The County of San Bernardino sought coverage from the Insurance Company of the State of Pennsylvania (ICSOP) for costs incurred in remediating hazardous environmental contamination at the Chino Airport, a site with industrial waste dating back to World War II. The dispute centered on three umbrella policies issued between 1966 and 1975. While the policies capped liability at $9 million per occurrence, they contained an ambiguous clause regarding an annual aggregate limit. ICSOP argued that a $9 million annual cap applied to all claims, including property damage, which would exhaust coverage after a single year of claims. The County argued that the aggregate limit applied only to specific categories like products liability and occupational disease, leaving property damage coverage uncapped on an annual basis. The district court sided with ICSOP, relying on a California Court of Appeal decision in Garamendi, and dismissed the County's claim for declaratory relief, ruling the issue was nonjusticiable or that the court had no record to evaluate future damages.
Judge Bybee, writing for the panel, applied California law, which requires that ambiguous insurance policy terms be construed against the insurer. The court first analyzed the policy language, finding that the phrase 'where applicable' in the aggregate limit section and the 'separately' clause referring to products liability and occupational disease created genuine ambiguity. The court rejected ICSOP's argument that the California decision in Garamendi v. Mission Insurance Co. rendered the policy unambiguous as a matter of law. The Ninth Circuit explained that judicial construction of ambiguous terms does not retroactively clarify intent for policies issued decades prior to the decision, especially when the factual context differs. Unlike Garamendi, which involved stacked excess policies, the ICSOP policies functioned as stand-alone umbrella coverage. Furthermore, the court considered extrinsic evidence, including historical data showing that standard General Liability policies in the 1960s often lacked aggregate limits for general property damage, and internal ICSOP documents from 2012 and 2014 that stated 'no aggregate limit applies' to premises liability. This evidence reinforced the conclusion that the policies were ambiguous and not susceptible to a single reasonable interpretation. Consequently, the court applied the rule of contra proferentem, resolving the ambiguity in favor of the insured.
The case is remanded to the district court to reconsider the County's request for declaratory relief without the erroneous constraint of an annual aggregate limit. This decision potentially exposes ICSOP to significantly higher liability for the Chino Airport cleanup, as the County may now recover up to $9 million per occurrence for each of the numerous occurrences alleged over the nine-year policy period, rather than being capped at $9 million per year. The ruling clarifies that courts must look to extrinsic evidence and historical context when interpreting ambiguous aggregate limits in older insurance contracts, rather than relying solely on later judicial constructions of similar language.
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