MONTROSE CHEMICAL CORP. V. SUPERIOR COURT
Commentary
By Richard A. Dongell and William W. Funderburk, Jr.

© Copyright 1994 by Matthew Bender & Co., Inc. Reprinted with permission from the January 1994 issue of the CALIFORNIA ENVIRONMENTAL LAW REPORTER (Matthew Bender).

With one swift stroke of a pen, in MONTROSE CHEMICAL CORP. V. SUPERIOR COURT the California Supreme Court answered the question whether comprehensive general liability insurers may be required to pay expensive bills for defense, particularly claims brought against policyholders under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA).

On the one hand, the decision does not come as a surprise, but only affirms a trend that has been developing in California courts for a number of years. On the other hand, policyholders and insurers both may find some precious words of wisdom in this decision.

Read broadly, this decision may prove to have far-reaching effects that favor policyholders. The MONTROSE Court seemed to recognize that insurers may, from time to time, be confronted with claims in which the potential for liability under the policy is "tenuous and far fetched." This would seem to suggest that insurers are not always obligated to seek judicial determination of their defense obligations. The decision, however, is weighted so heavily in favor of requiring a defense obligation that lower courts may interpret MONTROSE as requiring insurers to provide a defense any time the underlying claim is of the nature of any claim contemplated under the insuring agreement of the policy, without regard to applicable exclusions.

From the insurers’ point of view, MONTROSE now affirms the right of insurers to look to extrinsic evidence in making coverage determinations. Earlier decisions had made it clear that extrinsic facts could generate a duty to defend but did not permit the use of extrinsic evidence to defeat the defense duty, as in GRAY V. ZURICH INSURANCE CO. [(1966) 65 Cal.2d 263, 54 Cal.Rptr. 104]. In more recent years a split of opinion had grown among California courts of appeal concerning this very issue. COMPARE SAYLIN V. CALIFORNIA INS. GUARANTEE ASSN. [(1986) 179 Cal. App. 3d 256, 224 Cal. Rptr. 493] (extrinsic evidence permitted) WITH CNA CASUALTY CO. OF CAL. V. SEABORD SURETY CO. [(1986) 176 Cal. App. 3d 598, 222 Cal. Rptr. 276] (extrinsic evidence not permitted). In light of the evidentiary showing required to defeat the duty to defend, insurers will likely find that a factual investigation is a necessary prerequisite, in most circumstances, to obtain a judicial determination eliminating the duty to defend.

At a minimum, MONTROSE would seem to invite a proliferation of declaratory relief litigation, whether by insurers or policyholders. The opinion may also add another philosophical plank to the growing foundation to interpret all insurance policies to require only a PRIMA FACIE showing by the insured to bring a claim within the terms of the insuring agreement of the policy, while imposing a significant evidentiary burden on the insurer seeking to apply any exclusions or limiting, conditional language contained in the policy.