EMPLOYERS INSURANCE COMPANY OF WAUSAU v. THE TRAVELERS INDEMNITY COMPANY

Filed 6/16/06 part. pub. order 7/14/06 (see end of opn.)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Defendant insurers in this contribution action^[1] challenge a declaratory judgment in favor of Employers Insurance Company of Wausau (Wausau) that requires them to contribute to the cost of defending environmental tort suits filed after their comprehensive settlements with their mutual insured. They also dispute the method the court used to apportion defense costs among the insurers. We hold the trial court correctly required defendants to contribute to defense costs under the principles articulated in Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279 (Fireman's Fund), and correctly apportioned defense costs.

BACKGROUND

The facts are not in dispute. The parties sequentially insured a succession of companies that allegedly released hazardous contaminants from a manufacturing plant in Willits, California. The Willits site was owned and operated by Remco Hydraulics, Inc. from approximately 1948 until 1968, when it was acquired by Stanray Corporation. Stanray was later acquired by Illinois Central Industries, Inc., which later changed its name to Whitman Corporation; Whitman, in turn subsequently merged with PepsiAmericas, Inc.^[2]

The Jensen-Kelly Settlements and Releases

In 1997 and 1998 Whitman settled with a number of insurers, including defendants, to resolve disputed coverage of environmental claims raised in Jensen-Kelly Corporation, et al. v. Allianz Underwriters Insurance Company, et al. (1992) [Super. Ct., L.A. Cty. No. BC069018] (Jensen-Kelly).) As part of the Jensen-Kelly settlements, Whitman released the defendant insurers from any obligation to defend or indemnify it against past, present and future environmental actions and agreed to indemnify the settling carriers against any claims under their policies, including other insurers' claims for contribution.^[3] In return, defendants paid Whitman an aggregate of approximately $24 million.

The Avila and Arlich Actions

Wausau's claim for contribution was triggered by two cases filed against Whitman. Avila, et al. v. Willits Environmental Remediation Trust, et al. (N.D. Cal, No. C-99-3941) (Avila) and Arlich, et al. v. Willits Environmental Remediation Trust, et al. (N.D. Cal., No. C-01-0266) (Arlich), were filed in August 1999 and January 2001, respectively. Several hundred plaintiffs sued Whitman and others for bodily injury and property damage due to chromium contamination that emanated from the Willits site between 1958 and the present.

Wausau was a primary general liability insurer of Whitman (then Stanray) for three years between January 1969 and January 1972. Each of the defendants also provided Whitman primary general liability insurance during the years contamination allegedly occurred. All of the policies contain a substantially similar duty to defend.

The Declaratory Relief Action: Wausau v. Travelers

Whitman tendered the defense of the Avila and Arlich actions to Wausau. Wausau agreed to participate in defending Whitman pursuant to a full reservation of its rights. It subsequently filed this action for declaratory relief and equitable contribution against the defendants to recover some of its costs of defense in Avila and Arlich.

After defendants' unsuccessful motion for summary judgment, the action was tried to the court on stipulated facts supplemented by documentary evidence. Defendants' primary contention was that the Jensen-Kelly settlement agreements with Whitman barred Wausau's claims for contribution.^[4]

The court found Wausau was entitled to contribution under Fireman's Fund, supra, 65 Cal.App.4th at p. 1279 and other cases that recognize a direct right of action in favor of an insurer for contribution against others who cover the same risk. The statement of decision explains: â€