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Foster-Gardner Inc. v. National Union Fire Insurance Co.8/3/1998
ur of its insurers, National Union Fire Insurance Company of Pittsburgh, PA, and Pacific Indemnity Company (Pacific), Fremont Indemnity Company (Fremont), and Ranger Insurance Company (Ranger) (insurers). Pacific's policies were in effect from May 1984 to May 1986, Fremont's policies from June 1983 to July 1984, and Ranger's policies from December 1970 to December 1980. All insurers had issued CGL polices containing the following language with minor nonmaterial differences: "The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . bodily injury or . . . property damage to which [this] insurance applies, caused by an occurrence, . . . and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, . . . and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements." The policies further provided, "Regardless of the number of . . . claims made or suits brought on account of bodily injury or property damage, the company's liability is limited. . . ." The Pacific and Fremont policies provided, "The company may pay any part or all of the deductible amount to effect settlement of any claim or suit. . . ." While the policies consistently treated the terms "suit" and "claim" as separate and noninterchangeable, these terms were not defined in the policies.
The insurers either refused to defend, or agreed to defend subject to a reservation of rights and have not, in Foster-Gardner's view, adequately funded that defense. On August 2, 1994, Foster-Gardner filed this action seeking as relevant here a declaration of the insurers' defense obligations and recovery of defense costs. On June 1, 1995, Foster-Gardner filed a motion for summary judgment or in the alternative summary adjudication. The parties ultimately stipulated that the insurers' oppositions to Foster-Gardner's motions would be deemed cross-motions for summary judgment. The trial court entered summary judgment in favor of the insurers in part on the ground that the insurers had no duty to defend because the DTSC Order was not a "suit."
The Court of Appeal reversed. It noted that "A Determination and Order does not commence either a lawsuit in court or an adjudicative procedure before an administrative tribunal. Instead, it is simply an order from an administrative agency." The court held, however, that the DTSC Order constituted a "suit" within the meaning of the policy, and hence gave rise to the insurers' duty to defend. "This Conclusion rest on four factors: the nature and irrevocable consequences of HSAA `Superfund' procedures which take place before a traditional lawsuit is filed in court, the lack of definition of the operative terms `suit' and `claim' in the insurance policies, the general standards for interpretation of insurance policies in California and how those standards have been applied, and the nature of the analysis applied by the California Supreme Court in AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807 (AIU)." It reasoned, "Were this case presented on a clean slate, the proper resolution of the `suit' issue would be debatable. . . . In California, however, the application of a non-technical, `functional' approach to determine the `damages' issue in AIU lights the way to resolution of the `suit' issue. There is no principled basis on which a non-technical, functional analysis could properly control the `damages' issue in AIU, while
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