In September, the Firm achieved another appellate victory in an environmental coverage/duty to defend case, American Motorists Insurance Company, et al. v. Thomson, Inc., et al. The lawsuit concerned coverage (duty to defend) for pending governmental environmental contamination investigations and cleanup orders regarding property sites that film processing company Technicolor owned and operated for many years in California and England. The Firm’s insurer client had provided $150 million in coverage to Technicolor and its parent company, Thomson, Inc.

Matthew Ponzi and Keith Turner filed a summary judgment motion within one month of appearing in the action, which they brought to hearing and won as soon as possible, while avoiding the extensive discovery that the insured had sought. The Court of Appeal affirmed judgment. Keith Turner, who is based in Los Angeles, argued the appeal before the Second District of the California Court of Appeal.

As discussed in the Spring 2011 edition of Legal Reflections, this case is part of the ongoing attack by insureds to change existing California law on the duty to defend under the Commercial General Liability (CGL) policy form. Since a seminal 1998 decision, California courts have taken a very pro-insurer position on the scope of insurers’ duty to defend.  In Foster-Gardner, Inc. v. National Union Fire Insurance Co. (1998) 18 Cal.4th 857, the California Supreme Court took the “literal meaning” approach in interpreting the standard CGL policy form. The Court held based on the express policy language that an insurer owes a defense for a potentially covered “suit,” but has a discretionary duty to investigate and settle “claims” that have not ripened to being a “suit.” The Court further held that the scope of the duty to defend under a CGL policy is limited to a lawsuit in a civil court, and does not include governmental investigations and environmental cleanup orders.

Since the Foster-Gardner decision, the vast majority of jurisdictions outside of California have rejected California’s “literal” interpretation of the CGL policy. Last year, insureds obtained an important victory in California in Ameron International v. Insurance Company of the State of Pennsylvania (2010) 50 Cal.4th 1370.  In that case, the California Supreme Court held that a quasi-adjudicative proceeding before the United States Department of Interior Board of Contract Appeals was a “suit” for purposes of triggering coverage under CGL insurance policy.

The insured in Thomson argued not only that the Foster- Gardner holding was wrong and should be reversed, but its first main argument was that California law did not apply to the dispute.

The Court of Appeal refused to consider the direct challenge to Foster-Gardner and its opinion instead  focused on the choice of law analysis used by the California courts for an insurance coverage dispute action. The insured had a number of facts to argue that non-California law applied, including because its corporate headquarter is in Indiana; the insurer was located in Connecticut; and, the insurance broker where the insurance policy was negotiated was in Illinois. However, California statutory law provides that choice of law is determined by the “place of performance,” and a recent California case held in the liability insurance context “place of performance” means where the risk is or the jurisdiction where the insured is being sued and seeks a defense.  (Frontier Oil Corp.v. RLI Ins. Co. (2007) 153 Cal.App.4th 1436.)

The Court of Appeal in Thomson held that California was the place of performance because theinsured was seeking defense coverage for claims pending in California concerning properties and operations

located in California. The Court of Appeal Justice noted at the oral argument hearing his concern that California remain a relatively favorable business environment for insurers. The Justice specifically discussed that prior to the Foster Gardner decision, insurance carriers had been leaving the state because of the many anti-insurer court decisions in the 1970s and 1980s.  Thus, the Court was concerned that maintaining a good insurance market in California meant that the Court must follow standing precedents.  The insured in Thomson filed a Petition for Review by the California Supreme Court. That petition for review was denied on November 22, 2011.■