AYDIN CORPORATION, Plaintiff and Respondent, v. FIRST STATE INSURANCE COMPANY, Defendant and Appellant, 18 Cal. 4th 1183

Opinion BROWN, J. In this case, we must decide whether, in an action seeking indemnity under a standard commercial general liability insurance policy (formerly called a comprehensive general liability insurance policy), the insured or the insurer bears the burden of proving that a claim comes within the “sudden and accidental” exception to the general pollution exclusion. The Court of Appeal concluded that once the insurer carries its burden of proving that the exclusion applies, the insured bears the burden of proving the exception.

We agree with the Court of Appeal’s conclusion and, therefore, affirm its judgment. I. Factual and Procedural Background A. The Contamination and the Remedial Action Order The underlying facts are well summarized in-the Court of Appeal’s opinion. From 1969 until May 1984, plaintiff Aydin Corporation (Aydin) operated a research and manufacturing complex in Palo Alto at which it fabricated, assembled, and repaired electrical transformers. These operations required the use of a variety of noxious chemicals, oils, solvents, and waste materials.

Some of these fluids were stored in metal tanks buried underground; other liquids were kept aboveground in 55-gallon metal drums. The drums and material pumped out of the tanks were turned over to a disposal company. In 1980, Aydin discovered polychlorinated biphenyl (PCB) ground soil contamination and attempted to correct it. In July 1981, Aydin discovered the PCB contamination had recurred, and on a much larger scale. PCB contamination was found in the area of the underground tanks. There was also solvent contamination of the groundwater beneath the site. The tanks, removed in 1986, contained numerous holes.

Aydin notified the California Department of Health Services, which promulgated a remedial action order requiring Aydin to undertake an extensive program of studies, monitoring, and cleanup efforts. B. The Comprehensive General Liability Insurance Policies From the beginning of 1980 to the end of 1981 (i.e., during the period when the second PCB contamination was discovered), Aydin had $5 million of excess coverage issued by defendant First State Insurance Company (First State).

In each of the two annual comprehensive general liability insurance policies at issue, First State agreed to indemnify Aydin for “all sums which the Insured shall be obligated to pay by reason of the liability imposed upon the Insured by law or liability assumed by the Insured under contract or agreement for damages and expenses, because of; HQ A. Personal Injury as hereinafter defined; HD B. Property Damage, as hereinafter defined . . .

HQ to which this policy applies, caused by an Occurrence, as hereinafter defined, happening anywhere in the world.” The term “Occurrence” is defined as “an accident or event including continuous repeated exposure to conditions, which results, during the policy period, in Personal Injury or Property Damage neither expected nor intended from the standpoint of the Insured. . . .” Under the heading “Exclusions,” each policy stated that it “shall not apply ... HQ ...

HQ ... to any liability of any Insured, arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, solids, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water unless such discharge, dispersal, release or escape is sudden and accidental.” (Italics added.) C. The Declaratory Relief Action In 1986, Aydin commenced this action for declaratory relief, seeking a judgment as to the coverage provided by its primary and excess insurers.

First State asserted there was no coverage under its policies because, among other things, “[t]he discharge, dispersal, release or escape of the contaminants was not ‘sudden and accidental,’ pursuant to the pollution exclusion.” At trial, the trial court gave the advisory jury the following instruction regarding the burden of proof: “The policies issued by First State contain pollution exclusions.

To establish its defense based on the pollution exclusions, First State has the burden of proving by a preponderance of the evidence (1) that Aydin Corporation’s liability arises out of the ‘discharge, dispersal, release or escape’ of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, solids, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; and (2) that the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, solids, liquids or gases, waste materials or other irritants, contaminants or pollutants was not ‘sudden and accidental.’,, First State objected to the second half of this instruction, contending that Aydin should bear the burden of proving the “sudden and accidental” exception.

At the conclusion of its deliberations, the jury answered “No” to the following two special interrogatories: (1) “Has First State met its burden of proving that Aydin Corporation’s legal liability arises out of discharge(s), dispersal(s), release(

s) or escape(

s) of contaminants, into or upon a water course or body of water, which were not ‘sudden and accidental’?” (2) “Has First State met its burden of proving that Aydin Corporation’s legal liability arises out of discharge(s), dispersal(s), release(

s) or escape(

s) of contaminants, into or upon land, which were not ‘sudden and accidental’?” The trial court adopted these findings and, after resolving a number of other points not at issue here, entered a declaratory judgment in favor of Aydin. On appeal, the Court of Appeal concluded that the trial court should have assigned Aydin the burden of proving that its claim came within the “sudden and accidental” exception to the general pollution exclusion. The Court of Appeal accepted Aydin’s concession that any error in this regard was prejudicial and, accordingly, reversed the judgment. We granted Aydin’s petition for review.

II. Discussion The general principles governing our review of this matter are well established. The burden is on an insured to establish that the occurrence forming the basis of its claim is within the basic scope of insurance coverage. {Weil v. Federal Kemper Life Assurance Co. (1994) 7 Cal.4th 125, 148 [27 Cal.Rptr.2d 316, 866 P.2d 774, 32 A.L.R.5th 789]; Searle v. Allstate Life Ins. Co. (1985) 38 Cal.3d 425, 437-438 [212 Cal.Rptr. 466, 696 P.2d 1308].) And, once an insured has made this showing, the burden is on the insurer to prove the claim is specifically excluded. {Garvey v.

State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 406 [257 Cal.Rptr. 292, 770 P.2d 704]; Searle v. Allstate Life Ins. Co., supra, 38 Cal.3d at pp. 437-438; Clemmerv. Hartford Insurance Co. (1978) 22 Cal.3d 865, 880 [151 Cal.Rptr. 285, 587 P.2d 1098].) Although the parties agree on these general principles, they disagree as to whether the “sudden and accidental” exception should be construed as a coverage provision or an exclusionary provision when allocating the burden of proof.

Aydin asserts First State should bear the burden of negating the exception because it “does not grant coverage; it serves only to establish the reach of the exclusion by describing what coverage already provided by the policy’s broadly worded basic coverage provision is not being taken away.” (Original italics.) First State, on the other hand, asserts Aydin should bear the burden of establishing the exception because “its effect is to reinstate coverage that the exclusionary language otherwise bars.” For the reasons discussed below, we agree with First State. At the outset, we note that neither Bebbingtón v. Cal.

Western etc. Ins. Co. (1947) 30 Cal.2d 157 [180 P.2d 673, 1 A.L.R.2d 361] (hereafter Bebbington) nor Strubble v. United Services Auto. Assn. (1973) 35 Cal.App.3d 498 [110 Cal.Rptr. 828] (hereafter Strubble), the two California cases on which Aydin places its primary reliance, is helpful in resolving the instant matter.

In Bebbington, this court addressed a life insurance policy with “a rider providing that in the event of the death of the insured as a result of airplane travel other than as a fare-paying passenger in licensed aircraft flying a regular scheduled passenger flight, the liability of [the insurer] should be limited to the reserve of the policy.” {Bebbington, supra, 30 Cal.2d at p. 159.) After reviewing the evidence offered by the insurer, we concluded that it “simply failed to prove the essential fact which would make operative the exclusion clause of the rider.” {Id. at p. 162.) We noted that while the insurer “was able to show that the deceased was killed in an airplane crash, [it] failed to show that he was not riding as a passenger in a licensed passenger aircraft at the time.” {Id. at p. 159.) Bebbington is not illuminating in the present context.

First, there is no indication the proper allocation of the burden of proof was even a contested issue in that case. To the contrary, we devoted the bulk of our opinion to explaining why the specific evidence the insurer had offered was either inadmissible or insufficient. {Bebbington, supra, 30 Cal.2d at pp. 159-162.) Second, the specific policy language at issue in Bebbington was not set out in our opinion (see id. at p. 159), making it impossible to draw any meaningful comparison between the language at issue there and the language at issue here.

Finally, our past decisions establish that, to the extent the burden of proof discussion in Bebbington has any continued vitality, it should be strictly limited to the factual setting of that case. (See Zuckerman v. Underwriters at Lloyd’s (1954) 42 Cal.2d 460, 474 [267 P.2d 777] [declining to apply the rationale of Bebbington to an accident insurance policy]; see also Heller v. Bankers Life & Cas. Co. (1963) 220 Cal.App.2d 184, 187-188 [33 Cal.Rptr'. 586] [same].) Indeed, according to the authoring justice of Bebbington, it has been overruled “so far as the burden of proof is concerned.” {Zuckerman v.

Underwriters at Lloyd’s, supra, 42 Cal.2d at pp. 484-485 (dis. opn. of Carter, J.).) In Strubble, the Court of Appeal addressed an “all-risks” insurance policy which, by virtue of a special endorsement, included the peril of an earthquake. {Strubble, supra, 35 Cal.App.3d at pp. 502, 504.) The policy also contained a specific exclusion for earth movement. {Ibid.) The court held that “defendant insurer, in order to establish its defense of noncoverage of its policy, had the burden of proving that plaintiffs’ loss was proximately caused by the excluded peril of earth movement other than earthquake (an included peril).

To accomplish this defendant insurer had to prove that the included peril of earthquake did not proximately cause the loss that plaintiffs, the insured, suffered. In other words, it had to negative its exception (earthquake) to its exclusion (earth movement) since the burden of proof of its defense of noncoverage of the policy sued on rested on it. [Citation.]” (Id. at pp. 504-505, fn. omitted.) Like Bebbington, Strubble is not instructive here.

The Strubble court emphasized that its holding applied only to all-risks insurance policies, explaining that “in an action upon an all-risks policy such as the one before us (unlike a specific peril policy), the insured does not have to prove that the peril proximately causing his loss was covered by the policy.

This is because the policy covers all risks save for those risks specifically excluded by the policy.” (Strubble, supra, 35 Cal.App.3d at p. 504, original italics.) Under a comprehensive general liability insurance policy such as the one at issue here, by contrast, the insured clearly bears the burden of establishing coverage. (See, e.g., Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 16 [44 Cal.Rptr.2d 370, 900 P.2d 619].) In the absence of any California cases on point, we look to how other jurisdictions have dealt with the problem.

Although there was relatively little authority on the issue at the time the trial court instructed the jury, the overwhelming weight of authority now places the burden of proving the “sudden and accidental” exception on the insured. According to our research, five state high courts have considered the issue, and all five, in unanimous opinions, have placed the burden on the insured. (See E.I. du Pont de Nemours v. Allstate Ins. (Del. 1997) 693 A.2d 1059, 1061; Highlands Ins. Co. v. Aerovox Inc. (1997) 424 Mass. 226 [676 N.E.2d 801, 804-805]; SCSC Corp. v. Allied Mut. Ins.

Co. (Minn. 1995) 536 N.W.2d 305, 314; Northville Industries v. Nat. Union Ins. (1997) 89 N.Y.2d 621 [657 N.Y.S.2d 564, 679 N.E.2d 1044, 1048-1049]; Sinclair Oil Corp. v. Republic Ins. Co. (Wyo. 1996) 929 P.2d 535, 543.) The United States Court of Appeals for the Ninth Circuit, predicting how this court would rule on the issue, has also held that the insured bears the burden of proof. (Aeroquip Corp. v. Aetna Cas. and Sur.

Co., Inc. (9th Cir. 1994) 26 F.3d 893, 894-895.) Likewise, all of the currently valid federal appellate decisions predicting how other state high courts would rule have placed the burden on the insured. (See LaFarge Corp. v. Travelers Indem. Co. (11th Cir. 1997) 118 F.3d 1511, 1516 [Florida law]; Harrow Products, Inc. v. Liberty Mut. Ins. Co. (6th Cir. 1995) 64 F.3d 1015, 1020 [Michigan law]; St. Paul Fire and Marine Ins. v. Warwick Dyeing (1st Cir. 1994) 26 F.3d 1195, 1199-1200 [Rhode Island law]; Northern Ins. Co. v. Aardvark Associates (3d Cir. 1991) 942 F.2d 189, 194-195 [Pennsylvania law]; A.

Johnson & Co., Inc. v. Aetna Cas. and Sur. Co. (1st Cir. 1991) 933 F.2d 66, 75-76, fn. 14 [Maine law]; but see State of N.Y. v. Blank (2d Cir. 1994) 27 F.3d 783, 788-789 [wrongly predicting how New York high court would rule]; New Castle County v. Hartford Acc. and Indem. Co. (3d Cir. 1991) 933 F.2d 1162, 1181-1182 [wrongly predicting how Delaware high court would rule].) We find the reasoning reflected in this extensive body of case law persuasive. Specifically, we agree that the “sudden and accidental” exception is properly construed as a coverage provision when allocating the burden of proof.

In making this determination, we are guided by the familiar principle that the provisions of an insurance policy, like the provisions of any other contract, must be construed in the context of the policy as a whole. (Buss v. Superior Court (1997) 16 Cal.4th 35, 45 [65 Cal.Rptr.2d 366, 939 P.2d 766]; Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 18; Bank of the West v.

Superior Court (1992) 2 Cal.4th 1254, 1265 [10 Cal.Rptr.2d 538, 833 P.2d 545].) As Aydin forthrightly acknowledged at oral argument, it is the function served by policy language, not the location of language in an insurance policy, that is determinative. While Aydin is certainly correct in describing the basic coverage provision as “broadly worded,” the general pollution exclusion is equally broad, stating that the policy “shall not apply . . . [f] . . .

HQ . . . to any liability of any Insured arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, solids, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water . . . .’’As the Court of Appeal explained in construing a virtually identical exclusion, “[t]his language create[s] a broad exclusion from coverage for any liability resulting from pollution.” (Shell Oil Co. v. Winterthur Swiss Ins.

Co. (1993) 12 Cal.App.4th 715, 753 [15 Cal.Rptr.2d 815].) Read in the context of this broad exclusionary language, the “sudden and accidental” exception serves to “reinstate coverage” where it would otherwise not exist. (Shell Oil Co. v. Winterthur Swiss Ins. Co., supra, 12 Cal.App.4th at p. 753, italics omitted; see also SCSC Corp. v. Allied Mut. Ins. Co., supra, 536 N.W.2d at p. 314 [“the exception to the exclusion ‘restores’ coverage”].) “Once the insurer has established that the pollution exclusion applies, coverage depends on the applicability of the exception.

Because the insured bears the burden of establishing coverage under an insurance policy, it makes sense that the insured must also prove that the exception affords coverage after an exclusion is triggered. [Citations.]” (St. Paul Fire and Marine Ins. v. Warwick Dyeing, supra, 26 F.3d at p. 1200, original italics; see also Highlands Ins. Co. v. Aerovox Inc., supra, 676 N.E.2d at p. 805; SCSC Corp. v. Allied Mut. Ins. Co., supra, 536 N.W.2d at p. 314; Northville Industries v. Nat. Union Ins., supra, 679 N.E.2d at pp. 1048-1049; Aeroquip Corp. v. Aetna Cas. and Sur.

Co., Inc., supra, 26 F.3d at p. 895.) As a coverage provision, the exception will be construed broadly in favor of the insured. (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 667 [42 Cal.Rptr.2d 324, 913 P.2d 878]; National Union Fire Ins. Co. v. Lynette C. (1991) 228 Cal.App.3d 1073, 1082 [279 Cal.Rptr. 394].) This broad construction will aid the insured in meeting its burden of proof, thereby ensuring that the end result (coverage or noncoverage) conforms to the insured’s objectively reasonable expectations. (See Montrose Chemical Corp. v. Admiral Ins.

Co., supra, 10 Cal.4th at p. 667.) Throughout their briefing, Aydin and the amici curiae who have filed briefs on its behalf argue that construing the “sudden and accidental” exception as a coverage provision will “invite the insurance industry to manipulate the allocation of the burden of proof by . . . simple linguistic adjustments” since “[a]lmost any straightforward exclusion can be reframed as a broader exclusion subject to a narrowing exception.” One group of amici curiae, for example, complains that an insurer would bear the burden of proving a “qualified pollution exclusion that bars coverage for nonsudden or nonaccidental discharges of pollutants.” This argument proves too much.

The policies at issue here do not contain such an exclusion but rather, as noted above, “a broad exclusion from coverage for any liability resulting from pollution.” (Shell Oil Co. v. Winterthur Swiss Ins. Co., supra, 12 Cal.App.4th at p. 753.) The fact that different policy language might result in a different allocation of the burden of proof should hardly come as a shock. Rather, it arises from the parties’ general freedom to contract as they deem fit. Simply put, our obligation is to give effect to the language the parties chose, not the language they might have chosen.

Having concluded that the “sudden and accidental” exception should be construed as a coverage provision as to which the insured would ordinarily bear the burden of proof (Evid. Code, § 500), we next consider whether there is any reason to alter the normal allocation of the burden of proof. “ ‘[T]he general rule allocating the burden of proof applies “except as otherwise provided by law.” The exception is included in recognition of the fact that the burden of proof is sometimes allocated in a manner that is at variance with the general rule.

In determining whether the normal allocation of the burden of proof should be altered, the courts consider a number of factors: the knowledge of the parties concerning the particular fact, the availability of the evidence to the parties, the most desirable result in terms of public policy in the absence of proof of the particular fact, and the probability of the existence or nonexistence of the fact.’ ” (Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 660-661 [25 Cal.Rptr.2d 109, 863 P.2d 179], quoting Cal. Law Revision Com. com., 29B West’s Ann. Evid.

Code (1966 ed.) § 500, p. 431.) The Court of Appeal correctly concluded there is no compelling reason to alter the normal allocation of the burden of proof with respect to the “sudden and accidental” exception. As the Court of Appeal noted, “[i]t is the strong public policy of this state to prevent, eliminate, and reduce pollution. (E.g., Pub. Resources Code, §§ 21000-21002.) That policy would be impaired if the insured has a positive disincentive to discover pollution.

Shifting the burden of proof [to the insurer would] constitute^] such a disincentive because it would . . . reward ignorance by increasing the likelihood of insurance coverage. Rewarding an insured’s ‘see no evil’ position would also undercut the insured’s obligations to the insurer of notice, cooperation, and good faith.” (See also Highlands Ins. Co. v. Aerovox Inc., supra, 616 N.E.2d at p. 805; Northville Industries v. Nat. Union Ins., supra, 679 N.E.2d at p. 1049; Aeroquip Corp. v. Aetna Cas. and Sur.

Co., Inc., supra, 26 F.3d at p. 895.) Moreover, as the Court of Appeal explained, “[i]t is only common sense that the insured will have greater information and knowledge about the insured’s property and/or operations conducted by the insured which may result in damage or liability. The circumstances in this case furnish a perfect illustration. The Aydin site was in California; First State, by contrast, is a Massachusetts corporation, with its principal office in that state. It is impractical to require transcoastal monitoring by an excess insurer.

The situation is best handled as it long has been, by the insured agreeing to contractual duties of: (1) reporting losses suffered or claims made, and (2) cooperating with the insurer’s subsequent investigation. The insured’s superior knowledge is the predicate for these duties.” (See also Highlands Ins. Co. v. Aerovox Inc., supra, 676 N.E.2d at p. 805; SCSC Corp. v. Allied Mut. Ins. Co., supra, 536 N.W.2d at p. 314; Northville Industries v. Nat. Union Ins., supra, 679 N.E.2d at p. 1049; Harrow Products, Inc. v. Liberty Mut. Ins. Co., supra, 64 F.3d at p. 1020; Aeroquip Corp. v. Aetna Cas. and Sur.

Co., Inc., supra, 26 F.3d at p. 895.) In short, placing the burden of proof on the insured “conforms with an insured’s general duty to establish coverage where it would otherwise not exist, provides the insured with an incentive to strive for early detection that it is releasing pollutants into the environment and appropriately places the burden of proof on the party having the better and earlier access to the actual facts and circumstances surrounding the discharge [citations].” (Northville Industries v. Nat.

Union Ins., supra, 679 N.E.2d at p. 1049:) For these reasons, we conclude that in an action seeking indemnity under a standard commercial general liability insurance policy, once the insurer carries its burden of proving that the general pollution exclusion applies, the insured bears the burden of proving that a claim comes within the “sudden and accidental” exception. III. Disposition The judgment of the Court of Appeal is affirmed. George, C. J., Baxter, J., and Chin, J., concurred. The trial court went on to define the term “sudden and accidental” for the jury.

Since the parties have not challenged the trial court’s definition in this court, we have no occasion to address the proper meaning of the term in this case. In its opening brief, Aydin cites a leading insurance treatise for the proposition that “[w]hen an insurer uses a narrowing exception to construct an exclusion, the insurer ‘does not sustain its burden of proof unless it negatives the exception in the [exclusion], [Fn. omitted.]’ ” (Quoting 19 Couch on Insurance (2d ed. 1983) § 79:385, p. 338.) In reality, the treatise merely notes a split in authority on the burden of proof issue.

Thus, the very next sentence of the treatise continues, “There is, however, authority that when a policy contains an exception within an exception, the insurer need not negative the internal exception; rather, the plaintiff must show that the exception from the exemption from liability applies.” {Ibid., fn. omitted.) In fact, the supplement to the treatise cites some of the very cases we rely on here. (See id. (1998 pocket supp.) pp. 27-28, citing LaFarge Corp. v. Travelers Indem. Co., supra, 118 F.3d 1511; St. Paul Fire and Marine Ins. v. Warwick Dyeing, supra, 26 F.3d 1195; SCSC Corp. v. Allied Mut. Ins.

Co., supra, 536 N.W.2d 305.) Hurley Construction Co. v. State Farm Fire & Casualty Co. (1992) 10 Cal.App.4th 533 [12 Cal.Rptr.2d 629], cited by Aydin, is not to the contrary. In that case, the Court of Appeal made the unremarkable observation that “[o]rdinarily, an exception to a policy exclusion does not create coverage not otherwise available under the coverage clause. [Citation.]” (Id. at p. 540.) Unlike in Hurley, the coverage Aydin seeks by virtue of the “sudden and accidental” exception to the general pollution exclusion is available under the coverage clause. Evidence Code

section 500 provides as follows: “Except as otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting.” In its briefing, Aydin agrees there is no reason to alter the normal allocation of the burden of proof. Its argument, however, is backwards, based as it is on the mistaken assumption that the burden of proof in the first instance lies on First State.

We note that some Courts of Appeal have held that regardless of which party bears the burden of proof when indemnification is at issue, when the defense duty is implicated, the insurer is obligated to defend its insured in an underlying action if there is any potential that the release or escape of at least some of the pollutants was “sudden and accidental.” (See, e.g., Vann v. Travelers Companies (1995) 39 Cal.App.4th 1610, 1616 [46 Cal.Rptr.2d 617], citing Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 304-305 [24 Cal.Rptr.2d 467, 861 P.2d 1153]; Montrose Chemical Corp. v. Admiral Ins.

Co., supra, 10 Cal.4th at pp. 661-662, fn. 10.) Since the duty to defend is not at issue in this case, we express no opinion as to which party should bear the burden of proof in that context.