COTTINGHAM & BUTLER, INC. v. BELU.

 

A15A0182.

 

COURT OF APPEALS OF GEORGIA, FOURTH DIVISION

 

2015 Ga. App. LEXIS 382

 

 

July 1, 2015, Decided

 

 

JUDGES:  [*1] BOGGS, Judge. Ray and McMillian, JJ., concur.

 

OPINION BY: BOGGS

 

OPINION

BOGGS, Judge.

Aron and Lidia Belu, d/b/a Express Auto Transport, sued their insurance agents, Cottingham & Butler, Inc. and Cottingham & Butler Insurance Services, Inc. (collectively, “C&B”), for negligence and breach of contract in connection with their purchase of an insurance policy. C&B subsequently moved for summary judgment. The trial court denied the motion, and we granted C&B’s application for interlocutory review. For reasons that follow, we affirm.

[HN1] Summary judgment is appropriate when no genuine issues of material fact remain and the moving party is entitled to judgment as a matter of law. See Rogers & Sons v. Santee Risk Managers, 279 Ga. App. 621, 622 (631 SE2d 821) (2006). [HN2] On appeal, we review a trial court’s summary judgment ruling de novo, construing the evidence and all reasonable inferences in the light most favorable to the nonmovant. See id.

So viewed, the evidence shows that the Belus emigrated to the United States from Romania in 1986. Once in America, they obtained commercial driver’s licenses, bought a truck, and began driving for various companies. In 2002, the Belus formed their own truck driving business, Express Auto Transport (“Express Auto”), with Mr. Belu and Mrs. Belu’s brother driving [*2]  the trucks, and Mrs. Belu handling office duties.

At some point, Mrs. Belu called C& B and “asked them to sell [her] all the coverage” that she and her husband needed to protect their business. She told C&B that they “wanted a policy which covers everything, the trucks, the cars, the cargo … physical damage, liability, general liability, everything.” Mrs. Belu, however, did not request particular coverage because she was not an expert. Instead, C&B’s representative told her what she needed, and she purchased the recommended coverage. According to Mrs. Belu:

 

When we were getting our insurance, [the C&B representative] would ask me “What kind of business you do?” and then tell me “You need this, and this, and this, and then you are covered, don’t worry.” He would tell me what I need in this kind of business.

 

 

C&B procured several policies for the Belus, including a cargo insurance policy issued by Underwriters at Lloyd’s, London (“Lloyd’s”). Mrs. Belu testified that she looked over the policies and is “pretty sure” she read them, but cannot remember “a hundred percent.” Mr. Belu did not read the policies in their entirety.

In December 2007, while the Belus were insured by the Lloyd’s [*3]  cargo policy, a truck carrying a load of vehicles for Express Auto caught fire, damaging the vehicles. The vehicle owners sued Express Auto, and the Belus filed a claim under the cargo policy. Although Lloyd’s eventually paid the Belus a certain amount to settle the lawsuits, it refused to assume the cost of defense. To support this refusal, Lloyd’s cited the following policy provision:

 

PRIVILEGE TO ADJUST WITH OWNER — In the event of loss or damage to property of others held by the Insured for which claim is made upon the Underwriters the right to adjust such loss or damage with the owner or owners of the property is reserved to the Underwriters and the receipt of such owner or owners in satisfaction thereof shall be in full satisfaction of any claim of the Insured for which such payment has been made. If legal proceedings be taken to enforce a claim against the Insured as respects any such loss or damage, the Underwriters reserve the right at their option without expense to the Insured, to conduct and control the defense on behalf of and in the name of the Insured. No action of the Underwriters in such regard shall increase the liability of the Underwriters under this Policy, nor [*4]  increase the limits of liability specified in the Policy.

 

 

(Emphasis supplied.)

Lloyd’s filed a declaratory judgment action in federal district court, seeking a determination that it had no duty to defend the Belus in the lawsuits. See Certain Underwriters at Lloyd’s, London v. Belu, 2009 U. S. Dist. LEXIS 77282, at *5 (N. D. Ga. 2009). Based on the provision quoted above, the district court found that “the unambiguous language of the policy plainly means that the insurer has the option not to provide a defense.” Id. at *12. It thus concluded that Lloyd’s was not required to defend the Belus. See id.

Following the district court’s ruling, the Belus sued C&B, alleging that it failed to procure adequate insurance coverage that included a duty to defend. C&B moved for summary judgment. It argued that the Belus were obligated to read the policy and, if they had, they would have known that Lloyd’s had the option — not a duty — to defend them against any claims. The trial court denied the motion, but issued a certificate of immediate review. We granted C&B’s interlocutory application, and this appeal followed.

1. [HN3] As a general rule, an insurance agent who procures insurance, but fails to obtain all of the requested coverage, is insulated from liability if the insured does not read the policy. See Turner, Wood & Smith v. Reed, 169 Ga. App. 213, 214 (311 SE2d 859) (1983). This [*5]  is because an insured has a duty to read and examine an insurance policy to determine whether it provides all of the coverage sought. See Traina Enterprises v. Cord & Wilburn, Inc., 289 Ga. App. 833, 837 (2) (658 SE2d 460) (2008). The general rule, however, has several exceptions, including:

 

when the agent has held himself out as an expert and the insured has reasonably relied on the agent’s expertise to identify and procure the correct amount or type of insurance, unless an examination of the policy would have made it readily apparent that the coverage requested was not issued.

 

 

(Citation, punctuation, and footnote omitted.) Id.1

 

1   “Other exceptions apply when an agent intentionally 1 misrepresents the existence or extent of coverage or when the evidence reflects a special relationship of trust or other unusual circumstances which would have prevented or excused plaintiff of his duty to exercise ordinary diligence to ensure that no ambiguity existed between the requested insurance and that which was issued.” (Citation, punctuation, and footnote omitted.) Id.

The Belus argued below, and the trial court found, that regardless of whether they read the Lloyd’s policy, questions of fact remain as to their reliance on C&B’s expertise in identifying and procuring adequate insurance for [*6]  them. C&B challenges this finding on appeal, asserting that it was entitled to summary judgment because, as a matter of law, it never offered expert advice to the Belus. We disagree.

C&B asserts that an insurance agency does not hold itself out as an expert unless it “behave[s] more like a business partner with the insured: auditing a company, analyzing their needs, and recommending a course of action.” It is true that, in several cases cited by C&B, the insurance agency reviewed business audits and financial information in connection with coverage recommendations. See, e.g., Wright Body Works v. Columbus Interstate Ins. Agency, 233 Ga. 268, 271 (210 SE2d 801) (1974) (insurance agency reviewed annual business audits of insured to determine whether insurance policies were sufficient); Jim Anderson & Co. v. ParTraining Corp., 216 Ga. App. 344, 345 (1) (454 SE2d 210) (1995) (insurance agency reviewed insured’s financial information to ascertain appropriate coverage and had discretion to adjust coverage). Our case law, however, does not limit the expertise exception to the narrow scope suggested by C&B.

In McCoury v. Allstate Ins. Co., 254 Ga. App. 27, 29 (2) (561 SE2d 169) (2002), for example, we found that an insurance agent was not entitled to summary judgment on a negligent procurement claim because the insured parties offered evidence that they relied on the agent’s expertise in determining whether coverage was adequate. And in Hunt v. Greenway Ins. Agency, 213 Ga. App. 14, 15 (443 SE2d 661) (1994), summary judgment [*7]  for the insurance agency was appropriate when the insured presented “no evidence that the agent had any discretion in the type of insurance procured or that the proposed insured relied on the agent to decide what type of insurance was needed.” Nothing in these or similar cases restricts the expertise exception to situations involving the equivalent of a business partnership between the insured and the insurance agency, or requires that an insured “turn[ ] his business records over to an agent,” as C&B contends. On the contrary, [HN4] the exception applies when an insurance agent “has undertaken to perform an additional service,” beyond merely procuring specified insurance, “such as determining the amount of insurance required, and the insured relies upon the agent to perform that service.” Fregeau v. Hall, 196 Ga. App. 493, 494 (396 SE2d 241) (1990).

(1) The Belus presented at least some evidence they that relied on C&B to assess their insurance needs in this case. According to Mrs. Belu, she did not request any particular amount of coverage. She depended upon a C&B representative to determine the type and amount of insurance Express Auto needed. And once the representative made that determination, he instructed her not to worry because she was “covered.” [*8]  Although C&B claims that it simply procured insurance for the Belus, this evidence raises questions of fact as to whether the agency went beyond mere procurement and offered expert advice upon which the Belus relied. See McCoury, supra; compare Traina, supra at 838 (2) (no evidence of reliance on insurance agency’s expertise where insured calculated amount and type of insurance needed and did not authorize agent to assess these needs, offer recommendations, or adjust coverage); Brasington v. King, 167 Ga. App. 536, 538 (1) (307 SE2d 16) (1983) (no expertise exception where agent did not “complete any analysis of plaintiff’s insurance needs”), aff’d, King v. Brasington, 252 Ga. 109 (312 SE2d 111) (1984); Ethridge v. Associated Mutuals, Inc., 160 Ga. App. 687, 689 (288 SE2d 58) (1981) (expertise exception did not apply where insured told agent amount and type of coverage he desired, leaving no discretion to agent).

2. Alternatively, C&B argues that the absence of a duty to defend was readily apparent on the face of the cargo policy, precluding recovery. As noted by C&B, [HN5] the expertise exception only relieves the insured “of the responsibility to minutely examine the policy.” (Citations and footnote omitted.) MacIntyre & Edwards, Inc. v. Rich, 267 Ga. App. 78, 81 (1) (599 SE2d 15) (2004). Thus, if examination of the policy would have made it “readily apparent that the insured did not get the coverage he requested, the duty to read will still bar a lawsuit against the agent even if the [*9]  insured relied upon the agent’s expertise.” (Citations and footnote omitted.) Id.

According to C&B, the Belus’ policy clearly and unambiguously provided Lloyd’s with an option to defend, rather than a duty to defend. Undoubtedly, the absence of such duty may be inferred from the policy language giving Lloyd’s the “option without expense to the insured to conduct and control the defense on behalf of and in the name of the Insured.” . But the lack of duty is not specifically stated, only implied. Moreover, the provision at issue is located in the middle of a paragraph entitled “PRIVILEGE TO ADJUST WITH OWNER”, and is combined with a different provision, Lloyd’s stated intention to “conduct and control the defense without expense to the insured.” Neither the paragraph nor its heading explicitly references or excludes a duty to defend, and Mrs. Belu testified that she did not understand the operative language.

We recognize that the federal district court adjudicating Lloyd’s declaratory judgment action found that the policy language unambiguously gave Lloyd’s the option not to defend the Belus as a matter of law. See Belu, supra. But even if the option language was found to be unambiguous, the key [*10]  inquiry is not whether a court or an insurance expert could determine the import of the provision. Rather, here we must consider whether “it would have been readily apparent to a layman reading the insurance policy, based upon the plain and ordinary meaning of clear and unambiguous language, that the risk causing the loss was not covered.” (Citations omitted.) Atlanta Women’s Club v. Washburne, 207 Ga. App. 3, 5 (427 SE2d 18) (1992). Given the phrasing of the option language, its location in the middle of a paragraph entitled “Privilege to Adjust with Owner,” and Mrs. Belu’s testimony that she did not fully comprehend the paragraph, we agree with the trial court that a jury question remains on this issue. See Jim Anderson & Co., supra, 216 Ga. App. at 345-346 (2) (jury question remained as to whether lack of coverage was readily apparent); compare Rogers, supra, 279 Ga. App. at 627 (2) (lack of coverage for machinery was readily apparent, given separately listed policy language, in large print, that explicitly and repeatedly drew insured’s attention to coverage requirement); MacIntyre & Edwards, supra, 267 Ga. App. at 81 (1) (policy change was readily apparent when renewal endorsement outlined changes, accompanying memorandum offered further explanation, as well as bold-faced type drawing insured’s attention to change, and insured, an insurance executive, admitted he would have understood the [*11]  change had he read the renewal information). Accordingly, the trial court properly denied C&B’s motion for summary judgment.

Judgment affirmed. Ray and McMillian, JJ., concur.

ASSOCIATED INDEMNITY CORPORATION, Plaintiff and Respondent, v. ARGONAUT INSURANCE COMPANY, Defendant and Appellant.

 

B254858

 

COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION EIGHT

 

2015 Cal. App. Unpub. LEXIS 4762

 

 

July 7, 2015, Opinion Filed

 

 

COUNSEL: Black Compean & Hall, Michael D. Compean and V. René Daley for Defendant and Appellant.

 

Tresslor, Paul S. White and Jeanne Kuo Riggins for Plaintiff and Respondent.

 

JUDGES: FLIER, J.; BIGELOW, P. J., GRIMES, J. concurred.

 

OPINION BY: FLIER, J.

 

OPINION

This is an equitable contribution action between two coinsurers, plaintiff Associated Indemnity Corporation (AIC) and defendant Argonaut Insurance Company (Argonaut). AIC claims that Argonaut had a duty to defend the insureds along with AIC, and having failed to do so, Argonaut must now contribute to the defense and settlement costs that AIC incurred on behalf of the insureds. The trial court granted summary judgment for AIC. We affirm.

 

FACTS AND PROCEDURE

 

1. Allegations of the Underlying Complaint

In May 2008, Los Angeles Unified School District (LAUSD) filed a complaint against numerous defendants alleging they were liable for environmental response costs that LAUSD incurred in cleaning up contaminated parcels of land (the site). (Los Angeles Unified School District v. Pozas Bros. Trucking Co., et al., May 22, 2008, No. BC391342 (underlying action).) LAUSD [*2]  intended to build a state-of-the-art school on the property to serve the City of South Gate. Collectively, the defendants previously owned the 35 contiguous parcels making up the site and operated industrial and manufacturing businesses there. LAUSD named Joseph, Sharon, and Thomas Tedesco among the defendants and alleged they owned “Parcel 18” within the site and/or operated a business there.

In pertinent part, the underlying complaint alleged: “Defendants are former owners and operators of the 35 contiguous, real property parcels that comprise the Site. The Site has been used for industrial and manufacturing operations for more than half a century. During this time, Defendants used a variety of hazardous substances and other materials at the Site . . . . [¶] . . . The industrial and manufacturing activities of the Defendants at the Site have resulted in widespread contamination there. Investigations at the Site, under the active supervision of the California Department of Toxic Substances Control (‘DTSC’), have discovered contamination in the groundwater, soil, and soil gas at levels that exceed, and in many instances, substantially exceed, applicable regulatory limits.”

The complaint [*3]  further alleged “LAUSD ha[d] discovered Hazardous Substances in the Site’s soil and groundwater, including on, in and/or under each of the parcels referenced herein. LAUSD’s investigation of the Site remains ongoing and LAUSD may discover more Hazardous Substances at levels that require remediation. [¶] . . . [¶] . . . Defendants, and each of them, at all relevant times hereto, owned, maintained, operated or controlled certain property, buildings, equipment, underground storage tanks, sumps, vats, drums, drains, aboveground storage tanks, containers, filters, vaults, clarifiers, trenches, vehicles and other such items and infrastructure in and around the Site. As such, Defendants, and each of them, and/or their tenants or other persons occupying their property, used, processed, produced, stored, treated, and/or generated one or more Hazardous Substances in the course of their respective operations on, and/or during their ownership of, one or more parcels at the Site. [¶] . . . Defendants, and each of them, and/or their tenants or other persons occupying their property, arranged for, caused or contributed to the spilling, leaking, disposal, release and threatened release of one or more Hazardous [*4]  Substances, thereby contaminating the Site.”

 

2. The AIC and Argonaut Insurance Policies

The Tedescos tendered defense and indemnity of the underlying action to AIC and Argonaut. AIC issued a comprehensive general liability policy that covered the Tedescos from May 1, 1984, to January 17, 1985. Argonaut issued a comprehensive general liability policy that covered the Tedescos from January 17, 1986, to January 17, 1987.

Under the Argonaut policy, Argonaut would pay all sums that the insureds became legally obligated to pay as damages for bodily injury or property damage caused by an “occurrence,” and Argonaut “ha[d] the right and duty to defend any suit against the insured seeking damages on account of . . . bodily injury or property damage.” Under “Exclusions,” the policy contained a so-called “qualified pollution exclusion,” which excluded coverage for damage caused by pollution, except where a “sudden and accidental” release of pollutants caused the damage. Specifically, the policy stated that it excluded coverage for “bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, [*5]  waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.” (Italics added.)

The AIC policy was identical to the Argonaut policy in pertinent part. That is, it contained the same coverage language and the same qualified pollution exclusion excluding coverage for damage caused by pollutants, except where a “sudden and accidental” release of pollutants caused the damage.

Both policies contained one other potentially pertinent exclusion, the so-called “owned property” exclusion. This excluded coverage for property damage to “property owned or occupied by or rented to the insured.”

AIC agreed to participate in the defense of the Tedescos in the underlying action. Argonaut, by contrast, denied coverage and refused to participate in the defense and indemnification of the Tedescos. Based on the allegations of the underlying complaint, Argonaut argued that the qualified pollution exclusion applied and thus no coverage was available unless the exception for a “sudden and accidental” release of pollutants was implicated. [*6]  Argonaut determined that the sudden and accidental exception did not and could not apply. The key document on which Argonaut relied was LAUSD’s “Final Preliminary Environmental Assessment” (PEA). According to Argonaut, the PEA indicated that at all relevant times, a business called Twin Palms Sandblasting and Powdercoating (Twin Palms) occupied the parcel apparently owned by the Tedescos, Parcel 18. Argonaut argued that, as a business engaged in sandblasting and powdercoating, Twin Palms’ discharge of pollutants would have been known and expected, not sudden and accidental. It therefore found no evidence that Twin Palms’ activities implicated the sudden and accidental exception.

AIC sent a letter to Argonaut arguing that Argonaut had a duty to defend the Tedescos and requesting that Argonaut participate in the Tedescos’ defense. Argonaut responded with another letter standing by its decision to deny the tender of defense and indemnity. AIC eventually settled the underlying action against the Tedescos for $95,000, with AIC paying $94,750 and the Tedescos paying their $250 deductible. AIC incurred $301,181.43 in defense fees and costs on behalf of the Tedescos. It requested that Argonaut [*7]  contribute a pro rata share of the settlement and defense costs. Argonaut reaffirmed its coverage position and declined AIC’s request for contribution.

 

3. Instant Action and Summary Judgment Motion

In December 2011, AIC filed the instant action against Argonaut for declaratory relief and equitable contribution to the defense and settlement amounts incurred on behalf of the Tedescos in the underlying action. AIC moved for summary judgment, or alternatively summary adjudication, on the ground that Argonaut had a duty to defend and a duty to settle the underlying action because a potential for coverage existed. Argonaut did not dispute any of the facts in the separate statement but countered, as it did earlier, that there was “absolutely no evidence that the ‘sudden and accidental’ exception” to the qualified pollution exclusion applied.

The court granted AIC’s summary judgment motion. The court held that it was apparent the potential for coverage existed because the underlying complaint alleged the Tedescos had contributed to the release of toxic chemicals on the site and thereby caused property damage. The bare potential or possibility of coverage was enough to trigger the duty to defend, [*8]  unless Argonaut conclusively negated the possibility of coverage through undisputed facts showing there was no sudden and accidental release of pollutants. Argonaut had not met its burden of establishing the absence of coverage. The court entered a judgment for AIC finding that Argonaut had a duty to defend and duty to settle the underlying action against the Tedescos. It further found that Argonaut’s “time-on-the-risk share” was 58.5 percent, which translated into a share of the defense fees and costs totaling $187,746.95, and a share of the settlement amount totaling $55,428.75. Argonaut filed a timely notice of appeal.

 

STANDARD OF REVIEW

The trial court properly grants a motion for summary judgment when “all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) We review a grant of summary judgment de novo and independently determine whether the undisputed facts warrant judgment for the moving party as a matter of law. (Chavez v. Glock, Inc. (2012) 207 Cal.App.4th 1283, 1301.) Moreover, “[t]he interpretation and application of an insurance policy to undisputed facts presents a question of law subject to this court’s independent review.” [*9]  (State Farm General Ins. Co. v. Frake (2011) 197 Cal.App.4th 568, 577.) We view the evidence in the light most favorable to the nonmoving party, liberally construing the nonmoving party’s evidence, and strictly scrutinizing the moving party’s. (Chavez v. Glock, Inc., supra, at p. 1302.)

 

DISCUSSION

We agree with the trial court that AIC was entitled to judgment as a matter of law. Argonaut had a duty to defend the Tedescos in the underlying action, and as a result, it must contribute to the defense and settlement fees and costs.

Equitable contribution “apportion[s] costs among insurers that share the same level of liability on the same risk as to the same insured. [Citation.] It ‘arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others.’ [Citation.] ‘The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others.'” (Maryland Casualty Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1089.) In an action by one insurer to obtain contribution from another insurer for defense fees and costs, we look to whether the nonparticipating insurer had a duty to defend under its policy. [*10]  (Safeco Ins. Co. of America v. Superior Court (2006) 140 Cal.App.4th 874, 879.) The burden is on the participating insurer to show the nonparticipating insurer had a duty to defend. (Ibid.)

The principles defining the duty to defend are well settled. An insurer has a duty to defend the insured against any suit that even potentially seeks covered damages. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295 (Montrose).) This means the duty to defend arises whenever the suit seeks damages on any theory that, if proved, would be covered by the policy. (Mirpad, LLC v. California Ins. Guarantee Assn. (2005) 132 Cal.App.4th 1058, 1068 (Mirpad).) The insurer has no duty to defend “only when ‘the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.'” (Ibid.) “‘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.'” (Montrose, supra, at p. 295.) The duty to defend may exist even when coverage is in doubt and ultimately does not develop because the facts known to the insurer at the inception of the suit revealed a bare potential for coverage. (Ibid.) As our Supreme Court has noted, “[t]he insured’s desire to secure the right to call on the insurer’s superior resources for the defense of third party [*11]  claims is, in all likelihood, typically as significant a motive for the purchase of insurance as is the wish to obtain indemnity for possible liability. As a consequence, California courts have been consistently solicitous of insureds’ expectations on this score” (id. at pp. 295-296), and have imposed a duty to defend that arises on tender of defense and continues until the suit concludes or the insurer has shown there is no potential for coverage (id. at p. 295).

We determine whether a duty to defend a suit exists by comparing the factual allegations of the complaint with the policy terms. (Montrose, supra, 6 Cal.4th at p. 295.) The “duty to defend arises when the facts alleged in the underlying complaint give rise to a potentially covered claim.” (Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 510.) Facts extrinsic to the complaint may also give rise to a duty to defend when they reveal a potential for coverage. (Ibid.) Conversely, extrinsic facts may defeat the duty to defend when they conclusively negate the potential for coverage. (Wausau Underwriters Ins. Co. v. Unigard Security Ins. Co. (1998) 68 Cal.App.4th 1030, 1037 (Wausau).) We must resolve any doubts about whether the facts establish a duty to defend in the insured’s favor. (Montrose, supra, at pp. 299-300.)

To summarize, in an action seeking a determination of the duty to defend, “the insured must prove the existence of a potential [*12]  for coverage, while the insurer must establish the absence of any such potential. 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.” (Montrose, supra, 6 Cal.4th at p. 300.) If coverage depends on the resolution of a disputed factual issue, “the very existence of that dispute would establish a possibility of coverage and thus a duty to defend.” (Mirpad, supra, 132 Cal.App.4th at p. 1068.)

Here, AIC carried its burden of showing Argonaut had a duty to defend the Tedescos. The allegations of the underlying complaint gave rise to a potentially covered claim. The action sought damages for the Tedescos causing or contributing to the “spilling, leaking, disposal, release and threatened release” of hazardous substances at the site, which then allegedly contaminated the groundwater, soil, and soil gas at the site. When the release of pollutants is “sudden and accidental,” Argonaut’s policy covers property damage caused thereby. [*13]  The allegations that the insureds released pollutants at the site and caused damage to the groundwater, soil, and soil gas therefore gave rise to a potential for coverage under the sudden and accidental exception to the qualified pollution exclusion. The underlying complaint did not have to specify whether the release was sudden and accidental. The allegations sufficed to raise the possibility that the release was so, and that was all that was required to trigger the duty to defend. (Montrose, supra, 6 Cal.4th at pp. 292-293, 304 [the third party complaint did not specify whether the insured negligently or intentionally disposed of waste, but its allegations that the insured’s operations caused environmental contamination were sufficient to raise the possibility of coverage for accidental injury to property].)

Argonaut contends extrinsic evidence established that there was no potential for coverage under the sudden and accidental exception. Not so. The evidence on which Argonaut relies is the PEA, which represented LAUSD’s findings after a preliminary environmental investigation of the site. The PEA indicates that Twin Palms occupied Parcel 18 from September 1986 to March 1987, a period that overlapped with Argonaut’s policy period. [*14] 1 Therefore, Argonaut argues, the only potentially polluting activities carried out on Parcel 18 during the relevant period were sandblasting and powdercoating–activities that involved the release of pollutants as normal business operations, but not suddenly and accidentally.

 

1   Argonaut requested that we take judicial notice of the full PEA (because AIC offered only a portion of it below) and other extrinsic evidence. Argonaut did not explain why it failed to offer this evidence in the summary judgment proceedings below. We previously denied this request for judicial notice. AIC has filed a motion to strike the portions of Argonaut’s appellate brief that rely on these documents offered with the request for judicial notice. We grant the motion to strike.

This showing does not defeat the duty to defend. Argonaut’s extrinsic evidence had to conclusively eliminate the potential for coverage with undisputed facts. (Wausau, supra, 68 Cal.App.4th at pp. 1044, 1047.) The evidence that Twin Palms occupied the relevant parcel of land for part of the policy period, and that its business involved sandblasting and powdercoating, does not eliminate the possibility of a sudden and accidental polluting event. For example, there is no undisputed evidence [*15]  about who or what occupied Parcel 18 for the balance of the policy period (January 17, 1986, to September 1986) and what activities were conducted there during that period. Also, Argonaut does not explain why sandblasting and powdercoating could not involve sudden and accidental discharges of pollutants, in addition to the expected discharges when Twin Palms engaged in its normal business operations. At the very best, this evidence shows that the LAUSD claims may not be covered, and “[f]acts merely tending to show that the claim . . . may not be covered . . . are insufficient to eliminate” the duty to defend and “therefore add no weight to the scales.” (Montrose, supra, 6 Cal.4th at p. 300.)

Argonaut also invokes the owned property exclusion and argues this excluded coverage. It asserts that sandblasting and powdercoating involve only solids, not liquids. If these solids theoretically spilled on the ground, they would sit on the surface and not seep into the groundwater, Argonaut contends. Because the Tedescos owned the ground (the real property), Argonaut asserts the owned property exclusion applied.2 This argument utterly fails to convince. Argonaut presents no evidence to support the foundations of the argument–(1) that Twin [*16]  Palms’ operations involved only solids and (2) that solids released on the ground could not contaminate groundwater. These appear to be mere assumptions on Argonaut’s part.

 

2   Argonaut concedes that the Tedescos did not own the groundwater, and if there were contamination of groundwater, that would be injury to third party property.

Argonaut further contends that AIC cannot establish a duty to defend by referencing “generic allegations [in the underlying complaint] that fail to eliminate the potential for a sudden and accidental release of pollutants.” According to Argonaut, under Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183 (Aydin), AIC had to prove the sudden and accidental exception actually applied. Argonaut is incorrect. Aydin does not govern here. Aydin involved an insured’s action seeking indemnity against its insurer and was thus about the duty to indemnify, not the duty to defend. (Id. at p. 1185.) As we mentioned above, the duty to indemnify is broader than the duty to defend. An insurer has a duty to indemnify claims that are actually covered by the policy, in light of the facts proven. (Buss v. Superior Court (1997) 16 Cal.4th 35, 45.) The duty arises only after an insured’s liability has been established. “By contrast, the insurer’s duty to defend runs to claims that are merely [*17]  potentially covered, in light of facts alleged or otherwise disclosed.” (Id. at p. 46, italics added.) The duty to defend requires less than proof of the insured’s liability. Accordingly, an insurer may have a duty to defend even when it ultimately has no duty to indemnify, either because (1) the defense of the claim is successful and no damages against the insured are awarded, or (2) the actual judgment against the insured is for damages not covered by the policy. (Borg v. Transamerica Ins. Co. (1996) 47 Cal.App.4th 448, 454.)

In Aydin, the court held that the insured seeking indemnity had to prove that the claim came within the “‘sudden and accidental'” exception to the general pollution exclusion. (Aydin, supra, 18 Cal.4th at pp. 1185-1186, 1194.) This conclusion makes sense in the context of the duty to indemnify, which requires proof of actual coverage as opposed to a mere potential for coverage. As the party advocating for actual coverage, the insured should have to prove actual coverage under the exception. But in the duty to defend context, the rule requires only potential coverage, and the insured must show only a potential for coverage. The Aydin court recognized that its holding was limited to the duty to indemnify context, and the duty to defend was not at issue in the case. (Id. at p. 1194, fn. 6.) The [*18]  duty to defend does not require proof that liability will actually materialize. (Wausau, supra, 68 Cal.App.4th at p. 1047.)

In conclusion, AIC was entitled to judgment as a matter of law. It demonstrated Argonaut had a duty to defend the Tedescos because the allegations of the complaint revealed a potential for coverage. Argonaut’s showing did not negate this potential. Once AIC proved a duty to defend, AIG was presumptively liable for both defense costs and settlement costs. (Safeco Ins. Co. of America v. Superior Court, supra, 140 Cal.App.4th at pp. 880-881.) The court did not err in granting the summary judgment motion.

 

DISPOSITION

The judgment is affirmed. Respondent shall recover costs on appeal.

FLIER, J.

WE CONCUR:

BIGELOW, P. J.

GRIMES, J.