IMCERA GROUP INC v. LIBERTY MUTUAL INSURANCE COMPANY (1996)

INTRODUCTION

Plaintiff IMCERA Group, Inc. (“IMCERA”) owned property in Santa Clara, California, on which it operated a chemical manufacturing and processing facility from 1934 until 1979, when it sold the property.   In 1988, the new owner of the property sued IMCERA, among others, alleging that IMCERA had discharged hazardous substances onto the soil throughout its period of ownership.   During many, but not all, of those years IMCERA had purchased insurance, both primary and excess, to cover its operations.   It tendered the defense of the action to several of the insurers, who declined to provide a defense.   IMCERA then retained counsel and defended the action, which was ultimately settled.   IMCERA spent approximately $3.3 million in defending the action and settled the case by paying $4.8 million and agreeing to assume full responsibility for all future cleanup costs, estimated to be several million dollars.

Before the settlement, IMCERA filed this action against the insurers, seeking a declaration of its rights to defense costs and indemnity (i.e., the cost of the settlement).   The trial court, in a bench trial, found that four primary insurers were liable for defense costs and that one of those four carriers, Liberty Mutual Insurance Company (“Liberty”), was also liable for indemnity.   None of the excess carriers was found liable.

As to defense costs, the trial court ruled that IMCERA did not have to bear any portion of such costs with respect to time periods when it was uninsured.   The court then apportioned defense costs among the four primary insurers based on the total number of years that each insurer had a duty to defend.   Because Liberty had a duty to defend for the greatest number of years, it was liable for over half of the defense costs.   As to the costs of indemnity, the trial court found that Liberty was liable for approximately $1.75 million of the settlement.   IMCERA and Liberty have appealed from the judgment, challenging various rulings of the trial court.

In the published portion of this opinion, we conclude that Liberty had a duty to defend IMCERA under certain of its policies—those which provided potential coverage for the underlying litigation.   However, the trial court erred in concluding that the language of the policies required the insurers to bear defense costs as to property damage that occurred when IMCERA was not insured.   We find that IMCERA is responsible for defense costs, if any, which Liberty can prove were attributable to uninsured damage.   The trial court also erred in apportioning defense costs among the insurers based on the number of years that each carrier had a duty to defend.   Rather, the court should have applied the “other insurance” provisions in the policies and required the primary insurers to contribute equally to defense costs.   Finally, the trial court did not properly assess the reasonableness of the attorneys' fees IMCERA incurred in the underlying litigation.

In the unpublished portion of the opinion, we conclude that Liberty was not liable for the costs of indemnity and that it is not entitled to an offset under Code of Civil Procedure section 877 for post-judgment settlements between IMCERA and other insurers.

BACKGROUND

IMCERA's property, known as the Agnew site, consisted of 29.77 acres adjacent to the Guadalupe River in the City of Santa Clara, California.   IMCERA's predecessor-in-interest, Commercial Solvents Corporation (“CSC”), owned the site from 1934 to 1975, at which time IMCERA acquired all of CSC's outstanding stock.   CSC was eventually merged into IMCERA.¹  IMCERA owned the property until 1979.

IMCERA operated a chemical manufacturing, processing, drumming, and storage facility at the Agnew site.   Operations at the facility included the denaturing of alcohol and the production of metaldehyde (snail bait), phenolformaldehyde, and various alcohol-based chemicals and solvents.   Drumming operations included the filling, storage, and transfer of containers ranging in size from a single pint to 55–gallon drums.   Beginning in 1972, several tenants leased portions of the site and engaged in chemical storage and drumming activities.

In 1979, IMCERA sold the property to Kimball Small Properties (“Kimball”).   Seven years later, Kimball sold the property to Prometheus Development Company, Inc. (“Prometheus”), which intended to build a residential complex on the site.   In 1988, during the excavation phase of the construction, Prometheus found discolored and odorous soils on the property.   The testing of soil and groundwater samples disclosed the presence of numerous contaminants.   In March 1989, the State of California issued a remedial action order to initiate cleanup of the site.

A. The Underlying Litigation

In July 1988, Prometheus filed a complaint in the United States District Court for the Northern District of California, alleging several causes of action against IMCERA, Kimball, and others based on the contamination of the site.²  Prometheus also filed a related action in the Superior Court of Santa Clara County.

In the federal action, Prometheus alleged in its original complaint that IMCERA had “operated one or more ․ chemical processing plants on the property at various times in the years 1934 to 1979” and had “released onto the property ․ certain hazardous substances, including, but not limited to, chlorinated solvents, volatile aromatic compounds, polynuclear aromatics, phthalates and heavy hydrocarbons.”   These “hazardous substances” were allegedly present “in the soil, groundwater and the ambient environment.”   Pursuant to CERCLA, Prometheus sought to recover the costs “to abate the release and threatened release of hazardous substances on the property.”

In its cause of action for “negligent disposal,” Prometheus alleged that, before 1987, IMCERA had negligently generated, manufactured, stored, and/or transported hazardous substances which were released onto the property.   Finally, in its fraudulent concealment claim, Prometheus alleged that Kimball had fraudulently misrepresented the condition of the property at the time of sale by stating that the site was suitable for residential development and that any hazardous substances had been successfully remediated.   Prometheus later added a claim alleging that IMCERA had fraudulently concealed the presence of contaminants when it sold the property to Kimball.

In August and September 1988, after service of process, IMCERA notified Liberty and certain other insurers of the existence of the Prometheus litigation and requested that they provide a defense.   None of the insurers did so.   IMCERA then selected counsel and paid for its own defense.

In May 1991, the defendants in the Prometheus litigation, including IMCERA, reached a global settlement of the federal and state court lawsuits.   IMCERA paid approximately $4.8 million out of a total settlement by all defendants of $7.5 million.   It also agreed to assume responsibility for all future cleanup costs, estimated to be several million dollars.   IMCERA incurred approximately $3.3 million in attorneys' fees and costs in defending the Prometheus litigation.

B. The Present Action

In September 1990, before settling the Prometheus lawsuits, IMCERA filed this declaratory relief action against numerous insurers, seeking to determine its rights to defense costs and indemnity under various primary and excess insurance policies.   IMCERA eventually amended the complaint to add a cause of action for breach of contract.

The trial court granted summary judgment to most of the excess insurers.   Only three excess carriers—Liberty, Certain Underwriters at Lloyd's London (“Lloyd's”), and The Home Insurance Company (“Home Insurance”)—proceeded to trial.³  The trial court found that there were no excess costs during any year in which an excess policy was applicable and accordingly entered judgment in favor of Lloyd's and Home Insurance.   None of the trial court's rulings with respect to the excess insurers is challenged on this appeal.

As to the four primary insurers, National Union Fire Insurance Company (“National Union”) settled before trial, leaving three primary carriers:  Liberty, International Insurance Company (“International”), and The Home Indemnity Company (“Home Indemnity”).⁴  International and Home Indemnity settled with IMCERA after trial, so only one insurer, Liberty, is before us on appeal.   We therefore turn to the provisions of the Liberty policies relating to primary coverage.

C. The Liberty Policies

Under a series of comprehensive general liability policies, Liberty insured IMCERA from June 30, 1947, through January 1, 1976.⁵

1. The Lost Policies

The Liberty policies covering the period June 30, 1947, through June 30, 1960, were lost.   Neither IMCERA nor Liberty had copies of them.   Accordingly, IMCERA attempted to establish coverage under these policies through secondary evidence, specifically, through Liberty documents called “national risk coverage bulletins.”   Although the bulletins indicate the types of coverage under each policy by listing subject matter categories, they do not otherwise describe or summarize the terms of the policies.   For example, the bulletin for the 1956–1957 policy stated in part, “Accident Defined—B.I. & P.D.,” but did not provide any additional information as to how “accident” was defined in the policy.

The trial court ruled that the bulletins were sufficient to establish the terms of coverage under the missing policies for the period June 30, 1956, to June 30, 1960.   The trial court further concluded that the policies in those years were substantially similar to the existing 1960–1961 policy.   However, for the policies covering the earlier years (June 30, 1947, to June 30, 1956), the trial court found that the bulletins were not sufficient to establish the policy provisions.   As a result of these rulings by the trial court, Liberty's coverage of IMCERA effectively began in June 1956.

2. Policies Covering June 30, 1960, to June 30, 1967

The policies in effect from June 1960 through June 1967 were accident-based policies.   The insuring agreements obligated Liberty “[t]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, accidentally caused.” ⁶  By way of an amendatory endorsement, the phrase “injury to or destruction of property, including the loss of use thereof, accidentally caused” was defined to “include such injury, destruction or loss of use resulting from continuous or repeated exposure to conditions which result[s] in injury during the policy period.”   The policy expressly “applie[d] only to ․ injury to or destruction of property, including loss of use thereof, which occur[s] during the policy period.”

The insuring agreements further provided that, “[w]ith respect to such insurance as is afforded by this policy, [Liberty] shall ․ defend any suit against the insured alleging such injury ․ or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent ․ and the amounts so incurred, except settlements of claims and suits, are payable by [Liberty] in addition to the applicable limit of liability of this policy.”

Under the subheading, “World Wide Coverage, Policy Period Modified,” an endorsement to each of the 1960–1967 policies contained a one-year reporting requirement for certain kinds of property damage.   It stated:  “The policy applies only to ․ injury to or destruction of property, including loss of use thereof, which occur[s] during the policy period anywhere in the world;  except that if the insured at the time a claim is made against it is no longer covered by a liability policy issued by [Liberty], this policy shall not apply ․ to injury to or destruction of property ․ which is caused by exposure to conditions over a period of days, weeks, months, or longer and which is not reported by the insured to [Liberty] within one year after the policy period.”

Finally, the 1960–1967 policies contained a provision that excluded damage to property owned by the insured:  “This policy does not apply ․ to injury to or destruction of ․ property owned by the insured ․ or premises alienated by the named insured.” ⁷

3. Policies Covering June 30, 1967, to June 30, 1971

The policies in effect from June 1967 to June 1971 were occurrence-based policies that obligated Liberty to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ․ property damage to which this policy applies, caused by an occurrence.”   “Occurrence” was defined as “an accident, including injurious exposure to conditions, which results, during the policy period in ․ property damage neither expected nor intended from the standpoint of the insured.” ⁸  “Property damage” was defined as “injury to or destruction of tangible property.”   Each of these policies, like the earlier ones (June 1960–June 1967), applied to property damage occurring only during the policy period.⁹  Liberty also assumed “the right and duty to defend any suit against the insured seeking damages on account of such ․ property damage, even if any of the allegations of the suit are groundless, false or fraudulent.”   As before, Liberty agreed to pay defense costs in addition to the applicable limit of liability.¹⁰

4. Policies Covering June 30, 1971, to January 1, 1976

The policies in effect from June 1971 to January 1976 contained substantially the same provisions or language as the 1967–1971 policies.¹¹  However, a “pollution exclusion” first appeared in these policies.   Under that exclusion, the policies did not apply to “property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids, or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water;  but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.” ¹²

D. The Trial

The trial court found that all four primary carriers (Liberty, National Union, Home Indemnity, and International) owed IMCERA a duty of defense.

Regarding Liberty's response to IMCERA's request for a defense, the trial court found as follows:  “With respect to Liberty Mutual, concededly a proper demand for defense was made on August 23, 1988 and in response to that demand Liberty did nothing.   In March 1989, some six months or so later, Liberty decided to deny coverage but it never notified IMCERA to that effect.  [¶]  After suit for the costs of defense was filed by IMCERA in September, 1990, Liberty denied that it had any duty of indemnity or any duty of defense in an answer filed in October, 1990, some 26 months after the [Prometheus] suit was filed and after the original demand for a defense.  [¶] ․ Liberty's conduct here is characterized as foot dragging and later what the Court would call stonewalling.”  (Italics added.)

In calculating defense costs, the trial court reduced IMCERA's actual costs (approximately $3.3 million) by the amounts it attributed to the defense of the underlying fraud claims ($120,097) and to work performed on insurance coverage issues ($43,150).   The trial court equitably apportioned the remaining sum (approximately $3.1 million) among the four insurers based on the number of years that each insurer had a duty to defend.¹³  The trial court did not allocate any defense costs to IMCERA for periods of time when it was uninsured.

With respect to IMCERA's conduct in polluting the site, the trial court found as follows:  “This was an instance of long chemical use, and of gradual variegated chemical and metallic pollution of the soil and consequent pollution of the water flowing through the soil and into the groundwater.   This was pollution which occurred over an extended period of time.   Any accidents were purely incidental to normal operation of any manufacturing plant and did not change this picture of gradual pollution over time.”   The trial court found that IMCERA intentionally discharged pollutants onto the soil in the regular course of business.   The trial court explained that the contamination took place over a period of years and that “by and large no annual breakdowns can be rationally made.  [¶] The contamination as it occurred is in two phases;  one, the original contamination in the soil;  and two, new areas to which the contaminants would move, either movement through the soil or movement into water and water movement into new soil, and again it is difficult to make any quantitative breakdown in these figures.”   The trial court also found that the contamination of the site began in 1946 and that the processing, drumming, and storage of chemicals ceased in 1979.  “[T]hereafter no new pollutants were put into the ground.   The pollutants already there were merely moving from point to point.”   In other words, “we are dealing with mobile contaminants of numerous types over time.”

Because of the “pollution exclusion” in Liberty's 1971–1976 policies—which excluded coverage for property damage unless the discharge of pollutants was “sudden and accidental”—the trial court found that Liberty did not owe IMCERA a duty of indemnification for the period covered by those policies.   However, the trial court concluded that a duty to indemnify did exist under Liberty's accident-based and occurrence-based policies which did not contain a pollution exclusion (i.e., policies covering June 1956 to June 1971).   The trial court ruled that the other insurers had no duty to indemnify at all.   The trial court then apportioned IMCERA's costs of indemnity (i.e., the settlement in the Prometheus litigation) between Liberty and IMCERA, with IMCERA bearing a proportionate share of the settlement as to years for which Liberty had no duty of indemnification.   Liberty was found liable for approximately $1.75 million of the settlement.

Judgment was entered in IMCERA's favor in September 1993.   IMCERA and Liberty each filed a timely appeal from the judgment.

DISCUSSION

We first examine the parties' arguments regarding Liberty's duty to defend and conclude that, while such a duty existed, the trial court, on remand, will need to redetermine the defense costs Liberty must pay.   In that regard, the trial court must decide what portion of defense costs, if any, is to be borne by IMCERA for property damage that occurred during uninsured periods of time.   In the unpublished portion of the opinion, we analyze whether Liberty had a duty of indemnification and conclude that it did not.   Also, we address whether Liberty is entitled to an offset based on IMCERA's post-judgment settlements with other insurers.

I

The Duty to Defend

The parties raise two principal issues regarding the duty to defend.   First, IMCERA contends that the trial court should have found that the terms of the lost Liberty policies for 1947–1956 were established by the national risk coverage bulletins.   For its part, Liberty argues that the trial court erred in finding that the bulletins sufficiently proved the terms of the missing 1956–1960 policies.   Second, Liberty invokes various exclusions and policy provisions in an effort to defeat the duty to defend—either totally or for certain periods of time.   We consider these contentions seriatim.   Because we conclude that Liberty had a duty to defend under its 1967–1976 policies, we then consider the parties' contentions regarding the calculation and allocation of defense costs.¹⁴

A. The Lost Policies

 Where an insurance policy has been lost, its contents may be proved through secondary evidence.  (Rogers v. Prudential Ins. Co. (1990) 218 Cal.App.3d 1132, 1137, 267 Cal.Rptr. 499;  Evid.Code, §§ 1500, 1505.)   Because the insured bears the burden of establishing that a claim falls within the scope of basic coverage (Royal Globe Ins. Co. v. Whitaker (1986) 181 Cal.App.3d 532, 537, 226 Cal.Rptr. 435), it must provide sufficient evidence of the missing policy's coverage provisions (UNR Industries, Inc. v. Continental Ins. Co. (N.D.Ill.1988) 682 F.Supp. 1434, 1447–1448).   The insured need not prove the policy's contents verbatim;  proof of the substance is sufficient.  (Seaboard National Bank v. Ackerman (1911) 16 Cal.App. 55, 58, 116 P. 91.)

 Although the parties dispute whether IMCERA had to prove the terms of the missing policies by clear and convincing evidence (see Von Hasseln v. Von Hasseln (1953) 122 Cal.App.2d 7, 12, 264 P.2d 205) or a simple preponderance of the evidence (see Weiner v. Fleischman (1991) 54 Cal.3d 476, 487–488, 286 Cal.Rptr. 40, 816 P.2d 892), we need not decide that issue.   Regardless of the burden of proof applicable below, we review the trial court's determination under the substantial evidence test.  (Crail v. Blakely (1973) 8 Cal.3d 744, 750, 106 Cal.Rptr. 187, 505 P.2d 1027.)  “The power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support the trial court's findings․  We must therefore view the evidence in the light most favorable to the prevailing [party], giving [it] the benefit of every reasonable inference and resolving all conflicts in [its] favor․”  (Estate of Leslie (1984) 37 Cal.3d 186, 201, 207 Cal.Rptr. 561, 689 P.2d 133, citations and internal quotation marks omitted.)  “[T]he focus is on the quality, not the quantity of the evidence.   Very little solid evidence may be ‘substantial,’ while a lot of extremely weak evidence might be ‘insubstantial.’ ”  (Toyota Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864, 871–872, 269 Cal.Rptr. 647.)   Indeed, the testimony of a single witness may be sufficient.   (In re Marriage of Birnbaum (1989) 211 Cal.App.3d 1508, 1513, 260 Cal.Rptr. 210.)

The trial court ruled that the national risk coverage bulletins were adequate to prove the contents of the missing Liberty policies for the years June 1956 to June 1960, but were not sufficient as to the June 1947–June 1956 policies.¹⁵  The bulletins described the types of coverage under a given policy by using shorthand phrases and abbreviations to list the coverage by category or subject matter.   For instance, the bulletin for the 1956–1957 policy outlined the coverage as follows:

“All states shown for WC plus

Miss. & Ohio

“B.I.—All Hazards

“P.D.—All Hazards

“Foreign Coverage

“Malpractice—See Policy

“Blanket Contractual

“Accident Defined—B.I. & P.D.”

The bulletins for the other lost policies are of the same character.

IMCERA did not offer any evidence as to the possible meaning of the phrases used in the bulletins.   No one testified, for example, that “Accident Defined—B.I. & P.D.” referred (or might possibly refer) to the same definition of “accident” as used in the 1960–1961 policy, which was the earliest policy in evidence.   Rather, IMCERA relied solely on the bulletins and asked the trial court to infer that the terms of the missing policies were the same as, or substantially similar to, the terms of the 1960–1961 policy.

In support of the view that the bulletins provided incomplete policy information, a claims manager testified that Liberty did not rely on the bulletins to make coverage decisions.   Consistent with that testimony, the trial court “infer[red] that payoffs were not made on the basis of the Risk Bulletins, but rather the actual terms of the policies.”   The trial court commented that “[t]he Risk Bulletin is mere shorthand designed to serve until a policy comes to the branch office a few weeks or a few months later.”

It is beyond dispute that the definitions of a policy's terms, such as “accident” and “occurrence,” often control a coverage determination.   Further, each of the Liberty policies was a manuscript policy, with numerous endorsements.   Significantly, the policies' standard definitions of “accident” and “occurrence” were amended by way of endorsements.¹⁶  Based on the policies IMCERA retained and introduced into evidence (covering June 1960 to January 1976), we know that the terminology used in Liberty's policies changed over the years.   Thus, without some evidence to explain the meaning of the phrases used in the bulletins, the trial court could not properly conclude that the missing 1956–1960 policies were the same as the existing 1960–1961 policy or that the provisions of the missing policies were otherwise sufficiently established.   Moreover, given the fact that Liberty itself did not use the bulletins to make coverage decisions, it would be anomalous for a court to base liability on them.

Because there was no substantial evidence to prove the terms of the 1956–1960 policies, the trial court's ruling as to those policies is reversed.   We affirm the trial court's determination that the evidence did not sufficiently establish the terms of the 1947–1956 policies.   Accordingly, Liberty did not effectively insure IMCERA until the 1960–1961 policy.

B. The Extent of the Insurers' Duty to Defend

We begin by analyzing the duty to defend with respect to the policies' basic coverage and then turn to the policies' exclusions and other provisions.

1. Basic Coverage

 In assessing an insurer's duty to defend, we apply well established principles:  “[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity․  [T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy.   Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify;  an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded.  [¶] The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy․  [F]or 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.   Hence, the duty may exist even where coverage is in doubt and ultimately does not develop.  [¶] The defense duty is a continuing one, arising on tender of defense and lasting until the underlying lawsuit is concluded ․, or until it has been shown that there is no potential for coverage․  Imposition of an immediate duty to defend is necessary to afford the insured what it is entitled to:  the full protection of a defense on its behalf.  [¶] ․ [¶] ․ Any doubt as to whether the facts establish the existence of the defense duty must be resolved in the insured's favor.”   (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295, 299–300, 24 Cal.Rptr.2d 467, 861 P.2d 1153, citations and internal quotation marks omitted;  italics in original [hereafter Montrose I ].)

 Under all of the existing Liberty policies (1960–1976), IMCERA was insured for injury to or destruction of property.   Each policy, whether accident-based or occurrence-based, incorporated the requirement of an “accident” into the grant of basic coverage.   We assume arguendo that an “accident” is a sudden, unintended, and unexpected event.  (See Geddes & Smith, Inc. v. St. Paul Mercury Indemnity Co. (1959) 51 Cal.2d 558, 563–564, 334 P.2d 881.) ¹⁷  Further, the occurrence-based policies (1967–1976) required that the property damage be “neither expected nor intended from the standpoint of the insured.”   In other words, coverage was excluded if the insured knew or believed that its conduct was substantially certain or highly likely to cause the property damage at issue.  (Shell Oil Co. v. Winterthur Swiss Ins. Co., supra, 12 Cal.App.4th at pp. 743–748, 15 Cal.Rptr.2d 815 [hereafter Shell Oil Co.].)   Under these principles, we conclude that the basic coverage provisions of the Liberty policies entitled IMCERA to a defense of the Prometheus litigation.

Applying Montrose I, we compare the allegations of the underlying complaint with the terms of the policy to determine whether the action potentially sought damages within the policy's coverage.  (6 Cal.4th at p. 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)   The allegations in the Prometheus litigation were consistent with the possibility that the discharge of pollutants had been sudden.  (See Shell Oil Co., supra, 12 Cal.App.4th at pp. 755–756, 15 Cal.Rptr.2d 815 [discharge is sudden if it is abrupt or immediate in nature, and it need not terminate quickly or have only a brief duration].)   Further, the complaint did not allege intentional or willful conduct on IMCERA's part.   To the contrary, it asserted (in a cause of action for “negligent disposal”) that IMCERA had negligently generated, manufactured, stored, and/or transported hazardous substances which were released onto the property.¹⁸  The allegations were therefore silent, or neutral, as to IMCERA's intent, with the exception of the negligent disposal claim.   Nothing in the complaint suggested that IMCERA's conduct involved the intentional, expected, or non-sudden discharge of contaminants.   Moreover, the Prometheus allegations were entirely consistent with the possibility that IMCERA had neither expected nor intended the kind or extent of property damage that allegedly took place.   Finally, the complaint raised the possibility that property damage had occurred during each of the policy periods.  (See Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 677–689, 42 Cal.Rptr.2d 324, 897 P.2d 1 [adopting continuous injury trigger of coverage for property damage occurring over successive policy periods] [hereafter Montrose II ].)   Thus, the potential for coverage existed.

In the language of Montrose I:  “[The insurer] misconceives what is at issue in an action seeking declaratory relief on the issue of the duty to defend.   To prevail, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential.   In other words, the insured need only show that the underlying claim may fall within policy coverage;  the insurer must prove it cannot.   Facts merely tending to show that the claim is not covered, or may not be covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of the action) will fall within the scope of coverage, therefore add no weight to the scales.”  (6 Cal.4th at p. 300, 24 Cal.Rptr.2d 467, 861 P.2d 1153, italics in original.)

Putting aside the allegations in the Prometheus litigation, Liberty relies on the principle that extrinsic evidence can be used to determine whether a duty to defend exists.  (See Montrose I, supra, 6 Cal.4th at pp. 296–299, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)   In essence, Liberty points to the trial court's ultimate finding that IMCERA intentionally discharged pollutants—a finding made in IMCERA's declaratory relief action below—to argue that there was no duty to defend the earlier, Prometheus litigation.   We reject this argument for several reasons.

 The existence of a duty to defend turns “upon those facts known by the insurer at the inception of the third party lawsuit.”  (Montrose I, supra, 6 Cal.4th at p. 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153, italics added.)  “[T]he duty to defend is determined by the information possessed by the insurer at the time it refuses to defend, not by information subsequently obtained.”  (Amato v. Mercury Casualty Co. (1993) 18 Cal.App.4th 1784, 1787, 23 Cal.Rptr.2d 73, italics added.)   Here, Liberty did not know at the inception of the Prometheus litigation that IMCERA had intentionally contaminated the property.   Nor can Liberty blame its lack of knowledge on IMCERA.   Even assuming that IMCERA, as a corporate entity, should be imputed with the knowledge of all of its employees (i.e., deemed to know that pollutants had been intentionally discharged), it was the obligation of the insurer, at the time a defense was requested, to adequately investigate and determine whether intentional discharges or property damage had occurred.  “The defense duty is a continuing one, arising on tender of defense and lasting until the underlying lawsuit is concluded ․, or until it has been shown that there is no potential for coverage.”  (Montrose I, supra, 6 Cal.4th at p. 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153, italics in original.)   As the trial court found, Liberty “did nothing” in response to IMCERA's demand for a defense.   Liberty did not adequately investigate the allegations in the Prometheus litigation for two years after IMCERA requested a defense—and only then investigated as a result of IMCERA's suit on the policies.   In short, Liberty has not established that potential coverage was lacking at any point before IMCERA settled the Prometheus litigation.

Moreover, Liberty's position, if correct, would collapse the duty to defend into the duty to indemnify.   However, the duty to defend is broader than the duty to indemnify and does not turn upon the ultimate adjudication of coverage.  (Montrose I, supra, 6 Cal.4th at p. 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)   The obligation to provide a defense rests upon the potential for coverage.  (Ibid.)  Yet, Liberty's contention ignores this distinction.   Its argument would strip every insured of a defense where, in a declaratory relief action on the policy, the evidence ultimately established no coverage in fact.   The law is to the contrary.  (See Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 54 Cal.Rptr. 104, 419 P.2d 168 [although insured was found liable for assault, such that no coverage or duty to indemnify existed, insurer still had obligation to provide a defense].)

The court's conclusion in Montrose I is pertinent here:  “[W]e conclude that [the insured] showed, prima facie, that the CERCLA complaint fell within the coverage of the various policies.   Although the CERCLA complaint did not specify whether [the insured] negligently or intentionally disposed of DDT process wastes—and therefore was, as the trial court observed, ‘neutral’ on the question of coverage—its allegations sufficed to raise the possibility that [the insured] would be liable for property damage covered by the policies.   Extrinsic evidence adduced by the insurers did not eliminate that possibility, but merely placed in dispute whether [the insured's] actions would eventually be determined not to constitute an occurrence or to fall within one or more of the exclusions contained in the policies.   For instance, the fact that toxic discharges occurred over a lengthy period during which [the insured] operated its ․ facility does not, without more, establish that [it] expected or intended the property damage that allegedly resulted․  And the fact that [the insured's] regular business practices involved the disposal of [contaminants] could not eliminate the possibility that at least some of the property damage might have resulted from accidental causes.”  (6 Cal.4th at p. 304, 24 Cal.Rptr.2d 467, 861 P.2d 1153, citations omitted.)

2. The “Known Loss” Rule

 Insurance Code section 22 defines “insurance” as a “contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”  (Italics added.)  Insurance Code section 250 provides that “any contingent or unknown event, whether past or future, which may ․ create a liability [against a person], may be insured against.”  (Italics added.)   Arguably, when IMCERA obtained one or more of the Liberty policies, it knew about the pollution at the Agnew site and that a cleanup was inevitable.   However, we reject the contention that IMCERA's alleged knowledge of the pollution barred potential coverage for the Prometheus litigation under Insurance Code sections 22 and 250.

That contention ignores the statutes' disjunctive phrase “contingent or unknown event.”   Even if IMCERA knew about the pollution, its liability for that damage was still contingent when it purchased the Liberty policies.   As our Supreme Court recently explained:  “[I]n the context of continuous or progressively deteriorating property damage or bodily injury insurable under a third party [comprehensive general liability] policy, as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been established, there is a potentially insurable risk within the meaning of sections 22 and 250 [of the Insurance Code] for which coverage may be sought.   Stated differently, the [known loss] rule will not defeat coverage for a claimed loss where it had yet to be established, at the time the insurer entered into the contract of insurance with the policyholder, that the insured had a legal obligation to pay damages to a third party in connection with a loss.”  (Montrose II, supra, 10 Cal.4th at p. 693, 42 Cal.Rptr.2d 324, 897 P.2d 1, italics in original.)

When IMCERA purchased the Liberty policies, its liability for polluting the Agnew site had not been established, it had no legal obligation to pay any claims to third parties because of the pollution, and there remained an uncertainty about future property damage (e.g., through the migration of contaminants).   Accordingly, the “known loss” rule did not prevent IMCERA from obtaining policies from Liberty for the damages sought in the Prometheus litigation.

3. The Pollution Exclusion

 Liberty contends that the pollution exclusion (in the policies covering 1971–1976) foreclosed the possibility of coverage and thus defeated the duty to defend.   By its own terms, the pollution exclusion did not apply if the discharge of pollutants was “sudden and accidental.”   As already explained in our discussion of basic coverage, the Prometheus complaint was consistent with the possibility that the discharge of contaminants had been sudden, accidental, unexpected, and unintended.   Consequently, the pollution exclusion did not defeat the duty to defend.  (See Vann v. Travelers Companies (1995) 39 Cal.App.4th 1610, 1615–1618, 46 Cal.Rptr.2d 617.)

4. The “Owned Property” Exclusion

 Liberty's 1960–1967 policies excluded coverage for damage to property owned or alienated by the insured.  (See fn. 9, ante.)   Assuming arguendo that cleanup costs associated with an insured's own property are typically not covered under such a policy (see AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 819, fn. 7, 274 Cal.Rptr. 820, 799 P.2d 1253), the Prometheus complaint nevertheless alleged that groundwater had been contaminated.   It is well settled that the state and federal governments, not IMCERA, owned the groundwater.  (Intel Corp. v. Hartford Acc. & Indem. Co. (9th Cir.1991) 952 F.2d 1551, 1565;  Wat.Code, § 102.)   Further, the complaint did not rule out the possibility that pollutants from the Agnew site had migrated to and contaminated the property of third persons.   Finally, the complaint allowed for the scenario in which IMCERA would have to clean up its own property to prevent imminent or certain damage to the property of others.   Such cleanup costs would fall within coverage.  (Vann v. Travelers Companies, supra, 39 Cal.App.4th at pp. 1618–1619, 46 Cal.Rptr.2d 617;  Shell Oil Co., supra, 12 Cal.App.4th at pp. 756–758, 15 Cal.Rptr.2d 815;  Intel Corp. v. Hartford Acc. & Indem. Co., supra, 952 F.2d at pp. 1565–1566.)   Thus, despite the “owned property” exclusion, the complaint created potential coverage for several categories of damage.

5. The One–Year Reporting Requirement

Liberty's 1960–1967 policies stated that “if the insured at the time a claim is made against it is no longer covered by a liability policy issued by [Liberty], this policy shall not apply ․ to injury to or destruction of property ․ which is caused by exposure to conditions over a period of days, weeks, months, or longer and which is not reported by the insured to [Liberty] within one year after the policy period.”  (Italics added.)

IMCERA was no longer insured by Liberty after 1976, and it first reported the Prometheus claim to Liberty in 1988, significantly more than a year after each of the 1960–1967 policies had expired.   Consequently, at the inception of the Prometheus litigation, the one-year reporting provision undoubtedly barred any potential for coverage under those policies.   However, the trial court found the reporting requirement unenforceable and concluded that Liberty owed IMCERA a defense as to those policy periods.   We disagree.

a. Ambiguity

 Unlike the trial court, we do not find the reporting provision ambiguous.   Although the provision combines characteristics of an occurrence policy and a claims-made policy,¹⁹ the hybrid nature of the provision does not render it susceptible to more than one reasonable interpretation.  (See Union Oil Co. v. International Ins. Co. (1995) 37 Cal.App.4th 930, 935, 44 Cal.Rptr.2d 4 [policy term is ambiguous only if it is susceptible to two or more reasonable interpretations that do not strain policy language].)   As the Rhode Island Supreme Court recently stated in upholding the validity of an identical provision:  “[W]e perceive no ambiguity and find the terms and scope of coverage readily apparent.   Given their plain and ordinary meaning, these provisions clearly impose two requirements before coverage attaches:  (1) the property damage must occur during the policy period, and (2) if [the insured] is no longer insured by Liberty, such damage must be reported within one year of the expiration of the policy.”  (Textron, Inc. v. Liberty Mut. Ins. Co., supra, 639 A.2d at p. 1363.)

b. Compliance with Insurance Code section 11580.01

 The claims-made nature of the reporting provision did not bring the policies within the reach of Insurance Code section 11580.01 (hereafter section 11580.01), which obligates an insurer to include a specified notice in certain types of claims-made policies.²⁰

According to its express terms, section 11580.01 is limited to policies covering the liability of health care professionals and attorneys.   (Ins.Code, § 11580.01, subd. (a).) ²¹  IMCERA's policies fell into neither category.²²  In addition, the statute governs policies that limit coverage to claims made against the insured “while the policy is in force.”  (Ins.Code, § 11580.01, subd. (a).)  That is not the situation here.   The reporting provision allowed a claim to be made within a year after the policy had expired, and it did not apply at all if the claim was made while IMCERA was still insured by Liberty.   In fact, because IMCERA continued to obtain liability insurance from Liberty through 1976, the reporting provision did not terminate coverage under the 1960–1967 policies for ongoing property damage until several years after the policies were no longer “in force.”   Finally, because the notice required by section 11580.01 would have identified Liberty's policies as claims-made policies when, in fact, they were not that type of policy (see fn. 19, ante ), the statute was not applicable.

c. Invalid Restraint on Business

The trial court concluded that the reporting provision, on its face, constituted an unlawful tying arrangement and an unreasonable restraint on trade.   However, the record before us does not support either conclusion.

 “[A] tying arrangement may be defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier.”  (Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 856, 94 Cal.Rptr. 785, 484 P.2d 953.)  “Tying arrangements are illegal per se whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product ․ and when a total amount of business, substantial enough in terms of dollar-volume so as not to be merely de minimis, is foreclosed to competitors by the tie.”  (Id. at pp. 856–857, 94 Cal.Rptr. 785, 484 P.2d 953, citations and internal quotation marks omitted.)   In the present case, no evidence was offered either to establish Liberty's economic power in the market for comprehensive general liability policies or to prove what effect, if any, the one-year reporting requirement had on competition.   The trial court therefore lacked a basis for declaring the provision to be an invalid tying arrangement.

 Similarly, there was no evidence to support the trial court's conclusion that the provision was an unreasonable restraint on trade under the common law or Insurance Code section 790.03, subdivision (c).²³  In determining whether a restraint is unreasonable, the courts “ordinarily consider the facts peculiar to the business to which the restraint is applied;  its condition before and after the restraint was imposed;  the nature of the restraint and its effect, actual or probable.   The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained are all relevant facts․  The court should consider the percentage of business controlled, the strength of the remaining competition [and] whether the action springs from business requirements or purpose to monopolize.”  (Corwin v. Los Angeles Newspaper Service Bureau, Inc., supra, 4 Cal.3d at p. 854, 94 Cal.Rptr. 785, 484 P.2d 953, citations and internal quotation marks omitted.)   Because there was no evidence as to any of these factors, the trial court erred in declaring the reporting clause to be an unreasonable restraint on trade.²⁴

In Pacific Employers Ins. Co. v. Superior Court (1990) 221 Cal.App.3d 1348, 270 Cal.Rptr. 779, the insured argued that a claims-made policy violated public policy by unfairly restricting her freedom to contract.   More specifically, the insured argued that if a claim were made near the end of a policy's term, she would be forced to renew the policy in order to comply with the reporting requirement and ensure coverage.   The court rejected the insured's position, stating:  “Insureds are not held ‘hostage’ by a ‘claims made and reported’ provision.   An insured has the option of either purchasing another ‘claims made’ policy from the initial insurer to extend the period of coverage, or purchasing a policy with retroactive coverage with another insurer.   An insured is not locked into a contractual relationship with the initial insurer because nothing interferes with the freedom to pursue either alternative.”   (Id. at p. 1360, 270 Cal.Rptr. 779.)   In this case, IMCERA does not dispute that it could have either continued to renew its liability policies with Liberty, switched to a pure claims-made policy, or purchased insurance with retroactive coverage.

In sum, “the reporting requirement in Liberty's policies does not operate either to tie [the insured] to Liberty after the expiration of its policies or unduly [to] restrict [the insured's] ability to obtain adequate protection elsewhere.”  (Textron, Inc. v. Liberty Mut. Ins. Co., supra, 639 A.2d at p. 1367, internal quotation marks omitted.) ²⁵

d. The “Notice–Prejudice” Rule

 “The notice-prejudice rule operates to prevent an insurance company from denying coverage based on a breach of the policy's notice requirements unless the insurance company shows actual prejudice from the delay.”  (Helfand v. National Union Fire Ins. Co., supra, 10 Cal.App.4th at p. 887, 13 Cal.Rptr.2d 295.)   IMCERA maintains that even if the reporting provision is enforceable, it should not be applied in this case because Liberty was not prejudiced by IMCERA's failure to comply with it.

IMCERA's argument fails to distinguish between a “notice” provision, to which the prejudice rule applies, and a reporting requirement, to which it does not.   Liberty's 1960–1967 accident-based policies contained not only the reporting requirement but also a notice provision;  the latter provided that “[w]hen an accident occurs written notice shall be given by or on behalf of the insured to the company or any of its authorized agents as soon as practicable.”  (Italics added.)   Because a reporting requirement, unlike a notice provision, is part of the grant of basic coverage, the prejudice rule does not apply to it.

 As the Rhode Island Supreme Court explained in Textron, Inc. v. Liberty Mut. Ins. Co., supra:  “[The insured] errs in its characterization ․ of clause seven [the reporting requirement] as a notice provision.   In order to expose the error in this characterization, we must explore the differences between notice provisions and reporting requirements.   Whereas both types of provisions require a literal ‘notification’ of the insurer, the notification serves materially different purposes in the two provisions.   In the case of a notice provision, which is typically found in occurrence and claims-made policies and usually requires notice ‘as soon as practicable,’ the notification serves to facilitate the timely investigation of claims by bringing an event to the attention of the insurer and allows an inquiry ‘before the scent of factual investigation grows cold.’  ․ In contrast, in the case of a reporting requirement, ․ the prescribed notification actually defines the scope of coverage provided by the policy, as the ‘transmittal of notice of the claim to the insurance carrier’ is the event that triggers coverage․  When we view it against this background, we think it quite clear that the notification requirement in clause seven operates to define the scope of coverage and may be appropriately characterized as part and parcel of the coverage granted by Liberty.”  (639 A.2d at p. 1364, citations omitted.)

Based on the distinction between a notice provision and a reporting requirement, the court in Textron concluded that the prejudice rule does not apply to the latter:  “[W]e consider that the reporting requirement operates substantively to define the scope of coverage, as opposed merely to facilitate the insurer's investigation of a claim.   The very nature of the coverage provided required reporting within a specific timeframe.   Given this fact, excusing Textron's delay would alter a fundamental term of the policy in respect to property damage․  [¶] ․ [A]pplication of the notice-prejudice rule and excusal of noncompliance with the reporting requirement would result in a dramatically enhanced expansion of coverage for [the insured] and an increased risk of exposure for Liberty that was not contemplated in the original bargain.”  (639 A.2d at pp. 1365–1366.)   Other courts, including those in California, have also refused to apply the prejudice rule to similar reporting requirements.  (See, e.g., Helfand v. National Union Fire Ins. Co., supra, 10 Cal.App.4th at pp. 887–888, 13 Cal.Rptr.2d 295;  Slater v. Lawyers' Mutual Ins. Co. (1991) 227 Cal.App.3d 1415, 1419–1424, 278 Cal.Rptr. 479;  Zuckerman v. Nat. Union Fire Ins. (1985) 100 N.J. 304, 322–324 [495 A.2d 395, 405–406];  Gulf Ins. Co. v. Dolan, Fertig and Curtis (Fla.1983) 433 So.2d 512, 515–516.)   We see no reason to depart from these authorities.²⁶  Because IMCERA did not notify Liberty of any property damage in accordance with the reporting provision, there was no potential coverage under the 1960–1967 policies.   Thus, Liberty had no duty to defend under those policies.

In conclusion, the basic coverage provisions in Liberty's 1960–1976 policies did not defeat the duty to defend, nor did the “known loss” rule, the pollution exclusion (in the 1971–1976 policies), or the “owned property” exclusion (in the 1960–1967 policies).   However, the one-year reporting requirement precluded a duty to defend under the 1960–1967 policies.   Thus, Liberty had a duty to defend only under its 1967–1976 policies.

C. The Calculation of Defense Costs

IMCERA sought to recover total expenses of $3,285,107.43 (attorneys' fees of $2,930,221.20 and costs of $354,886.23) incurred in defending the Prometheus litigation.   From this total, the parties agreed that the trial court should deduct $43,150 for expenses related to insurance coverage issues.   From the remaining amount ($3,241,957.43), the trial court subtracted $120,097 in fees and costs it attributed to the defense of the underlying fraud claims.   The trial court awarded IMCERA the balance of $3,121,860.43.

IMCERA argues that the trial court incorrectly reduced its actual costs by the amount the court attributed to defending the underlying fraud claims;  Liberty contends that the trial court abused its discretion in deciding that the remaining expenses were reasonable.   We conclude that the $120,097 deduction was proper but that the trial court erred in assessing the reasonableness of the remaining expenses.

1. Expenses Attributable to Fraud Claims

 “The rule is settled that an insurer is under a duty to defend a claim whenever the allegations of a complaint would support a recovery upon a risk covered by the policy․  [¶] The cases which have considered apportionment of attorneys' fees upon the wrongful refusal of an insurer to defend an action against its insured generally have held that the insurer is liable for the total amount of the fees despite the fact that some of the damages recovered in the action against the insured were outside the coverage of the policy․  In its pragmatic aspect, any precise allocation of expenses in this context would be extremely difficult and, if ever feasible, could be made only if the insurer produces undeniable evidence of the allocability of specific expenses;  the insurer having breached its contract to defend should be charged with a heavy burden of proof of even partial freedom from liability for harm to the insured which ostensibly flowed from the breach.”  (Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 563–564, 91 Cal.Rptr. 153, 476 P.2d 825, citations omitted;  accord, Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.)

 Thus, an insurer need not pay defense costs incurred on a noncovered claim, as long as the insurer produces sufficient evidence of allocation to the insured.  (See California Union Ins. Co. v. Club Aquarius (1980) 113 Cal.App.3d 243, 247–248, 169 Cal.Rptr.2d 685 [in bifurcated trial, jury's findings on liability established that insurer not obligated to pay defense costs as to damages phase of trial].)   Here, Liberty produced sufficient evidence to justify an allocation to IMCERA.

 The underlying fraud claims were not covered under Liberty's policies.  (See Hurley Construction Co. v. State Farm Fire & Casualty Co. (1992) 10 Cal.App.4th 533, 539, 12 Cal.Rptr.2d 629 [fraudulent act is not an “accident” or “occurrence” under comprehensive general liability policy];  see also North County Contractor's Assn. v. Touchstone Ins. Services (1994) 27 Cal.App.4th 1085, 1093, 33 Cal.Rptr.2d 166.)   The trial court had before it the billing invoices that described by subject matter the work performed by IMCERA's defense attorneys.   Further, Liberty offered the expert opinion of Brand Cooper, an attorney and litigation management specialist, who testified that, based on his review of the billing invoices, IMCERA had expended $120,097 in defending the fraud claims.   The trial court deducted that amount.

Because substantial evidence supported the trial court's determination, we will not disturb it, even though Liberty, having wrongfully refused to provide a defense, had a “heavy burden of proof” as to allocation.   (See Crail v. Blakely, supra, 8 Cal.3d at p. 750, 106 Cal.Rptr. 187, 505 P.2d 1027 [appellate court uses substantial evidence test regardless of burden of proof applicable at trial].) ²⁷

2. Reasonableness of Attorneys' Fees

 Where an insurer wrongfully refuses to provide a defense, it “is manifestly bound to reimburse its insured for the full amount of any obligation reasonably incurred by him․  If there be uncertainty as to the nature or extent of the services reasonably to be rendered by counsel engaged by the insured, that uncertainty must be resolved against [the] insurer.”   (Arenson v. National Auto. & Cas. Ins. Co. (1957) 48 Cal.2d 528, 539, 310 P.2d 961.)

 In determining whether attorneys' fees are reasonable, the trial court should consider several factors, including:  the nature of the litigation and its difficulty;  the amount of money involved in the litigation;  the extent of success in the case;  the skill required and employed in handling the litigation;  the attorney's learning, age, and experience in the particular type of work demanded;  the intricacy and importance of the litigation;  the labor and necessity for skilled legal training and ability in trying the case;  and the amount of time spent on the case.  (Niederer v. Ferreira (1987) 189 Cal.App.3d 1485, 1507, 234 Cal.Rptr. 779;  Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623–624, 134 Cal.Rptr. 602.)   The trial court may also rely on its own experience and knowledge in awarding fees.  (Niederer v. Ferreira, supra, 189 Cal.App.3d at p. 1507, 234 Cal.Rptr. 779.)   The party seeking an award of attorneys' fees has the burden of proving their reasonableness.  (Fed–Mart Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215, 224, 168 Cal.Rptr. 525;  Diamond v. John Martin Co. (9th Cir.1985) 753 F.2d 1465, 1467 [applying California law].)   On appeal, the trial court's determination will be reviewed for an abuse of discretion.  (Niederer v. Ferreira, supra, 189 Cal.App.3d at p. 1507, 234 Cal.Rptr. 779.)

 Our review of the trial court's statement of decision leads us to conclude that the court erred in assessing the reasonableness of the attorneys' fees incurred by IMCERA in defending the Prometheus litigation.²⁸  The trial court placed primary emphasis on the fact that IMCERA had already paid the fees to its defense attorneys and that its corporate counsel had reviewed and approved the billing statements.   Although the trial court found that the underlying case had been overstaffed, resulting in a “duplication of services,” it nevertheless concluded that “[i]t is not up to the Court to determine how the legal profession should be run and to work out more efficient practices.   That is up to the client.”   The trial court also found that “[a]s in any large case there is some wastage.   In this instance 47 different lawyers were working on the Agnew case but when we consider lawyers working 100 hours or more, there were 12 lawyers.   That is still excessive in my view but this is the way these cases are run these days.  [¶] There is wastage in any case.   We do not know how much of that wastage was taken out by [IMCERA's defense attorneys], and we do not know how much wastage was taken out by [IMCERA's corporate counsel] in reviewing and approving these bills.”

The case law does not attempt to provide an exclusive list of factors to consider in awarding attorneys' fees.  (See Niederer v. Ferreira, supra, 189 Cal.App.3d at p. 1507, 234 Cal.Rptr. 779.)   Hence, the trial court could take into account the fact that IMCERA had actually paid the requested fees and that its corporate counsel had approved them.   However, these factors should not be given primary weight, lest the trial court give too much deference to the decisions of the party seeking the award.   An insurer's refusal to provide a defense should not constitute a blank check for the insured's defense counsel.   The trial court must independently decide whether the expenditures were reasonable, giving primary consideration to all of the factors set forth in Niederer v. Ferreira, supra, 189 Cal.App.3d at page 1507, 234 Cal.Rptr. 779, and Melnyk v. Robledo, supra, 64 Cal.App.3d at pages 623–624, 134 Cal.Rptr. 602.  (Cf. Kershaw v. Maryland Casualty Co. (1959) 172 Cal.App.2d 248, 258, 342 P.2d 72 [if fees paid by the insured are not “obviously excessive,” they are presumed reasonable “unless the contrary appears”].)

Further, in making an award of fees, the trial court should consider whether there has been overstaffing or duplication of services.   The client is not the sole arbiter on that subject.   In ruling on a request for fees, the trial court has an obligation to discourage such conduct by reducing the award in an appropriate amount.

Moreover, having found “wastage” in the defense of the underlying litigation, the trial court could not award 100 percent of the requested fees since it could not discern if that wastage had been eliminated from IMCERA's billing statements.   In requesting fees, IMCERA had the burden of establishing that any wastage was not included in the billing records submitted to the trial court, i.e., that such time was written off.  (See Leroy v. City of Houston (5th Cir.1987) 831 F.2d 576, 585–586 & fn. 15, cert. den. 486 U.S. 1008, 108 S.Ct. 1735, 100 L.Ed.2d 199.)   Consequently, the trial court erred in making a full-fee award without ascertaining whether the wastage was included in the requested amount of fees.

 Finally, we reject Liberty's contention that the trial court could not apply a “marketplace standard” in awarding fees.   Liberty relies on our decision in Center Foundation v. Chicago Ins. Co. (1991) 227 Cal.App.3d 547, 278 Cal.Rptr. 13 for the proposition that “the duty of good faith imposed upon an insured includes the obligation to act reasonably in selecting as independent counsel an experienced attorney qualified to present a meaningful defense and willing to engage in ethical billing practices susceptible to review at a standard stricter than that of the marketplace.   Conduct arguably acceptable in the ordinary attorney-client relationship where the latter pays the former from his own pocket is not necessarily appropriate in the tripartite context created when independent counsel undertakes to represent the insured at the expense of the insurer.”  (Id. at p. 560, 278 Cal.Rptr. 13, italics added, fn. omitted.)

In Center Foundation, the insurers had agreed to provide a defense under a reservation of rights, and the conflicting interests between the insurers and the insureds permitted the latter to retain independent counsel at the insurers' expense.  (227 Cal.App.3d at pp. 550–553, 278 Cal.Rptr. 13.)   We commented that “there may be situations where a client chooses to pay more than a reasonable person might conclude is appropriate under the circumstances” (id. at p. 560, fn. 11, 278 Cal.Rptr. 13), but that such marketplace conduct may not be acceptable in a “tripartite” relationship—between insurer, insured, and independent counsel (id. at p. 560, 278 Cal.Rptr. 13).

In contrast, where, as here, the insurer abandons its insured, with no response either way on providing a defense, the tripartite context described in Center Foundation is not present, and the insured finds itself in the ordinary attorney-client relationship, paying attorneys' fees from its own pocket.   The insurer, as a result of its own decision, is not part of the picture.   Because the insured is left to fend for itself in the legal marketplace, it is only fair that its decisions and expenses should be evaluated under a marketplace standard.

As our Supreme Court has indicated, “An insurance company may not wrongfully refuse to defend its insured and thus force the insured into the position of having to engage outside counsel, and then, because the defense was not handled in a manner to the liking of the [insurer], refuse to hold the insured harmless against payment of fees for all services reasonably performed in such defense.”  (Arenson v. National Auto. & Cas. Ins. Co., supra, 48 Cal.2d at p. 538, 310 P.2d 961.) ²⁹

Because the trial court abused its discretion in assessing the reasonableness of IMCERA's attorneys' fees, we remand this issue for redetermination consistent with the views expressed herein.

D. The Allocation of Defense Costs

The trial court allocated defense costs among the four primary insurers based on the number of years that each insurer owed IMCERA a duty of defense.  (See fn. 13, ante.)   Liberty argues that the trial court committed two errors in that regard:  (1) the court should have made IMCERA bear a portion of the costs based on the number of years that it was “uninsured” (i.e., either without insurance or unable to prove the contents of its policies);  and (2) defense costs should have been apportioned among the insurers in “equal shares” according to the policies' “other insurance” provisions.

1. Allocation of Defense Costs to IMCERA

In the Prometheus litigation, the complaint alleged that IMCERA had discharged pollutants at the Agnew site from 1934 to 1979 and that property damage had continued after 1979 in the form of soil and groundwater contamination.   Apparently based on its belief that the property damage continued until 1988 (when Prometheus sued IMCERA), Liberty contends that defense costs should be spread over a 54–year period, from 1934 to 1988.   Since IMCERA was effectively uninsured during approximately 36 of those years, the argument goes, it should bear two-thirds (or thirty-six fifty-fourths) of the defense costs.³⁰

IMCERA points out that its policies obligated the insurers to pay “all sums” which it became legally obligated to pay as damages because of injury to or destruction of property.   If property damage occurred during one of the policy periods, the insurer had to pay “all sums” resulting from that damage.   The policies did not state that the insurer would pay only some of the damages sustained during the policy period.   Indeed, we have previously held that once property damage begins during a policy period, the insurer remains liable for any damage that continues after the expiration of the policy.  (California Union Ins. Co. v. Landmark Ins. Co. (1983) 145 Cal.App.3d 462, 465, 474–478, 193 Cal.Rptr. 461;  see Montrose II, supra, 10 Cal.4th at pp. 679–680, 680, fn. 18, 686, 42 Cal.Rptr.2d 324, 897 P.2d 1;  see also Owens–Illinois, Inc. v. United Ins. Co. (1994) 138 N.J. 437, 464–465 [650 A.2d 974, 988–989].) ³¹

In this case, the trial court found that “the one occurrence for which recovery was sought [in the Prometheus litigation] was slow, gradual, unknown chemical manufactured pollution over a 50–year period at a single location, brought about by leakage and dumpage.”   The trial court also found that the contamination occurred in two steps:  pollutants were discharged onto the soil and thereafter migrated through the soil and groundwater.   Thus, according to IMCERA, because the property damage consisted of a single ongoing process that spanned several policy periods, the “all sums” language of the policies required that defense costs be allocated solely among the insurers.

This position finds support in Keene Corp. v. Ins. Co. of North America (D.C.Cir.1981) 667 F.2d 1034, certiorari denied 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (hereafter Keene ), a case involving insurance coverage for injuries caused by long-term exposure to asbestos.   In Keene, the District of Columbia Circuit concluded that the insured (Keene) should not bear any portion of defense costs for years in which it was uninsured.  (Id. at pp. 1047–1051.)   As the court explained:  “Our starting point is the interpretation of the policies as the insurers' promises of certainty to Keene.   The policies that were issued to Keene relieved Keene of the risk of liability for latent injury of which Keene could not be aware when it purchased insurance.   Keene did not expect, nor should it have expected, that its security was undermined by the existence of prior periods in which it was uninsured, and in which no known or knowable injury occurred.   If, however, an insurer were obligated to pay only a pro-rata share of Keene's liability, as the district court held, those reasonable expectations would be violated.   Keene's security would be contingent on the existence and validity of all the other applicable policies.   Each policy, therefore, would fail to serve its function of relieving Keene of all risk of liability.   The logical consequence of this is that the policies must require that once an insurer's coverage is triggered, the insurer is liable to Keene to the full extent of Keene's liability up to its policy's limits, but subject to “other insurance” clauses․”  (Id. at p. 1047, fn. omitted;  accord, J.H. France Refractories v. Allstate (1993) 534 Pa. 29, 39–42 [626 A.2d 502, 507–509] [concluding that insurers should bear all defense costs even though manufacturer was uninsured while some injury occurred].)

A contrary view is expressed in Ins. Co. of North America v. Forty–Eight Insulations (6th Cir.1980) 633 F.2d 1212, clarified 657 F.2d 814, certiorari denied 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (hereafter Forty–Eight Insulations ), which also involved coverage for asbestos-related injuries.   In that case, the Sixth Circuit held that the insured (Forty–Eight) had to pay its “fair share” of defense costs for uninsured periods.   The court reasoned as follows:  “Forty–Eight argues that so long as any insurance company had a duty to defend, it (Forty–Eight) should not be liable for any costs of defense, even if part or most of the underlying lawsuit concerned periods of time when Forty–Eight was uninsured.  [¶] We cannot agree․  [¶] ․ The duty to defend arises solely under contract.   An insurer contracts to pay the entire cost of defending a claim which has arisen within the policy period.   The insurer has not contracted to pay defense costs for occurrences which took place outside the policy period.   Where the distinction can be readily made, the insured must pay its fair share for the defense of the non-covered risk.   The different insurance companies will pro-rate defense costs among themselves.   It is reasonable to treat Forty–Eight as an insurer for those periods of time that it had no insurance coverage.   Were we to adopt Forty–Eight's position on defense costs a manufacturer which had insurance coverage for only one year out of 20 would be entitled to a complete defense of all asbestos actions the same as a manufacturer which had coverage for 20 years out of 20.   Neither logic nor precedent support such a result.”  (Id. at pp. 1224–1225, citations and fns. omitted.)

As more succinctly phrased by one federal district court, “A firm that fails to purchase insurance for a period ․ is self-insuring for all the risk incurred in that period;  otherwise it would be receiving coverage for a period for which it paid no premium.   Self-insurance is called ‘going bare’ for a reason.”  (Uniroyal, Inc. v. Home Ins. Co. (E.D.N.Y.1988) 707 F.Supp. 1368, 1392 (opn. of Weinstein, J.).)   Or as stated by Judge Wald in her concurring opinion in Keene, supra, “I just do not understand why an asbestos manufacturer, which has consciously decided not to insure itself during particular years of the exposure-manifestation period, should have a reasonable expectation that it would be exempt from any liability for injuries that were occurring during the uninsured period.”  (667 F.2d at p. 1058 (conc. opn. of Wald, J.);   see also Owens–Illinois, Inc. v. United Ins. Co., supra, 138 N.J. at pp. 464–477 [650 A.2d at pp. 988–995] [manufacturer must bear proportionate share of defense costs for uninsured periods];  Gulf Chemical & Metallurgical v. Associated Metals (5th Cir.1993) 1 F.3d 365, 372 [“the insured must bear its share of those costs determined by the fraction of the time of injurious exposure in which it lacked coverage”].) ³²

 Having reviewed the policy provisions to determine whether IMCERA should bear some portion of defense costs for the periods when it was uninsured, we conclude that the policy language does not provide a definitive answer.   This is not surprising, given that the policies were not written with this issue in mind.³³  Absent a clear directive from the insurance policies, we must interpret the coverage terms to protect the reasonable expectations of the insured.  (Montrose II, supra, 10 Cal.4th at p. 667, 42 Cal.Rptr.2d 324, 897 P.2d 1.)   In doing so, we agree with the view expressed in Forty–Eight Insulations, supra, 633 F.2d 1212, that a manufacturer must be prepared to pay its “fair share” of defense costs as to damage that occurs during uninsured time periods.  (Id. at p. 1225.)   By way of example, a manufacturer who has no insurance before 1967 cannot reasonably expect that its insurer will pay defense costs for property damage that occurred in 1946.   However, we disagree with the method of allocation used in Forty–Eight Insulations.   There, the Sixth Circuit allocated defense costs to the manufacturer in proportion to the number of years that it was uninsured.   The court stated:  “[I]f insurer A provided 3 years of coverage, insurer B an additional 3 years, and the manufacturer was uninsured for the remaining 3 years, liability would be allocated at 1/313 for each of the three concerns.”  (Forty–Eight Insulations, supra, 633 F.2d at p. 1224;  see also Gulf Chemical & Metallurgical v. Associated Metals, supra, 1 F.3d at p. 373.)

We decline to adopt Forty–Eight Insulations 's allocation method because we do not find any necessary or logical correlation between the number of years that a manufacturer is uninsured and the proportion of defense costs attributable to property damage occurring during that time.³⁴  For instance, the complaint in the Prometheus litigation alleged that IMCERA began discharging pollutants in 1934, yet the trial court found that the pollution of the Agnew site actually started in 1946, 12 years later.   Thus, under the allocation method used in Forty–Eight Insulations, and urged by Liberty here, IMCERA's share of defense costs would include several years (1934–1946) in which there was no property damage at all, i.e., no defense costs.   Such a result is certainly inconsistent with IMCERA's reasonable expectations under the policies.

Further, allocating defense costs based strictly on the number of uninsured years would shift two-thirds of the costs to IMCERA even though Liberty has pointed to no evidence suggesting that two-thirds (or any other proportion) of the property damage occurred during uninsured time periods.   Of course, that is the advantage of using the “uninsured years” approach:  it allocates costs in a simple, straightforward manner.   However, it does so without regard to how much damage actually occurred during uninsured periods;  more precisely, it is an inaccurate and arbitrary means of determining the actual portion of defense costs incurred as to uninsured damage.   Here, it is entirely possible that two-thirds (or more) of IMCERA's costs were attributable to property damage that occurred during the policy periods (1967–1985).

 We therefore conclude that a manufacturer who “goes bare” for a period of time should be responsible for that portion of defense costs actually incurred in defending claims of uninsured damage.   This rule will necessarily require a determination (based on the evidence and billing records) of whether specific cost items were incurred as a result of damage that occurred during uninsured periods.   Moreover, the insurer has the burden of proving that particular costs were attributable to such damage.

Our resolution of this issue is consistent with, if not mandated by, the view of the Supreme Court, as expressed in Hogan v. Midland National Ins. Co., supra, 3 Cal.3d 553, 91 Cal.Rptr. 153, 476 P.2d 825 (hereafter Hogan ).   In that case, a company (the insured) was sued by a third party, and the insurer improperly refused to provide a defense.   The company defended the action at its own expense and suffered an adverse judgment.   It then sought to recover defense costs and indemnity from the insurer.   The judgment in the third-party action included four types of damages, only one of which was covered under the policy.  (Id. at pp. 557–558, 91 Cal.Rptr. 153, 476 P.2d 825.)   The insurer argued that it was not liable for defense costs attributable to the three categories of noncovered damages.  (Id. at pp. 563–564, 91 Cal.Rptr. 153, 476 P.2d 825.)

A unanimous Supreme Court responded to that contention as follows:  “The cases which have considered apportionment of attorneys' fees upon the wrongful refusal of an insurer to defend an action against its insured generally have held that the insurer is liable for the total amount of the fees despite the fact that some of the damages recovered in the action against the insured were outside the coverage of the policy․  In its pragmatic aspect, any precise allocation of expenses in this context would be extremely difficult and, if ever feasible, could be made only if the insurer produces undeniable evidence of the allocability of specific expenses.”  (Id. at p. 564, 91 Cal.Rptr. 153, 476 P.2d 825, citations omitted.)   Because the insurer did not explain how a “determinable portion” of the defense costs could be allocated to the insured, no allocation was permitted.  (Ibid.) ³⁵

In 1980, ten years after Hogan, the Court of Appeal held in California Union Ins. Co. v. Club Aquarius, supra, 113 Cal.App.3d 243, 169 Cal.Rptr. 685, that the insurer had proved through undeniable evidence that it was not obligated to pay defense costs as to noncovered causes of action.  (Id. at pp. 247–248, 169 Cal.Rptr. 685.)   In California Union Ins. Co., the jury's findings on liability during a bifurcated trial indicated that the insurance policy did not provide any potential coverage for the third-party claims.   (Ibid.)  The Court of Appeal, applying the principles set forth in Hogan, held that the insurer had no duty to pay any defense costs incurred during the damages phase of the trial.  (Id. at p. 248, 169 Cal.Rptr. 685.)

More recently, the Supreme Court cited Hogan and California Union Ins. Co. with approval for the proposition that “[o]nce the defense duty attaches, the insurer is obligated to defend against all of the claims involved in the action, both covered and noncovered, until the insurer produces undeniable evidence supporting an allocation of a specific portion of the defense costs to a noncovered claim.”  (Horace Mann Ins. Co. v. Barbara B., supra, 4 Cal.4th at p. 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.) ³⁶

We recognize that the court in Hogan and Horace Mann addressed the allocation of defense costs as to noncovered causes of action or categories of damages, while this case involves allocating costs as to uninsured periods of time.   However, this is a distinction without a difference.   In all of these situations, the manufacturer (by conscious decision, loss of policies, or otherwise) is uninsured as to some aspect of the third-party litigation.   Whether the lack of insurance concerns a particular cause of action, a category of damages, or, as here, a period of time, the rule of allocation should be the same.   Indeed, we have already held that IMCERA has to bear those costs incurred in defending the underlying fraud claims because that type of claim was not covered under the policies.  (See Discussion, pt. I.C.1., ante.)   We think the same analysis should apply to claims for property damage that occurred during uninsured periods of time.   Accordingly, Liberty must prove through undeniable evidence that a specific portion of defense costs was attributable to uninsured damage.³⁷

The trial court agreed with IMCERA that the “all sums” language of the policies obligated the insurers to bear all defense costs despite IMCERA's lack of insurance during several years of the damage period.   On appeal, IMCERA has advanced this same argument, which we have rejected.   Liberty, on the other hand, has argued for the “uninsured years” method of allocation used in Forty–Eight Insulations, supra, 633 F.2d at pages 1224–1225.   We have also declined to adopt that approach.   Thus, the trial court employed an incorrect analysis, and the parties have not litigated the allocation issue under the appropriate test.   The determination of whether IMCERA should bear any defense costs (and if so, the amount) will require a fact-intensive examination of the evidence in the Prometheus litigation and the corresponding billing records.   Because the trial court is in a better position to make this determination in the first instance, we remand this issue for further proceedings consistent with this opinion.

2. Allocation of Defense Costs Among the Insurers

 The trial court apportioned defense costs among the four primary insurers based on equitable principles.  (See fn. 13, ante.)   Under the trial court's formula, Liberty paid over half of the costs because it had a duty to defend for the greatest number of years.   Liberty contends that the trial court erred and should have required contributions from the insurers in “equal shares” pursuant to the policies' “other insurance” provisions.   Those provisions, according to Liberty, would make each insurer liable for one-fourth of the costs not borne by IMCERA.   We conclude that the “other insurance” provisions govern the allocation of defense costs among the insurers.

The pertinent Liberty policies (1967–1976) and the policies of the three other primary insurers contained the same “other insurance” provisions.   They provided:  “When both this insurance and other insurance apply to the loss on the same basis, whether primary, excess or contingent, the company shall not be liable under this policy for a greater proportion of the loss than that stated in the applicable contribution provision below:  [¶] (a) Contribution by Equal Shares.   If all of such other valid and collectible insurance provides for contribution by equal shares, the company shall not be liable for a greater proportion of such loss than would be payable if each insurer contributes an equal share until the share of each insurer equals the lowest applicable limit of liability under any one policy or the full amount of the loss is paid, and with respect to any amount of loss not so paid the remaining insurers then continue to contribute equal shares of the remaining amount of the loss until each such insurer has paid its limit in full or the full amount of the loss is paid.” ³⁸

The courts apply equitable principles in apportioning defense costs among insurers (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 619–620, 222 Cal.Rptr. 276) unless express policy language decrees the method of apportionment (Montrose II, supra, 10 Cal.4th at p. 687, 42 Cal.Rptr.2d 324, 897 P.2d 1).   In Montrose II, supra, the court cited Keene, supra, 667 F.2d 1034, for the proposition that “[a]llocation of the cost of indemnification once several insurers have been found liable to indemnify the insured for all or some portion of a continuing injury or progressively deteriorating property damage requires application of principles of contract law to the express terms and limitations of the various policies of insurance on the risk.”  (10 Cal.4th at p. 681, fn. 19, 42 Cal.Rptr.2d 324, 897 P.2d 1.)   Although Montrose II cited Keene with respect to allocating the costs of indemnity, we find Keene helpful on the subject of defense costs.

In Keene, the court discussed “other insurance” provisions identical to those in this case, stating, “These provisions of the policies must govern the allocation of liability among the insurers in any particular case of asbestos-related disease.”  (667 F.2d at p. 1050.)   In discussing defense costs, Keene noted, “Nothing we now hold should be read to prevent an insurer from sharing the costs of defense with other insurers under the ‘other insurance’ clauses or under the doctrine of contribution.”  (Id. at p. 1050, fn. 37.)   More recently, the United States Court of Appeals for the Second Circuit held that “other insurance” provisions required the insurers in an environmental cleanup case to contribute in equal shares toward the insured's defense.   (State of N.Y. v. Blank (2d Cir.1994) 27 F.3d 783, 798–799.)   Other decisions are in accord.  (See, e.g., Federal Ins. Co. v. Cablevision Systems Dev. Co. (2d Cir.1987) 836 F.2d 54, 58;  Liberty Mut. Ins. v. USF & G (S.D.Miss.1990) 756 F.Supp. 953, 956–957.)   We agree with these authorities.³⁹

 “ ‘Where ․ [multiple] insurance policies apply to the same risk, the relative application thereof is generally determined by the explicit provisions of the respective “other insurance” clauses.’ ”  (Employees Reinsurance Corp. v. Phoenix Ins. Co. (1986) 186 Cal.App.3d 545, 556, italics added.)   “[T]he application of ‘other insurance’ clauses requires, as a foundational element, that there exist multiple policies applicable to the same loss. ”   ( Pines of La Jolla Homeowners Assn. v. Industrial Indemnity (1992) 5 Cal.App.4th 714, 723, italics in original, disapproved on other grounds in Montrose II, supra, 10 Cal.4th at pp. 684–685.)   Here, the trial court found that the Prometheus litigation involved “one occurrence”:  “slow, gradual ․ pollution over a 50–year period at a single location.”   Accordingly, all of the pertinent insurance policies apply to the same risk or loss.

The analysis of “other insurance” provisions in Scottsdale Ins. v. American Empire Surplus Lines (D.Md.1993) 811 F.Supp. 210, 217, is inapposite here.   In Scottsdale, the court correctly pointed out that, by their express terms, “other insurance” provisions apply only if all of the pertinent policies “apply to the loss on the same basis, whether primary, excess or contingent.”  (Id. at p. 217.)   The Scottsdale court could not determine if the policies at issue applied on the “same basis.”  (Ibid.)  In this case, they plainly do, i.e., they are all primary policies.  (See, e.g., American Economy Ins. Co. v. Motorists Mut. (Ind.App.1992) 593 N.E.2d 1242, 1246 [policies did not provide coverage on “same basis” where one was primary and the other was excess], vacated in part on other grounds (Ind.1992) 605 N.E.2d 162;  Admiral Ins. v. Columbia Ins. (1992) 194 Mich.App. 300, 317 [486 N.W.2d 351, 360] [“same basis” refers to whether multiple policies are all primary, excess, or contingent], app. den. (1993) 442 Mich. 917 [503 N.W.2d 449];  Fiscus Motor Freight v. Universal Sec. (1989) 53 Wash.App. 777, 787 [770 P.2d 679, 685] [“Contribution [under ‘other insurance’ provisions] is required only when both policies are primary, both are excess, or both are contingent.”], review den. (1989) 113 Wash.2d 1003 [777 P.2d 1052].)

Because all of the pertinent policies contain the same “other insurance” provisions, mandating contribution by equal shares, the trial court erred in allocating defense costs among the insurers based on some other theory.   On remand, after the trial court determines IMCERA's share of defense costs, if any, it shall determine Liberty's share of the remaining costs in accordance with the “other insurance” provisions.⁴⁰  Of course, the trial court should keep in mind that, in general, the “other insurance” clauses provide a means of allocating defense costs among the insurers;  those provisions typically “affect the rights of the insurers among themselves ․ [and] do not implicate [the insured's] right to full recovery [of the defense costs to be borne by the insurers].”  (Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur. (D.N.J.1993) 817 F.Supp. 1136, 1154, fn. 11;  accord E.R. Squibb & Sons, Inc. v. Accident and Cas. Ins. Co. (S.D.N.Y.1994) 860 F.Supp. 124, 127.)⁴¹

II–III **

DISPOSITION

The judgment is reversed insofar as the trial court (1) found that Liberty had a duty to defend for the period June 1956 to June 1967, (2) calculated the reasonable amount of IMCERA's attorneys' fees, (3) held that the language of the policies required the insurers to bear defense costs as to property damage that occurred during uninsured periods of time, (4) allocated defense costs among the insurers based on the number of years that each insurer had a duty to defend, and (5) awarded costs of indemnity to IMCERA.   The trial court is directed to modify the judgment by (1) recalculating IMCERA's reasonable attorneys' fees and reallocating defense costs in accordance with this opinion and (2) striking all amounts awarded to IMCERA and against Liberty based on the duty to indemnify.   In all other respects, the judgment is affirmed.   The parties are to bear their respective costs on appeal.

FOOTNOTES

1.   Because IMCERA assumed CSC's liabilities, our reference to “IMCERA” will hereafter include CSC's conduct, rights, and obligations.

2.   The original complaint contained causes of action for (1) recovery of costs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) (42 U.S.C. § 9601 et seq.), (2) declaratory relief, (3) indemnity, (4) negligent misrepresentation, (5) negligent cleanup, (6) strict liability, (7) fraudulent concealment, (8) negligent disposal, (9) breach of warranty, and (10) quantum meruit.

3.   Liberty was thus an excess, as well as a primary, carrier.

4.   Although we refer to four primary insurers, IMCERA's complaint alleged that a fifth carrier, Continental Insurance Company, also provided primary coverage (from December 1973 to January 1976).   The parties' briefs and the trial court's statement of decision do not indicate what role, if any, Continental played in the coverage dispute.   Because the parties do not address Continental's involvement in this matter, our discussion will similarly avoid reference to Continental.

5.   Liberty states in its brief that coverage extended through June 30, 1976, but it does not provide any supporting reference to the record for that date.   Our review of the trial exhibits indicates that, by way of an amendatory endorsement, the term of the June 1974–June 1975 policy was extended through January 1, 1976.

6.   Because this case does not involve any claims for “bodily injury,” we do not discuss that type of coverage.

7.   Liberty contends that these two provisions—the one-year reporting requirement and the “owned property” exclusion—were contained in the missing policies covering June 1956 through June 1960 (i.e., the policies established by way of the national risk coverage bulletins).   However, the trial court's findings are not clear on this point, and, given the vague nature of the coverage bulletins, we cannot determine the accuracy of Liberty's contention.   In any event, in light of our disposition of the trial court's ruling as to the missing policies (see Discussion, pt. I.A., post ), we need not decide if the 1956–1960 policies contained either provision.

8.   This is the definition of “occurrence” as it appears in both the insuring agreement and an amendatory endorsement.   However, Liberty states in its respondent's brief that “occurrence” was defined to include “injurious or repeated exposure to conditions.”  (Italics added.)   In any event, our analysis is not affected by this variation.

9.   Our review of the trial exhibits reveals that an exclusion for property owned by the insured—similar to the “owned property” exclusion in the June 1960–June 1967 policies—may have been included in a partial-year policy covering July 1, 1967, to December 1, 1967.

10.   The section of the policies entitled “supplementary payments” stated that Liberty “will pay, in addition to the applicable limit of liability:  (a) all expenses incurred by [Liberty], all costs taxed against the insured in any suit defended by [Liberty] and all interest on the entire amount of any judgment therein which accrues after entry of the judgment and before [Liberty] has paid or tendered or deposited in court that part of the judgment which does not exceed the limit of [Liberty's] liability thereon.”  (Italics added.)

11.   The June 1971–June 1973 policies contained the same definition of “occurrence” as used in the 1967–1971 policies.   However, as indicated by the trial exhibits, the June 1973–January 1976 policies defined “occurrence” 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.’ ”  (Italics added.)

12.   According to IMCERA's complaint, National Union was the primary carrier after Liberty (from February 1976 to August 1980), followed by International (from August 1980 to August 1982) and then Home Indemnity (from August 1982 to August 1985).   As stated, National Union settled with IMCERA before trial;  International and Home Indemnity settled after trial.

13.   The trial court determined that Liberty owed a duty to defend for 19 1/2 12 years;  National Union, 4 1/212 years;  International, 2 years;  and Home Indemnity, 3 years.   Because coverage under the 1957–1958 Liberty policy had already been exhausted, the court reduced Liberty's liability for defense costs to 18 1/212 years.  (Neither the trial court nor the parties have explained how the 1957–1958 policy was exhausted.)   The primary insurers, as a group, thus had a duty to defend for a period of 28 years.   The trial court apportioned defense costs among the insurers based on the number of years each carrier had a duty to defend in comparison to the total number of years of defense owed by all four insurers.   For example, Liberty was liable for 18.5/28 of IMCERA's costs while International was liable for only 2/28.

14.   While some of Liberty's arguments would defeat the duty to defend in its entirety, others would eliminate that duty only under certain policies (i.e., for certain time periods).   We must address both types of argument.   If the duty to defend did not exist at all, Liberty would not be liable for any defense costs.   On the other hand, if the duty existed under some, but not all, of the policies, we would then have to examine the provisions in the applicable policies to determine how to allocate defense costs among the insurers.  (See Discussion, pt. I.D. & fn. 39, post.)

15.   The trial court distinguished between the 1947–1956 policies and the 1956–1960 policies primarily on the basis of a change in the amount of aggregate coverage.   According to the bulletins, the aggregate coverage increased from $500,000 to $1 million after the 1955–1956 policy.

16.   For instance, an amendatory endorsement in the 1960–1967 policies expanded the meaning of “accident” (as used in the standard insuring agreement) to include “destruction or loss of use resulting from continuous or repeated exposure to conditions.”

17.   We note, however, that a sudden event—one which starts abruptly—may not be necessary under policies extending coverage to property damage caused by “continuous or repeated exposure to conditions.”  (See Shell Oil Co. v. Winterthur Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 748–749, 752–756, 15 Cal.Rptr.2d 815.)

18.   Because the complaint was consistent with negligent conduct by IMCERA, coverage was not precluded “for an intentional and wrongful act [where] the harm is inherent in the act itself.”  (J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1025, 278 Cal.Rptr. 64, 804 P.2d 689, cert. den. 502 U.S. 902, 112 S.Ct. 280, 116 L.Ed.2d 232, italics added;  see also Fire Ins. Exchange v. Altieri (1991) 235 Cal.App.3d 1352, 1357–1360, 1 Cal.Rptr.2d 360.)

19.   An occurrence policy provides coverage for injury-producing events that take place during the policy period even if the claim is made after the policy expires.   A claims-made policy provides coverage for claims first asserted against the insured during the policy period, regardless of when the injury-producing event occurred.  (See Helfand v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 869, 885, fn. 8, 13 Cal.Rptr.2d 295, cert. den. 114 S.Ct. 84.)   One variation on a claims-made policy, known as a claims-made-and-reported policy, covers claims first made against the insured during the policy period but allows a specified time (usually 30, 60, or 90 days) within which to report the claim to the insurer.  (See Textron, Inc. v. Liberty Mut. Ins. Co. (R.I.1994) 639 A.2d 1358, 1361, fn. 2.)

20.   Section 11580.01 provides in part:  “Each such policy ․ shall contain on the face page thereof a prominent and conspicuous legend or statement substantially to the following effect:  NOTICE ‘Except to such extent as may otherwise be provided herein, the coverage of this policy is limited generally to liability for only those claims that are first made against the insured while the policy is in force.   Please review the policy carefully and discuss the coverage thereunder with your insurance agent or broker.’ ”  (Ins.Code, § 11580.01, subds. (b), (c).)

21.   The statute governs policies “insuring against legal liability arising from the rendering of professional services by an insured licensed pursuant to the provisions of Division 2 (commencing with Section 500) of the Business and Professions Code, or Chapter 4 (commencing with Section 6000) of Division 3 of the Business and Professions Code.”   (Ins.Code, § 11580.01, subd. (a), italics added.)   Those provisions of the Business and Professions Code concern health care professionals and attorneys, respectively.

22.   In Mt. Hawley Ins. v. Federal Sav. & Loan Ins. Corp. (C.D.Cal.1987) 695 F.Supp. 469, 481, the court held that an insurer had substantially complied with section 11580.01 with respect to a directors' and officers' liability policy issued to a bank.   To the extent Mt. Hawley indicates that section 11580.01 applies to policies other than those mentioned in the statute, we disagree with its conclusion.  (See Gilliam v. American Cas. Co., of Reading, Pa. (N.D.Cal.1990) 735 F.Supp. 345, 350, fn. 6 [noting that Mt. Hawley interpreted section 11580.01 to require all claims-made policies to bear an explicit label “[d]espite the fact that the statute is limited, by its terms, to attorneys and health care professionals”].)

23.   That statute makes it an unfair method of competition to “[e]nter [ ] into any agreement to commit ․ any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance.”  (Italics added.)

24.   If anything, the evidence suggested that Liberty did not have an anti-competitive effect on the insurance market.   The reporting provision was not part of Liberty's standard policy but was contained in one of the many amendatory endorsements attached to IMCERA's manuscript policies.   This fact suggests that the parties negotiated the inclusion of the provision.  (See Textron, Inc. v. Liberty Mut. Ins. Co., supra, 639 A.2d at p. 1366.)

25.   IMCERA attempts to distinguish Textron on the ground that Rhode Island does not have a statute like Insurance Code section 790.03, subdivision (c).   On the contrary, that state has an identical statutory provision (R.I.Gen.Laws § 27–29–4, subd. (4)).

26.   IMCERA contends that Liberty waived all policy exclusions by failing to adequately respond to the request for a defense (e.g., failing to properly investigate the claim and to inform IMCERA of a coverage determination).   We need not reach that issue, however, because the reporting requirement is part of the grant of basic coverage and is not an exclusion from coverage.  (See Textron, Inc. v. Liberty Mut. Ins. Co., supra, 639 A.2d at pp. 1364, 1365;  Helfand v. National Union Fire Ins. Co., supra, 10 Cal.App.4th at p. 888, 13 Cal.Rptr.2d 295;  Pacific Employers Ins. Co. v. Superior Court, supra, 221 Cal.App.3d at pp. 1358–1359, 1361, 270 Cal.Rptr. 779.)

27.   For the same reason, we reject Liberty's contention that the amount attributable to the fraud claims should be more than $120,097.   After all, it was Liberty's own expert who offered that figure.

28.   IMCERA's appellate counsel did not represent it in the underlying actions.

29.   Thus, we have no problem with the fact that IMCERA retained a well-respected law firm to defend it, even though Liberty might have selected a different firm had it provided a defense.  (See Arenson v. National Auto. & Cas. Ins. Co., supra, 48 Cal.2d at p. 538, 310 P.2d 961 [where insurer wrongfully refused to provide a defense, insured could properly retain a “well-known, able and skilled attorney”].)

30.   Our calculation of the total years that IMCERA was uninsured is based on the figures used by the trial court (see fn. 13, ante ), but also reflects our conclusions on appeal regarding the years during which Liberty had no duty to defend.  (See Discussion, pts. I.A. and I.B.5., ante.)

31.   In Montrose II, supra, 10 Cal.4th at page 681, 42 Cal.Rptr.2d 324, 897 P.2d 1, footnote 19, the Supreme Court disapproved of California Union Ins. Co., supra, 145 Cal.App.3d 462, 193 Cal.Rptr. 461, to the extent it premised the insurers' coverage obligations on a theory of joint and several liability.   That theory, while appropriate in a tort context, is not applicable in allocating liability among insurers under multiple insurance contracts.   In any event, the Supreme Court noted with approval the rule stated in California Union Ins. Co. that an insurer remains liable for damage continuing after the policy expires.  (10 Cal.4th at pp. 679–680, 680, fn. 18, 686, 42 Cal.Rptr.2d 324, 897 P.2d 1.)

32.   Although Keene and Forty–Eight Insulations involved coverage for asbestos-related injuries, we find the analysis in those decisions instructive, as did the Supreme Court in Montrose II, a case which, like the present one, concerned coverage for environmental pollution.  (See Montrose II, supra, 10 Cal.4th at pp. 674, 681, 682, 42 Cal.Rptr.2d 324, 897 P.2d 1.)

33.   As recently explained by the New Jersey Supreme Court:  “The [policy] language was never intended to cover apportionment when continuous injury occurs over multiple years․  [¶]  The problem is how to apply the abstract concepts of law and the related provisions of the insurance contract to the realities of environmental disease.   The legal concepts of injury, defect, negligence, and damages are well-suited to the prototype accident of an exploding steam boiler.   A defective weld in a boiler may have been present years before but the occurrence (an explosion) and the attendant injuries are easily identified as falling within a particular policy period.   Even though ‘all sums' due from the accident might not be known with certainty at the time of the explosion, by the time of trial a claimant would be able to establish, within a reasonable degree of medical probability, what damages would flow from the injury.   That is not so in the case of gradual release of contaminants.”  (Owens–Illinois, Inc. v. United Ins. Co., supra, 138 N.J. at p. 466 [650 A.2d at p. 989].)

34.   A simple hypothetical illustrates the point.   Assume that a chemical manufacturer operates a facility for three years but has liability insurance only in the third year.   During the first year, there is no pollution at the site.   At the end of the second year, there is a single accidental spill of vinyl chloride, which contaminates a small portion of the soil.   In year three, there are several substantial leaks of vinyl chloride, which contaminate a significant portion of the property, including the groundwater.   The state sues the manufacturer, alleging that the pollution occurred during all three years.   The manufacturer's insurer improperly refuses to provide a defense, and the manufacturer retains counsel.   In the ensuing litigation between the state and the manufacturer, the most important issues—and thus virtually all of the defense costs—would naturally concern the leaks and damage that occurred in the third year, when the policy was in effect.   Yet, under Forty–Eight Insulations, the manufacturer would be responsible for two-thirds of the defense costs simply because it was uninsured during the first two years.

35.   If the allocation method used in Forty–Eight Insulations, supra, 633 F.2d 1212, were appropriate, a slight variation of that method would have been proper in Hogan.   For example, the insured could have been required to pay three-fourths of the defense costs since three of the four categories of damages were not covered by the policy.   Or the company's share of defense costs could have been calculated by comparing the amount of noncovered damages to the total damages awarded ($20,093 versus $28,131), making the company liable for 71 percent of the costs.   (See 3 Cal.3d at p. 557 [describing breakdown of award].)   The high court did not endorse either of these simplistic approaches.

36.   Further, where the insurer has wrongfully refused to provide a defense, it bears a “heavy burden of proof” in apportioning costs to the insured.  (Hogan, supra, 3 Cal.3d at p. 564, 91 Cal.Rptr. 153, 476 P.2d 825.)

37.   In a case involving repeated discharges of pollutants and continuous property damage over a period of several decades, it may well be that certain cost items will relate to both insured and uninsured damage.   For instance, a leak that occurs during an uninsured period may cause immediate property damage that continues into an insured period.   Where particular cost items are incurred with respect to insured damage, they should be borne by the insurer even if they also relate to uninsured damage.   Otherwise, the reasonable expectations of the insured would be defeated.

38.   We note that Liberty does not rely on the “other insurance” provisions to argue that IMCERA should contribute to its own defense costs for years in which it was uninsured.  (See Discussion, pt. I.D.1., ante.)   Courts have recognized that “other insurance” provisions do not apply to a person or entity that is self-insured or without insurance.   (See, e.g., American Nurses Ass'n v. Passaic Gen. Hosp. (1984) 98 N.J. 83 [484 A.2d 670];  Universal Underwrit. Ins. Co. v. Marriott Homes, Inc. (1970) 286 Ala. 231 [238 So.2d 730].)

39.   As the “other insurance” provisions make clear, contribution by equal shares is necessary only if all other valid and collectible insurance provides for that method of allocation.   The Liberty policies covering June 1960 to June 1967 did not provide for contribution by equal shares but instead required contribution based on policy limits.   Further, we do not know what type of allocation, if any, was authorized in the missing Liberty policies (1947–1960).   Nevertheless, because we have determined that no duty of defense existed under those policies (see Discussion, pts. I.A. and I.B.5., ante ), all of the pertinent policies mandate an allocation by equal shares.

40.   Those provisions state that the insurers are to contribute equally “until the share of each insurer equals the lowest applicable limit of liability under any one policy or [until] the full amount of the loss is paid.”  (Italics added.)   Where the various policies require that defense costs be paid in addition to the limit of liability, there is no “applicable” limit for purposes of the “other insurance” provisions.   In that situation, the insurers should contribute in equal sums until “the full amount of the loss [i.e., defense costs] is paid.”

41.   However, where the insured has settled with some of the insurers, the application of the “other insurance” clauses presents a more complex problem.   For instance, IMCERA argues that it should be permitted to recover from Liberty the total amount of defense costs owed by all four primary insurers and that Liberty, in turn, can seek contribution from the other three carriers (with whom IMCERA has settled).   Because this argument was raised for the first time in IMCERA's petition for rehearing, we decline to reach it.  (See Conservatorship of Susan T. (1994) 8 Cal.4th 1005, 1013.)   Nor do we decide the related question of whether IMCERA's settlement with three of the primary insurers will effectively prevent it from obtaining a full recovery of the total costs allocated to the insurers.   On remand, the trial court can address these issues.

FOOTNOTE.   See footnote *, ante.

MASTERSON, Associate Justice.

SPENCER, P.J., and ORTEGA, J., concur.