Stonewall Insurance v. City of Palos Verdes Estates (46 Cal. App. 4th 1810, 1996)

Opinion

GOLD, J.

I. Appellate Background

This division filed its decision in the within cause on May 15, 1992, and modified it on June 11, 1992, on denial of rehearing. Said decision suggested that in light of the then recent granting of review by the California Supreme Court of Montrose Chemical Corp. v. Admiral Ins. Com. (Cal.App.), grant of review of this case by the Supreme Court would contribute to certainty of California law.

On August 27, 1992, the Supreme Court did grant review of this case.

On July 3, 1995, the Supreme Court filed its decision in the Montrose case: Montrose Chemical Corp. v. Admiral Ins. Com. (1995) 10 Cal.4th 645 [42 Cal.Rptr.2d 324, 897 P.2d 1]. The Supreme Court’s decision in the Montrose case is hereinafter referred to as “Montrose.”

This case is again before this court by virtue of an order of the Supreme Court filed October 19, 1995. By that order, the Supreme Court transferred the cause to this court with directions to vacate our prior decision herein and to reconsider the cause in light of Montrose.

II. The Proceedings Below

A. The Underlying Action (the Papworth case)

In an underlying action, Michael T. Papworth (Papworth) sued the City of Palos Verdes Estates (the City), claiming that as a consequence of a continuous and repeated course of conduct of the City from 1971 to 1981 (namely, improper design and maintenance of a City storm drain adjoining property purchased by Papworth in August of 1971), Papworth’s property was damaged and ultimately became worthless. Papworth’s complaint sounded in negligence, nuisance and inverse condemnation.

The jury awarded Papworth $1,188,791.57 as damages for negligence and nuisance and $1,881,946.70 as damages for inverse condemnation. Judgment was entered for $1,881,946.70. Pending appeal, the underlying action was settled by payment of $1.6 million together with a stipulation (confirmed in an order of court) vacating the judgment “for all purposes.” Of the $1.6 million settlement, $350,000 was paid by the City, $300,000 by The Jefferson Insurance Company of New York (Jefferson) and $950,000 by Stonewall Insurance Company (Stonewall). Other insurers of the City refused to contribute toward the settlement.

B. The Two Cases on Appeal

The appeals that are the subject of the within decision arise in the two cases that followed settlement of the underlying action.

The City suit: In the first of these two cases (Los Angeles County Superior Court case No. SWC66204, hereinafter referred to as the City suit), the City sued all insurers who had issued primary or excess liability policies to it from 1971 through 1983. In the City suit the City sought (i) on a breach of contract theory, to recover the $350,000 it paid to settle the Papworth claim, less a $1,000 deductible; and (ii) damages against certain of its insurers for bad faith failure to settle the Papworth claim.

The Stonewall suit. In the second case (Los Angeles County Superior Court case No. C439984, hereinafter referred to as the Stonewall suit), Stonewall sued the City and the other insurers who issued liability insurance to the City during the period of exposure to damage resulting from the City’s conduct, seeking a return of the $950,000 Stonewall paid toward the settlement of the underlying action, claiming that it was not liable for any of that sum. Its complaint and the cross-complaints filed by the other insurers also seek a declaration of the relative liability of each of the insurers and apportionment of that liability among the insurers.

The trial court initially consolidated the two cases. Ultimately it bifurcated the proceedings and deferred action on what it denominated as “Phase II” (the City’s bad faith claims) until after determination of “Phase I” (all of the other issues). We deal herein with appeals from a summary judgment order in favor of one insurer (Canadian Indemnity Company, hereinafter Canadian) and purported appeals from certain of the trial court’s subsequent judgments in Phase I. Phase II has not yet been tried.

After the consolidated cases had been bifurcated, the trial court heard Canadian’s motion for summary judgment and on November 19, 1986, signed an order granting that motion.

The trial of Phase I thereafter ensued. Following opening statements, the trial court granted nonsuit motions of Central National Insurance Company of Omaha (Central National) and Employers Reinsurance Corporation (Employers). The trial court also granted a motion of Covenant Mutual Insurance Company (Covenant) for judgment pursuant to Code of Civil Procedure section 631.8. Separate judgments in favor of Covenant and Employers were filed on September 28, 1988. A separate judgment in favor of Central National was filed on June 12, 1989. At the end of the City’s case-in-chief, the trial court granted the motions of Fireman’s Fund Insurance Companies (Fireman’s) and Central Mutual Insurance Company (Central Mutual) for judgment pursuant to Code of Civil Procedure section 631.8 on the ground that their policies covered only periods prior to September 2, 1976, and that claims for damage occurring prior to September 2, 1976, were barred by Government Code section 911.2.

Upon the completion of the trial of Phase I, the trial court held that the City’s liability was covered by insurance except for $53,000 in deductibles and self-insured retention; and it imposed that liability jointly and severally upon Jefferson and Admiral Insurance Company (Admiral). Jefferson and Admiral had issued policies the trial court deemed primary for the period from November 1, 1975, to July 1, 1980. Stonewall was exonerated from liability and adjudged entitled to recover from Jefferson and Admiral the $950,000 it had paid. The trial court reasoned that as an excess carrier, Stonewall had no obligation to indemnify the City because primary carriers Jefferson and Admiral in the aggregate had coverage in amounts sufficient to fully indemnify the City. All other excess carriers were similarly exonerated. Primary carriers who had issued policies covering periods after February 1, 1980, were exonerated because of the trial court’s conclusion that a stipulation in the Papworth case fixing February 1, 1980, as the date of taking for inverse condemnation purposes also had the effect of fixing the date when the Papworth property was a total loss. On August 16, 1989, judgment (hereinafter sometimes referred to as the Phase I judgment) was entered accordingly.

III. Summary of Our Conclusions

The following is a summary of our conclusions concerning the Phase I judgment and the summary judgment in favor of Canadian:

1. This case presents the issue of what event or events activate or “trigger” the obligations of the respective insurers to indemnify the City. We conclude that the “continuing injury” trigger of coverage applied in Montrose should also be applied in this case—that is, that there was a “continuing injury” (a continuous “occurrence,” using the language of the policies) throughout the period from the beginning of the damage to the Papworth property for which the City was at fault until that damage became complete—so that all insurers whose policies were in force during any portion of that period covered the loss to the city arising out of that damage.

2. The fact that the Papworth judgment was vacated does not render the inverse condemnation exclusions in the insurance policies issued to the City either all-important or of no significance. An apportionment of the $1.6 million settlement between inverse condemnation liability and negligence/ nuisance liability must be made. All carriers other than Jefferson and possibly Fireman’s exclude coverage for inverse condemnation and therefore do not cover the inverse condemnation proportion of the $1.6 million settlement. Jefferson cannot invoke its inverse condemnation exclusion because it waited too long to assert that exclusion. The efficacy of Fireman’s exclusion will have to be addressed again by the trial court because the trial court improperly granted Fireman’s Code of Civil Procedure section 631.8 motion.

3. The trial court erred in granting Canadian’s summary judgment motion. It improperly determined that no damage occurred to the Papworth property after February 1,1980 (a date prior to the inception of the Canadian policy), based upon its conclusion that a stipulation as to the date of taking for inverse condemnation purposes (a date prior to the inception of the Canadian policy period) was binding on all parties to these consolidated cases even though the stipulation was entered into only between the City and Papworth. There was a factual showing of substantial damage to the Pap-worth property in 1981, after the inception of the Canadian policy, thereby creating a triable issue of material fact and requiring that Canadian’s motion be denied.

4. The trial court erred in exonerating carriers who issued policies providing only coverage for periods prior to September 2, 1976. Although Government Code section 911.2 required that Papworth file a claim against the City not later than one year of the accrual of his cause of action, and although Papworth did not file a claim against the City until September 2, 1977, section 911.2 did not bar Papworth’s claim against any carrier because the aforementioned one-year period did not begin to run until the situation as to the Papworth property had stabilized—a date clearly after Papworth filed his claim.

5. Because of the error just described in applying Government Code section 911.2, the trial court did not determine the date on which damage to the Papworth property for which the City was culpable first occurred. It will be necessary for the trial court to make such a determination—or at least to determine during which primary carrier’s policy period such damage first occurred. Also, because (as mentioned above) the trial court erroneously determined that no such damage occurred after February 1, 1980, it will be necessary for the trial court to determine the latest date on which such damage occurred—or at least to determine during which primary carrier’s policy period such damage last occurred. Once such determinations have been made, if (as seems extremely likely) the aggregate of the policy amounts of the primary policies in effect from the beginning of such damage to the end of such damage is adequate to cover the City’s obligation to Papworth, then no excess carrier is liable for any of that obligation.

6. Admiral was a primary carrier.

7. Coverage is not eliminated by the “known loss” rule, sometimes called the “loss-in-progress” rule (Ins. Code, §§ 22 & 250).

8. Coverage is not eliminated by the policies’ “expected or intended” limitation.

9. The Jefferson policy covered three separate years, each with a separate $300,000 limit and a separate $1,000 deductible—so that Jefferson had, subject to an aggregate of $3,000 in deductibles, an aggregate of $900,000 in coverage for the continuing injury in the case at bar.

10. The City is entitled to recover at least a portion of the $350,000 it paid to Papworth (plus interest thereon) from Jefferson and at least another portion from Admiral. The specific amounts which Jefferson and Admiral (and any other insurer from whom the City is entitled to recover) are to pay the City are to be determined by giving effect to the policy limits and the deductible, retention and “other insurance” clauses of the policies of those carriers from whom the City is entitled to recover. The obligations of those carriers to reimburse the City are not necessarily joint and several.

11. The trial court shall allocate among the carriers themselves the burden of the loss ($1.6 million, possibly less deductibles and/or retentions), plus interest, according to a method determined by the trial court to be fair and reasonable. The trial court shall use what we hereinafter call the “qualified time on the risk” method unless another method would be more equitable.

12. In Phase II the trial court is to consider the claim of the City that some of the insurers are now barred from asserting any exclusions from coverage because they did not take the opportunity to settle the Papworth claim for an amount less than the actual award.

IV. Threshold Issues

A. Appealability

1. The Order for Summary Judgment in Favor of Canadian

On December 2, 1986, Puritan Insurance Company filed a notice of appeal from the November 19, 1986, order granting Canadian’s motion for summary judgment. While the record before us discloses no judgment in favor of Canadian ever entered on its summary judgment motion, the November 19, 1986, order is appealable because it disposes of all claims by and against Canadian raised in either of the consolidated cases. Decisional law clearly establishes that such an order is appealable. (Justus v. Atkinson (1977) 19 Cal.3d 564, 568 [139 Cal.Rptr. 97, 565 P.2d 122]; Etienne v. DKM Enterprises, Inc. (1982) 136 Cal.App.3d 487, 489 [186 Cal.Rptr. 321].)

On October 20, 1986, before the Puritan Insurance Company notice of appeal was filed and even before the November 19, 1986, “attorney order” granting Canadian’s motion was filed, Admiral filed a notice of appeal. That notice of appeal purported to appeal “from the judgment rendered on September 25, 1986 ... in favor of defendant, cross-defendant and cross-complainant Canadian Indemnity Company and against plaintiff Stonewall Insurance Company and all remaining defendants, cross-defendants and cross-complainants . . . .’’As noted above, there is no indication in the record that any such judgment was ever rendered, and certainly no indication that any such judgment was rendered on September 25, 1986. What did happen on September 25, 1986, was that the trial court, upon hearing Canadian’s summary judgment motion, issued a minute order granting that motion but directing that a formal “attorney order" thereafter be prepared and submitted by Canadian. (In fact, after Canadian submitted such an “attorney order”—the one the trial court eventually signed on November 19, 1986, objections and counterproposals and responses thereto were filed by various parties before the trial court finally elected to sign the proposed “attorney order” Canadian initially submitted.) The September 25, 1986, minute order, not being a final order, is of course nonappealable; and the October 20,1986, notice of appeal was premature as of the date of its filing. However, in view of the fact that Admiral’s notice of appeal obviously was intended to apply to the November 19, 1986, “attorney order” ultimately filed and in view of the fact that the parties have briefed Admiral’s appeal from the granting of Canadian’s summary judgment motion on the merits without raising any objection to Admiral’s notice of appeal during the ensuing nine and one-half years, the requisite good cause appears; and we shall treat Admiral’s notice of appeal as filed immediately after the November 19, 1986, order (see Cal. Rules of Court, rules 2(c), 2(d)) and as directed toward that order (see, e.g., Smith v. Smith (1954) 126 Cal.App.2d 194, 195 [272 P.2d 118]; Seven Up Bottling Co. v. Grocery Drivers Union (1950) 97 Cal.App.2d 623, 624 [218 P.2d 41]).

2. The Judgments Following Nonsuits

(a) The Judgment in Favor of Covenant

No party has challenged the judgment in favor of Covenant before this court, so we shall leave that judgment undisturbed.

(b) The Judgment in Favor of Central National

As noted above, the judgment in favor of Central National was entered on June 12, 1989. That date is less than 180 days before the City’s notice of appeal herein was filed and less than 180 days before Stonewall’s notice of cross-appeal herein was filed. However, no notice of appeal filed herein refers to the June 12, 1989, judgment. Stonewall’s notice of cross-appeal expressly appealed from “those portions of the judgment rendered on August 16, 1989 . . . declaring judgment in favor of . . . Central National Insurance Company of Omaha . . . against Stonewall Insurance Company and all prior rulings incorporated therein and superceded thereby." (Italics added.) However, the August 16, 1989, judgment did not by its terms “incorporate” or “supercede” the June 12, 1989, judgment. This is not a situation in which it is appropriate to construe a notice of appeal as relating to a judgment or order other than the one it purports to appeal from. Accordingly, to the extent that any party to the proceedings before us claims that an appeal has been perfected from the June 12, 1989, judgment, we reject such claim and dismiss any such appeal.,

(c) The Judgment in Favor of Employers

The judgment in favor of Employers was entered on September 28, 1988. It became final long before the filing of any notice of appeal or notice of cross-appeal that could conceivably be construed as relating to it. Accordingly, to the extent that any party to the proceedings before us claims that an appeal has been perfected from the September 28, 1988, judgment, we also reject such claim and dismiss any such appeal.,

3. The Phase I Judgment

Prior to issuing our 1992 opinion herein, we directed a letter to all parties requesting additional briefing on the question of the appealability of the Phase I judgment in view of the fact that Phase II of these consolidated cases has not as yet been tried. It appeared to us that it was at least arguable that the single judgment rule might bar an appeal herein until Phase II also had gone to judgment. All parties who responded argued that the appeal should go forward.

In our 1992 opinion we held as a threshold matter that the trial court did not abuse its discretion in severing for a later trial the bad faith claims. Next, based upon authority then in existence (Guntert v. Stockton (1974) 43 Cal.App.3d 203 [117 Cal.Rptr. 601] and Highland Development Co. v. City of Los Angeles (1985) 170 Cal.App.3d 169 [215 Cal.Rptr. 881]), we concluded in our 1992 opinion that the one final judgment rule did not bar appeal from a judgment in a properly severed portion where hearing the appeal on the merits contributes to judicial efficiency or avoids hardship to the parties. We held that the Phase I judgment was appealable as to those of the insurers not involved in Phase II, and we further concluded that resolution of the appeal as to all parties (even those involved in Phase II) rather than piecemeal as to some only would promote judicial economy. Accordingly, we proceeded to hear the appeal from the Phase I judgment as to all parties to that judgment.

However, almost two years to the day after our 1992 opinion herein was filed, the California Supreme Court decided Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725 [29 Cal.Rptr.2d 804, 872 P.2d 143] (hereafter sometimes Morehart), specifically disapproving both Highland Development Co., supra, 170 Cal.App.3d 169, and two cases that cited Guntert, supra, 43 Cal.App.3d 203, (Day v. Papadakis (1991) 231 Cal.App.3d 503 [282 Cal.Rptr. 548]; and DeGrandchamp v. Texaco, Inc. (1979) 100 Cal.App.3d 424 [160 Cal.Rptr. 899]). Morehart held that “. . . an appeal cannot be taken from a judgment that fails to complete the disposition of all of the causes of action between the parties even if the causes of action disposed of by the judgment have been ordered to be tried separately, or may be characterized as ‘separate and independent’ from those remaining.” (Morehart, supra, 7 Cal.4th at p. 743.)

Morehart did not purport to overturn the judicially created exception to the one final judgment rule that permits appeal from a judgment in a multiparty case determining all issues between certain parties even though issues remain to be resolved between other parties. (See, e.g., Johnson v. Hayes Cal Builders, Inc. (1963) 60 Cal.2d 572, 578 [35 Cal.Rptr. 618, 387 P.2d 394]; Aetna Cas. etc. Co. v. Pacific Gas & Elec. Co. (1953) 41 Cal.2d 785, 788-789 [264 P.2d 5, 41 A.L.R.2d 1037]; Nicholson v. Henderson (1944) 25 Cal.2d 375, 379-381 [153 P.2d 945].) Unfortunately, even though our prior opinion alluded to finality and therefore appealability as to insurers who are not involved in Phase II, upon closer scrutiny there appear to be no such insurers. The cross-complaint of Puritan Insurance Company in the City suit names as a cross-defendant every insurer who is an appellant or respondent in the within appeal from the Phase I judgment; and that cross-complaint seeks, among other things, contribution toward and indemnity against the claims asserted by the City in the City suit—claims which include those to be tried in Phase II. Accordingly, the judgment involved in the within appeal does not determine all issues between any parties to the within consolidated cases and therefore does not come within the aforementioned judicially created exception to the one final judgment rule surviving Morehart.

Therefore, in light of Morehart, we conclude that the Phase I judgment is not appealable.

B. Treating Appeal From Phase I Judgment as Petition for Writ

Notwithstanding the nonappealability of the Phase I judgment, we shall nevertheless decide the merits of that judgment. The means by which we are permitted to do so are reflected in Morehart. In concluding that the judgment in Morehart was not appealable, the Supreme Court observed that “[a] petition for a writ, not an appeal, is the authorized means for obtaining review of judgments and orders that lack the finality required by Code of Civil Procedure section 904.1, subdivision (a) [the one final judgment rule].” (Morehart v. County of Santa Barbara, supra, 7 Cal.4th at pp. 743-744.)

This case clearly meets the criteria for treating the notices of appeal as petitions for a peremptory writ of mandate. As in Morehart, “[t]he briefs and record before us contain all [of] the elements prescribed by rule 56 of the California Rules of Court for an original mandate proceeding. The functional equivalents of any necessary verifications ... are supplied . . . by the certifications of the clerk’s transcript by the clerk of the trial court and of the reporter’s transcript by the clerk and the reporter[s]. There is no indication that the trial court as [a] respondent would wish to appear separately or become more than a nominal party to a writ proceeding.” (Morehart v. County of Santa Barbara, 7 Cal.4th at pp. 745-746; see also Olson v. Cory (1983) 35 Cal.3d 390, 401 [197 Cal.Rptr. 843, 673 P.2d 720].) Furthermore, as in Morehart, “. . . the case in its present posture presents unusual circumstances making it appropriate to ascertain from the record whether there are substantive errors that [we] should, by writ, order the trial court to correct” (Morehart, 7 Cal.4th at p. 746):

1. All parties who responded to our request for additional briefing on the subject of appealability prior to issuance of our 1992 opinion herein argued that the appeal of the Phase I judgment should go forward. Moreover, we ourselves, based on the state of the law as we perceived it when we issued our 1992 opinion, concluded that the Phase I judgment was appealable.

2. The merits of the issues decided by the trial court have been thoroughly briefed before appellate courts in these cases not once but three times: first, back in 1991-92 when the cases were initially before us; next, in 1992-1994 before the Supreme Court; and again, in 1995-96 before us. Further proceedings in the trial court would be unlikely to improve upon the record or briefing now before us.

3. In no other respect would judicial economy be served in this case by deferring resolution of the issues decided by the trial court on Phase I until final judgment on Phase II. To proceed through the trial of Phase II and at some point of time thereafter ascertain through the appellate process that the trial court committed reversible error in Phase I so that both Phase I and potentially Phase II need to be retried would be too kafkaesque a result. The judgment in the Papworth case is now approximately 13 Vi years old. The Phase I judgment is now almost seven years old. The parties are entitled to know now whether the Phase I judgment is correct.

V. The Phase I Judgment

We proceed first to a consideration of the Phase I judgment. The resolution of the appeals from the Canadian summary judgment order will depend upon principles articulated in our analysis of the Phase I judgment and therefore will be discussed later.

A. Insurance Coverage

1. Relevant Facts

The Papworth property, situated on a plateau overlooking the sea and bounded by a cliff leading to the beach, is located in the Bluff Cove area of the City. It was purchased by Papworth in August of 1971. The property adjoins a steep channel on “parkland” owned by the City, on which the City during the relevant period operated a storm drain. The evidence establishes that activity of the City beginning at least as early as 1966 in the design and maintenance of the storm drain periodically and consistently contributed both to relatively minor erosion damage to the Papworth property in 1978 and to activation of a deep-seated landslide which effectively destroyed the property in 1981. Dating from the year prior to the time of Papworth’s acquisition of the property into 1979 the City periodically but negligently engaged in futile efforts to mitigate the deficiencies in its drainage system.

During the relevant period the City was insured against liability for property damage by general comprehensive liability or municipal liability policies issued by the following carriers, all parties to the consolidated actions:

(a) Fireman’s, which issued a primary insurance policy for the period July 1, 1971, to July 1, 1974, with limits of $500,000 per year and an excess policy for the same period with a limit of $5 million.

(b) Central Mutual, which issued a primary policy for the period July 1, 1974, to November 1, 1975, with limits of $300,000 per occurrence and in the aggregate.

(c) Employers, which issued an excess policy for the period July 1, 1974, to July 1, 1975, with a limit of $5 million.

(d) Jefferson, which issued a primary policy for the period November 1, 1975, to November 1, 1978, with limits of $300,000 and a deductible of $1,000 per claim (which, as we explain later in this opinion, are yearly limits and deductibles).

(e) Admiral, which issued a policy for the period November 1, 1978, to July 1, 1980, with limits of $1 million per occurrence per policy year over a $50,000 per occurrence retention.

(f) Central National, which issued an excess policy for the period July 1, 1975, to November 1, 1976, with a limit of $10 million.

(g) Stonewall, which issued an excess policy for the period November 1, 1976, to November 1, 1977, with a limit of $4.7 million.

(h) Maine Bonding & Casualty Company (Maine Bonding), which issued an excess policy for the period November 1, 1977, to November 1, 1978 with a limit of $5 million.

(i) Puritan Insurance Company (Puritan), which issued an excess policy for the period November 1, 1978, to November 1, 1979, with a limit of $4 million.

(j) Canadian, which issued a policy with limits of $1 million per occurrence over a retention of $50,000 for the period July 1,1980, to July 1, 1982.

With insignificant variations in language, all of the insurance policies included or incorporated as “following form” language drawn from forms developed by the National Bureau of Casualty Writers and the Mutual Insurance Rating Bureau in 1966 and revised in 1973 by their successor, the Insurance Services Office (ISO). (See 3 Cal. Insurance Law & Practice §§ 49:01[2], 49.04[2], pp. 49-6.1-49-7, 49-13.) The pertinent language of the Fireman’s primary policy provides:

“The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay because of . . . property damage to which this insurance applies caused by an occurrence.” “Property damage” is defined in the policy as “injury to or destruction of tangible property.” “Occurrence” is defined as:

“[A]n accident, including injurious exposure to conditions which results, during the policy period, in . . . property damage neither expected nor intended from the standpoint of the insured.”

The Fireman’s excess policy covering the same period as its primary policy, as well as the other insurance policies here involved, contain with insignificant variations a definition of “occurrence” different from the above quoted definition contained in Fireman’s primary policy. (Fireman’s makes no argument that the definition of “occurrence” contained in its primary policy should be construed differently than the definition contained in its excess policy.) As exemplified by the Jefferson policy, the term “occurrence” is defined as: “[A]n event or a continuous or repeated exposure to conditions which causes . . . damage to property during the policy period that is neither knowingly nor intentionally caused by or at the direction of the insured .... All .. . property damage arising out of a continuous or repeated exposure to substantially the same general conditions shall be considered one occurrence.”

2. Coverage Afforded Against Third Party Property Damage Claims by Successive Insurance Policies in the Situation of Repeated Exposure to a Continuing Condition

Understandably, various insurer parties argue for different triggers of coverage, each asserting the position which benefits it. At the point in time when we issued our 1992 opinion herein, the issue of which of various possible triggers applied in a context involving (a) a third party property damage claim where there were (b) successive insurance policies and the liability of the insured involved (c) continuous and repeated harms was a relatively open question. That issue has now been definitively resolved by Montrose. After discussing various possible triggers, evaluating prior case law in California and other jurisdictions, and analyzing the typical expectations of the insured and the insurers in such a context, the Supreme Court in Montrose held that a “continuing injury” trigger of coverage applies: all carriers on the risk from inception of harm to the time the loss is no longer contingent cover the risk.

It is true that Montrose involved a dispute arising at an earlier stage of the third party litigation, namely, a dispute as to whether a particular carrier had a duty to defend its insured against the third party’s claims. A duty to defend of course can arise where there is merely a potential for coverage. In the cases at bar the issue is whether there is a duty to indemnify, and the test of whether there is a duty to indemnify is whether there is actual coverage, not merely a potential for coverage.

However, the Montrose court in effect decided the actual coverage question in this case in the course of determining whether there was a potential for coverage in that case. Even though the Montrose case only involved the issue of the duty to defend, the Montrose opinion stated what criteria were to be used in determining whether there was actual coverage because the determination of whether there was a duty to defend necessarily involves whether there was a potential for actual coverage. Montrose noted (in fn. 9 at 10 Cal.4th at p. 659) that although an insurer may have a duty to defend, it may ultimately be found not to have a duty to indemnify either because no damages are awarded in the underlying action or because the actual judgment is for damages not covered under the policy. Those contingencies are inapplicable in a case such as the one at bar, where the issue of actual coverage comes before the trial court after resolution of the underlying case. Nothing in this case distinguishes it from Montrose as to what the appropriate trigger of actual coverage should be, and we hold that all parties before us who issued policies with policy periods including any date subsequent to the commencement of harm to the Papworth property from the City’s negligent efforts to remedy the deficiencies in its drainage system and prior to the date the Papworth property was effectively destroyed covered the City’s liability to Papworth.

However, our conclusions just stated do not resolve a subsidiary question involved in the cases at bar: In what proportions do the aforementioned insurers bear the City’s liability to Papworth? Montrose did not involve that question, because only one of the series of successive insurers was before the Montrose court and, as noted above, the issue was only whether there was potential coverage under the policy issued by that one insurer. Here we have concluded that there is actual coverage under the policies issued by a number of different insurers. We shall discuss the proportionate liability of the subject insurers after considering a number of other issues.

B. The Impact of Inverse Condemnation Exclusions

1. Relevant Facts

The Fireman’s policies exclude from coverage liability “arising under Article I Section 14 of the Constitution of the State of California.” The other relevant insurance policies are more specific with respect to exclusion of inverse condemnation liability. Minutes of a meeting of the Palos Verdes Estates City Council in 1974 disclose that the City declined to purchase inverse condemnation coverage because it involved an additional premium of $1,073. The City was aware that after 1974 no carrier issued coverage for inverse condemnation.

The City tendered defense of the Papworth claim to Jefferson shortly after Papworth filed his initial complaint on March 4, 1980. Jefferson undertook the defense of the claim without a reservation of rights and retained the attorney who represented the City in the Papworth case. Jefferson did not inform the City of a reservation of rights because of its inverse condemnation exclusion until September 2, 1982, three weeks before the trial of the Papworth case was scheduled to begin.

In its statement of decision, the trial court found and concluded:

“All carriers take the position that there is no coverage for damages for inverse condemnation. The Court agrees that inverse condemnation was validly excluded from coverage, that the City was aware that it had no such coverage, and that the City could not reasonably have expected such coverage ... .

“. . . [T]he court finds that [the] attempted disclaimer [of inverse condemnation coverage by Jefferson] was not effective. A carrier cannot accept the defense without a reservation of rights or disclaimer and shortly before trial, when it would be impractical for the insured to obtain counsel to effectively represent it, inform the insured that it will not pay damages attributable to a specific claim of which it had knowledge for some two years.”

2. The Efficacy of the Inverse Condemnation Exclusions

Except with respect to the Fireman’s policies, the trial court’s finding that the policy provisions excluding inverse condemnation coverage were effective as to all insurers other than Jefferson is fully supported by evidence such as that referred to in the above quoted passage from the trial court’s statement of decision.

With respect to the Fireman’s policies, however, it is questionable whether the trial court’s finding is supported by substantial evidence. An identical exclusion of liability arising under article I section 14 of the California Constitution has been held ineffective to exclude liability for inverse condemnation. (General Ins. Co. of America v. City of Belvedere (N.D.Cal. 1984) 582 F.Supp. 88.) There the court reasoned: “[The language in the policy is to be construed as a layman might read it, not as an attorney or insurance agent might read it. ... [H ... [U ... [I]t is questionable whether the reasonable person of ordinary education and intelligence, upon being referred ... to ‘Article I, Section 19’ [as renumbered from 14] would emerge with any conviction that what was meant was inverse condemnation. Although such actions do indeed ‘arise under’ that provision, neither the old Section 14 nor the present Section 19 makes specific reference to inverse condemnation. In fact, the words appear neither in the Constitution nor ... in the index to the Constitution. In order to inform himself that the Section covers inverse condemnation actions, the reasonable layman would either have to consult an attorney or familiarize himself with California appellate law.” (582 F.Supp. at pp. 89-90.)

We are cited to nothing in the record that indicates that inverse condemnation coverage was unavailable at the time of the inception (1971) of the Fireman’s policies or that it was available only at an increased premium. The aforementioned city council meeting took place some three years after the Fireman’s policies went into effect. If Fireman’s were bound by the record before us, we might well conclude that Fireman’s policies did not exclude liability for inverse condemnation.

However, Fireman’s never had the opportunity to introduce evidence on its own behalf concerning the impact of the language excluding coverage for liability under section 14 of article I of the California Constitution. Instead, the trial court granted Fireman’s motion for judgment under Code of Civil Procedure section 631.8 on the ground (hereinafter discussed) that Government Code section 911.2, requiring the filing of claims against governmental entities, cut off liability of carriers providing coverage only before August 19, 1976. (Fireman’s was such a carrier.) The granting of the section 631.8 motion effectively cut off Fireman’s opportunity to offer evidence that might demonstrate that its “Section 14 of Article I” exclusion might apply in this case—evidence, for example, of some expression of the mutual intention of the parties that the clause in question exclude coverage for inverse condemnation liability. (See, e.g., City of Mill Valley v. Transamerica Ins. Co. (1979) 98 Cal.App.3d 595, 602-603 [159 Cal.Rptr. 635] [contemplating the possibility that evidence of the mutual intention of the parties might demonstrate that a policy did not cover inverse condemnation liability].) Because we hold in part V. C. of this opinion that the trial court erred in granting Fireman’s section 631.8 motion, in the proceedings below following issuance of our writ of mandate the trial court must give Fireman’s an opportunity to offer any evidence it may have tending to demonstrate that its “Section 14 of Article I” exclusion applies in this case.

3. The Impact of Jefferson’s Delay in Notifying the City of Its Reservation of Rights

The trial court’s holding that Jefferson cannot assert the inverse condemnation exclusion contained in its policy is supported by substantial evidence and will be upheld.

An insurer’s assumption of the defense of its insured without giving notice of a reservation of rights may preclude the insurer from denying coverage because of that which could have been reserved. “An insurer can waive policy provisions which would otherwise defeat coverage. [Citation.] Where an insurer reserves its right to claim noncoverage under the policy, notice of the reservation must be given to the insured or the reservation is deemed waived. ‘. . . [I]f a liability insurer with knowledge of a ground of . . . noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of . . . noncoverage. In other words, the insurer’s unconditional defense of an action brought against its insured constitutes a waiver of the terms of the policy and an estoppel of the insurer to assert such grounds.’ (14 Crouch on Insurance (2d ed. 1965) § 51:77, pp. 579-582, fns. omitted.)” (Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 754 [161 Cal.Rptr. 322]; see also Ins. Co. of the West v. Haralambos Beverage Co. (1987) 195 Cal.App.3d 1308, 1320 [241 Cal.Rptr. 427]; Val’s Painting & Drywall, Inc. v. Allstate Ins. Co. (1975) 53 Cal.App.3d 576 [126 Cal.Rptr. 267].)

Here the record supports both an inference of waiver and an inference that the City detrimentally relied on Jefferson’s nonassertion of a reservation of rights. By not reserving its rights with respect to inverse condemnation, Jefferson placed the counsel it had selected in a conflict of interest position in the preparation and pretrial conduct of the City’s defense of the Papworth case. Upon assertion of a reservation of rights the City would have been entitled to have separate counsel represent it at Jefferson’s expense. (E.g., San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 [208 Cal.Rptr. 494, 50 A.L.R.4th 913].) The City, being unaware of any reservation of rights by Jefferson, did not request representation by separate counsel. By the time the notice of reservation of rights was sent, trial was at hand and it would have been too late for an attorney representing solely the interests of the insured to have replaced the attorney who was representing the insurer’s interests as well.

Jefferson argues that the City was not prejudiced because it knew that the Jefferson policy did not cover its inverse condemnation liability. That argument misses the point. What the City did not know was that Jefferson was going to assert the inverse condemnation exclusion. So far as the City knew, Jefferson was not; and the City was entitled to rely upon that justified assumption.

4. The Significance of the Fact That the Papworth Judgment Was Vacated Pursuant to the Settlement of the Papworth Case

As to the insurers other than Jefferson and perhaps Fireman’s— those with a valid and enforceable inverse condemnation exclusion—the question remains as to the impact of that exclusion upon the obligation of those insurers to indemnify the City for its liability to Papworth. The trial court found as follows with respect to this issue: “[T]he judgment [in the Papworth case] was vacated and the funds paid in settlement of the Papworth claim were to dispose of the case and were not designated as an inverse condemnation judgment. The parties had their own reasons to want the judgment vacated, and those reasons may have been compelling, but the effect of the stipulation and order vacating the judgment is that the funds paid in settlement cannot now be said to have been paid to satisfy a judgment for inverse condemnation.”

In support of these findings, the City argues that the court order based on the stipulation settling the Papworth case pending its appeal vacated the Papworth judgment for all purposes and that the judgment and the jury verdict on which it was based are nullities. Persuasive authorities are to the contrary:

Under the doctrine of collateral estoppel, issue preclusion requires only that the prior adjudication upon which it is based be “ 'sufficiently firm to be accorded [preclusive] effect.’ ” (7 Witkin, Cal. Procedure (3d ed. 1985) Judgment, § 216, p. 653, quoting Rest.2d Judgments, § 13.) Where an appeal is settled favorably to the plaintiff and then dismissed “the Restatement analysis and reason itself dictate that the trial court judgment reemerges with sufficient finality to permit application of collateral estoppel.” (Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 937 [190 Cal.Rptr. 29]; see also Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 911 [226 Cal.Rptr. 558, 718 P.2d 920]; McClain v. Rush (1989) 216 Cal.App.3d 18 [264 Cal.Rptr. 563].)

Where an underlying action against a governmental entity proceeds upon the theory of inverse condemnation, a judgment is entered against the entity, and pending appeal the case is settled with a stipulation that the judgment be vacated and the appeal is thereupon abandoned, collateral estoppel precludes the entity’s denial that its liability was in inverse condemnation. (City of Laguna Beach v. Mead Reinsurance Corp. (1990) 226 Cal.App.3d 822 [276 Cal.Rptr. 438].) The City of Laguna Beach case, decided after the trial court’s judgment herein, demonstrates that the trial court’s conclusion that the settlement of the Papworth action pending appeal eliminated its preclusive effect was erroneous. The fact that the $1.6 million settlement amount exceeded the amount the jury verdict attributed to negligence/nuisance (apparently even when that amount is enhanced by costs and postjudgment interest recoverable thereon) makes this conclusion even more inescapable.

However, the question still remains: now that we have determined that the inverse condemnation exclusions (other than those in the Jefferson policy and possibly the Fireman’s policies) are enforceable, what is their effect?

5. The Effect of the Enforceable Inverse Condemnation Exclusions

The judgment in the Papworth case recites jury verdicts awarding Pap-worth damages of $1,188,791 on his negligence and nuisance claims against the City and damages of $1,881,946 on his inverse condemnation claim. The difference is largely attributable to prejudgment interest and attorney fees and other costs allowable on the inverse condemnation claim. Judgment was entered for the larger amount, and for this reason the record is silent with respect to costs allowable on the negligence and nuisance claims. The nature of the jury verdict raises the question of the scope of the inverse condemnation exclusion in the relevant insurance policies: does the exclusion apply to the entire Papworth $1.6 million settlement, only to a proportion of that settlement, or to none of that settlement.

The City argues that it is impossible to attribute any specific part of the settlement to either inverse condemnation or negligence/nuisance liability, so that the exclusion is applicable to none of that settlement. This argument ignores the fact that the record includes a jury verdict from which allocation between insured and uninsured liability may be inferred once allowable costs attributable to the negligence and nuisance claims are determined.

Although arguing that their inverse condemnation exclusions apply to the entire Papworth case settlement, the insurer parties whose policies have effective exclusions argue in the alternative that the exclusions apply to a proportion of that settlement. We conclude that their alternative argument is the correct one.

In arguing for application of the inverse condemnation exclusions to the entire settlement, the insurers rely upon City of Laguna Beach, supra, There the Court of Appeal held that the municipality was not entitled to produce evidence of its negligence and that the inverse condemnation exclusion applied to the entire judgment in the underlying case. However, in City of Laguna Beach all causes of action other than the one for inverse condemnation were dismissed by the plaintiff in the underlying case prior to submission of that case to the jury, and the jury returned a verdict only on the theory of inverse condemnation. (226 Cal.App.3d at p. 827.) While of no preclusive effect against the insurers (who were neither parties to nor represented by a party on the issue in the underlying action), the jury verdict in the underlying action is part of that which results in issue preclusion favorable to the insurers. Benefited by issue preclusion incident to the jury verdict supporting the vacated judgment, the insurers must take the bad (a judgment generated in part by negligence and nuisance findings and therefore in part not subject to the inverse condemnation exclusions) with the good (a judgment generated in part by an inverse condemnation finding and therefore in part subject to those exclusions).

Inverse condemnation is sometimes the sole basis of a cause of action, as where liability is imposed without fault because it is caused by the use of public improvements deliberately planned and built. (See, e.g., Yee v. City of Sausalito (1983) 141 Cal.App.3d 917, 919-920 [190 Cal.Rptr. 595].) In other cases inverse condemnation is an alternative to other theories of recovery. (See, e.g., Bozaich v. State of California (1973) 32 Cal.App.3d 688, 693, fn. 2 [108 Cal.Rptr. 392] [negligence].) In the latter instance the inverse condemnation theory is significant only as it relates to the remedy—to the measure of damages. To the extent of the measure of damages for negligence and nuisance the City incurred a legal obligation to compensate Papworth irrespective of inverse condemnation, and this form of legal obligation is covered by the relevant insurance policies and is not subject to the inverse condemnation exclusions.

The net result is that Jefferson covers the entire $1.6 million of the Papworth settlement, Fireman’s may or may not (depending upon the trial court’s decision hereafter as to the effectiveness of Fireman’s “Section 14 of Article I” exclusion), but the other insurers whose policies apply cover only that portion of the $1.6 million which was paid to settle the jury’s award of damages for negligence/nuisance as adjusted upward for costs. It therefore is appropriate that we order the trial court to determine what portion of the $1.6 million was paid to settle the negligence/nuisance verdict and costs on that verdict. We suspect (and, as noted above, the City argues) that it is impossible to attribute any part of the settlement to either inverse condemnation or negligence/nuisance liability. If such be the case, upon issuance of our writ of mandate the trial court should conclude that the insurers (other than Jefferson and possibly Fireman’s) whose policies apply cover only that proportion of the $1.6 million which the jury’s award of damages for negligence/nuisance as adjusted upward for costs bears to the entire judgment in the Papworth case.

C. The Effect of the Limitations Period in Government Code Section 911.2

Government Code section 911.2 requires that a claim of the sort that Papworth had against the City be presented not later than one year after the accrual of the cause of action.

The trial court held: “(1) . . . [T]he [Papworth] claim dated August 19, 1977 established the parameters of the liability of the City; and (2) . . . since no damage which occurred prior to August 19, 1976 could be recovered (the claim was filed September 2, 1977 and that date would control, but it is inconsequential here) carriers providing coverage prior to that date are not liable.”

This holding is erroneous. It ignores authority establishing that in a context such as presented here (one involving continuous and repeated damage incident to a public improvement), the limitations period does not begin to run until the situation has stabilized. (Pierpont Inn, Inc. v. State of California (1969) 70 Cal.2d 282, 291-294 [74 Cal.Rptr. 521, 449 P.2d 737], relying upon United States v. Dickinson (1947) 331 U.S. 745 [91 L.Ed. 1789, 67 S.Ct. 1382] [periodic increases in water levels created by a dam; statute of limitations did not begin to run as damage occurred, but only when situation became stabilized].) The evidence in the case at bar supports only one conclusion on the issue of whether the situation concerning the Pap-worth property had become stabilized prior to September 2, 1976 (one year prior to the filing of Papworth’s claim): it had not. As noted in part V. A. 1., ante, as a result of the City’s ongoing periodic design, maintenance and mitigation activities, relatively minor erosion damage to the Papworth property was occurring in 1978 and the deep-seated landslide was activated which effectively destroyed the property in 1981. Accordingly, the City’s liability for pre-September 2, 1976, damages was not cut off by Government Code section 911.2, and carriers providing coverage before that date are not exonerated from liability by section 911.2.

D. The Limitation That Only a Contingent Risk Is Insurable

Insurance Code section 22 defines insurance as “a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” Insurance Code section 250 limits insurability to events which are “contingent or unknown . . . , whether past or [present].” Insurance Code sections 22 and 250 coalesce in what has come to be known as the “loss-in-progress" or “known loss” rule. (See Montrose, 10 Cal.4th at pp. 689-690.) This rule holds that insurance is not available to indemnify against losses which are not contingent. (Ibid.) The insurers contend that this rule bars the City from recovering any of the Papworth loss from them.

1. The Facts Relevant to Contingency of Risk

There was substantial evidence before the trial court to the following effect:

(a) The City was aware of deficiencies in its storm drain system for at least eight years prior to Papworth’s 1971 acquisition of his property. In 1963 a storm drain deficiency study conducted by the City found in general that the system lacked adequate capacity and in particular that the portion of the storm drain system located in the City parkland adjacent to the Papworth property (the parkland drain) was deficient. Two years later a geological study commissioned by the City found that the geology of the steep walled gully in which the parkland drain was located posed a minimum hazard although deterioration of berms and drainage devices could lead to destructive erosion of the slope below the lot subsequently purchased by Papworth. The recommendations of the 1963 study were not implemented because of the City’s determination that funds were not available.

(b) In 1970 Papworth’s predecessor in interest complained to the City of erosion in the parkland and requested that the corrugated storm drain pipe there located be extended. In response to this complaint, shortly before Papworth purchased his property the drain was extended from its original outlet to a point on the beach.

(c) Papworth purchased the relevant property in August of 1971. In the winter of 1971-1972 there was a break in the storm drain pipe. Papworth became concerned that the drain was causing erosion in the parkland area and communicated his concern to the City. Due to the City’s prioritization of funds to other purposes which precluded more effective repair, and as a temporary measure, the outlet of the drain was extended with gunited mesh. In 1972 cracks appeared in the Papworth dwelling but were attributed by him to settling of fill, a condition for which the City was not responsible. No problems were encountered with the gunite-extended drain in 1972 and 1973, and in August of 1973 Papworth informed the City that the temporary repair to the drain seemed sufficient.

(d) The same year Papworth, having retained a soils engineer, advised the City that if the storm drain situation were not permanently corrected by relocating the drain the Papworth home would eventually be destroyed by erosion. The then city engineer was of a contrary opinion. Later the gunite began to deteriorate, and Papworth repeatedly over the next four years complained to the City that the drain was deficient. Over this period there was further cracking in the walls and foundation of the Papworth house and cracking in the adjacent street as well. This was also attributed to settlement of fill.

(e) On September 2, 1977, Papworth filed a claim against the City pursuant to Government Code section 905 et seq. Founded in negligence and nuisance, the claim asserted that the storm drain was undermining the Papworth property and eroding the cliff adjacent to it. The claim asserted further that the erosion would continue absent appropriate action by the City. It sought compensation of $150,000 for the estimated loss in value of the Papworth property because of erosion in the parkland and the lack of a clear prospect that the erosion would be stabilized and the consequent risk that the Papworth house would be undermined and destroyed. The filing of the claim was motivated by Papworth’s “five years of frustration” in dealing with the City on the problem of the storm drain. Because of the claim the City expected to be sued.

(f) The winter of 1977-1978 was one of exceptionally heavy rainfall. The parkland drain pipe burst, the guniting was destroyed, and erosion extended from the parkland onto the Papworth property, destroying six feet of the backyard and undermining the back fence. Papworth believed this was a “one time event.” The City repaired the burst pipe and regunited the storm drain channel.

(g) On February 1, 1978, Papworth filed suit on his claim against the City, asserting the theories of negligence and nuisance, among others, but not including a cause of action for inverse condemnation. The complaint also sought an injunction to compel an adequate storm drain. This complaint was not served.

(h) A 1978 repair guniting the storm drain failed in 1979 and was repeated after the 1979 failure. The 1979-1980 season was also one of unusually heavy rain. Water from the storm drain ran over the Papworth property and damaged fences, uprooted trees and undermined its lateral support. In January of 1980 there was further damage to the Papworth property from a burst underground concrete pipe, and further cracking of the residence. A geological report prepared in 1980 described its findings of the cause of the damage to the residence as inconclusive. On March 4, 1980, Papworth filed and subsequently served an amended complaint which added a cause of action for inverse condemnation. By 1981 the Papworth home was effectively destroyed. The bedroom wing built beneath the remainder of the house had moved by more than one foot, and the house had deformed dramatically. In the trial of Papworth’s action against the City the parties stipulated that for the purposes of inverse condemnation the date of taking was February 1, 1980. Apparently because of the stipulation, the trial court in these consolidated cases made no findings with respect to poststipulation damage.

(i) Late in 1981 further geological examination developed for the first time the fact that the damage to the Papworth house and the repeated failures of the storm drain system were caused by a large, deep-seated landslide that had become active as early as 1966. The landslide had been activated because of deficiencies in the storm drain system as constructed in the 1920’s. A failure to extend the drain to the beach resulted in both leakage of water into the underground structure and removal of lateral support, both of which accelerated the slide and consequent eventual destruction of the Papworth property. The landslide “picked up speed” in years of heavy rainfall and had gained in intensity during the heavy rains from 1977 into 1980.

On this evidence the trial court concluded and found: “The landslide which ultimately caused the destruction of the Papworth home was a contingent and unknown event and could be insured. Even before Papworth purchased the property in 1971, the City was on notice that the drain in the gully next to the property was causing erosion. However, until 1981 . . .no one was aware of the existence of the landslide which caused the damages . . . which Papworth recovered against the City. . . . This known erosion could have continued for many years without destroying the Papworth residence had it not triggered the undiscovered (until 1981) landslide.”

No party questions this finding as lacking evidentiary support.

2. The Law Relevant to the Question of Contingency

The Supreme Court in Montrose considered in depth the application of the loss-in-progress rule to a case such as the one at bar, namely, a third party case involving continuous or progressively deteriorating property damage. The majority opinion reviewed conflicting (or at least seemingly conflicting) decisions of other courts, evaluated the policy considerations involved, and concluded: “We therefore hold that, in the context of continuous or progressively deteriorating property damage or b