Filed 8/28/09 (Original published opn. filed 7/31/09; this supp. opn. is not certified for publication and may not be cited or relied on under Cal. Rules of Court, rule 1115. Because it modifies an otherwise published opinion, this supp. opn. has been posted with the published opinions to facilitate tracking subsequent history of the 7/31/09 opn.)

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

GRIFFIN DEWATERING CORPORATION,

Plaintiff and Respondent,

v.

NORTHERN INSURANCE COMPANY OF NEW YORK,

Defendant and Appellant.

G036896

(Super. Ct. No. 00CC04293)

SUPPLEMENTAL OPINION ON

DENIAL OF REHEARING

I. Supplemental Opinions on

Denial of Rehearing

California reviewing and appellate courts have found it useful, on occasion, to issue supplemental opinions explaining why they were denying rehearing, and indeed have done so since 1906. (See National Bank v. Los Angeles etc. Co. (1906) 2 Cal.App. 659.) In the present case, several factors prompt this supplemental opinion. The petition for rehearing cites two “new” authorities. It also provides a long list of “facts” it says should have been mentioned in the opinion. And we have also received a request for modification from an accountant (who does not otherwise appear to be connected with the case), who, in that request, reveals that he misunderstands our original opinion. He thinks we said that the insurer “did not breach the insurance policy.”

We issue this supplemental opinion to deal with “new” authorities, the proffered new “facts,” as well as make clear (now) that the insurer breached the policy; it just didn’t breach it unreasonably.

II. “New” Authority

The rehearing petition cites us to two “new” authorities, Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 723 (Wilson) and the as-yet unfinal Bosetti v. U.S. Life Ins. Co. in The City of New York (2009) 175 Cal.App.4th 1208 (Bosetti). Neither case is apposite, since both are explorations of the genuine dispute doctrine. (See Wilson, supra, 42 Cal.4th at pp. 723 [explaining why insurance company could not obtain summary judgment under genuine dispute defense where insurance company claimed that 21-year old plaintiff in an uninsured motorist case had a preexisting degenerative disk disease]; Bosetti, supra, 175 Cal.App.4th at pp. 1235-1241 [explaining why insurance company was entitled to summary adjudication of bad faith claim against it under genuine dispute doctrine].) And as we said in the original opinion, we do not address at all any arguable applicability of the genuine dispute doctrine to the case.

Moreover, neither Wilson nor Bosetti purports to change the rule that a request for a defense in a third party (liability) insurance policy is evaluated at the time the request is made, in light of the facts of the complaint against the insured and other facts known by the insurance company, in light of the potentiality rule.

III. New “Facts”

To read the petition for rehearing, one would almost believe that we had decided a different case. On pages 9 through 13 of the petition for rehearing appear a long list of “facts” that the insured says should, at least, have been included in the opinion. The gravamen of these “facts,” at least according to the petition, is that the insurer “knew” (the word is used no less than eight times) from the inception of the policy that the total pollution exclusion in its policy would not exclude the company’s liability for any sewage claims, and its employees readily admitted as much.

Preliminarily, it should be noted that almost all the “facts” which the petition for rehearing lists came from evidence developed after the trial court had ruled in a pre-trial motion in limine that the insurer had breached the insurance contract unreasonably as a matter of law. Those facts were not put before the trial judge in that fateful motion. Most of the evidence supporting them was developed as a part of the insurer’s punitive damages case, which went to the jury with the express understanding that the insurer breached the insurance policy unreasonably. Thus the most that might be made of these facts would be some sort of remand; the judgment (based on the in limine ruling) still could not stand.

However, it turns out that the list of “facts” contains some serious errors. The record references do not support the “facts” as framed in the petition for rehearing.

In an appendix to this supplemental opinion, we go through each of the 16 proffered “facts,” and explain how each one is either (a) irrelevant to the basic question of whether the insurer was reasonable when, for a time, it declined to defend the insured against the district’s suit for indemnity, or (b) is an incorrect statement of the record. The appendix in most cases sets forth the actual transcript verbatim.

We give one example right now. The petition for rehearing states as a “fact” this: “Northern knew the pollution did not bar coverage for the property damage claim by South Coast because Lynch [one of the insurer’s employees] testified, a sewage spill inside a house (‘in your basement’) was not an excluded ‘pollutant’ because ‘it wasn’t something that was polluting the environment.’ (15 AA 3625).” (Rehr. pet. at p. 9.)

But if one checks pages 3625 and 3626 of volume 15 of the Appellant’s Appendix, one merely finds testimony acknowledging that there was in-house discussion among the insurer’s employees concerning the applicability of the pollution exclusion to sewage claims and that some employees disagreed with others on the topic. That hardly shows the insurer itself “knew” there was coverage. It only shows in-house debate. Moreover, the record reference for what “Northern knew” is to testimony elicited in the context of a question that explicitly did not seek any “legal binding [sic] on anybody.”

In any event, all the proffered facts (whether accurate statements of the record or not) are irrelevant because, as the court stated in Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846, 865, opinion evidence is irrelevant to the interpretation of an insurance policy. Under the heading (directly apropos to the petition for rehearing here): “Admission of Liability by Insurer’s Employees Does Not Establish Liability,” the Chatton court said: “Respondents’ final argument that there was coverage for advertising injury under the terms of the CGL policy because National Union’s employees themselves admitted the existence of such liability requires but a brief reply. It is well settled that the interpretation of an insurance policy is a legal rather than a factual determination [citations]. Consistent therewith, it has been held that opinion evidence is completely irrelevant to interpret an insurance contract. [Citations.]” (Chatton, supra, 10 Cal.App.4th at p. 865, original italics deleted, italics added .)

As the appendix shows, there were no actual admissions of liability in the case before us. Thus, Chatton, where there were admissions, applies a fortiori.

SILLS, P. J.

WE CONCUR:

BEDSWORTH, J.

ARONSON, J.

Appendix to Supplemental Opinion on Denial of Rehearing

There are 16 “facts” which the petition for rehearing says should have been in the original opinion. In this appendix we set out verbatim (with one long exception, there mostly verbatim) the entirety of each “fact,” and then explain why the “fact” was not in the original opinion. In most cases we have set out in the margin the actual testimony or language from the record to which the petition for rehearing refers, erring (alas, to the detriment of yet more trees) on the side of inclusiveness.

1. Fact as framed in the petition for rehearing: “Northern knew it was insuring Griffin’s operations, including its sewage by-pass operations, against claims and lawsuits alleging property damage, as evidenced by (1) Northern inspecting Griffin’s operations in 1993 and 1995 during and after its underwriting process and (b) [sic] describing Griffin’s covered ‘operations’ on the first page of Northern’s policy (AA 4032) as those of a ‘sewer contractor.’ (16 RT 3068, 3071).”

Reason not included in the original opinion: The record references are to the testimony of the insured’s expert. The testimony of a party’s bad faith expert that the expert thought a policy should cover sewage “operations” does not establish that the insurer “knew,” at least prior to the MacKinnon decision, that sewage claims were not within the purview of the policy’s pollution exclusion. Also, the opinion of an expert is not relevant to establish coverage as such. (See Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846, 865 [“opinion evidence is completely irrelevant to interpret an insurance contract”].)

2. Fact as framed by the petition for rehearing: “Vanetta Smiley, Northern’s adjuster (who participated in denying Griffin a defense), knew that ‘the building of sewer bypasses was considered an operation for which Northern was insuring Griffin.’ (15 AA 3649 (Depo. P. 370:1-6)).”

Reason not included in the original opinion: The record reference merely shows that at the time of the deposition Smiley only acknowledged that sewage bypasses were an “operation for which” the insurer “was insuring” the insured. It is not an admission that, at the time the decision was made in 1999, Smiley thought the pollution exclusion could not apply to a sewage claim.

3. Fact as framed by the petition for rehearing: “Jerrie Lynch (Northern’s underwriter on Griffin’s policy and Mike Bernath (the author of Northern’s underwriting guidelines) believed sewage was not a pollutant, thereby raising the ‘potential’ that the claim was covered, obligating Northern to defend Griffin. (16 RT 3186-87)”

Reason not included in the original opinion: The record references to pages 3186-3187 show that the insured’s expert believed that a particular employee of the insurer named Speers made the decision to deny coverage maybe — or maybe not (the witness tried to qualify his answer) in consultation with another employee of the insurer named Bernath. To be charitable to the petitioner, it is possible that the petition also refers to testimony on the preceding page, in which the expert noted that different employees of the insurer had different views on the application of the pollution exclusion to sewage claims, which disagreement was apparently resolved by Speers (or maybe Speers and Bernath together) unilaterally. Just because one employee of an insurance company may believe that there is coverage does not necessarily make a denial of coverage unreasonable, a point that the expert appeared to concede in his answer to an insurance company’s right to “internal disagreement.”

4. Fact as framed by the petition for rehearing: “Northern knew the pollution exclusion did not bar coverage for the property damage claim by South Coast because, as Lynch testified, a sewage spill inside a house (‘in your basement’) was not an excluded ‘pollutant’ because ‘it wasn’t something that was polluting the environment.’ (15 AA 3625).”

Reason not included in the original opinion: We quote from all of page 3625 of the Appellant’s Appendix and into much of page 3626 in the margin. Lynch’s testimony simply shows that insurance company employees can disagree with each other. We know of no law that says that if an insurance company employee thinks that an exclusion might not apply to a given situation that that means any position to the contrary on the part of the insurance company is necessarily unreasonable.

5. Fact as framed in the petition for rehearing: “Northern knew that ‘the underwriting intent of putting the total pollution exclusion endorsement on the policy was so that Northern would be protected against certain environmental risks or harms associated with Griffin Remediation Company” (13 RT 2590, ital. added) a sister company of Griffin Dewatering Corporation. Indeed, Northern insisted on including the total pollution exclusion in the policy for that purpose. (13 RT 2592) Northern knew the pollution exclusion was not intended to exclude coverage for Griffin Dewatering’s sewage –related claims (id.) but to exclude claims related to Griffin Remediation’s activities (13 RT 2686) since those activities presented ‘environmental [matters] that could trigger pollution claims.’ (13 RT 2646-47).”

Reason not included in the original opinion: The record references to pages 2590 through 2592 are to the testimony of William Harrison, the insured’s broker. His testimony shows, in the context of a previous question involving workers’ compensation risks, that he thought the pollution exclusion should not preclude sewage claims. It also shows that the insured’s broker thought that the insured’s sister company, the “remediation” company, was indeed subject to the pollution exclusion. As noted above, opinion evidence cannot establish coverage.

6. Fact as framed in the petition for rehearing: “Northern knew the pollution exclusion did not bar coverage for property damage claims caused by sewage in connection with the South Coast project because Northern issued a Certificate of Insurance naming Griffin and South Coast as insured in connection with liabilities on that project, which dealt exclusively with sewage. (13 RT 2710-11; 17 AA 4178, 4181 (Certificate of Insurance)).”

Reason not included in the original opinion: The record reference to pages 2710 to 2711 of the reporter’s transcript is to testimony of Robert Gokoo, an attorney representing the district, which simply establishes that the district was itself an additional insured on the policy. The record reference to page 4178 is to Griffin’s proposal to do work for the district, and the reference to page 4181 is to the certificate of insurance that said: “South Coast Countys Water District is hereby added as an additional insured. . . .” None of this shows that the insurer intended that the pollution exclusion ever applied to sewage claims.

7. Fact as framed in the petition for rehearing: “Following Northern’s initial denial, Bill Harrison (Griffin’s insurance broker since 1987 who negotiated and placed the policy) directed one of his brokerage’s attorneys in its environmental division, Brett Reich, to prepare and send a written legal opinion to Northern (13 RT 2599) setting forth (1) caselaw holding that sewage claims were not barred by the pollution exclusion; and (2) an explanation why the exclusion did not bar the Waters claim, hence demonstrating a potential for coverage. (13 RT 2595-98, 2675, Exh. 74) The reasons Reich detailed included: . . . .” We omit the details of the argument set forth in the letter. Reason not included in the original opinion: A letter from the insured’s broker in 1996, more than seven years prior to the MacKinnon decision, making the legal case for coverage does not necessarily show that the insurer’s position was unreasonable. It only shows that the insurer was exposed to some of the insured’s arguments in favor of coverage.

8. Fact as framed in the petition for rehearing: “At trial, Tom Lysaught (Director of Northern’s Environmental Claims Unit who participated in the denial of Griffin’s claim) conceded that the Reich’s memorandum ‘was correct’ because (1) sewage is not necessarily a pollutant; (2) the pollution exclusion applies only to environmental harm; and (3) the exclusion is ambiguous (18 RT 3572, 3568-69), thus confirming Northern’s awareness of a potential for coverage, requiring a defense.”

Reason not included in the original opinion: The record reference to pages 3568 through 3569 of the reporter’s transcript do not show that Lysaught admitted that he thought it was ambiguous from the beginning; they only show that he recognized that courts had disagreed about application of the exclusion. Indeed, far from thinking that the broker’s letter was correct, the transcript shows that he continued to think it incorrect. The record reference to page 3572 of the reporter’s transcript simply shows while Lysaught recognized that the MacKinnon opinion had ultimately vindicated the broker’s position, there were “other cases” that had taken the insurer’s side.

9. Fact as framed in the petition for rehearing: “Harrison testified that, when Griffin’s policy came up for renewal, he voiced concern to Lynch about renewing with Northern. Harrison did so because Northern had denied the Water’s sewage claim because, as Lynch told Harrison, Northern “did not want to set precedent” given that there were ‘many, many other’ such claims. (13 RT 2612) But Lynch assured Harrison that if Griffin renewed, he would ‘come to Houston’ (13 RT 2611), ‘look [Griffin’s principals] in the eye’ (id.) and tell them that “[Northern] would agree to cover the – any similar-type sewage backup claims going forward” (id.).”

Reason not included in the original opinion: Pages 2610 through 2612 of the reporter’s transcript is simply the broker’s testimony that the insurer was willing to cover future sewage claims after the Waters claim. This part of the case was well covered in the original opinion explaining the parties’ disagreement over the scope of the Houston Oral Promise.

10. Fact as framed in the petition for rehearing: “Harrison testified that at the Houston meeting, Lynch stated Northern was ‘sorry that the Waters claim had not been covered’ (13 RT 2623-24) but in promising ‘to cover [sewage claims] going forward,’ Lynch meant that ‘[Northern’s] underwriting intent all along [including under the 1996 policy] . . . never contemplated not covering . . . sewage backup claims’ (13 RT 2612) that and Lynch ‘intended to cover these types of claims all along.[’] (13 RT 2614).”

Reason not included in the original opinion: Pages 2623 through 2624 of the reporter’s transcript simply recount Lynch’s attendance at the meeting giving rise to the Houston Oral Promise. It does not follow that because Lynch “was apologizing” for the way the Waters claim “went” that the insurer acted unreasonably in denying the defense of that same claim later. Page 2612 recounts the insured’s broker’s opinion that if the insurer was willing to cover sewage claims after the Waters claim, then there must have been an underwriting intent “all along” that the sewage claims would be covered. Lynch, however, never said that. Pages 2614 to 2615 similarly recounts what the broker thought Lynch thought, not what Lynch actually thought. Obviously the fact that a broker thought that an employee of an insurance company thought that a particular exclusion should not apply in a given instance is not substantial evidence that the insurer itself never intended the exclusion should apply.

11. Fact as framed in the petition for rehearing: “Harrison, Kazem Khonsari (Griffin’s President) and Eric McAnelly (Griffin’s in-house counsel) understood Lynch’s statements in Houston to mean that given the parties’ underwriting intent, Northern would ‘at least defend the action’ arising from the Waters claim. (13 RT 2629, 15 RT 3002, 15 RT 3007; 14 RT 2814).”

Reason not included in the original opinion: The record references simply recount why the insured re-submitted a request for a defense of the district’s suit. Page 2629 shows that the broker thought it was worth “another run,” pages 3001 and 3002 show the insured’s president’s recollection of the Houston Meeting that the insured would not assert the exclusion if anything in the future happened, page 3007 is to the same effect, except there the insured’s president was under cross-examination, and page 2814 was the testimony of a contract administrator working for the insured who also recounted the Houston meeting as one in which it was agreed that, if any sewage claims arose in the future, they would be covered. The topic of the Houston Meeting was well covered in the original opinion, and in fact the main reason the case took so long.

12. Fact as framed in the petition for rehearing: “During the Houston meeting, Khonsari ‘specifically asked [Lynch] if anything comes from South Coast are we covered, and the answer was yes.’ (15 RT 3019) Lynch responded that ‘anything that developed out of the Waters’ claim would be covered in the future.’ (15 RT 3022) ‘The main issue [Khonsari] was concerned about was our coverage about this sewage bypass.’ (15 RT 3005) Lynch ‘understood’ his concern, ‘assured [Khonsari] and [shook his] hand [saying] ‘that won’t be happening in the future, go on with your business. You’re covered. Don’t worry about it anymore.”’ (15 RT 3009).”

Reason not included in the original opinion: The opinion goes to some length to explain why the court could not affirm the judgment based on the Houston Oral Promise. (See slip. op. at pp. 38-39.) As the original opinion notes, had the insured added a cause of action based on the Houston Oral Promise, the conflict over whether the district’s suit on the Waters claim was a “future” suit within the meaning of the Houston Oral Promise would have been resolved in the insured’s favor.

13. Fact as framed in the petition for rehearing: “McAnelly, who attended the Houston meeting, had the same understanding from Lynch as Khonsari — that Northern would provide coverage for any claims related to the Waters incident in the future. If the Waters claim suddenly ‘c[a]me back to life the week after the Houston meeting,’ Northern would have ‘paid [it].’ ‘That’s what I understood’ at the 1997 Houston meeting. (14 RT 2814) (This testimony went unrebutted at trial; Northern presented no employee who attended the 1997 Houston meeting.).”

Reason not included in the original opinion: As with the previous fact, the original opinion recognizes that the insured’s side of the Houston Oral Promise was that the Waters claim would be covered if it iterated itself in the form of a future suit against the insured. (See slip op. at p. 3.) However, as the original opinion also explains, the insured elected to forego liability on a breach of the Houston Oral Promise and focus on liability under the written insurance contract. (See slip op. at pp. 17-19, 38-39.)

14. Fact as framed in the petition for rehearing: “Northern knew that South Coast’s complaint alleged a claim for ‘property damage’ within the meaning of the insuring clause of Northern’s policy (17 AA 4156-77), thereby raising a potential for coverage Northern could not conclusively eliminate based on a dispute regarding the pollution exclusion’s applicability — thus requiring Northern to defend.”

Reason not included in the original opinion: The swath of pages cited is to the complaint by the district against the insured. This “fact” is little more than a legal argument.

15. Fact as framed in the petition for rehearing: “Northern knew there was no California caselaw interpreting the pollution exclusion (15 AA 3668; 18 RT 3600) and hence no California law support for Northern’s position that the exclusion was unambiguous and barred Griffin’s claim.”

Reason not included in the original opinion: As explained in the original opinion, the absence of direct Supreme Court authority supporting the application of an exclusion to a given suit does not necessarily show that the application of the pollution exclusion to sewage is unreasonable. The original opinion also notes that at least two panels of the Court of Appeal, prior to MacKinnon, took a broad view of the total pollution exclusion.

16. Fact as framed in the petition for rehearing: “Northern knew that actual coverage existed, since when Griffin was sued in an earlier case (‘City of Vista’) in which sewage had spilled into a lagoon, Northern agreed to defend Griffin even though the policy contained a pollution exclusion containing the same definition of ‘pollutant’ as in the policy at issue here. (4 AA 829, 901, 905; RA 109; RA 6-7, 102-05)”

Reason not included in original: The record reference to page 829 of the appellant’s appendix is simply to the cover page of a reply by the insurer in a summary adjudication motion in 2003. Pages 901 and 905 of the appellant’s appendix are to a letter from AIG, which, while too long to reproduce verbatim, does not mention any City of Vista claim. Pages 6 and 7 of the Respondent’s Appendix are from the insured’s own in limine motion to exclude evidence that the insurer’s policy was anything but primary. Page 6 is from the supporting points and authorities asserting that the insurer had agreed to honor a 1998 request to defend a suit (not exactly an “earlier” case – recall that the Houston Meeting — where everyone agreed that the company would cover all future sewage claims — was in May 1997) involving the City of Vista. That case involved a sewage spill from drilling into a pipeline. Pages 102 to 103 of the Respondent’s Appendix is a letter from the insured’s contract administrator referencing the City of Vista suit. While the letter is too long to reproduce, we see nothing in it that the insured made a request for a defense in that suit prior to the 1997 Houston Meeting. The only date given about that suit, given on the first page of the letter, is to March 5, 1998, again, after the Houston Meeting had generated a promise that future claims (at least future non-Waters claims) would be covered. Page 109 is from an internal memo within the insurer about the City of Vista claim. Nothing in the memo contravenes the insured’s own pleadings that the request for a defense in the City of Vista case came in 1998.