ZURICH INSURANCE COMPANY v. Commercial Union Insurance Company, Defendant and Respondent. (1994)

I

Introduction

From the trial court's judgment in this declaratory relief action involving an insurance coverage dispute over the respective defense and indemnity obligations of four liability insurers of the same construction company, three of the four affected parties appeal.   The common issue presented is whether the trial court properly apportioned defense costs and indemnity payments among the insurers or their successors.   The action was brought by Zurich Insurance Company (Zurich) against Transamerica Insurance Company (Transamerica), Commercial Union Insurance Company (Commercial Union), and the California Insurance Guarantee Association (CIGA), as successor in interest to Mission Insurance Company (Mission), an insolvent insurer, and against numerous other parties not involved in this appeal.   Zurich, Transamerica, Commercial Union and Mission were liability insurance carriers for the W. E. McKnight Construction Company (McKnight), a subcontractor which performed soils grading work at the Carlsbad Palisades condominium development, a 116–unit project (the project).   McKnight was sued in three underlying actions (one a class action) for construction defects at the project, and tendered each of the lawsuits to its liability insurers for defense and indemnity.   Zurich, Commercial Union, and Transamerica contributed varying amounts toward the defense costs and settlement through indemnity payments of each of the three underlying actions, while neither Mission nor CIGA made any defense or indemnity payments at all.

After trial of Zurich's declaratory relief action, the trial court ordered defense costs of the underlying class action apportioned equally among the three insurers and CIGA and then required CIGA to reimburse the other insurers to the extent they had incurred such defense costs attributable to Mission.   The trial court also found on a manifestation of damage theory that the damage to the condominium project had occurred during Mission's policy period, so that Mission was responsible for indemnity for the entire loss.   The trial court thus required CIGA, as Mission's successor in interest, to reimburse the other three insurers for the amounts they had contributed to settlements of all three lawsuits which were the obligation of Mission.

Zurich and Transamerica have appealed the judgment on the ground that they should bear no portion of the defense costs for the underlying class action, since the trial court found that Mission, the party on the risk at the time the loss first manifested, should be responsible for all indemnity costs.   CIGA has appealed on the theory that the trial court misapplied the manifestation doctrine to progressive property damage in this third party liability insurance context, and on the theory that the trial court improperly failed to recognize CIGA was statutorily immune from being ordered to reimburse the other insurers for either defense costs or indemnity (settlement) costs.

Responding to these arguments requires us to determine if CIGA is correct that any “other insurance” was available to the insured or the claimants in the underlying actions, such that the other three insurers' requests for reimbursement do not constitute “covered claims” within the meaning of the CIGA statutory scheme.  (Ins.Code, § 1063.1, § 1063.1, subd. (c)(9)(i).) ¹  Answering that statutory question in turn requires us to venture into the thicket of the manifestation theory in progressive property damage cases.   While the Supreme Court has provided guidance on this issue in the first party property insurance context (Prudential–LMI Com. Insurance v. Superior Court (1990) 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230), it has pending before it two cases which present issues concerning the application of a manifestation theory or a continuing injury trigger to progressive property damage cases when third party liability insurance is involved.  (Montrose Chemical Corp. v. Admiral Ins. Co. (1992) 25 Cal.App.4th 1503, 5 Cal.Rptr.2d 358, review granted 24 Cal.Rptr.2d 661, 862 P.2d 661; (1992);  Stonewall Ins. Co. v. City of Palos Verdes Estates (1992) 23 Cal.App.4th 989, 9 Cal.Rptr.2d 663, review granted 11 Cal.Rptr.2d 329, 834 P.2d 1147; (1992)  also see Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1993) 25 Cal.App.4th 1316, 26 Cal.Rptr.2d 35, review granted on similar issues in the asbestos context 27 Cal.Rptr.2d 488, 866 P.2d 1311.) (1994).   As of the time of this writing, argument has not yet been scheduled in the Montrose or Stonewall cases.²  Accordingly, we proceed to apply existing principles to resolve the manifestation issue and its resulting effect upon CIGA's statutory arguments.

We conclude the trial court incorrectly determined that Mission was the sole party on the risk and solely responsible for insurance coverage, because a “continuing injury” rule should be applied to hold both the carrier at the time of manifestation and the post-manifestation carriers to be liable on their insurance policies.   From this conclusion, it follows that “other insurance” was available to the insured, such that CIGA is statutorily exempt from a finding that it owes a joint and several defense obligation with solvent insurers or a duty to contribute to settlement of the underlying actions.   We reverse the declaratory relief judgment and return the matter to the trial court to apply equitable principles of apportioning defense costs among the remaining insurers, once CIGA is removed from their midst, and to relieve CIGA of any reimbursement duty regarding the settlement expenses.  (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 619–620, 222 Cal.Rptr. 276, disapproved on another point in Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 297–298, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)

II

Background

McKnight was a subcontractor for Douglass Southwest Corporation, the developer of this 116–unit project (the developer).   McKnight performed soils grading work between October 1974 and March 1975.   Eventually, in 1982, two individual homeowners at the project filed construction defect actions against the developer and McKnight.  (Mooney v. Douglass Southwest Corporation (Super.Ct. San Diego County, 1982, No. N19329) and Kellerup v. Douglass Southwest Corporation (Super.Ct. San Diego County, 1982, No. N19376).)   Ms. Mooney alleged that she had noticed a crack in the foundation of her unit in November 1976, which constituted the first manifestation of property damage at the project.

In 1985, a number of additional homeowner actions were filed and eventually consolidated with a class action entitled Carlsbad Palisades Homeowners Association, etc. et al. v. Douglass Southwest Corporation, etc. et al. (Super.Ct. San Diego County, 1985, No. N29974).   McKnight was named as a defendant in the class action and as a cross-defendant on the developer's cross-complaint for indemnity.   McKnight tendered all these lawsuits to its liability insurers for defense and indemnity.   McKnight's coverage for the relevant periods ran as follows:

Each of these comprehensive liability insurance policies provided essentially the same coverage and included similar occurrence language.   The relevant policy language is as follows:

“The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent and may make such investigation and settlement of any claim or suit as it deems expedient but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.”

The policy also contains the following pertinent definitions:

“ ‘occurrence’ means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured;  ․

“․

“ ‘property damage’ means (1) physical injury to or destruction of tangible property which occurs during the policy period, including loss of use thereof at any time resulting therefrom, or (2) loss o[f] use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period;  ․”

With respect to the Mooney and Kellerup suits, Zurich, Commercial Union, and Transamerica shared equally in defense costs and contributed in equal shares a total of $40,000 to settle the suits with the subrogated homeowners' insurer.³  With respect to the class action, Zurich, Commercial Union, and Transamerica initially shared equally in McKnight's defense, although Transamerica withdrew from defense in 1990.   Mission and its successor, CIGA, did not participate in either defense or settlement of any of the actions.   Ultimately, Zurich, Commercial Union, and Transamerica settled the cross-complaint by the developer against McKnight for indemnity for a total of $280,000.   The following table shows the class action defense and indemnity contributions by the three insurers:

—————In 1990, Zurich filed its complaint for declaratory relief against its fellow insurers, CIGA, and other parties evidently dismissed before trial and not involved in this appeal.   Zurich alleged the various periods of coverage by the various insurers and sought declaratory relief with respect to the defense and indemnity obligations of the insurers as to McKnight.   CIGA answered the complaint.   Commercial Union and Transamerica also answered the complaint, but did not file cross-complaints.

At trial, the bulk of the factual background was established by stipulation, and only two witnesses testified, geotechnical engineer Leroy Crandall and insurance expert Edward A. Whitney.   The parties submitted a list summarizing the individual homeowners' deposition testimony regarding when they observed defects in their homes.   Damages were observable extending from 1976 well into the late 1980's.   The insurance expert, Whitney, testified that although the Mission policies could not be located, they would have included essentially the same coverage as that issued by the other insurer parties.   All the insurers insured “property damage” caused by an “occurrence” within the policy period.   Property damage was essentially defined as physical injury to tangible property occurring within the policy period.

The main testimony presented at trial was that of geotechnical engineer Crandall.   He stated that McKnight's grading work fell below the standard of care in preparing the fill site and compacting the fill materials.   The improper grading caused cracks in the walls and foundations of the residences.   The first crack was observed in November 1976 by Ms. Mooney at her unit.   All the progressive damage to the project was due to the same mechanism of soil behavior resulting from inadequate compaction.   The first slope failure at the project had been in the winter of 1975 through 1976.   The project developer received a letter in February 1976 from the City of Carlsbad notifying it of the slope failure.   The next year another slope failure occurred.   An engineering study in September 1979 determined that the damage was being caused to the structures by differential settlement of portions of the deep fill, resulting from inadequate compaction and compression of the natural soils.

The trial court made findings that the damage to the project first occurred in November 1976 when the Mooney residence first showed damage.   The trial court then found that the continuous and progressive damage to the project was due to the same cause, i.e., improper grading by McKnight.   The trial court concluded that the manifestation of defects occurred within Mission's policy period, so that Mission was responsible for the entire loss to the project.   As to defense costs of the class action, the trial court held Zurich, Commercial Union, Transamerica, and CIGA were obligated to pay the defense costs in equal shares.   As to the settlement amounts of the two individual lawsuits and the class action, the trial court found CIGA was fully liable for all amounts and ordered it to reimburse the other three insurers accordingly.   Zurich and Transamerica have appealed the defense cost allocation, and CIGA has challenged the judgment's conclusions on defense costs and indemnity obligations for the settlement payments.⁴

III

Policy Coverage for Continuing Injury

As noted above, the parties' challenges to the trial court's allocation of defense and indemnity costs hinge upon a determination of whether any insurer other than Mission owed a duty to provide liability coverage to McKnight for the progressive property damage that was present at the project.   To reiterate, Zurich and Transamerica argue that it would not be equitable to require them to pay any defense costs, because the trial court found they were not liable under their policies.   CIGA contends it should pay no defense costs and should not be liable for any reimbursement of indemnity amounts, because there was “other insurance” within the meaning of section 1063.1, subdivision (c)(9)(i), to take this matter out of the “covered claims” definition of section 1063.1.⁵  To resolve these questions, we must first decide whether the trial court correctly concluded that Mission was solely liable on its policy due to manifestation of the Mooney unit damage during its policy period.

A

Case Law

In the first party property insurance context, our Supreme Court has adopted a manifestation rule for determining insurance coverage in cases of progressive property damage.  (Prudential–LMI Com. Insurance, supra, 51 Cal.3d at p. 699, 274 Cal.Rptr. 387, 798 P.2d 1230.)   The Supreme Court reasoned that prior to the manifestation of damage, a property loss is still a contingency under the policy so that the insured has not suffered a compensable loss.  (Ibid.)  Once the loss has manifested, the risk is no longer contingent.   In conformity with the loss in progress rule, post-manifestation insurers are not responsible for any potential claim relating to previously discovered and manifested loss.  (Ibid.)  The Supreme Court expressly noted, however, that an analysis of progressive property damage in the third party liability context would require different considerations, and the Prudential opinion did not resolve the question of whether an allocation or exposure theory should apply to coverage questions in progressive property damage cases.  (Id. at p. 698, 274 Cal.Rptr. 387, 798 P.2d 1230.)

Shortly before the Supreme Court issued its Prudential–LMI opinion, this court decided in Fireman's Fund Ins. Co. v. Aetna Casualty & Surety Co. (1990) 223 Cal.App.3d 1621, 1626–1628, 273 Cal.Rptr. 431 (Fireman's Fund), that the manifestation rule should apply to third party liability insurance policies in the context of a dispute between several insurers as to their respective liabilities.   In that context, this court held that a distinction between the first party type of policy and a third party liability policy was not legally relevant.   Our reasoning was that the opinion of this court in Home Ins. Co. v. Landmark Ins. Co. (1988) 205 Cal.App.3d 1388, 253 Cal.Rptr. 277 (Home ) (the reasoning of which was adopted in Prudential–LMI, supra ), had interpreted both third party liability provisions and first party property damage provisions, and had based its decision in part upon the “loss in progress rule,” applicable to both policy types (providing an insurance company can only insure against contingent or unknown risks).  (§§ 22, 250.)   We also found it significant that the claimant in Home and Fireman's Fund had received insurance proceeds and thus the questions before the court only involved allocating losses between insurers.   That situation allows a court to adopt a rule based primarily upon public policy considerations, and makes it less important to focus on insurance policy language interpreted in light of the insured's reasonable expectation of coverage.  (Fireman's Fund, supra, 223 Cal.App.3d at pp. 1627–1628, 273 Cal.Rptr. 431.)

In Pines of La Jolla Homeowners Assn. v. Industrial Indemnity (1992) 5 Cal.App.4th 714, 720–722, 7 Cal.Rptr.2d 53 (Pines of La Jolla ), this court reversed a summary judgment granted to the insurer based on an “other insurance” clause in a liability insurance policy, and held that triable issues of fact existed as to when damages caused by different defects at the project first became manifest.   In reaching our conclusions, this court followed the reasoning of Fireman's Fund (supra, 223 Cal.App.3d 1621, 273 Cal.Rptr. 431) that the loss in progress rule of Home (supra, 205 Cal.App.3d 1388, 253 Cal.Rptr. 277) should be applied to third party liability insurance policies.   Applying that rule led to a conclusion that any loss first manifested during one insurer's policy period would continue to be its responsibility, and not that of a later insurer.   However, we noted there were triable issues of fact as to what part of the damages of the project had initially manifested during that policy, “because a project suffering from multiple defects requires that each defect be analyzed separately to determine when it was first manifested.”  (Pines of La Jolla, supra, 5 Cal.App.4th at p. 722, fn. 5, 7 Cal.Rptr.2d 53;  see Chu v. Canadian Indemnity Co. (1990) 224 Cal.App.3d 86, 97–102, 274 Cal.Rptr. 20.)   Thus, for the purpose of deciding that case (i.e., determining whether summary judgment had appropriately been granted for the insurer on an “other insurance” clause), this court found no significant legal distinction between first and third party policies.  (Pines of La Jolla, supra.)   However, we believe the case we are currently deciding presents issues not squarely presented to the court in Pines of La Jolla, so that a different conclusion is possible and, as we shall show, warranted.

B

Third Party Policy Language

 The above authority requires us to consider whether the distinctions between first party policies and third party considerations are legally relevant in this context, such that we should be required to give further thought to the appropriateness of the use of a manifestation rule in the third party context.   To pursue this line of inquiry, we inquire into the relationship of the manifestation rule to the occurrence policy provisions of the liability policy.   First, the general rule for defining an occurrence is “the time when the complaining party was actually damaged.”  (Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84, 88, 295 P.2d 19.)   This rule distinguishes between a wrongful act, which is not considered an occurrence, and the injurious result of that act, which is the occurrence.  (Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 794, 270 Cal.Rptr. 678.)   A more accurate statement of the Remmer rule defines an occurrence as the time when the property damage for which relief was sought occurred.  (Garriott Crop Dusting Co., supra, at p. 793, 270 Cal.Rptr. 678.)   Another statement of the rule is that “an injury occurs when appreciable damage is suffered by the injured party.”  (Pines of La Jolla, supra, 5 Cal.App.4th at p. 721, 7 Cal.Rptr.2d 53.)   The contingency insured against is the property damage occurring during the policy period.  (Ibid.)  These policies included in their occurrence definition the language, “continuous or repeated exposure to conditions, which results in bodily injury or property damage․”

C

Loss in Progress Rule

 The definition of “occurrence” in the policies also includes a requirement that the property damage be neither expected nor intended from the standpoint of the insured, in order for the policy to apply.   This policy provision has a counterpart in the Insurance Code, sections 22 and 250, formulating the loss in progress rule (an insurer can only insure against the risk of a contingent or unknown event materializing during the policy term).  (Pines of La Jolla, supra, 5 Cal.App.4th at p. 721, 7 Cal.Rptr.2d 53.)   A policy issued after the inception of a “loss in progress” would not be held to cover that loss “because the fact of damage would not have been contingent or unknown when the policy was issued.”  (Ibid.)

In Fireman's Fund, supra, 223 Cal.App.3d at page 1627, footnote 5, 273 Cal.Rptr. 431, we noted that under section 22, it is the damage which must be contingent or unknown, not the liability of the insured or the cause of the damage.   This is a rather narrow definition of contingency.   An equally correct interpretation of sections 22 and 250, however, would be that an insurance policy does not violate the loss in progress rule so long as it is contingent at the time the policy is issued whether the insured's activity will result in a claim for damage that occurred within the policy period.  (See Snapp v. State Farm Fire & Cas. Co. (1962) 206 Cal.App.2d 827, 830, 24 Cal.Rptr. 44.)   Alternatively, it could be stated that a risk is insurable where there is uncertainty about the imposition of liability so that, at the time the policy is issued, there is no existing legal obligation on the part of the insured to pay for alleged damage.   Stated still another way, the inquiry could be whether the entire contingency insured against has materialized, i.e., damage occurring during the policy period.  (See Pines of La Jolla, supra, 5 Cal.App.4th at p. 721, 7 Cal.Rptr.2d 53.)

D

Analysis

 Returning to the facts of our case, there is a 116–unit project here with an initial manifestation date in one unit.⁶  There is evidence that the grading performed by the insured was the cause of the subsidence problems for the entire complex.   The soils expert here likened the soils damage to a string of firecrackers, where water gradually reaches an area where compaction is inadequate and causes shifting and settlement to occur.   The expert stated, “[I]t's a time bomb sitting there waiting for the fuse to get lit.   The lighting is the water, and not all parts are going to ignite at the same time, sort of like a string of firecrackers.   See, the first one goes off, then maybe travels—the fuse travels along.   The second one goes off and it could keep on for some time.”   The evidence thus showed that different units at the project could sustain property damage at different times.

 Zurich contends that since McKnight had been sued by Mooney and Kellerup before Zurich's policy period began, McKnight, as the insured, must be presumed to have been sufficiently aware of damage at the project so that the policy Zurich issued did not cover “contingent or unknown” events.  (§ 22, 250.)   However, that argument disregards the peculiar problems associated with progressive property damage in a factual context involving a number of property units and therefore a number of potential claimants.   In Chu v. Canadian Indemnity Co., supra, 224 Cal.App.3d at pages 97–102, 274 Cal.Rptr. 20, this court rejected a trial court's conclusion that manifestation of one defect demonstrates the project suffers from a generic defect, e.g., faulty construction.  (Id. at p. 98, 274 Cal.Rptr. 20.)   In that case, we were discussing distinct and unrelated sets of defects.   Here, although the generic defect giving rise to the various claims under the liability policy could broadly be characterized as “faulty grading”, we believe that to do so disregards the fact that the grading gave rise to distinct problems which manifested themselves at different times in different units of the project.   Significant contingencies remained at the time these policies were entered into as to whether and when each property owner would sustain property damage;  essentially, each potential claimant was subject to a different contingency.

We also note that the manifestation rule presupposes that the first party insured will be on site to observe the damage;  it is in the nature of a discovery rule.   However, third party liability policies do not contain in their occurrence sections any discovery requirement or a policy limitations period for the filing of an action after manifestation of a defect.

Moreover, the “manifestation” concept carries with it attributes of certainty and finality, in that when a defect is manifested, it is identifiable and can be analyzed for purposes of determining its causation and the costs involved in remedying it.   The manifestation concept has special force in cases involving a single defect on a single premises, as with the spalling problems with the respective hotels in Fireman's Fund, supra, 223 Cal.App.3d 1621, 273 Cal.Rptr. 431, and Home, supra, 205 Cal.App.3d 1388, 253 Cal.Rptr. 277.   However, the manifestation concept does not provide a particularly useful tool for interpretation of third party liability policy “occurrence” language.   Such language focuses on when the complaining party was actually damaged (Remmer v. Glens Falls Indem. Co., supra, 140 Cal.App.2d at p. 88, 295 P.2d 19) and the date of occurrence of an injury as “when appreciable damage is suffered by the injured party.”  (Pines of La Jolla, supra, 5 Cal.App.4th at p. 721, 7 Cal.Rptr.2d 53.)   An occurrence resulting in property damage can involve “continuous or repeated exposure to conditions․”   The inquiry should be whether there was an occurrence within the policy period:  Did the property damage claimed occur within the policy period, as damage flowing from an earlier wrongful act?  (Remmer, supra, 140 Cal.App.2d at p. 88, 295 P.2d 19.)   Such determinations are individual as to each claimant, for purposes of interpreting the insurance policy.   Lumping together 116 units as being subject to a single manifestation does not, we believe, accord with the nature of third party liability coverage.

 Therefore, while a single manifestation date for a single project may be enough to determine which of several insurance policies applies in the first party context, the manifestation rule is inadequate when the definition of occurrence is considered in the third party liability context.   Similarly, while some damage may be known as to one portion of a complex of property (such as one condominium unit), an insured is not thereby placed on knowledge of certain liability for the entire complex or a certain legal obligation to pay for known damage.   Even where a single type of defect is concerned (e.g., as here, where only grading is alleged as a defect), the nature of progressive property damage for a multi-unit property is such that the entire contingency insured against by an insurance policy cannot be said to have materialized when one particular defect is noted at one unit.   Although the insured could expect with some degree of certainty that further such damage would occur after the first such damage became manifest, it was still contingent or unknown when the next such damage would occur.  (See Sabella v. Wisler (1963) 59 Cal.2d 21, 34, 27 Cal.Rptr. 689, 377 P.2d 889 [even where inevitable that damage will occur at some time, such loss remained a contingency or risk at the time the parties entered into the policy];  Annot., Event Triggering Coverage (1993) 14 A.L.R.5th 695, 731–735.)

We are urged by the insurers in this case to decide this inter-insurance dispute on respective policy coverage on public policy grounds, giving great weight to the issues of certainty and predictability in insurance coverage, as opposed to the reasonable expectation of the insured.  (See Prudential–LMI Com. Insurance, supra, 51 Cal.3d at p. 699, 274 Cal.Rptr. 387, 798 P.2d 1230.)   In response, CIGA argues that a distinction should be made between first party coverage, brought by the insured for its own benefit, and third party coverage, where liability coverage is bought not only to protect the insured but also potential innocent third party claimants.   We prefer not to engage in a philosophical debate as to the respective strengths of these policies, and instead adhere to the language of the insurance policies for an interpretation that is as objective as possible.   The important factor here is that each potential claimant may have suffered actual damage to his or her home at a different time, and it is actual damage to property, not certainty or knowledge of damage, which is the subject of the insurance.

 For all these reasons, we believe the distinction between first and third party policies is legally significant here for purposes of analyzing the different types of claims which can be filed against an insured in the context of progressive property damage.   Although in a dispute among insurers, policy considerations may predominate over the probable reasonable expectations of the insured (Fireman's Fund, supra, 223 Cal.App.3d at pp. 1627–1628, 273 Cal.Rptr. 431), the reasonable expectations of an insured cannot be totally disregarded.   At the very least, there was a potential for coverage here which led to the various insurers' duties to defend.  (See Chemstar, Inc. v. Liberty Mutual Ins. Co. (C.D.Cal.1992) 797 F.Supp. 1541, 1553;  Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 299, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)   The manifestation rule developed in the first party context is not appropriately applied across the board.   Instead, in this liability context, a “continuing injury” trigger should be used, because property damage occurred beginning in 1976 and continued throughout the filing dates of the underlying lawsuits.   Because these claimants alleged continuous and repeated exposure to a continuing series of loss-causing events, under these policies, a continuous trigger of coverage should apply.   All carriers who were on the risk from the inception of harm to the time the loss was no longer contingent should be liable to the insured.   And, as we discussed above, the loss could still be deemed contingent so long as it was unknown when the insurance was issued whether the insured's activity would result in a claim for property damage that occurred within the policy period.   Therefore, based on the language of the policies and the nature of the contingent or unknown events, the trial court was incorrect in concluding on a manifestation basis that Mission was the solely liable insurer on the policies.

IV

Apportionment of Defense Costs and Settlement Expenses

We have concluded above that a continuing injury rule should apply to determine coverage in this progressive property case, beginning with the first occurrence date when property damage was first observed at the project, i.e., November 1976.   Under this analysis, Commercial Union is not liable on its pre-manifestation policy which ran from May 1973 through May 1976.   However, the manifestation and post-manifestation carriers, Mission, Commercial Union, Transamerica, and Zurich, may all be held liable on those policies.   We shall first discuss whether the trial court's allocation of defense costs was in accordance with the statutes governing the duties of CIGA, as Mission's successor, to pay covered claims on behalf of an insolvent insurer.   We shall then determine whether the trial court correctly required CIGA to reimburse the three insurers for the expenses they incurred to settle the underlying lawsuits.

To begin at the beginning, the proper interpretation of statutory language is a question of law which an appellate court may determine de novo, independent of the trial court's ruling, where there is a lack of substantial evidentiary dispute in the record.  (California Ins. Guarantee Assn. v. Liemsakul (1987) 193 Cal.App.3d 433, 438, 238 Cal.Rptr. 346;  Los Angeles County Safety Police Assn. v. County of Los Angeles (1987) 192 Cal.App.3d 1378, 1384, 237 Cal.Rptr. 920.)

“CIGA was established by the Legislature in 1969 to provide each member insurer with ‘insurance against loss arising from the [member's] failure ․ [as] an insolvent insurer to discharge its obligations under its insurance policies.  [Citation.]’ ”  (E.L. White, Inc. v. City of Huntington Beach (1982) 138 Cal.App.3d 366, 370, fn. omitted, 187 Cal.Rptr. 879.)   Section 1063.2, subdivision (a), provides that CIGA “shall pay and discharge covered claims and in connection therewith pay for or furnish loss adjustment services and defenses of claimants when required by policy provisions․”  (Italics added.)   The definition of “covered claims” is found in section 1063.1, subdivision (c)(1), as meaning the obligations of an insolvent insurer, subject to specified conditions.⁷

 On appeal, CIGA argues three theories in support of its position that there was no covered claim here:  (1) Under section 1063.1, subdivision (c)(9)(i), “any claim to the extent it is covered by any other insurance of a class covered by the provisions of this article available to the claimant or insured ․” is not a covered claim with respect to CIGA; ⁸  (2) under section 1063.1, subdivision (c)(4), any obligation to insurers is not a covered claim;  and (3) under section 1063.1, subdivision (c)(9)(ii), any claim by a party other than the original claimant, such as an assignee or a subrogee, does not constitute a covered claim.⁹  We shall find CIGA's first argument on “other insurance” to be dispositive and accordingly do not discuss CIGA's remaining statutory arguments.¹⁰  Our task is to decide whether, due to the above-described continuing injury rule for determining coverage, the other liability insurers whose policies covered the insured after the original manifestation date constitute “other insurance” within the meaning of this section.

A

Defense Costs

Generally, “defense costs will be apportioned among the insurers in accordance with contribution to the payment of the loss, at least in the absence of contractual provisions dictating a contrary result.  [Citations.]”   (Olympic Ins. Co. v. Employers Surplus Lines Ins. Co. (1981) 126 Cal.App.3d 593, 602, 178 Cal.Rptr. 908.)   Another way of stating the same principle is that “ ‘[w]here two insurers cover the same risk, defense costs must also be shared between them pro rata in proportion to the respective coverage afforded by them to the insured.  [Citation.]’ ”  (CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at p. 620, 222 Cal.Rptr. 276.)   It is not possible to formulate a definitive rule for allocation of defense costs “in light of varying equitable considerations which may arise ․ which depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers.  [Citation.]”  (Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369, 165 Cal.Rptr. 799, 612 P.2d 889.)   In practice, where an insurer has refused to defend or indemnify, the allocation of defense costs may be made by using the proportions of the policy limits.  (CNA Casualty of California, supra, 176 Cal.App.3d at p. 620, 222 Cal.Rptr. 276.)   Where the insurers have paid settlement monies, the allocation may be made in accordance with their contributions to the payment of the loss.  (Olympic Ins. Co., supra, 126 Cal.App.3d at p. 602, 178 Cal.Rptr. 908.)

In this case, CIGA was ordered to pay 25 percent of the defense costs on behalf of Mission, as were the other three insurers.   This was the trial court's effort to apportion the costs of defense based on equitable considerations.   The trial court did not agree with CIGA that the claims made in the underlying lawsuits were not “covered claims” under section 1063.1, subdivision (c)(1).

The term “other insurance” in section 1063.1, subdivision (c)(9)(i) has been interpreted as applying to excess insurance (Ross v. Canadian Indemnity Ins. Co. (1983) 142 Cal.App.3d 396, 404, 191 Cal.Rptr. 99) and in R.J. Reynolds Co. v. California Ins. Guarantee Assn. (1991) 235 Cal.App.3d 595, 600–601, 1 Cal.Rptr.2d 405, as applying to a policy which named a party, insured under another policy, as an additional insured.   The court in R.J. Reynolds Co. explained its reasoning:

“Cases interpreting this language have established that where an insured has overlapping insurance policies and one insurer becomes insolvent, the other insurer, even if only a secondary or excess insurer, is responsible for paying the claim.   In other words, CIGA is an insurer of last resort and does not assume responsibility for claims where there is any other insurance available.  [Citation.]  ‘The legislative intent was to create a protection for the public against insolvent insurers when no secondary insurer is available.’  [Citation.]  ‘The secondary insurer has received a premium for the risk and thus the secondary insurer, and not CIGA, should be responsible for the coverage of the loss.’  [Citation.]”  (R.J. Reynolds, supra, 235 Cal.App.3d at pp. 600–601, 1 Cal.Rptr.2d 405.)

The term “secondary insurer” was used in Central National Ins. Co. v. California Ins. Guarantee Assn. (1985) 165 Cal.App.3d 453, 458, 211 Cal.Rptr. 435, to explain a situation in which the appellant insurer, together with several other insurers, had issued a number of insurance policies for the same insured.  (Id. at p. 457, 211 Cal.Rptr. 435.)   The court stated:

“ ‘When a secondary insurer is available in the event of an insolvent primary insurer, the secondary insurer should be responsible in the absence of specific language to the contrary.  [§ 1063.1, subd. (c)(7)(a).][11]  The secondary insurer has received a premium for the risk and thus the secondary insurer and not CIGA, should be responsible for the coverage of the loss.’  [Citation.]

“ ‘The Legislature chose to provide a limited form of protection for the public, not a fund for the protection of other insurance companies from the insolvencies of fellow members.’  [Citation.]”  (Central National Ins. Co., supra, 165 Cal.App.3d at p. 458, 211 Cal.Rptr. 435.) ¹²

Phoenix Ins. Co. v. United States Fire Ins. Co. (1987) 189 Cal.App.3d 1511, 235 Cal.Rptr. 185, was an appeal on a declaratory relief action between insurers as to their respective liability for settlement amounts paid on behalf of their insured.   There the Court of Appeal found that CIGA should not be insulated from liability for its refusal to settle a lawsuit on behalf of an insolvent insurer, relying in part on the potential threat of bad faith litigation against the other insurer who eventually settled the action and then sought equitable indemnification from CIGA.   The court did not feel the settling insurer should be punished for protecting its insured.  (Id. at pp. 1524–1525, 235 Cal.Rptr. 185.)   In a footnote, the court made this broad statement on the point before us:  “We reject out of hand CIGA's contention that the Insurance Code permits it to abandon an insured anytime an argument can be made that ‘other insurance’ is available.   Such an interpretation runs contrary to the legislation's purpose, which is to give the insured of an insolvent carrier some sense of security in knowing that he or she has at least a minimal amount of insurance protection.”  (Phoenix, supra, 189 Cal.App.3d at p. 1524, fn. 12, 235 Cal.Rptr. 185.)   Suffice it to say that this broad statement in Phoenix was made in light of rather peculiar facts which are not present in this case;  in any case, we do not believe that view is supported by the language of section 1063.1, subdivision (c)(9)(i).

In light of all of the above considerations, we believe it is obvious that the Transamerica, Zurich, and Commercial Union policies qualify as “other insurance,” “overlapping insurance,” or “secondary insurance” when the appropriate “continuing injury” coverage rules are applied to this matter of progressive property damage.   These insurers received premiums for the risks and under our interpretation of the policies' “occurrence” term, they should be responsible for the coverage of the loss.  (Central National Ins. Co. v. California Ins. Guarantee Assn., supra, 165 Cal.App.3d at p. 458, 211 Cal.Rptr. 435.)   Because there are other insurers on the risk, the claims against CIGA do not represent “covered claims” within the meaning of section 1063.1, subdivision (c).   Moreover, since there is no “covered claim” here, there is no duty for CIGA to pay and discharge covered claims and “in connection therewith” related defense costs under section 1063.2, subdivision (a).   Because other insurance was available, “CIGA was prohibited by statute from either contributing to the settlement pool or tendering a defense.”   (Central National Ins. Co., supra, 165 Cal.App.3d at p. 460, 211 Cal.Rptr. 435.)   CIGA is thus statutorily immune from a finding that it owed a joint and several defense obligation with solvent insurers.¹³

Because the trial court erred in assessing a 25 percent defense cost obligation against CIGA, we reverse the judgment and return the matter to the trial court for a new determination of the proper equitable apportionment of defense costs in this matter.   Although no definitive rule can be formulated for weighing the varying equitable considerations, the principles set forth in Signal Companies, Inc. v. Harbor Ins. Co., supra, 27 Cal.3d at page 369, 165 Cal.Rptr. 799, 612 P.2d 889, and CNA Casualty of California v. Seaboard Surety Co., supra, 176 Cal.App.3d at page 620, 222 Cal.Rptr. 276, will govern that determination.

B

Settlement Expenses

The rules stated above also require us to reverse the judgment insofar as it required CIGA, on behalf of Mission, to reimburse the other three carriers for the indemnity expenses they paid to settle the underlying lawsuits.   Although Mission was one of several carriers on this particular risk, its successor, CIGA, “was prohibited by statute from either contributing to the settlement pool or tendering a defense.”  (Central National Ins. Co. v. California Ins. Guarantee Assn., supra, 165 Cal.App.3d at p. 460, 211 Cal.Rptr. 435.)   The trial court is directed to enter judgment in favor of CIGA on the issue concerning its lack of responsibility to share in the indemnity expenses.

DISPOSITION

The judgment is reversed and the matter remanded for further proceedings consistent with this opinion.   CIGA shall recover its costs on appeal.

FOOTNOTES

1.   All statutory references are to the Insurance Code unless otherwise specified.

2.   In Stonewall, the Supreme Court has ordered that argument shall be limited to the following issues:  (1) what is the scope of third party liability coverage for claims based on continuous and progressive damage to property;  and (2) how do:  (a) the Insurance Code provisions defining insurable events (Ins.Code, §§ 22, 250);  and (b) the policy language limiting the definition of “occurrence” to damage which is neither expected nor intended from the standpoint of the insured, affect third party liability coverage?

3.   Evidently no issue exists concerning allocation of defense costs as to the Mooney and Kellerup suits;  only indemnity expenses were contested.C1–2 R3class ActionC1–2Class ActionR3Settlement (Indemnity)C1–2Defense PaymentsR3ContributionsC1–2 ZURICH$  394,870.28$130,000  COMMERCIALUNION$  590,746.96$100,000  TRANSAMERICA$   82,120.12$ 50,000Total:$1,067,737.36$280,000

4.   Commercial Union has filed a respondent's brief in which it does not challenge its allocation to pay 25 percent of the defense costs.   However, it opposes all the positions taken by CIGA on appeal.

5.   CIGA makes further statutory claims that the covered claims definition does not apply because these are “obligations to an insurer” (§ 1063.2, subd. (c)(4)) or they are claims by a party other than the “original claimant” (§ 1063.1, subd. (c)(9)(ii)).   As we will explain in part IV, post, we need not decide those claims, as the “other insurance” section is dispositive.  (§ 1063.1, subd. (c)(9)(i).)

6.   Commercial Union and Zurich both argue that the trial court's finding that there was a single occurrence within the meaning of the policy is supported by substantial evidence and hence should be upheld by this court.  (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873–874, 197 Cal.Rptr. 925.)   However, here, the facts were essentially undisputed, and the trial court made a ruling of law interpreting the policy.   Under those circumstances, “ ‘construction of an insurance policy presents a question of law.   The appellate court is not bound by the trial court's interpretation.   Rather, it must independently interpret the language of the insurance contract.’  [Citation.]”  (Fireman's Fund, supra, 223 Cal.App.3d at p. 1625, 273 Cal.Rptr. 431.)

7.   Section 1063.1, subdivision (c)(1) reads as follows:  “ ‘Covered claims' means the obligations of an insolvent insurer, including the obligation for unearned premiums, (i) imposed by law and within the coverage of an insurance policy of the insolvent insurer;  (ii) which were unpaid by the insolvent insurer;  (iii) which are presented as a claim to the liquidator in this state or to the association on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings;  (iv) which were incurred prior to the date coverage under the policy terminated and prior to, on, or within 30 days after the date the liquidator was appointed;  (v) for which the assets of the insolvent insurer are insufficient to discharge in full;  (vi) in the case of a policy of workers' compensation insurance, to provide workers' compensation benefits under the workers' compensation law of this state;  and (vii) in the case of other classes of insurance if the claimant or insured is a resident of this state at the time of the insured occurrence, or the property from which the claim arises is permanently located in this state.”

8.   “Any other insurance of a class covered by the provisions of this article” (§ 1063.1, subd. (c)(9)(i)) includes, inter alia, liability insurance, such as we are dealing with here.  (§ 1063, subd. (a).)

9.   In connection with the latter argument, we granted CIGA's request that we take judicial notice of certain legislative history material.  (Evid.Code, § 459, subd. (a).)

10.   Due to our disposition of this case, we also need not reach CIGA's arguments that the state of the pleadings in this case did not allow the trial court to award affirmative relief as against CIGA to Commercial Union and Transamerica for defense costs and settlement amounts, because they brought no cross-complaints seeking such affirmative relief.

11.   Now section 1063.1, subdivision (c)(9)(i).

12.   Also see California Ins. Guarantee Assn. v. Liemsakul, supra, 193 Cal.App.3d at page 440, 238 Cal.Rptr. 346:  “It is not CIGA's role to serve as an alternative to the claimant's pursuing the matter with his or her own allegedly recalcitrant insurer.”

13.   Because other insurance was available to the insured, we need not respond to CIGA's arguments that other insurance was also available to the claimants, i.e., Mooney, Kellerup, and the class action claimants, in the form of homeowner's insurance or the cross-complainant developer's insurance.

HUFFMAN, Associate Justice.

TODD, Acting P.J., and NARES, J., concur.