By Michael Oskouian
In 2000 and 2001, various water entities in the State of California filed suits
alleging that Aerojet was liable for Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) response costs arising out of groundwater
contamination in the San Gabriel Valley. Aerojet settled the suits, agreeing
to pay $175 million. That amount exceeded its primary and excess
insurance coverage limits for the period 1958 to 1970.
Aerojet gave notice to each of its excess insurers, but no excess insurer
accepted the tender of defense or indemnity. After Aerojet settled the underlying
actions, the excess insurers all denied liability on the ground that, under
Powerine I, the damages were not awarded against Aerojet by a court.
Aerojet filed this suit for breach of contract and declaratory judgment.
The trial court granted the insurers’ summary judgment motion on the “no
damages” and “no exhaustion” issues. The trial court reasoned that under
Powerine I, the insurers’ obligation “to pay as damages is limited to sums
Aerojet was ordered to pay by the court. The monies paid in settlement do
not meet this definition.” Aerojet appealed.
The California appellate court held that the Powerine I case compelled the
court to affirm the grant of summary judgment. The appellate court reviewed a
number of California decisions, beginning with Foster-Gardner, 18 Cal. 4th 857,
959 P.2d 265 (1998), explaining how the courts determine the duty to defend
and the narrower duty to indemnify. The court then noted that this case presents
the “next question” in the line of ongoing opinions, “whether settlement
costs negotiated within the context of a court suit are ‘damages.’”
The appellate court stated that there can be no dispute that the term “damages,”
as interpreted in Powerine I and used in the policies, means only money
ordered by a court to be paid. The term has a “clear and literal meaning” and
cannot be held to be ambiguous. The appellate court stated that the record contained
no evidence that the court ordered Aerojet to pay any sum of money. For
this reason, the appellate court concluded that the settlement costs were outside
the scope of the indemnity coverage of the excess insurers’ policies.
Summary judgment in favor of the insurers was affirmed.