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Court of Appeal, Fourth District, Division 3, California.

AMERICAN STAR INSURANCE COMPANY a corporation, Plaintiff, Respondent and Cross-Appellant, v. AMERICAN EMPLOYERS INSURANCE COMPANY, a corporation, etc., et al., Defendants and Appellants.

G 000189.

Decided: February 20, 1985

Ruston & Nance and Robert W. Castleberry, Tustin, for defendant and appellant Gulf Ins. Co., a corp. Bolton, Dunn & Moore, and Donald H. Moore, Santa Monica, and Smylie & Selman and Neil H. Selman, Los Angeles, for defendants and appellants American Employers' Ins. Co., a corp., and Northern Assur. Co. of America, a corp. Rigg & Dean and Carl J. Klunder, Santa Ana, for defendant, respondent and cross-appellant American and Foreign Ins. Co., a corp. Shield & Smith and J. Lawrence Judy, Los Angeles, for plaintiff, respondent and cross-appellant American Star Ins. Co., a corp.


Several insurance companies appeal from a judgment in an action for declaratory relief.   The lawsuit concerns their obligation to defend a party that had insurance with each of the companies seriatim.   The appeal requires us to address the meaning of the term “occurrence” as it applies to a continuous degenerating process rather than a sudden and distinct event.


The insurance companies issued comprehensive general liability insurance to Kennedy Mechanical Contractors, Inc., in succession from 1971 to 1980.1  Kennedy entered into a subcontract with a general contractor to install water and gas pipes in a building project;  the installation occurred in 1971 and 1972.

After leaks were discovered, Kennedy was sued and served as a cross-defendant in an action by the building owners against the general contractor.   Kennedy requested a defense from Gulf but Gulf declined.   Kennedy then requested a defense from AFIC.   AFIC accepted the defense under a reservation of rights, expended $2,126.99 for defense, but tendered the defense to ASIC.   ASIC accepted the defense and represented Kennedy through judgment.   ASIC successfully defended Kennedy.   The evidence established Kennedy was not negligent in the installation of the pipes.   However, the pipe itself was defective when it was manufactured and supplied to Kennedy by the manufacturer, a codefendant.   The defect caused pitting corrosion, which eventually led to “pin hole” leaks.   Leaks were first discovered in 1973.   However, the cause of the leaks (the defective pipe) was not reasonably discoverable until October of 1974.2  Corrosion and resulting leaks continued through the time of trial in 1981.3

ASIC paid $40,374 for costs of defense and $19,920 to reimburse Kennedy who indemnified the general contractor for its costs of defense pursuant to contractual agreement.   In addition, ASIC paid $10,000 as a settlement indemnifying Kennedy against a claim of defective installation of gas pipe.4

ASIC initiated the present declaratory relief action to recover the defense costs and indemnity from the other four insurance companies.   The case was tried on a stipulated set of facts which included the findings of fact and conclusions of law in the underlying lawsuit.   The superior court ruled in favor of ASIC on the costs of defense and indemnification for the general contractor's attorney's fees.   However, the court ruled against ASIC on the amount of the settlement for the defective installation of the gas pipe.   Apportionment of the amounts owed to ASIC by the four defendant insurers was based upon the relative length of time each promised coverage.5

AEIC, NACA, AFIC and Gulf appeal that portion of the judgment requiring them to pay a pro rata share of the defense costs incurred in the underlying lawsuit.   ASIC, in turn, appeals from the trial court's decision not to order reimbursement for a portion of the $10,000 pretrial settlement amount.


This case turns on the meaning of the terms “occurrence” resulting in “property damage” in the insurance policies.   The parties agree, either explicitly or tacitly, all the insurance policies contain essentially the same language.6  Therefore, we treat the policies as identical.

In interpreting these policies we are presented with an issue of law.  “Having been submitted to the trial court upon an agreed statement of facts, we are not confronted with conflicting evidence.   Thus, we are not bound by the substantial evidence rule.   The trial judge's findings do not foreclose our own examination of the facts, and our obligation is to determine the questions of law presented by the stipulated facts.  [Citation.]' ”  (California Union Ins. Co. v. Landmark Ins. Co. (1983) 145 Cal.App.3d 462, 468, 193 Cal.Rptr. 461.)  “We further note that the question presented, ‘[t]he construction of the instant polic[ies] [,] is one of law because it is based upon the terms of ․ insurance contract[s].  Accordingly, we are not bound by the trial court's interpretation of the polic[ies], and it is our duty to make the final determination in accordance with the applicable principles of law.   [Citations.]”  (Economy Lumber Co. v. Insurance Co. of North America (1984) 157 Cal.App.3d 641, 645, 204 Cal.Rptr. 135.)   In addition, we conclude the “terms [occurrence and property damage] are ambiguous as applied to the facts of this case․”  (Ibid.)

A touchstone for our analysis is California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 193 Cal.Rptr. 461.   As with the present case, it was a declaratory relief action by one liability insurer against another to determine their respective obligations to a claimant.   A swimming pool leaked for more than 18 months during which the defendant insurer's policy period ended and the plaintiff's began.   Certain repairs were made prior to the end of the defendant's policy period.   At issue was the defendant's liability for further damages after the termination of its policy.   The trial court concluded each manifestation of damage was a separate occurrence,7 limiting the defendant insurer's liability to damages occurring while its policy was in effect, and entered judgment accordingly.

First, the Court of Appeal held the damage caused by the continuous leakage was “one occurrence” within the meaning of both policies.  (California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 473, 193 Cal.Rptr. 461.)   Second, the court was “constrained to hold that in a ‘one occurrence’ case involving continuous, progressive and deteriorating damage, the carrier in whose policy period the damage first becomes apparent remains on the risk until the damage is finally and totally complete, notwithstanding a policy provision which purports to limit the coverage solely to those accidents/occurrences within the time parameters of the stated policy term.”  (Id., at p. 476, 193 Cal.Rptr. 461.)   And third, the court concluded the second insurer was also liable.  (Id., at p. 478, 193 Cal.Rptr. 461.)   In other words, the two insurers were jointly and severally liable and each was ordered to pay one-half the damage.  (Ibid.)

The California Union court discusses the primary cases relied upon by the various parties in the present case.   Its overview is both candid and useful.   Previous authority presents a vast array of factual situations and results.   (See Employers Casualty Co. v. Northwestern Nat. Ins. Group (1980) 109 Cal.App.3d 462, 167 Cal.Rptr. 296;  Maples v. Aetna Cas. and Surety Co. (1978) 83 Cal.App.3d 641, 148 Cal.Rptr. 80;  Chamberlin v. Smith (1977) 72 Cal.App.3d 835, 140 Cal.Rptr. 493;  Arant v. Signal Ins. Co. (1977) 67 Cal.App.3d 514, 136 Cal.Rptr. 689;  Tijsseling v. General Acc. etc. Assur. Corp. (1976) 55 Cal.App.3d 623, 127 Cal.Rptr. 681;  and Remmer v. Glens Falls Indemn. Co. (1956) 140 Cal.App.2d 84, 295 P.2d 19.)

“It is difficult, if not downright impossible, to reconcile the foregoing authorities.  Remmer says the ‘occurrence’ date is the date of the actual damage and not the date of the wrongful act, but Remmer was bottomed on a present nuisance theory.   In Tijsseling, the case of the encroaching house, the ‘occurrence’ date was found to be the date of the wrongful act, to wit, the misrepresentation, long before the encroachment became known.  Arant and Chamberlain, the legal malpractice cases, found the ‘occurrence’ dates to have been the date of the wrongful act, specifically the date of the erroneous advice, even though the fact of damages was as yet unknown to their respective clients.  Maples, [sic ] with the negligently installed boiler, fixed the ‘occurrence’ date as the date of the fire, rather than the date of the wrongful act, the negligent installation of the unit.   In Employers, the date of a vehicle accident became the ‘occurrence’ date and not the date of the manufacturer's prior negligence.”  (California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d, 462, 472–473, 193 Cal.Rptr. 461.)

And we have made our own contribution to this body of law.   In Atlantic Mutual Ins. Co. v. Travelers Ins. Co. (1983) 147 Cal.App.3d 1054, 195 Cal.Rptr. 476, a garagekeeper was insured by one insurance company when it allegedly made defective repairs on a motor vehicle and by a second insurance company at the time the vehicle was involved in an accident allegedly caused by the defective repairs.   The second insurance company defended the garagekeeper and sought declaratory relief against the first.   We reversed a judgment in favor of the second insurance company holding the “occurrence” of an accident is not the time when the wrongful act is committed, but when the complaining party is damaged.  (Id., at pp. 1056–1058, 195 Cal.Rptr. 476.)

The California Union court, having determined the original insurer was liable for swimming pool leakage damage, considered whether Landmark could be liable for damages occurring after the expiration of its policy.   Recognizing the previously cited cases generally provided no coverage, the court continued “as we have already noted, none of these cases are of the continuous, progressive damage variety.   In any event, ample authority exists for us to hold that a carrier's responsibility may continue even after the term of the policy has expired.”  (California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 474, 193 Cal.Rptr. 461.)   Relying on a landslide case (Snapp v. State Farm Fire & Cas. Co. (1962) 206 Cal.App.2d 827, 24 Cal.Rptr. 44), a land slippage case (Harman v. American Casualty Co. of Reading, Pa. (C.D.Cal.1957) 155 F.Supp. 612), and a brick spalling (chips or flakes of the brick surface breaking off) case which the parties in the present case discuss at great length (United States Fidelity & G. Co. v. American Ins. Co. (1976) 169 Ind.App. 1, 345 N.E.2d 267), the court concluded Landmark remained liable for damage which occurred after the expiration of the policy period.

But as previously noted, this conclusion did not absolve the second insurance company in California Union.   Again, the California Union court discussed cases which are argued at great length in the present case as well.   In Gruol Construction Co. v. Insurance Co. of No. Amer. (1974) 11 Wash.App. 632, 524 P.2d 427, dry rot caused by a mistake during construction resulted in continuing damage.   The court held there was a single injury, continuing over a period of years, for which each insurance carrier during the period of years was jointly and severally liable to defend.

Ins. Co. of North America v. Forty-Eight Insulations (6th Cir.1980) 633 F.2d 1212 was an action to determine the obligation of five insurance companies to defend and indemnify a manufacturer of asbestos products.   Former employees and consumers sued the manufacturer after contracting asbestosis, a progressive disease which takes many years to develop and appear.   The court was faced with two theories of liability.   The manifestation theory finds liability arises when the disease is diagnosed.   The exposure theory holds all insurers providing coverage from the time of the initial exposure to the time of diagnosis jointly and severally liable.   The Sixth Circuit affirmed the district court's selection of the exposure theory.

In another asbestos related injury case, Keene Corp. v. Ins. Co. of North America (D.C.Cir.1981) 667 F.2d 1034, the court held each insurer ran the risk between initial exposure and the manifestation of the disease and was liable for indemnification and defense costs.   And each insurer was liable in full;  in other words, joint and several liability was imposed.

Relying on these three cases, the California Union court also found each insurer jointly and severally liable.   We now apply the operative principles and authorities discussed in California Union to the present case.


Clearly, there are distinctions between the present case and California Union.   For instance, two insurers' (AEIC and NACA) time at risk expired before any damage was discovered.   We also have a third (AFIC) whose time at risk, along with AFIC and NACA, expired before the plaintiff in the underlying damage suit ever acquired its interest in the property.   But the distinctions between California Union and the present case do not call for a different result.

We agree with the conclusion reached by the trial court.   There was an “occurrence” in each policy period, hence each insurer was liable for the costs of Kennedy's defense.

Two facts are crucial to this determination.   The first is the cause of the damage:  the pipes were defectively manufactured.   The resulting damage was, in a very real sense, preordained from the time the pipes were installed.   And the source of the problem leads to the second crucial fact:  damage occurred during each policy period.   It was occurring from the time the pipes were installed and placed in use.   This was a continuous degenerative condition.   In our view, under these circumstances, it would be arbitrary to select some finite point, or points, to fix liability.

The ease of application of such arbitrary choices is touted by several of the parties here.   Each proposes a finite date most beneficial to its cause.   The endeavor itself betrays its fallacies.   We are called upon to determine whether there was an “occurrence” during each policy period.   We believe there was.

 AEIC and NACA 8 insured Kennedy during 1971 and 1972 when Kennedy installed the defective pipe but before any damage was actually observed, i.e., before any “pinhole” leaks were noticed.   They contend, as a result, there was no “occurrence” during their policy periods.

But damage was occurring from the time the pipe was installed and put to use.   Since we view this damage as one continuing occurrence resulting in property damage, it necessarily follows there was an “occurrence” within the meaning of the AEIC and NACA policies with Kennedy.   The fact the damage had not manifested itself in leaks does not compel a contrary result.   The very nature of this progressive sort of damage usually means it will occur before it becomes apparent.   As we have noted, to fix liability at the time of manifestation, while ignoring the damage's progressive nature, seems wholly arbitrary.

 For the same reason we conclude AEIC and NACA were liable, we also conclude AFIC is liable.   As the facts indicate, four leaks were discovered during the time of AFIC's exposure in 1973, but the cause of the leaks, the defective pipes, was not reasonably discernable until October 1974.   The presence of leaks during AFIC's time at risk demonstrates the process of deterioration was in motion.   Thus, an “occurrence” was taking place during AFIC's coverage period and it too is liable.

 AFIC also argues the plaintiff in the underlying action, Garden Grove Manor, did not acquire its interest in the subject property until 1974 and thus could not have been damaged until then.   The AFIC policy expired before Garden Grove Manor acquired the property.   Given the continuous nature of the “occurrence” here, we are not persuaded this fact absolved AFIC of its responsibility to defend and indemnify.   As noted, no one could reasonably have discovered the cause of the leaks until October 1974.   When Garden Grove Manor acquired its interest in the property, it did so before the defect was reasonably discoverable but after damage had taken place and, indeed, while it was taking place.   Given that AFIC was covering Kennedy during part of the “occurrence” as we have defined it, we see no reason AFIC, or AEIC and NACA, for that matter, should escape its share of the responsibility simply due to two fortuities—(1) when the cause of the damage was reasonably discoverable and (2) when the plaintiff in the underlying action actually acquired the ongoing condition.9

 Gulf contends it was unfair to hold it liable for costs of defense and indemnification because the damage was apparent before their policies came into effect.   But as we have concluded, this was one continuous occurrence resulting in progressive damage.   For the same reason the California Union court held the second insurer liable we hold Gulf was liable because an occurrence resulting in property damage took place within its policy period.10

Our conclusion each of the insurers was liable because there was “an occurrence” during each policy period is consistent with California Union, as well as Gruol Construction Co. v. Insurance Co. of No. Amer., supra, 11 Wash.App. 632, 524 P.2d 427, relied upon by the trial court.   Among the wide array of resolutions progressive damage cases have presented, California Union and Gruol point to the most reasonable construction of the policies at issue here.   Any other resolution inequitably absolves one or more insurers of liability despite the fact damage occurred during their policy period.


One company, AFIC, contends the trial court erred in declaring it was liable for the amount paid Kennedy pursuant to its agreement to indemnify the general contractor for defense costs.   This was a matter of indemnity rather than the duty to defend, so the argument goes, and thus AFIC should not be responsible for any portion of it.   Even assuming the premise is correct, AFIC's conclusion is not.

First, it is not without significance AFIC cites no authority whatsoever in support of an argument none of the other appellants raise.   Further, “[a]n action for declaratory relief is equitable, and a court of equity will administer complete relief when it assumes jurisdiction of a controversy.   [Citation.]  Hence, in such an action it is proper for the court to grant any relief consistent with the evidence and the issues embraced by the pleadings.   [Citations.]”  (Westerholm v. 20th Century Ins. Co. (1976) 58 Cal.App.3d 628, 632, fn. 1, 130 Cal.Rptr. 164.)  “Indemnification, as a form of relief, ․ may be based upon equitable considerations without a contractual relationship between the parties.”  (Link-Belt Co. v. Star Iron & Steel Co. (1976) 65 Cal.App.3d 24, 28, 135 Cal.Rptr. 134.)

The actual costs in defense of Kennedy and the money paid for the general contractor's costs of defense are described in the aggregate in the judgment as “attorney's fees and costs in defense․”  It is true “[t]he duty to defend may be deemed separate from the duty to indemnify and ․ may be broader than the duty to indemnify [citations].”  (Aetna Cas. & Surety Co. v. Certain Underwriters (1976) 56 Cal.App.3d 791, 804, 129 Cal.Rptr. 47.)   And it may also be true the cost of defending the general contractor was an item of indemnification as far as Kennedy is concerned.

 But even assuming that is true, AFIC has failed to show there was any error in the award of this item.   AFIC does not, and could not, argue the amount paid for the cost of the defense of the general contractor was outside the evidence or an issue the pleadings did not embrace.  (Westerholm v. 20th Century Ins. Co., supra, 58 Cal.App.3d 628, 632, fn. 1, 130 Cal.Rptr. 164.)   Equitable considerations required the appellants to share the costs of Kennedy's defense initially shouldered by ASIC.   Similarly, equitable considerations required appellants to share the costs of the general contractor's defense shouldered by ASIC on Kennedy's behalf.  (Link-Belt Co. v. Star Iron & Steel Co., supra, 65 Cal.App.3d 24, 28, 135 Cal.Rptr. 134.)


ASIC also appeals.   It contends the trial court should have ordered the four defendant companies to reimburse ASIC for the $10,000 pretrial settlement.   The record reveals very little about the facts underlying the settlement.   It appears there was a contention Kennedy installed a gas pipe defectively.   The problem appears to have nothing to do with the “pin hole” leak problem discussed, ante.   The trial court found “the statement of facts affords no evidence establishing that plaintiff is entitled to recover $10,000 paid in settlement of Garden Grove Manor's claim resulting from installation of defective gas pipe.”

 “ ‘[W]hether a determination is proper in an action for declaratory relief is a matter within the trial court's discretion.   Unless a clear abuse of discretion is shown, the trial court's decision will not be disturbed on appeal.  [Citation.]’ ”  (Roberts v. Reynolds (1963) 212 Cal.App.2d 818, 827, 28 Cal.Rptr. 261.)   Other than generally contending this $10,000 was also part of its defense of Kennedy, ASIC has failed to specify how it was entitled, as a matter of law, to reimbursement from the other four companies for this item.   There are important distinctions between this item and the items on which the trial court granted declaratory relief in favor of ASIC.   It did not pertain to the defense of the underlying lawsuit and is thus quite dissimilar to the other item which can be characterized as indemnification, the cost of the defense of the general contractor.   In addition, it appeared to concern an entirely different construction problem.   This “finding[ ] is supported by substantial evidence and is therefore binding on this court [citations]․”  (Taormina Theosophical Community Inc. v. Silver (1983) 140 Cal.App.3d 964, 974, 190 Cal.Rptr. 38.)


As California Union Ins. Co. v. Landmark Ins. Co., supra, 145 Cal.App.3d 462, 193 Cal.Rptr. 461 notes, “in cumulative injury cases in California, apportionment between compensation insurers has long been the rule.   [Citations.]”  (Id., at p. 478, 193 Cal.Rptr. 461.)   We have rejected, ante, the only claim of error in the apportionment of the costs, AFIC's claim the costs of defending the general contractor should not have been apportioned.   Thus, the trial court's apportionment of the judgment shall stand.

Judgment affirmed.


1.   We take this opportunity to set forth the chronology of the coverage, as it becomes important to evaluate the parties' contentions:American Employers' Insurance Company (AEIC), policy from January 1, 1971 to December 31, 1971;Northern Assurance Company of America (NACA), policy from January 1, 1972 to December 31, 1972;American & Foreign Insurance Company (AFIC), policy from December 31, 1972 to December 31, 1973;American Star Insurance Company (ASIC), policy from December 31, 1973 to April 15, 1976;Gulf Insurance Company (Gulf), two successive policies in effect from April 15, 1976 to April 15, 1980.Whether Kennedy maintained comprehensive general liability insurance after April 15, 1980, was not a matter of record in either the underlying litigation or the present declaratory relief action.

2.   The plaintiff/claimant in the underlying action acquired its interest in the apartment complex on January 14, 1974, a fact relevant to certain of the contentions discussed, post.

3.   The evidence at that trial established the number of leaks observed in each year up to the time of trial:  1971—0;  1972—0;  1973—4;  1974—1;  1975—10;  1976—48;  1977—99;  1978—53;  1979—65;  1980—39;  1981—30.

4.   This claim was distinct from the problems related to the “pin hole” leaks in the water pipes.

5.   In relevant part, the minute order and subsequent judgment reflecting the superior court's decision reads:“This case is a classic example of the continuous damage theory.   Damage from leaks resulting from installation of defective pipe continued from the time of its installation up to the time of trial.   This constituted a single injury for which contractor's insurers, whose policies covered only a portion of the period, were jointly and severally liable.  Gruol Construction Co. v. Insurance Company of North America.  [11 Wash.App. 632] 524 Pacific Reporter, 2d 427.“The Court finds that the statement of facts affords no evidence establishing that plaintiff is entitled to recover $10,000 paid in settlement of Garden Grove Manor's claim resulting from installation of defective gas pipe.“The Court finds that American and Foreign Insurance Co. (Royal Globe) is entitled to a credit of $2,126.99 for attorney fees and costs expended to defend Mechanical Contractors.“The Court finds that American Star Insurance Company paid $60,294.00 for attorney's fees and costs in defense of Mechanical Contractors.“The Court finds that:  American Employers Insurance Company covered Mechanical Contractors in parts of 1971 and 1972;  Northern Assurance Corporation of America covered in all of 1972;  American and Foreign Insurance Co. (Royal Globe) covered in parts of 1972 and 1973;  American Star Insurance Company covered in parts or in all of 1973, 1974, 1975 and 1976;  and Gulf Insurance Company covered in parts or all of 1976, 1977, 1978, 1979 and 1980.“The Court finds that each insurance company owed a defense for each year or part of each year it covered during the continuing damage to the property.“It is ordered that plaintiff have judgment as follows:“Against American Employers Insurance Company for $8,917.28;“Against Northern Assurance Corporation of America for $4,458.64;“Against American and Foreign Insurance Co. (Royal Globe) for $8,917.28 less credit of $2,126.99;“Against Gulf Insurance Company for $22,293.20.“It is further ordered that the cross-complainant take nothing by its cross-complaint.“Plaintiff is awarded its costs of suit, one-fourth of which shall be paid by each defendant.”

6.   For instance, the Gulf policies include the following definitions of the terms “occurrence” and “property damage.”   “ ‘Occurrence’ means an accident, including continuous or repeated exposure to conditions which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”   And “ ‘Property damage’ means (1) physical injury or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.”

7.   The definition of “occurrence” and “property damage” in the two liability policies discussed in California Union are identical for all practical purposes to the definitions contained in the various policies at issue in the present case.

8.   These two insurers appear to occupy the same position for analytical purposes here.   The parties make no attempt to distinguish between them.

9.   AFIC also disputes the manner of apportionment, an issue we discuss, post.

10.   Gulf also contends nothing in the record indicates they were tendered the defense.   The record is silent on this question.   But Gulf has cited no authority for the proposition this could somehow prevent ASIC from prevailing in this declaratory relief action.   As we discuss, post, this is an equitable action in which the trial court possesses broad powers to grant relief.   Gulf has failed to demonstrate the judgment was erroneous for this reason.

SONENSHINE, Associate Justice.

WALLIN, Acting P.J., and CROSBY, J., concur.

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