foster-Gardner syllogism does not logically follow from its premise when applied
to the Central National policies.” We agree with the Court of Appeal.
We further observe that the defense coverage endorsements in question
provide that “nothing herein contained shall vary, alter, waive or extend any of the
terms, representations, conditions or agreements of the policy other than as above
30

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stated.” Particularly in light of this language, it would not be objectively
reasonable for the insured in this case to expect that the duty to defend
endorsements contained in seven of the nine excess/umbrella policies would alter,
much less defeat or override, the express terms of the insuring agreement.
Moreover, unlike the standard primary CGL policy, excess/umbrella policies do
not as a matter of course contain a duty to defend, as evidenced by the very
policies here in question. From an equitable standpoint, it would be manifestly
unfair to penalize the insured for paying a premium to obtain added protection by
concluding that the defense coverage endorsements purchased for the seven
policies defeat indemnity coverage otherwise clear under the literal policy
language.
g. “Expenses” construed narrowly as “litigation expenses”
Finally, at oral argument, Central National urged that the term “expenses”
contained in the central insuring clauses of these excess/umbrella policies should
be read as referring only to the “expenses” of litigation where a court suit has been
brought. The argument will simply not hold up to a plain reading of the literal
terms of the insuring clause and coupled definition of “ultimate net loss.”
In conclusion, we have explained that the provisions of an insurance policy
will be considered ambiguous when they are capable of two or more constructions,
both of which are reasonable. (Waller v. Truck Ins. Exchange, Inc., supra, 11
Cal.4th 1, 18.) We find no ambiguity here. The literal wording of the insuring
clauses of Central National’s nine excess/umbrella policies extends indemnity
coverage to the “expenses” of responding to the environmental cleanup orders
imposed on Powerine through the Regional Water Boards’ administrative
proceedings pursuant to the Porter-Cologne Act. We have considered all aspects
of Central National’s contrary arguments and conclude they do not furnish a
reasonable alternative construction of the policy language. The literal language of
31

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the policies controls, as does the objectively reasonable expectations of Powerine,
the insured.
As indicated at the outset, noncompliance with key policy provisions
establishing conditions precedent to coverage, or exclusion clauses yet to be
litigated, could ultimately defeat coverage under these policies according to the
evidence developed as this litigation progresses. (See AIU, supra, 51 Cal.3d at
p. 814 [“Although many of the policies contain exclusions arguably relevant to
whether environmental cleanup costs are covered, we do not consider the
applicability of exclusions in this case, which comes to us on motion for summary
adjudication solely as to the coverage clauses.”].) We hold only that the nature of
the coverage sought by Powerine under these excess/umbrella policies is
encompassed within the insuring language in the first instance, as a matter of law.
CONCLUSION
The judgment of the Court of Appeal directing the trial court to enter an
order denying the insurer’s motion for summary adjudication of the duty to
indemnify is affirmed, and the matter remanded to the Court of Appeal for further
proceedings consistent with the views expressed herein.
BAXTER, J.
WE CONCUR:

GEORGE, C.J.
KENNARD, J.
WERDEGAR, J.
CHIN, J.
MORENO, J.

32

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Powerine Oil Co. v. Superior Court
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted XXX 104 Cal.App.4th 957
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S113295
Date Filed: August 29, 2005
__________________________________________________________________________________

Court:

Superior
County: Los Angeles
Judge: Daniel S. Pratt

__________________________________________________________________________________

Attorneys for Appellant:

Heller, Ehrman, White & McAuliffe, David B. Goodwin, Esta L. Brand; Isola Bowers, David R. Isola and
Aaron R. Bowers for Petitioner.

Weston, Benshoof, Rochefort, Rubalcava & MacCuish and Richard Giller for United Policyholders as
Amicus Curiae on behalf of Petitioner.

Morgan, Lewis & Bockius, Michel Y. Horton, David S. Cox and Andrea C. Okura for ITT Industries, Inc.,
as Amicus Curiae on behalf of Petitioner.

__________________________________________________________________________________

Attorneys for Respondent:

No appearance for Respondent.

O'Melveny & Myers, Richard B. Goetz, Martin S. Checov, Carlos E. Needham, Eric Y. Kizirian; Berman
& Aiwasian and Ray Tamaddon for Real Party in Interest Central National Insurance Company of Omaha.

Hancock Rothert & Bunshoft, William J. Baron, Kathryn C. Ashton and Patrick A. Cathcart for London
Market Insurers as Amicus Curiae on behalf of Real Party in Interest Central National Insurance Company
of Omaha.

Wiley, Rein & Fielding, Laura A. Foggan, John C. Yang, Paul J. Haase; Sinnott, Dito, Moura & Puebla,
Randolph P. Sinnott and John J. Moura for Complex Insurance Claims Litigation Association as Amicus
Curiae on behalf of Real Party in Interest Central National Insurance Company of Omaha.

No appearance for Real Parties in Interest Century Indemnity Company, ACE Property and Casualty
Company and Pacific Employers Insurance Company.

1

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Counsel who argued in Supreme Court (not intended for publication with opinion):

David B. Goodwin
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
(415) 772-6000

Richard B. Goetz
O'Melveny & Myers
400 South Hope Street
Los Angeles, CA 90071
(213) 430-6000

2

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Opinion Information

Date:	Docket Number:
Mon, 08/29/2005	S113295

Disposition
Aug 29 2005	Opinion: Affirmed

Dockets
Jan 31 2003	Petition for review filed   real party Central National Insurance Company of Omaha
Feb 5 2003	Received Court of Appeal record   1 doghouse
Feb 11 2003	Received:   RPI'S errata to petition for review.
Feb 20 2003	Answer to petition for review filed   by counsel
Feb 21 2003	Request for depublication (petition for review pending)   real party Central National Insurance Company
Feb 24 2003	Received letter from:   real party Central National Insurance Company
Mar 3 2003	Opposition filed   By counsel for petitioner {Powerine Oil Company} to request for depublication.
Mar 21 2003	Time extended to grant or deny review   To May 2, 2003.
Apr 23 2003	Petition for Review Granted (civil case)   Votes: George, CJ., Kennard, Baxter, Werdegar, Chin, Brown and Moreno, JJ.,
May 5 2003	Certification of interested entities or persons filed   By counsel for petitioner {Powerine Oil Company}.
May 6 2003	Certification of interested entities or persons filed   real party Central National Insurance Company
May 14 2003	Request for extension of time filed   real party Central National Insurance>>opening brief to 6-23-03
May 14 2003	Received Court of Appeal record   remaining one doghouse sent overnight.
May 20 2003	Extension of time granted   To June 23, 2003 to file RPI's Opening Brief on the Merits.
Jun 23 2003	Opening brief on the merits filed   real party Central National Insurance
Jun 23 2003	Request for judicial notice filed (in non-AA proceeding)   real party Central National Insurance [2 vols of exhibits rec'd]
Jun 23 2003	Received:   out of state authorities>>real party Central National Insurance Company
Jul 3 2003	Request for extension of time filed   By Petitioner {Powerine Oil Company Inc.,} asking until August 22, 2003 to file Petitioner's Answer Brief on the Merits.
Jul 9 2003	Extension of time granted   To August 22, 2003 to file petitioner's Answer Brief on the Merits.
Aug 22 2003	Answer brief on the merits filed   By counsel for petitioner {Powerine Oil Company Inc.,}.
Aug 26 2003	Request for extension of time filed   reply brief/merits to 10-1-03>>real party Central National Insurance
Aug 29 2003	Request for extension of time filed   RPI {Central National Insurance} requesting to 10/6/2003 to file RPI's Reply Brief on the Merits.
Sep 9 2003	Extension of time granted   To October 6, 2003 to file RPI'S {Central National Insurance Company of Omaha} Reply Brief on the Merits.
Oct 6 2003	Reply brief filed (case fully briefed)   by RPI Central National Insurance Company of Omaha
Oct 14 2003	Received application to file amicus curiae brief; with brief   Complex Ins. Claims Litigation Association in support of Central Nat'l Ins. Co. [App & Brief under separate covers.]
Oct 21 2003	Permission to file amicus curiae brief granted   Complex Insurance Claims Litigation Association in support of RPI.
Oct 21 2003	Amicus curiae brief filed   Complex Insurance Claims Litigation Association in support of RPI {Central National Insurance Company of Omaha}. Answer is due within twenty days.
Nov 4 2003	Response to amicus curiae brief filed   By petitioner {Powerine Oil Company Inc.} to AC Brief filed by Complex Insurance Claims Litigation Association.
Nov 5 2003	Received application to file amicus curiae brief; with brief   Application and Brief under same cover of United PolicyHolders Richard Giller.
Nov 5 2003	Received application to file amicus curiae brief; with brief   ITT Industires Inc., app./ brief under saparate cover supports petnr. Powerine Oil Co., Inc.
Nov 6 2003	Received application to file Amicus Curiae Brief   London Market Insurers in support of RPI {Central National Insurance Co. of Omaha}./ 40(K).
Nov 13 2003	Permission to file amicus curiae brief granted   London Market Insurers Insurers in support of Real Party in Interest.
Nov 13 2003	Amicus curiae brief filed   London Market Insurers in support of Real Party in Interest. Answer is due witin twenty days.
Nov 14 2003	Permission to file amicus curiae brief granted   United Policyholders and Richard Giller in support of Petitioner.
Nov 14 2003	Amicus curiae brief filed   United Policyholders and Richard Giller in support of petitioner. Answer is due within twenty days.
Nov 14 2003	Permission to file amicus curiae brief granted   ITT Industries, Inc., in support of petitioner.
Nov 14 2003	Amicus curiae brief filed   ITT Industries, Inc., in support of petitioner. Answer is due within twenty days.
Nov 14 2003	Received letter from:   O'Melveny & Myers LLP dated Nov 14, 2003. advising court of a new CA opinion.
Dec 1 2003	Request for extension of time filed   Petitioner {Powerine Oil Company Inc.,} request a 2-day extension to December 5, 2003 to file petitioner's Response to AC Brief filed by London Market Insurers.
Dec 1 2003	Extension of time granted   To December 5, 2003 to file Petitioner's Response to AC Brief filed by London Market Insurers.
Dec 1 2003	Request for extension of time filed   Real party -> Central National Ins. Company of Omaha to file its answer to a.c. briefs of United Policyholders and ITT Ind. [a one day reqt to Dec. 5th]
Dec 5 2003	Extension of time granted   To December 5, 2003 to file RPI'S Response to AC Brief filed by United Policyholders and ITT Industries, Inc.,
Dec 5 2003	Response to amicus curiae brief filed   By petitioner {Powerine Oil Company, Inc.,} to AC Brief filed by London Market Insurers.
Dec 5 2003	Response to amicus curiae brief filed   Central National Insurance Company's "Combined" Response to Amicus Briefs of ITT Ind., Inc. and United Policyholders/Richard Giller.
Dec 23 2004	Filed:   letter from counsel for petitioner {Powerine Oil Co.,} dated December 23, 2004 re: recent decision of the Illinois Supreme Court (Central Illinois Light Co., v. Home Ins. Co. (Ill. Dec. 2, 2004.))
Jan 3 2005	Filed:   letter of RPI, ("Central National") in response to letter of petitioner ("Powerine"), dated Dec. 23rd..
Jan 12 2005	Filed:   Letter from counsel for petitioner dated January 12, 2005 in response to RPI's letter.
May 3 2005	Case ordered on calendar   6/2/05, 9am, LA
May 25 2005	Request for judicial notice granted   The request for judicial notice filed on June 23, 2003, is hereby granted.
Jun 2 2005	Cause argued and submitted
Aug 29 2005	Opinion filed: Judgment affirmed in full   The judgment of the Court of Appeal directing the trial court to enter an order denying the insurer's motion for summary adjudication of the duty to indemnify is affirmed, and the matter is remanded to the Court of Appeal for further procedings consistent with the views expressed herein. Opinion by Baxter, J. -----joined by George, C.J., Kennard, Werdegar, Chin & Moreno, JJ.
Sep 13 2005	Request for modification of opinion filed   By counsel for petitioner, Powerine Oil Company. Request for modification of Page 22 of the Court's Opinion
Sep 13 2005	Request for modification of opinion filed   By counsel for Aerojet-General Corporation. Requesting modification on page 22.
Sep 20 2005	Filed letter from:   counsel for real party in interest("CENTRAL NATIONAL") responding to petitioner ("POWERINE II") letter dated 09-13-05 re: modification of opinion.
Sep 29 2005	Time extended to consider modification or rehearing   Finality of the opinion in the above-entitled case is hereby extended to and including October 28, 2005.
Oct 26 2005	Opinion modified - no change in judgment
Oct 26 2005	Order filed   Opinion modified.
Oct 27 2005	Order filed   Nunc pro tunc correction of 10/26/05 modification order to note judgment not affected by modification.
Oct 31 2005	Remittitur issued (civil case)
Nov 7 2005	Received:   receipt for remittitur CA 2/3.

Briefs
Jun 23 2003	Opening brief on the merits filed
Aug 22 2003	Answer brief on the merits filed
Oct 6 2003	Reply brief filed (case fully briefed)
Oct 21 2003	Amicus curiae brief filed
Nov 4 2003	Response to amicus curiae brief filed
Nov 13 2003	Amicus curiae brief filed
Nov 14 2003	Amicus curiae brief filed
Nov 14 2003	Amicus curiae brief filed
Dec 5 2003	Response to amicus curiae brief filed
Dec 5 2003	Response to amicus curiae brief filed

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