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Court of Appeal, Second District, Division 2, California.


No. B062993.

Decided: July 21, 1992

Latham & Watkins, David L. Mulliken, Richard A. Conn, Jr., Kristine L. Wilkes, Daniel E. Butcher, Donna J. Williams, and Michael G. Romey, San Diego, for petitioner. No appearance for respondent. Coudert Brothers, Douglas L. Hallett, William M. Samoska, Manfried H. Stucki, Los Angeles, Boornazian, Jensen & Garthe, Charles I. Eisner, Alan E. Swerdlow, Oakland, O'Melveny & Myers, Ralph W. Dau, H. Douglas Galt, Mindlin, Tigerman & Holtzman, Michael Holtzman, Los Angeles, Drinker, Biddle & Reath, John Chesney, Richard T. Buchanan, Jeffrey A. Pott, Philadelphia, Pa., Wilson, Kenna & Borys, Lawrence Borys, Jeffrey Burt, Los Angeles, Buchalter, Nemer, Fields & Younger, Marcus M. Kaufman, Adrienne F. Millican, and Cheryl A. Orr, Newport Beach, for real parties in interest.

Petitioner, Montrose Chemical Corporation of California, seeks a writ of mandate to overturn respondent court's order denying Montrose's motion for summary adjudication that its insurance carriers are obligated to defend it in an environmental lawsuit.


A The Underlying Action

Montrose, a defunct chemical company, manufactured dichloro-diphenyl-trichloroethane (DDT) for use in pesticides from 1947 until 1982.   Montrose had been covered since 1960 by comprehensive general liability [CGL] insurance policies purchased from seven different carriers [hereinafter “carriers”].1

Each carrier agreed to “pay on behalf of [Montrose] all sums which [Montrose] shall become legally obligated to pay as damages because of ․ PROPERTY DAMAGE TO WHICH THIS INSURANCE applies, caused by an occurrence․”

“Property damage,” was defined as “injury to or destruction of tangible property which results during the policy period.” 2

“Occurrence” was defined as “an accident, including continuous or repeated exposure to conditions which results in ․ property damage neither expected nor intended from the standpoint of the insured․”

The policies also imposed upon the carriers a “duty to defend any suit against [Montrose] seeking damages on account of such ․ property damage, even if any of the allegations of the suit are groundless, false or fraudulent․”

On June 18, 1990, the United States and the State of California filed suit in federal court against Montrose and the Los Angeles County Sanitation District (County), seeking reimbursement for costs incurred pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, 42 U.S.C. § 9607.)  (See United States v. Montrose Chemical Corporation of California (U.S.Dist.Ct.C.D.Cal., 1990, No. CV 90–3122–AAH (JRx)).)   The complaint alleged that Montrose released hazardous substances, including the insecticide DDT, into the environment from a 13–acre manufacturing site located in Torrance, California.3  Damages were also sought for injury to, destruction of, or loss of natural resources resulting from releases of hazardous substances into the environment in and around the San Pedro Channel, the Palos Verdes Shelf, the Los Angeles–Long Beach Harbors and the environs of Santa Catalina Island and the Channel Islands.   The complaint asserted that Montrose was liable for various forms of property damage, including damage to land, water, and wildlife, and that such property damage began in 1947 and continued to occur through the present.   The complaint did not specify whether the acts complained of were intentional, negligent, or a combination of both.

The County cross-complained against Montrose, alleging that Montrose's operations at the Torrance facility resulted in property damage over a lengthy period of time.   The cross-complaint alleged that Montrose was strictly liable for any property damage under CERCLA, and additionally alleged Montrose's liability based on common law negligence.

Montrose tendered defense of the federal action and cross-complaint to its seven CGL carriers.   Five rejected the tender of defense.   Two agreed to defend, subject to a reservation of rights.4  On July 6, 1990, Montrose sued all seven carriers, seeking a declaration that each had a duty both to defend and to indemnify in the federal action and the County's cross-complaint.

The carriers denied that they had a duty to defend, and each asserted a number of affirmative defenses, including the exclusions contained within the various policies.

B Montrose's Summary Adjudication Motion

On September 20, 1991, Montrose sought summary adjudication of the insurers' duty to defend.5  Montrose argued that under Gray v. Zurich Insurance Co. (1966) 65 Cal.2d. 263, 54 Cal.Rptr. 104, 419 P.2d 168, it was entitled as a matter of law to have its carriers defend the underlying CERCLA suit, since the allegations of the complaint, along with the terms of the CGL policies, created a potential for liability, thus triggering a duty to defend.   The carriers argued that Montrose's showing was insufficient to entitle it to summary adjudication, and that extrinsic facts presented to the court created a triable issue of fact regarding whether a potential for liability existed, thus defeating Montrose's right to summary adjudication of the carriers' duty to defend.

The superior court denied Montrose's motion on two grounds.   First, it found that Montrose had failed to make a prima facie showing that the CERCLA action created a potential for coverage.   Specifically, the court held that Montrose could not rely solely upon the factual allegations of the underlying complaint to show potential coverage (and thus a duty to defend), because “those factual allegations are completely neutral regarding whether the alleged contamination was caused by an occurrence or by Montrose's deliberate and normal business practices.”   The court concluded that absent an affirmative evidentiary showing by Montrose that the contamination alleged in the CERCLA complaint “resulted from an accident or occurrence,” Montrose had failed to show a “potential for coverage.”

As a second, independent ground for denying the motion, the court found that the carriers had adduced extrinsic evidence creating a “triable issue of fact” as to whether the CERCLA complaint alleged acts within the policies' coverage.   The court reasoned that because such evidence, if credited, “could support the inference that the alleged contamination occurred by reason of Montrose's deliberate business management practices, rather than as a result of an accident or occurrence,” summary adjudication was inappropriate.

Montrose then instituted this writ proceeding, reiterating its claim that summary adjudication was appropriate because the allegations of the complaint, taken with the terms of the CGL policies, create the potential that the complained of contamination resulted from conduct covered by the policies.   It further contends that the carriers may not rely on extrinsic evidence to defeat a duty to defend once a potential for liability has been shown.

In opposing the instant petition, the carriers assert that the trial court properly applied the rules governing summary adjudication and correctly denied the motion because there are material issues of fact in dispute concerning whether Montrose's alleged conduct implicates the terms of the CGL policies and whether certain policy exclusions apply.


 For over a quarter of a century, California courts have acknowledged the broad duty of an insurer to defend its insured against claims which create a potential for indemnity.  (Gray v. Zurich Insurance Co., supra, 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168;  see also Eichler Homes, Inc. v. Underwriters at Lloyd's, London (1965) 238 Cal.App.2d 532, 538, 47 Cal.Rptr. 843.)   In the words of the Gray court, “the carrier must defend a suit which potentially seeks damages within the coverage of the policy.”  (Original italics.)  (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 275, 54 Cal.Rptr. 104, 419 P.2d 168.)   The determination of potential liability must be made at the time of tender.  (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 605, 222 Cal.Rptr. 276.)  “For an insurer, the existence of a duty to defend turns not upon the ultimate adjudication of coverage under its policy of insurance, but upon those facts known by the insurer at the inception of a third party lawsuit.  [Citation.]   Hence, the duty ‘may exist even where coverage is in doubt and ultimately does not develop.’  [Citation.]”  (Saylin v. California Ins. Guarantee Assn. (1986) 179 Cal.App.3d 256, 263, 224 Cal.Rptr. 493;  see also Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 367, 165 Cal.Rptr. 799, 612 P.2d 889.)

 Traditionally, courts have looked first to the complaint and to the terms of the insurance policy to determine the potential for coverage and thus the insurer's duty to defend.  (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 276, 54 Cal.Rptr. 104, 419 P.2d 168;  see also Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 563, 91 Cal.Rptr. 153, 476 P.2d 825;  St. Paul Fire & Marine Ins. Co. v. Superior Court (1984) 161 Cal.App.3d 1199, 208 Cal.Rptr. 5.)   The Gray court made clear, however, that an insurer's duty to defend may be triggered not only by the potential for liability created by the underlying complaint and the policy terms, but by extrinsic facts apprising the insurer of its potential for liability.  (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at pp. 276–277, 54 Cal.Rptr. 104, 419 P.2d 168, see also CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 606, 222 Cal.Rptr. 276;  California Ins. Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617, 1627, 283 Cal.Rptr. 104;  State Farm Fire & Casualty Co. v. Eddy (1990) 218 Cal.App.3d 958, 965–966, 267 Cal.Rptr. 379;  California Ins. Guarantee Assn. v. Wood (1990) 217 Cal.App.3d 944, 948, 266 Cal.Rptr. 250;  Jenkins v. Insurance Co. of North America (1990) 220 Cal.App.3d 1481, 1489, 272 Cal.Rptr. 7;  Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84, 90, 295 P.2d 19;  Hogan v. Midland National Ins. Co., supra, 3 Cal.3d at p. 563, 91 Cal.Rptr. 153, 476 P.2d 825;  Cal–Farm Ins. Co. v. TAC Exterminators, Inc. (1985) 172 Cal.App.3d 564, 572, 218 Cal.Rptr. 407.)  “[W]here there is doubt as to whether the duty to defend exists, the doubt must be resolved in favor of the insured [Citation]․”  (CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 607, 222 Cal.Rptr. 276.)


 In the instant case, the federal and state governments have sued Montrose under CERCLA, a statute based on a theory of strict liability.   Not surprisingly, the allegations do not specify whether the alleged contamination resulted from acts which were wholly intentional, wholly negligent, or a combination thereof.6  In this case, “neutral” allegations of the CERCLA complaint necessarily encompass the potential that Montrose's acts will fall within the terms of the CGL policies.  (See Hecla Min. Co. v. New Hampshire Ins. Co. (Colo.1991) 811 P.2d 1083, 1086–1092 (insured entitled to summary adjudication of insurers' duty to defend CERCLA suit);  City of Johnstown, N.Y. v. Bankers Standard Ins. Co. (2nd Cir.1989) 877 F.2d 1146.)   Indeed, courts have emphasized that a broad charge of intentional or wilful tortious acts contains within it the potentiality of a judgment based upon conduct having unintended consequences.  (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 277, 54 Cal.Rptr. 104, 419 P.2d 168;  Allstate Ins. Co. v. Overton (1984) 160 Cal.App.3d 843, 848, 206 Cal.Rptr. 823;  State Farm Fire & Casualty Co. v. Eddy, supra, 218 Cal.App.3d at p. 965–966, 267 Cal.Rptr. 379.)   Moreover, an intentional act resulting in unintended property damage may be an “occurrence” within the meaning of a CGL policy.  (See Lassen Canyon Nursery, Inc. v. Royal Ins. Co. of America (9th Cir.1983) 720 F.2d 1016, 1017.)

The CERCLA complaint seeks “natural resource damages” for injuries to land, water, and wildlife, as well as “response costs”—clear forms of property damage.  (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 831, 842, 274 Cal.Rptr. 820, 799 P.2d 1253 (claim of environmental contamination under CERCLA alleges “property damage” as defined in CGL policies).)   Without specifying whether the acts resulting in such property damage were negligent or intentional, the complaint presents the possibility that Montrose could be found liable for conduct coming within the definition of an “occurrence” under the terms of the CGL policies.  (See Lassen Canyon Nursery, Inc. v. Royal Ins. Co. of America, supra, 720 F.2d at p. 1018.) 7  Moreover, the cross-complaint specifically alleges negligence, creating the clear potential that Montrose could be liable for unintentional acts resulting in unexpected injuries.   Finally, the complaint alleges that hazardous wastes were removed or escaped from the Torrance site as early as 1947, and that injury and damage continue to occur up to the present time.   These allegations implicate each of the carrier's policies, which collectively covered Montrose from 1960 to 1986.  (See Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 791–793, 270 Cal.Rptr. 678 (complaint's allegation of “continuous pattern of contamination” over time period of carrier's policy created potential of property damage triggering duty to defend).)   In short, the factual allegations of the CERCLA complaint, taken with the terms of the CGL policies, create a clear potential for coverage liability.


 We turn next to the trial court's finding that extrinsic facts adduced by the carriers created factual disputes which, if resolved in their favor, could defeat a potential for liability and thus extinguish any duty to defend Montrose in the underlying action.8  While Montrose argues that the majority of California courts have refused to allow insurers to rely on extrinsic evidence to defeat a duty to defend, it concedes that a number of courts have found no duty to defend where extrinsic facts conclusively eliminated any potential for coverage.  (See, e.g., State Farm Mut. Auto. Ins. Co. v. Flynt (1971) 17 Cal.App.3d 538, 95 Cal.Rptr. 296;  California Union Ins. Co. v. Club Aquarius, Inc. (1980) 113 Cal.App.3d 243, 169 Cal.Rptr. 685;  Atlas Assurance Co. v. McCombs Corp. (1983) 146 Cal.App.3d 135, 194 Cal.Rptr. 66;  Fire Ins. Exchange v. Jiminez (1986) 184 Cal.App.3d 437, 229 Cal.Rptr. 83;  Saylin v. California Ins. Guarantee Assn., supra, 179 Cal.App.3d 256, 224 Cal.Rptr. 493.)

Significantly, these cases involved factual situations in which the insurers learned of undisputed facts—either during their initial investigations or after assuming the insured's defense—which established as a matter of law that the conduct alleged in the underlying complaint was not covered by the insurers' policies.   None of these cases held that once an insured has established a prima facie case of potential liability, an insurer may defeat its duty to defend by adducing extrinsic facts which merely place in dispute its potential liability.   To so hold would gut the essence of Gray and its progeny.

On the other hand, neither logic, common sense, nor fair play supports a rule allowing only the insured to rely on extrinsic facts to determine the potential for coverage.   It would be pointless, for example, to require an insurer to defend an action where undisputed facts developed early in the investigation conclusively showed, despite a contrary allegation in the complaint, that the underlying acts occurred on a date when the policy was not in effect or at a location concededly not covered by the policy.  (See, e.g., Saylin v. California Ins. Guarantee Assn., supra, 179 Cal.App.3d 256, 224 Cal.Rptr. 493 (discovery showed malpractice policy was not in effect during period of alleged malpractice);  Fire Ins. Exchange v. Jiminez, supra, 184 Cal.App.3d 437, 229 Cal.Rptr. 83 (early investigation revealed conclusively that policy did not cover property where accident allegedly occurred).)   Similarly, where extrinsic evidence establishes that the ultimate question of coverage can be determined as a matter of law on undisputed facts, we see no reason to prevent an insurer from seeking summary adjudication that no potential for liability exists and thus that it has no duty to defend.  (Cf. State Farm Mut. Auto. Ins. Co. v. Flynt, supra, 17 Cal.App.3d 538, 95 Cal.Rptr. 296 (undisputed fact that car was stolen removed claim from policy coverage);  (Atlas Assurance Co. v. McCombs Corp., supra, 146 Cal.App.3d 135, 194 Cal.Rptr. 66 (employee's theft conviction eliminated possibility of coverage).)   We see the critical distinction as not whether extrinsic evidence may be considered, but whether such evidence presents undisputed facts which conclusively eliminate a potential for liability.

 Under this analysis, once the insured has established potential liability by reference to the factual allegations of the complaint, the terms of the policy, and any extrinsic evidence upon which the insured intends to rely, the insurer must assume its duty to defend unless and until it can conclusively refute that potential.   Necessarily, an insurer will be required to defend a suit where the evidence suggests, but does not conclusively establish, that the loss is not covered.  “However, that unpleasant prospect is one that is routinely faced by all insurers whenever a potential for coverage exists.”  (Original italics.)  (California Ins. Guarantee Assn. v. Superior Court, supra, 231 Cal.App.3d at 1627, 283 Cal.Rptr. 104.)   Such a result represents the balance struck by Gray and the courts of this state for over a quarter of a century.  (Saylin v. California Ins. Guarantee Assn., supra, 179 Cal.App.3d 256, 224 Cal.Rptr. 493;  CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d 598, 222 Cal.Rptr. 276.)   That balance favors the rights of insureds to have claims arguably covered by their policies defended by their carriers.   A carrier remains free to seek declaratory relief if undisputed facts conclusively show, as a matter of law, that there is no potential for liability.


 The duty to defend is traditionally a matter of law and thus susceptible to summary adjudication.  (See California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 221 Cal.Rptr. 171;  State Farm Fire & Casualty Co. v. Eddy, supra, 218 Cal.App.3d at pp. 964–966, 267 Cal.Rptr. 379.)   The trial court found that to grant Montrose's motion for summary adjudication in the face of triable issues on the question of potential coverage would “effectively [reverse] the normal summary judgment burden.”   We conclude otherwise.   As the moving party, Montrose bore the burden of establishing, as a matter of law, its right to be defended by its carriers in the CERCLA suit.   That right was contingent upon a showing of potential coverage.   As discussed above, we conclude Montrose made that showing of potential liability.   That was all it was required to do under Gray to establish its entitlement to a defense.

 The trial court correctly noted that there were disputed issues of fact which, if resolved in the carriers' favor, could eliminate the potential for liability.   Inherent in the court's ruling was the finding that Montrose had failed to conclusively negate the carriers' affirmative defenses.   However, the resolution of such disputed issues of fact could not defeat, nunc pro tunc, the potential Montrose had already established.   Thus, any such “triable issue of fact” was not “material” within the meaning of Code of Civil Procedure section 437c, because its resolution could not retroactively eliminate a demonstrated potential for coverage.  (Code Civ.Proc., § 437c;  Spencer v. Hibernia Bank (1960) 186 Cal.App.2d 702, 9 Cal.Rptr. 867.)


 Applying the above analysis to the facts before us, we conclude that Montrose established, as a matter of law, the potential for liability on the part of its carriers, thus triggering a duty to defend.   The CERCLA complaint created a clear potential for the carriers' liability under the terms of the CGL policies at the time of tender.   At that point, Montrose was entitled to a judicial determination that the carriers owed it a duty to defend as a matter of law.

The carriers' extrinsic evidence did no more than put in dispute whether the acts alleged in the complaint would eventually fall within one of more of the exceptions of the various policies' coverage.   Such a dispute could not defeat the potential for liability or the concomitant duty to defend.   Significantly, the trial court did not find that the only basis for liability under the CERCLA complaint was conduct which indisputably fell within one or more of the exclusions of any of the policies.   Absent such a finding, the potential for liability continues to exist, and Montrose is entitled to its defense.   Of course, nothing in our ruling would preclude any carrier, even after assuming defense of the underlying action, from seeking at a future date a determination that, as a matter of law, any potential for liability has been eliminated and any further duty to defend extinguished.

 Prompt resolution of a carrier's duty to defend is of paramount importance.  “Peace of mind and security” afforded by insurance protection “would ring resoundingly hollow were the holder compelled to simultaneously enforce rights under the policy and defend a costly and potentially devastating claim.”  (Lambert v. Commonwealth Land Title Ins. (1991) 53 Cal.3d 1072, 1081, 282 Cal.Rptr. 445, 811 P.2d 737.)   Where a potential for liability has been established, an insured is entitled to a declaratory judgment of its carrier's duty to defend as a matter of law.   Only where undisputed facts conclusively refute any potential for liability may a carrier escape its presumptive obligation to defend its insured against claims arguably covered by its policy.

Let a peremptory writ of mandate issue, directing respondent to set aside its order of October 18, 1991, denying petitioner Montrose's motion for summary adjudication that its insurance carriers are obligated to defend it in the CERCLA lawsuit, and consider anew Montrose's motion in accordance with the standards set forth herein.   Each carrier is to be given an opportunity to demonstrate that undisputed facts conclusively establish that there is no potential for coverage under its policy as a matter of law.



1.   The carriers are:(a) Insurance Company of North America;(b) American Motorists Insurance Company;(c) The Travelers Indemnity Company;(d) National Union Fire Insurance Company of Pittsburgh, Pennsylvania;(e) Canadian Universal Insurance Company, Inc.;(f) Centaur Insurance Company In Rehabilitation;  and(g) Admiral Insurance Company.These policies were standard form comprehensive general liability policies which were utilized industry-wide.

2.   Some of the policies contained the requirement that the damage result during the policy period in the “property damage” definition, while others located the same requirement in the “occurrence” definition.

3.   Plant operations allegedly ceased in 1982.

4.   The two carriers agreeing to defend were Insurance Company of North America and National Union Fire Insurance Company of Pittsburgh, Pennsylvania.   Montrose claims, however, that these carriers “placed impermissible restrictions on their fulfillment of that admitted obligation.”

5.   Montrose did not seek summary adjudication of its ultimate right to indemnification under the carriers' policies.Code of Civil Procedure section 437c, subdivision (f), as amended in 1990, provides that a court may summarily adjudicate, among other things, that there is no defense to a cause of action “or that one or more defendants either owed or did not owe a duty to the plaintiff․”   A motion for summary adjudication “shall proceed in all procedural respects as a motion for summary judgment.”

6.   The County's cross-complaint alleges, inter alia, that Montrose acted negligently.

7.   As noted in Gray, the possibility of amended pleadings increases, rather than decreases, the range of potential liability.  (65 Cal.2d at pp. 275–276, 54 Cal.Rptr. 104, 419 P.2d 168.)

8.   The trial court clearly recognized the issue as whether the potential existed “at the time of tender.”   However, its finding that a resolution of disputed issues of fact was necessary to ascertain such potential conflicts with our determination that Montrose had sufficiently demonstrated a potential for coverage by the factual allegations of the complaint and the carriers' policies.

MANELLA, Associate Justice (Assigned).* FN* Appointed by the Chairperson of the Judicial Council

GATES, Acting P.J., and NOTT, J., concur.