LICK MILL CREEK APARTMENTS v. GENERAL STAR INDEMNITY COMPANY (1995)

Lick Mill Creek Apartments (Lick Mill) and Prometheus Development Co., Inc. (Prometheus), appeal after the trial court granted summary judgments to respondent General Star Indemnity Company (General Star).   The court granted summary judgment against Lick Mill after finding that, as a matter of law, Lick Mill was not an insured under a policy that General Star issued to Prometheus, which expired one month before Lick Mill's formation.   The court granted summary judgment against Prometheus after finding that, as a matter of law, a pollution exclusion in the policy precluded coverage.   Prometheus and Lick Mill contend that the superior court erred in finding no triable issue of fact regarding these issues.   We affirm.

Factual And Procedural Background

In 1986, General Star issued a comprehensive general liability insurance policy to Prometheus.   The policy initially stated a policy period of March 1, 1986, to March 1, 1987, and had a premium of $223,250.   By mutual agreement, General Star canceled the policy as of April 1, 1986, and returned $183,958 of the premium.

Through an endorsement to the policy (Named Insured Endorsement), General Star extended coverage not only to certain specifically named entities, but also to “․ ANY AND ALL LIMITED PARTNERSHIPS CREATED, SYNDICATED, OR MANAGED BY THE [NAMED ENTITIES] AND/OR SUBSIDIARY, PARTNERSHIP, OR CORPORATION CREATED BY OR MANAGED BY ANY OF THE PRECEDING ENTITIES, NOW EXISTING OR HEREAFTER CONSTITUTED.”   The Named Insured Endorsement further provided:  “This endorsement is subject to all the agreements, conditions, and exclusions of the policy unless such agreements, conditions and exclusions are expressly modified or expressly eliminated hereby.”

The policy also included an endorsement entitled “POLLUTION EXCLUSION ” (Pollution Exclusion).   The two parts of the Pollution Exclusion relevant to this appeal (hereafter respectively referred to as Part 1 and Part 2) excluded coverage for the following:  “(1) ․ bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:  [¶] (i) at or from premises you own, rent or occupy;  ․ [¶] (2) ․ any loss, cost or expense arising out of any governmental direction or request that you test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.”   The Pollution Exclusion defined “Pollutants” as “․ any solid, liquids, gaseous or thermal irritant, or contaminant, including smoke, vapor, soot, fume, acids, alkalis, chemicals and waste materials.”   The Pollution Exclusion also specifically provided “․ that the company shall not have any duty to defend any suit against the insured seeking damage on account of such injury.”

Between June 1985 and April 1986, Prometheus entered into four agreements with Kimball Small Investments 103 (Kimball Small) relating to property in Santa Clara County (the Property).   On May 7, 1986, Lick Mill was created by execution of an agreement of limited partnership.   Prometheus Partners-86 Mill Creek was the general partner of Lick Mill.   Prometheus later replaced Prometheus Partners-86 Mill Creek as the general partner, and Lick Mill amended its certificate of limited partnership accordingly.

On September 8 and December 17, 1986, Kimball Small executed grant deeds giving title to the Property to Lick Mill.   During excavation in January 1988, construction workers discovered discolored and odorous soils on the Property.   This discovery led to an investigation by the State of California Health and Welfare Agency, Department of Health Services, Toxic Substances Control Division (DHS).   Later, in March 1989, DHS issued an order directing Lick Mill and Prometheus, among others, to clean up the Property.

In July 1988, Lick Mill and Prometheus filed an action in federal court against certain prior owners of the Property and other potentially responsible parties.   Four defendants in the federal action filed counterclaims against Lick Mill and Prometheus.   The federal action settled prior to trial.   Lick Mill and Prometheus also filed suit in state court against certain prior owners of the Property.   The defendants in the state action filed answers to the complaint.

By letter dated June 9, 1989, counsel for Prometheus and Lick Mill sent to Prometheus's insurance broker a letter for forwarding to General Star that tendered the DHS matter to General Star for defense and indemnification pursuant to the policy.   The tender letter stated that DHS and the Regional Water Quality Control Board (RWQCB) had asserted claims against Prometheus and Lick Mill “in connection with contamination of the earth and water surrounding their project” at the Property.   It further explained:  “The present source of contamination on the property appears to be the result of the storage of hazardous materials on the site from 1934 through 1981․  [¶] During the course of construction on the site in 1987, it was discovered that ․ a substantial amount of contaminated soil and ground water existed on the property site.   Under compunction of law, your insured commenced clean up operations on the site and has continued to do so.   The continuing clean up operations are being done at the insistence and under the auspices of various regulatory agencies including the [DHS and RWQCB].  Your insureds have already expended $1.5 million in complying with these legal obligations and they will be compelled to continue these clean up operations for an indefinite period of time in the future.”

After setting forth this factual background, the letter stated:  “In tendering this matter to you for defense and indemnification, neither I nor my clients are unmindful of the exclusion contained in your policy dealing with pollution-related matters.   While it is my belief that the exclusion would not, in itself, preclude this particular claim from coverage, that point is really moot in light of the fact that the exclusion would not be relevant based upon the recent California Supreme Court decision in Garvey vs. State Farm Fire and Casualty Company (1989) 48 Cal.3d 395.”   The letter then further explained counsel's position that the Pollution Exclusion did not bar coverage under the cited case.   It closed with an offer to provide General Star “with any additional facts or information in connection with this matter․”

By letter dated February 2, 1990, Michael Otworth, who was a General Star claims examiner at the time, responded to this coverage request.   The letter provided in relevant part:  “It has been brought to our attention that you represent Prometheus ․ concerning a contamination claim at [the Property].  [¶] Considering that we have only a 30 day policy with limited information concerning this loss, we are not willing to accept your tender at this time.   We would appreciate any information you may have on whether any other liability carrier has accepted defense.   If so, we would appreciate the name of their law firm so we may communicate with them directly.  [¶] In the interim, we would appreciate any other information you may have that may help us evaluate whether we have any exposure in this matter.”   At his deposition, Otworth characterized this correspondence as “an acknowledgment letter.”   He denied that the letter took a position on coverage, and stated that, at the time he wrote it, he did not have sufficient information to determine whether there was coverage.

Otworth did not receive any acknowledgment or further correspondence in reply to his letter.   On March 12, 1991, he returned a telephone call from counsel for Prometheus and Lick Mill.   In his notes of the conversation, Otworth indicated that General Star needed to reevaluate the matter.   He found no indication that anyone reevaluated the claim.   Otworth looked at the file again in March 1992 and found no new information regarding the claim.   The file was closed in March 1992.   According to Otworth, at the time the file was closed, he did not have enough information to determine whether or not the policy provided coverage in the matter.

In March 1992, Lick Mill and Prometheus filed this action against a number of their alleged insurers, including General Star, who denied coverage in connection with the DHS matter.   The complaint asserted causes of action for declaratory relief, breach of contract, and tortious breach of the covenant of good faith and fair dealing.   The complaint alleged that, pursuant to the policy, General Star had a duty to defend and indemnify Prometheus and Lick Mill in connection with the DHS cleanup order, the four counterclaims in the federal action, and the answers in the state action.

General Star subsequently moved for summary judgment against Prometheus and Lick Mill, asserting that the Pollution Exclusion precluded coverage for the claims at issue.   Prometheus and Lick Mill opposed the motion, arguing the following:  (1) General Star waived the Pollution Exclusion by failing to cite it in the February 2 letter responding to the coverage request;  (2) the policy provided coverage under the personal injury endorsement, which applied to injuries arising out of wrongful entry or other invasions of the right of private occupancy;  and (3) the terms of the Pollution Exclusion did not preclude coverage for all of the claims at issue because Prometheus did not rent, occupy, or own the Property, not all of the claims arose out of a governmental cleanup directive, and there was no evidence that the compounds on the Property were “irritant[s]” or “contaminant[s]” within the meaning of the Pollution Exclusion.

General Star also moved for summary judgment against Lick Mill on the additional ground that Lick Mill, which was created after expiration of Prometheus's policy with General Star, was not entitled to coverage under that policy because it was not a named insured.   Lick Mill opposed the motion, arguing in part that, notwithstanding the date of its formation, it was entitled to coverage under the Named Insured Endorsement.¹

The superior court first heard the motion filed only against Lick Mill and granted it, finding that the policy does not afford coverage to entities, like Lick Mill, that were formed after expiration of the policy.   The court subsequently heard General Star's motion regarding the Pollution Exclusion.   Given its prior ruling that Lick Mill was not a named insured, the court considered the Pollution Exclusion motion only as to Prometheus.   It granted the motion, finding that the Pollution Exclusion precluded liability as a matter of law.   The court subsequently entered separate judgments against Lick Mill and Prometheus.   Lick Mill and Prometheus then each filed a timely notice of appeal.

Discussion

I. Waiver

Before determining the effect of the Pollution Exclusion on General Star's duty to defend and indemnify in this case, we must first address the parties' contentions regarding General Star's right to invoke that exclusion.   Prometheus and Lick Mill contend that General Star waived its right to rely on the Pollution Exclusion because it failed to cite that (or any) exclusion in its February 2 letter responding to the tender letter and committed misconduct by failing to investigate the claim.   General Star replies that we should not reach the waiver question because Prometheus and Lick Mill did not plead waiver in their complaint.   It further asserts that, in any event, there is no evidence to create a triable issue of fact regarding waiver.

Initially, we reject General Star's argument that the complaint's failure to plead waiver prevents Prometheus and Lick Mill from raising the issue.   “Although it is true that a special defense such as estoppel or waiver generally cannot be proved unless pleaded, this rule does not apply where evidence of such a defense is made relevant by a contention raised in the answer.  [Citations.]”  (Davies v. Langin (1962) 203 Cal.App.2d 579, 583-584.)   In Arnold v. American Insurance Co. (1906) 148 Cal. 660, 665-668, the Supreme Court applied this rule in holding that an insured could prove an insurer's waiver of a breach of a policy provision.   The court explained:  “It is incumbent upon a plaintiff in an action upon a policy of insurance to allege the performance of conditions precedent, such as the giving of any required notice of loss, etc., and performance of all promissory warranties;  but limitations, stipulations, and conditions which are in the nature of conditions subsequent, and go to defeat the liability of the insurer, are matters of defense which, to be available to the insurer, must be alleged in the answer․  To this matter so alleged in the answer, under our system of pleading, any defense by way of replication was open to plaintiff without pleading.  [Citations.]”  (Id. at p. 668.)   Because General Star raised the Pollution Exclusion as a defense in its answer, the complaint's failure to plead waiver does not preclude Prometheus and Lick Mill from asserting waiver.²

On the merits of the issue, Prometheus and Lick Mill argue, relying principally on federal district court decisions from the Ninth Circuit Court of Appeals that interpret California law, that General Star waived its right to assert the Pollution Exclusion.   Quoting McLaughlin v. Connecticut General Life Ins. Co. (N.D.Cal.1983) 565 F.Supp. 434, 451 (hereafter McLaughlin ), Prometheus and Lick Mill assert that “ ‘an insurance company which relies on specified grounds for denying a claim thereby waives the right to rely in subsequent litigation on any other grounds which a reasonable investigation would have uncovered.’ ”   They further assert that the following facts support application of this waiver rule in this case:  (1) General Star “did not cite any policy ground for denying coverage;”  and (2) General Star's handling of the claim, including its lack of investigation, “is misconduct” that justifies waiver of all uncited policy defenses.³

Following our Supreme Court's recent decision in Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, modified 11 Cal.4th 453a (hereafter Waller ), we reject this claim.   In Waller, the court “decline[d] to follow” McLaughlin (Waller, supra, 11 Cal.4th at p. 33) and held “․ that an insurer does not impliedly waive coverage defenses it fails to mention when it denies the claim.”  (Id. at p. 31.)   A contrary rule, the court reasoned, “․ would be inconsistent with established waiver principles by erroneously implying an intent to relinquish contract rights where no such intent existed ․” and “would contradict” the general rule in California (id. at p. 33) “․ that a denial of coverage on one ground does not, absent clear and convincing evidence to suggest otherwise, impliedly waive grounds not stated in the denial.  [Citations.]”  (Id. at pp. 31-32.)   Thus, an insured asserting waiver must show either an “express” waiver, “based on the words of the waiving party,” or an “implied” waiver, “based on conduct indicating an intent to relinquish the right.  [Citation.]”  (Id. at p. 31.)   Here, nothing in General Star's February 2 letter “․ indicated an intention ․ to relinquish additional reasons for denial of a duty to defend.”  (Id. at p. 34.)   Nor is there any evidence that General Star's “․ actions following its defense denial were inconsistent with its intent to enforce the terms of the policy.”  (Ibid.)  Accordingly, Lick Mill and Prometheus could not have had “a reasonable belief” that General Star “intended to waive additional policy defenses” (ibid.), and they do not even contend otherwise.   Therefore, their waiver claim fails as a matter of law.

II. Application of the Pollution Exclusion

“[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity.  [Citation.]”  (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081 (hereafter Horace Mann ).)   An insurer “․ must defend a suit which potentially seeks damages within the coverage of the policy․”  (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275, original italics.)  “The duty to defend is determined by reference to the policy, the complaint, and all facts known to the insurer from any source.  [Citation.]”  (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300 (hereafter Montrose ).)   This determination “․ usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy.   Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy.  [Citation.]”  (Horace Mann, supra, 4 Cal.4th at p. 1081;  see also Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 276 [duty to defend is “fixed by the facts which the insurer learns from the complaint, the insured, or other sources”].)   Thus, an insurer “․ bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy.”  (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at pp. 276-277.)  “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.  [Citations.]” ⁴  (Horace Mann, supra, 4 Cal.4th at p. 1081.)  “Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured's favor.  [Citation.]”  (Ibid.)

Given these principles, an insurer seeking summary judgment must establish, as a matter of law, the absence of any potential for coverage.   (Montrose, supra, 6 Cal.4th at p. 300.)  “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.”   (Ibid., original italics.)   The insurer must show “․ that the underlying claim cannot come within the policy coverage by virtue of the scope of the insuring clause or the breadth of an exclusion.”  (Id. at p. 301.)

The Pollution Exclusion in the policy that General Star issued to Prometheus is known as an “ ‘absolute pollution exclusion.’ ”  Legarra v. Federated Mutual Ins. Co. (1995) 35 Cal.App.4th 1472, 1480 (hereafter Legarra );  Titan Corp. v. Aetna Casualty & Surety Co. (1994) 22 Cal.App.4th 457, 465, 469 (hereafter Titan.)  “We are unaware of any California cases holding that a similarly worded exclusion was ambiguous as to its coverage.  [Rather,] the courts which have addressed similarly worded exclusions have repeatedly found them unambiguously to exclude coverage for the type of cleanup” here at issue.  (Titan, supra, 22 Cal.App.4th at pp. 469-470, fn. omitted.)   Following these cases, we agree with the trial court that, as a matter of law, there was no potential for coverage because of both Parts 1 and 2 of the Pollution Exclusion.

Prometheus and Lick Mill argue that Part 2 of the Pollution Exclusion does not conclusively negate potential coverage because “․ the claims for potential liability for property damage were not limited to loss, cost or expense that only arose out of governmental direction or requests regarding pollutants.”   Specifically, after noting that the DHS order only named one party that they sued in their federal action, Prometheus and Lick Mill argue that “․ all the counter-claims by counterclaimants not mentioned in the DHS Order are asserting claims for property damage not arising due to any governmental action or request.”

We reject this claim because a review of the relevant pleadings demonstrates that all counterclaims in the federal action arise “out of [a] governmental direction or request” that Prometheus and Lick Mill clean up the Property.   According to their federal complaint, Prometheus and Lick Mill brought their federal action “under Section 107 (42 U.S.C. Section 9607) of the Comprehensive Environmental Response Compensation and Liability Act of 1980 (‘CERCLA’) ․ for the recovery of costs incurred by [them] necessary to respond to the release and threat of release of hazardous substances from a facility presently owned by” Lick Mill.   In that complaint, they alleged that their expenditures “․ for testing, sampling, cleanup and removal of the hazardous substances on the [P]roperty ․ ha[d] been incurred under the supervision of the concerned state agencies and incurred by [them] as a direct and proximate result of the environmental hazard on the [P]roperty.”   They further alleged that the releases of hazardous substances on the Property violated the Carpenter-Presley-Tanner Hazardous Substance Account Act (Health & Saf.Code, §§ 25300-25382), and that they “ha[d] incurred and will continue to incur costs for removal and remedial actions taken in accordance” with those statutes “[a]s a direct and proximate result of” those violations.⁵  The complaint sought, in part, reimbursement for these costs from the defendants.

The four federal counterclaims all asserted jurisdiction under CERCLA (42 U.S.C. § 9613(b)), and sought contribution pursuant to 42 United States Code section 9613(f).   That section provides in relevant part:  “Any person may seek contribution from any other person who is liable or potentially liable under [42 U.S.C.] section 9607(a)․   In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate.”  (42 U.S.C. § 9613(f).)   Thus, we agree with General Star that the federal counterclaims “involve only the question of who, as between the parties to those actions, should be responsible for the government-ordered cleanup.” ⁶  As such, they fall within the policy's exclusion of costs “․ arising out of any governmental direction or request that [the insured] test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.” ⁷

Prometheus and Lick Mill assert that Part 1 of the Pollution Exclusion does not apply for two reasons.   First, they argue:  “It is not disputed that the groundwater, which belongs to a third party, was contaminated.   Defense is not sought for property in which PROMETHEUS might have any ownership interest, but rather to property (groundwater) owned by the State of California.”   Second, they argue that, because Lick Mill and not Prometheus held title to the Property, Prometheus did not own, rent or occupy the Property within the meaning of the Pollution Exclusion.

We reject both of these claims.   As to the first, because Part 1 of the Pollution Exclusion applies to damages arising out of the release of pollutants “at or from premises [the insured] own[s], rent[s] or occup[ies],” it applies notwithstanding that a third party owns some or all of the damaged property.   Application of this aspect of the Pollution Exclusion depends not on the insured's relationship to the damaged property but on the insured's relationship to the property where the release of pollutants occurs.   Thus, it applies to pollution on the Property that damages the State's groundwater.   (See Legarra, supra, 35 Cal.App.4th at pp. 1480-1481 [applying absolute pollution exclusion to groundwater contamination];  Titan, supra, 22 Cal.App.4th at p. 468 [same].)

We reject the second attack on Part 1's applicability for two reasons First, as a partner in Lick Mill, Prometheus is a co-owner of the Property.  (Corp. Code, § 15025.)   Second, in its pleadings in both this and other actions, Prometheus has referred to itself as a purchaser and owner of the Property.   The complaint in this action alleges that “Plaintiffs purchased the [P]roperty” in October and December 1986, and refers to “plaintiffs' purchase of the [P]roperty.”   Similarly, the federal complaint alleges that “Prometheus purchased” the Property in October and December 1986.   In opposition to another insurer's summary judgment motion in this action, Prometheus and Lick Mill explained:  “PROMETHEUS purchased [the Property] pursuant to a series of written contracts, almost a full year before LICK MILL came into existence․  [¶] Accordingly, PROMETHEUS obtained equitable title to the [P]roperty at the time of the execution of the June 20, 1985 purchase agreement․  Since PROMETHEUS was the purchaser under the contracts, legal title flowed to it automatically at the time of execution despite the fact that the grant deeds were subsequently delivered to LICK MILL.”   Finally, the tender letter itself states that the Property “․ was acquired by your insured in 1986․”  Given these assertions, Prometheus cannot now avoid application of Part 1 by arguing that it does not own the Property.⁸  (See Monzon v. Schaefer Ambulance Service, Inc. (1990) 224 Cal.App.3d 16, 23, fn. 1 [reviewing court may treat statements in briefs as admissions].)

Finally, we reject the claim of Prometheus and Lick Mill that there was a lack of proof that any of the damaging compounds on the Property constitutes a pollutant under the Pollution Exclusion, which defines “Pollutants” as “․ any solid, liquids, gaseous or thermal irritant, or contaminant, including smoke, vapor, soot, fume, acids, alkalis, chemicals and waste materials.”   Again, the assertions of Prometheus and Lick Mill throughout the relevant events preclude them from arguing this position.   Their tender letter sought coverage for “contamination on the [P]roperty” resulting from storage of “hazardous materials,” and referenced “a substantial amount of contaminated soil and ground water” on the Property.   Their federal complaint referred to the compounds as “hazardous substances,” “pollutants,” and “waste,” and alleged that release of the compounds “contaminated the soil and ground water of the [P]roperty,” and that the “․ contamination presented an unreasonable risk to plaintiff and the public․”  It further asserted that the compounds are “hazardous substances” under CERCLA (42 U.S.C. § 9601(14)) and “ ‘[e]xtremely hazardous waste’ ” or “ ‘[h]azardous waste’ ” under Health and Safety Code sections 25115 and 25117.⁹  Similarly, the complaint in this action repeatedly alleges that the released compounds are “hazardous substances.”   It also alleges that the Property was not “free from contamination” as the prior owners had represented.   These assertions conclusively establish that the compounds are “irritant[s]” or “contaminant[s]” under the Pollution Exclusion.¹⁰  Thus, the superior court properly found that, as a matter of law, the Pollution Exclusion applied and negated any possibility of coverage.

III. Potential Personal Injury Coverage

Prometheus and Lick Mill next argue that the court erred in granting summary judgment because there was a duty to defend due to potential coverage under the policy's personal injury endorsement.   That endorsement obligated General Star to pay “․ all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies․”  In relevant part, it defined “ ‘[p]ersonal [i]njury’ ” as injury arising out of “wrongful entry or eviction or other invasion of the right of private occupancy.”   Prometheus and Lick Mill recognize that Titan “․ held personal injury coverage did not provide indemnity for an environmental claim where the insurance policy contained the so called ‘absolute’ pollution exclusion.”  (See Titan, supra, 22 Cal.App.4th at pp. 473-476.)   Moreover, they do not challenge the correctness of that decision.¹¹  Notwithstanding that General Star had no duty to indemnify, they argue that there was a potential for coverage because, at the time of the tender, Titan “was not the law,” and case law from other courts “․ held that the pollution exclusion was not applicable to personal injury coverage provisions contained in general comprehensive liability policies.”   This potential, they argue, triggered the duty to defend.

We reject this argument because it depends on an erroneous understanding of the potential liability necessary to trigger the duty to defend.   It “has never been the law” that an insurer “․ must always defend a third party lawsuit absent a published judicial opinion definitively construing the specific policy provision on which the insurer relies, or ․ ‘until the extent of “the policy coverage” is legally certain,’ to deny the defense.”   (Waller, supra, 11 Cal.4th at p. 25.)  “[A] ‘potential for indemnity’ cannot be based on an unresolved dispute concerning a purely legal question or question of policy interpretation when the question is resolved favorably to the insurer.”  (A-Mark Financial Corp. v. CIGNA Property & Casualty Companies (1995) 34 Cal.App.4th 1179, 1192.)   Rather, “[t]he duty to defend depends on whether there is potential liability based on facts pled in the complaint or known to the insurer.”  (McLaughlin v. National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, 1151.)  “If the terms of the policy provide no potential for coverage, ․ the insurer acts properly in denying a defense even if that duty is later evaluated under case law that did not exist at the time of the defense tender.  [Citations.]”  (Waller, supra, 11 Cal.4th at p. 26.)   Under these principles, we reject the claim that there was potential coverage and a duty to defend under the policy because, at the time of tender, California courts had not yet decided whether the absolute pollution exclusion applied to personal injury coverage.  (See id. at pp. 25-26 [rejecting claim that absence at the time of tender of judicial determination on coverage question created potential coverage];  A-Mark Financial Corp. v. CIGNA Property & Casualty Companies, supra, 34 Cal.App.4th at pp. 1190-1192 [rejecting contention that split of authority on coverage question at the time of tender created potential for coverage];  McLaughlin v. National Union Fire Ins. Co., supra, 23 Cal.App.4th at p. 1151 [same].)   Because as a matter of law the policy did not cover the risk, General Star had no duty to defend.   (State Farm Mut. Auto. Ins. Co. v. Longden (1987) 197 Cal.App.3d 226, 233-234;  see also Aetna Casualty & Surety Co. v. Superior Court (1993) 19 Cal.App.4th 320, 327.)   Thus, the superior court correctly granted summary judgment.¹²

IV. Lick Mill Was Not A Named Insured

Although the superior court's correct finding that the Pollution Exclusion precludes Prometheus from obtaining coverage necessarily disposes of Lick Mill's claim as well, the court granted summary judgment against Lick Mill on a different ground.   It found that, as a matter of law, Lick Mill was not an insured under the policy because Prometheus did not create Lick Mill until after the policy expired.

Lick Mill asserts that the trial court's conclusion is erroneous.   It contends that, as a partnership that Prometheus created or managed, it falls within the Named Insured Endorsement, which extends coverage to limited partnerships “CREATED BY OR MANAGED BY ANY OF THE [NAMED INSUREDS], NOW EXISTING OR HEREAFTER CONSTITUTED.”   Lick Mill argues that this endorsement “does not contain any temporal limitation” and that it is an additional insured under “the clear and explicit meaning of this provision, interpreted in its ordinary and popular sense․”  We disagree.

Applying the governing principles for interpreting insurance contracts, both federal and state courts that have addressed similar questions have consistently rejected as unreasonable policy interpretations that, like Lick Mill's, would result in coverage for entities created or acquired after policy expiration.   In Cooper Companies v. Transcontinental Ins. Co. (1995) 31 Cal.App.4th 1094, 1098, the named insured provision of the insurance policy included the following:  “ ‘․ Cooper Laboratories, Inc. [Cooper], and any organization, association or business entity now existing or hereafter a [c]quired, in which Cooper ․ owns an interest of fifty percent (50%) or more over which Cooper ․ ex[ ]ercises active management and control․’ ”  (Original italics.)   Plaintiffs argued that, given the absence of a temporal limitation, this provision provided coverage to subsidiaries that Cooper acquired after expiration of the policy.  (Id. at p. 1100.)   The court disagreed, finding that no reasonable insured would interpret the policy to provide coverage in perpetuity.  (Id. at pp. 1107-1108.)   The court explained:  “[T]he insurance policies in question obviously contain a finite policy period.   In these occurrence policies, this period serves both to circumscribe the time in which an insurable event may occur and to provide a time for auditing for purposes of fixing premiums.   Of importance here is the truism that unless coverage has been triggered under these occurrence policies within the policy period, there is no coverage once the policy period has ended.  [Citation.]  Therefore, we believe it logically follows that a named insured cannot be added once the policy period has ended.   A corporate acquisition occurring after the policy period can have no retroactive effect on the identity of the named insured.”  (Id. at p. 1107.)   Given the “unreasonable” results to which Cooper's interpretation would lead, the court concluded “that in the absence of temporal language specifically applicable to the named insured endorsements, the policy inception and expiration dates necessarily provide the appropriate limitation.”  (Ibid.)

In granting summary judgment, a New Jersey court reached a similar conclusion in UMC/Stamford v. Allianz Underwriters (1994) 276 N.J.Super. 52 [647 A.2d 182].   There, the named insured provision of one of the policies at issue included “ ‘․ subsidiary, associated, affiliated companies or owned and controlled companies as now or hereafter constituted․’ ”  (Id. at p. 64 [647 A.2d at p. 188], italics added by the UMC/Stamford court.)   Plaintiff argued that this provision covered “any business entities [it] acquire[d] subsequent to the policy expiration date.”  (Ibid.)  Noting the “potential for significant abuse” that this interpretation created (id. at p. 65 [647 A.2d at p. 188] ), the court disagreed, stating:  “Although the phrase ‘hereafter constituted’ is somewhat ambiguous, I do not see how plaintiff could reasonably have expected that all of the business entities it acquired after the policy expired could be covered by that policy.   A fairer and more reasonable interpretation ․ would be that the insurer will provide coverage for acquisitions after the policy commencement date and during the policy period.”  (Id. at p. 64 [647 A.2d at p. 188].)   The court reached the same conclusion regarding another policy that covered “ ‘any affiliated or subsidiary companies in which the named insureds have a financial control and any trade name under which they now operate or may operate in the future.’ ”   (Id. at p. 65 [647 A.2d at p. 189].)

Finally, in Total Waste Management v. Commercial Union Ins. Co. (D.N.H.1994) 857 F.Supp. 140, the court granted insurers summary judgment after rejecting an interpretation of a named insured provision that would have afforded coverage for entities plaintiff acquired or formed after expiration of its insurance policy.   The provision stated:  “ ‘The word insured shall include as named insured any organization which is acquired or formed by the named insured and over which the named insured maintains ownership or majority interest․  The insurance afforded hereby shall terminate 90 days from the date any such organization is acquired or formed by the named insured․’ ”  (Id. at p. 144, original italics.)   The court held that interpreting this provision to cover entities acquired or formed after the policy's termination date “ ‘completely violates the temporal aspects of the policy and does violence to the reasonable expectation doctrine.’  [Citation.]  [Plaintiff's] interpretation of the policies would mean that even though the policies had expired, any time [plaintiff] acquired an entity, the policies would spring back into effect for at least ninety days․  [This] reading of the after-acquired clause ‘would extend [coverage] indefinitely for any acquisition [plaintiff] may make ten, one hundred, or even a thousand years from the expiration of the original policy period!’  [Citation.]  [Plaintiff's] interpretation contradicts the plain language of the effective dates of the policies and the reasonable expectations of the parties.  [Citation.]”  (Id. at p. 150, fn. omitted.)

Following these decisions, we find that Lick Mill's proffered interpretation of the Named Insured Endorsement is not reasonable.   It is inconsistent with the termination date of the policy, and with the specific policy provision making the Named Insured Endorsement “․ subject to all the agreements, conditions and exclusions of the policy unless such agreements, conditions and exclusions are expressly modified or expressly eliminated hereby.”   It would mean that General Star potentially had insured the world in perpetuity as to any occurrence during the policy period.   Under Lick Mill's reading of the policy, as to any such occurrence, General Star would be the insurer for any company coming under Prometheus's control at any time in the future.   This result is both unreasonable and contrary to the principle that we will construe a contract to confer a right in perpetuity only if the language of the agreement compels that construction.  (Nissen v. Stovall-Wilcoxson Co. (1953) 120 Cal.App.2d 316, 319;  see also Cooper Companies v. Transcontinental Ins. Co., supra, 31 Cal.App.4th at p. 1103 [“construing a contract to confer a right in perpetuity is clearly disfavored”].)   Because, as a matter of law, Lick Mill's interpretation of the policy is unreasonable, the superior court properly granted summary judgment.

Lick Mill counters that this conclusion is incorrect in light of extrinsic evidence that it submitted regarding the contract, specifically, the declaration of Sanford Diller, who is the president, chairman of the board, and sole shareholder of Prometheus.   Lick Mill contends that this declaration shows that “․ PROMETHEUS negotiated for ․ broad language so that it could have complete coverage for its developer activities.”   This evidence, Lick Mill argues, establishes that it had a “reasonable expectation of coverage because [Diller] bargained for” the language of the Named Insured Endorsement.   At a minimum, Lick Mill contends, the evidence of Diller's understanding of the Named Insured Endorsement creates a triable issue of fact regarding interpretation of that provision.

We reject Lick Mill's claim.   As it is relevant to the question before us, Diller's declaration for the most part sets forth what he and/or Prometheus subjectively understood and intended the policy to cover.¹³  However, evidence of a contracting party's subjective intent is “not competent extrinsic evidence” and is “irrelevant” absent proof that the party communicated this intent to the other contracting party.  (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3;  see also City of Mill Valley v. Transamerica Ins. Co. (1979) 98 Cal.App.3d 595, 602-603 [undisclosed unilateral intent of insurer is immaterial].)   On this latter point, Diller states in his declaration that “PROMETHEUS always insisted that its subsidiaries and limited partnerships be covered by policies issued to PROMETHEUS without regard to when said subsidiaries and limited partnerships were created,” and “insisted” that the Named Insured Endorsement “be place[d] in its policies.”   However, these statements are far too vague, equivocal, ambiguous, and conclusionary to create an issue of fact even as to whether Prometheus communicated its intent to General Star.  (See Buehler v. Alpha Beta Co. (1990) 224 Cal.App.3d 729, 733;  Ahrens v. Superior Court (1988) 197 Cal.App.3d 1134, 1152;  Guyselman v. Ramsey (1960) 179 Cal.App.2d 802, 807.)   Diller does not state, for example, how, when, or by whom the alleged insistence was expressed to General Star.   Accordingly, Diller's declaration does not render summary judgment against Lick Mill erroneous.

The judgments are affirmed.   Costs to respondent.

FOOTNOTES

1.   Lick Mill also argued that General Star waived its right to assert that Lick Mill was not a named insured because General Star's February 2 letter did not raise this issue.   Lick Mill does not assert this contention on appeal.

2.   The cases that General Star cites in support of its argument are not to the contrary.   In Insurance Co. of the West v. Haralambos Beverage Co. (1987) 195 Cal.App.3d 1308, 1312-1322, and Aetna Casualty & Surety Co. v. Richmond (1977) 76 Cal.App.3d 645, 648-653, pleading of waiver and estoppel was necessary because, unlike Prometheus and Lick Mill, the insureds were defendants in the insurers' declaratory relief actions.   In Goorberg v. Western Assurance Co. (1907) 150 Cal. 510, 519, although the insured was the plaintiff, pleading of waiver and estoppel was necessary because the complaint affirmatively alleged a breach of one of the policy's provisions.   Such is not the case here.

3.   Adoption of this argument would result in waiver of all policy defenses, inasmuch as the February 2 letter did not cite any specific defense.

4.   Accordingly, if we find that General Star had no duty to defend, a fortiori, it had no duty to indemnify.

5.   Similarly, the tender letter explained:  “Under compunction of law, your insured commenced clean up operations on the site and has continued to do so.   The continuing clean up operations are being done at the insistence and under the auspices of various regulatory agencies․  Your insureds have already expended $1.5 million in complying with these legal obligations and they will be compelled to continue these clean up operations for an indefinite period of time in the future.”

6.   Prometheus and Lick Mill incorrectly assert that a number of other entities filed counterclaims in the federal action.   The additional entities that they cite filed answers in the state action.   Nevertheless, our conclusion is equally applicable to those answers, which merely sought to prevent Prometheus and Lick Mill from shifting the cleanup costs to the named defendants or recovering other damages.

7.   Prometheus and Lick Mill incorrectly argue that, because one of the federal defendants filed its counterclaim in September 1988, the claim could not have arisen out of the DHS's order in March 1989.   The Pollution Exclusion does not refer to a governmental cleanup order, but to a “governmental direction or request.”   As we have already noted, Prometheus and Lick Mill have consistently alleged that they undertook cleanup operations at the insistence of governmental authorities and under legal compulsion.   Moreover, asserting a variety of theories, the cited counterclaim sought to shift all or a portion of the cleanup costs that the complaint sought to Prometheus, Lick Mill, and other parties.   Thus, it falls within Part 2 of the Pollution Exclusion notwithstanding its filing before the DHS issued the cleanup order.

8.   Of course, this argument concedes that Lick Mill owns the Property.

9.   By reference to other federal statues, 42 United States Code section 9601(14) variously defines “ ‘hazardous substance’ ” as a compound that “present[s] an imminent and substantial danger to the public health or welfare” (33 U.S.C. § 1321(b)(2)(A)), that “may present substantial danger to the public health or welfare or the environment” (42 U.S.C. § 9602(a)), that constitutes “hazardous waste” or a “toxic pollutant” (42 U.S.C. § 9601(14)), or that “presents an imminent and unreasonable risk of serious or widespread injury to health or the environment.”  (15 U.S.C. § 2606(f).)  Health and Safety Code section 25117, subdivision (a)(1), defines “ ‘[h]azardous waste’ ” as waste that may either “(A) [c]ause, or significantly contribute to an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness,” or “(B) [p]ose a substantial present or potential hazard to human health or environment when improperly treated, stored, transported, or disposed of, or otherwise managed.”  Health and Safety Code section 25115 defines “ ‘[e]xtremely hazardous waste’ ” as “any hazardous waste or mixture of hazardous wastes which, if human exposure should occur, may likely result in death, disabling personal injury or serious illness․”

10.   Moreover, the DHS order explains that excavation on the Property revealed “contaminated soils,” and then lists the “contaminants” and their potential deleterious health effects, including the following:  kidney and liver damage;  liver cancer;  irritation of throat, lungs, skin and eyes;  nausea;  vomiting;  weakness;  tremors;  cramps;  unconsciousness;  headaches;  blistering;  irregular heartbeat;  blurred vision;  dermatitis;  corneal damage;  numbness;  tingling;  frostbite;  convulsions;  paralysis;  anemia;  emphysema;  and prostate cancer.

11.   Accordingly, we do not reconsider it here.   We note, however, that Legarra, supra, 35 Cal.App.4th at pages 1482-1486, reached the same conclusion.

12.   Because, as a matter of law, General Star did not have a duty to defend or indemnify, the court also correctly granted summary judgment on the bad faith claim.  (See Waller, supra, 11 Cal.4th at pp. 35-36.)

13.   The declaration states in part:  (1) “It was my understanding that PROMETHEUS ․ [was] obtaining the broadest and most comprehensive liability insurance policy protection available to fully protect ․ all of the subsidiaries and limited partnerships associated with PROMETHEUS and through which [it] ․ conducted [its] business”;  (2) “it was the intent of PROMETHEUS ․ that all such subsidiaries and limited partnerships be covered by insurance policies issued to PROMETHEUS”;  (3) “it was PROMETHEUS' understanding that every subsidiary and limited partnership associated with PROMETHEUS, whether specifically identified in the policy or not, would be covered by” the Named Insured Endorsement;  (4) “It was my understanding that” coverage “․ would apply to any entity or limited partnership affiliated with Prometheus whether it existed during the policy period or not as long as it was not the conduct of that affiliated entity or partnership that caused the damage during this policy period.”

CHIN, Presiding Justice.

MERRILL and PARRILLI, JJ., concur.