Filed 10/16/13 Continental Ins. v. Rockwell Collins CA2/7
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION SEVEN


THE CONTINENTAL INSURANCE                                            B238504
COMPANY,
                                                                     (Los Angeles County
         Plaintiff, Cross-defendant and                              Super. Ct. No. BC357580)
         Appellant,

         v.

ROCKWELL COLLINS, INC.,

         Defendant, Cross-complainant and
         Appellant.



         APPEAL from a judgment of the Superior Court of Los Angeles County, Carl J.
West, Judge. Affirmed in part, reversed in part.
         Berkes Crane Robinson & Seal, Steven M. Crane, Barbara S. Hodous and
Steven M. Haskell for Plaintiff, Cross-defendant and Appellant.
         Alston & Bird, Ward L. Benshoof and Sarah T. Babcock for Defendant, Cross-
complainant and Appellant.
                                           ______________________
       In this action for declaratory relief the trial court held The Continental Insurance
Company had a duty to defend and indemnify Rockwell Collins, Inc. in the underlying
property contamination litigation under primary liability policies issued to Collins Radio
Company, a predecessor entity, from 1966 to 1973. Continental, which did not consent
to assignment of its policies to Rockwell Collins, contends the court erred in concluding
those policies had passed to Rockwell Collins by operation of law, as well as by defacto
merger, following several decades of corporate reorganizations. We need not resolve
these complex insurance coverage and corporate succession issues because Continental
relinquished its right to assert this defense when it settled a dispute with Rockwell Collins
over the funding of additional site investigation in the underlying contamination action.
       Continental also contends the court erred in concluding it was not entitled to
equitable contribution from The Travelers Indemnity Company under primary liability
policies issued to Rockwell International Corporation, the company that had acquired
Collins Radio in 1973. We agree and reverse the judgment to the extent it precludes
Continental from seeking equitable contribution from Travelers.
                 FACTUAL AND PROCEDURAL BACKGROUND
       1. Collins Radio Company; the Continental Insurance Policies; the Corporate
          History of Rockwell Collins
       Collins Radio developed and manufactured sophisticated communications
systems. Continental issued primary liability policies to Collins Radio for the years
January 31, 1966 through November 14, 1972. The policies, which provided indemnity
for property damage, as defined, and defense costs, required Continental’s consent for
any assignment. From the early 1960’s through 1971 Collins Radio operated a
manufacturing facility on leased property in Santa Ana. In 1971 Collins Radio moved
the manufacturing operation to a facility in Newport Beach.
       In November 1973 Collins Radio merged into Rockwell International. After the
merger Collins Radio ceased to exist, and its business operations were conducted as
divisions of Rockwell International (Collins divisions). In 1996, as part of a complex
restructuring, Rockwell International, The Boeing Company, and its wholly owned


                                              2
subsidiary Boeing NA, Inc. agreed to merge Boeing NA, Inc. into Rockwell
International; and Rockwell International divested itself of certain lines of business,
including most of the operations of the Collins divisions. Several new companies were
formed as part of this transaction, including New Rockwell International Corporation
(New Rockwell), and its wholly owned subsidiary, Rockwell Collins, to which
                                                                                  1
substantially all of the Collins divisions assets and liabilities were contributed.
       Although Rockwell International was the surviving corporation after the merger
with Boeing, NA, Inc., the surviving corporation’s name was changed to Boeing North
American, Inc. On December 31, 1999 Boeing North American, Inc. was merged into
The Boeing Company. In 2001 Rockwell Collins, which had been operating as a wholly
owned subsidiary of New Rockwell since 1996, became independent of New Rockwell.
A few months later Rockwell Collins changed its name to Rockwell Automation, Inc.
       2. The Travelers Policies
       Travelers issued insurance policies to Rockwell International for the years April 1,
1975 through October 1, 1985 in part providing coverage for property damages. Defense
                                                                           2
costs were in addition to the policy limits of $2 million per occurrence. The policies for
the years 1975 to 1983 were subject to reinsurance agreements between Travelers and
Constantine Insurance Company, Limited of Hamilton, Bermuda, a wholly owned
                                       3
subsidiary of Rockwell International, requiring Constantine, with a limited exception, to
                                                                                      4
reimburse Travelers for 95 percent of all incurred costs, including defense costs. In 1990

1      New Rockwell eventually changed its name to Rockwell International
Corporation. For clarity, we refer to the original Rockwell International by that name and
continue to identify this entity as New Rockwell.
2      Because the policies had a pollution exclusion, Continental’s claim for
contribution in this proceeding is limited to defense costs.
3      Constantine reinsured approximately 30 insurance companies including companies
that had issued policies for entities unrelated to Rockwell International.
4      For the period April 1, 1975 through April 1, 1976 Constantine was obligated to
reimburse Travelers for 95 percent of the first $250,000 of each claim and 90 percent of
each incurred claim in excess of $250,000.

                                              3
these reinsurance agreements were extinguished pursuant to the terms of a commutation
agreement between Constantine and Travelers.
       The calculation of the Travelers policy premiums was complicated. The policies
themselves provided the premiums set forth in the declarations were “deposit
premium[s]. Upon each anniversary of [the] policy and upon termination of the policy,
the earned premium shall be computed in accordance with the company’s rating plan
specifically applicable to [the] policy.” “Premium computation endorsement[s]” issued
in connection with the policies set forth the components of the premium: a fixed basic
premium; incurred losses defined as “the actual paid losses, the reserve as estimated by
the company for unpaid losses, and allocated loss expense as of the computation dates”;
and “unallocated loss adjustment expense, other company expense and tax computed at”
percentages ranging from 19 to 27 percent of incurred losses. The premium computation
endorsements provided for minimum and maximum premiums and stated the “initial
computation of annual cost” for a period would be “based upon incurred claims valued as
of” a future period. For example, for the period April 1, 1977 to April 1, 1978 the
minimum premium was $7,133,000 and the maximum premium was $10,700,000 and the
initial computation of annual cost was to “be based upon incurred claims valued as of
                                                                     5
October 1, 1981 and will be made as soon as practicable thereafter.” However,
sometime prior to March 1990 the minimum and maximum premiums were eliminated
through the issuance of new premium computation endorsements.
       In 1992 Rockwell International sued more than 40 insurance companies, including
Travelers, for declaratory relief and breach of contract, alleging the insurance companies
had breached their duty to defend it in various environmental contamination cases. In

5       Although most of the premium computation endorsements were not dated, James
Perino, Rockwell International’s director of insurance and risk management in 1985,
testified, “There was always a premium computation endorsement from the very
beginning.” Nonetheless, at least two endorsements appear to have been created after the
policy period to which they apply. For example, the endorsement for the period
October 1, 1982 to October 1, 1983, which has a “date of issue” of October 18, 1982,
includes a footer that says “Revised 2-10-84.”

                                            4
1994 Travelers and Rockwell International settled the case. The settlement agreement
provided Travelers would make a payment to Rockwell International, Rockwell
International would reimburse Travelers for 100 percent of any defense and indemnity
payments made by Travelers for environmental damage suits as defined in the agreement,
which included future claims; and Rockwell International would pay any judgments or
settlements against Travelers for equitable contribution claims made in connection with
environmental damage suits under the Travelers policies.
       3. The Lawsuit for Contamination of the Santa Ana Property; the Agreement To
          Fund Further Investigation of the Property;
       In 1988 real estate developer Grove Investment purchased the Santa Ana property.
In May 2001, several years after discovering the Santa Ana property was contaminated
with industrial solvents, Grove Investment filed an action in federal court alleging
13 causes of action against Collins Radio, Rockwell International, Rockwell Collins,
Rockwell Collins Technologies, LLC (Rockwell entities) and others. The complaint
alleged the contamination was due in part to the manufacturing activities of Collins Radio
and asserted claims under the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. §§ 9607 et seq.), the Resource Conservation Recovery Act
(42 U.S.C. § 6972) and several state law theories. The complaint included a brief
description of the corporate history of Rockwell Collins and alleged the various corporate
entities identified were all “successors-in-interest to any and all legal liabilities incurred
by Collins Radio at the Site.”
       In November 2001 Rockwell Collins tendered the defense of the Grove
Investments action to Continental. In a July 9, 2002 letter Continental accepted “under a
full reservation of rights as stated” in the letter, which described several defenses to
coverage based on policy exclusions. The letter also warned, “Since [Continental] may
not be privy to all of the facts and circumstances surrounding Collin’s [sic] involvement
in this matter, we must also reserve the right to disclaim coverage for the same based
upon any additional or alternative bases should the results of our investigation or review
of further facts indicate such action to be warranted.”


                                               5
       After mediation in May 2003 Grove Investment agreed to dismiss its complaint
without prejudice to permit further investigation of the Santa Ana property to evaluate the
extent of the contamination and the technology needed to economically remediate it. The
belief was that the additional investigation might facilitate settlement of the action. The
Rockwell entities agreed to pay $95,000 of the $400,000 cost to complete the
investigation and made demand on Continental to fund the payment. According to a
declaration filed by Ward Benshoof, Rockwell Collins’s attorney in the Grove Investment
action and the instant case, Continental and the Rockwell entities disagreed whether the
payment was an indemnity obligation, which would reduce the amount of coverage
available under the policies, as Continental contended, or a defense cost obligation, as the
                              6
Rockwell entities contended. “[T]o break the deadlock over funding the settlement,”
Benshoof stated, Continental proposed the Rockwell entities execute an agreement
providing Continental’s payment would not be a waiver of its contention the $95,000 was
for indemnity. When Benshoof received a draft of the agreement, however, he was
surprised it included what he believed was “a substantial and unwarranted expansion of
[Continental’s] ‘reservation of rights.’”
       After Benshoof had several conversations with Continental asserting it was not
entitled to supplement its initial reservation of rights, on July 7, 2003 Continental sent the
Rockwell entities a letter setting forth the expanded list of defenses to coverage. The
letter did not include as a defense that Rockwell Collins was not a named insured and
Continental had not approved assignment of the policies, but concluded with a broad
statement Continental reserved its “right to assert any other policy defense or terms and
conditions that may be applicable” upon further analysis. To resolve this new dispute
whether Continental could continue to expand its list of coverage defenses, Benshoof
proposed the Rockwell entities would permit the expanded list to be included in the
agreement if Continental “would commit that it would not, at any time in the future,

6      Although the trial court sustained Continental’s objections to Benshoof’s
description of the dispute and discussions leading to execution of the agreement, as we
discuss, the court erred in doing so.

                                              6
attempt to raise any other defenses to coverage.” Benshoof declared Continental agreed
with only two exceptions: If (1) Grove Investment filed a sixth amended complaint
asserting new or different claims or causes of action, or (2) two polices that had not been
located were later found and contained conditions that the other policies did not include.
       On July 16, 2003 the Rockwell entities and Continental signed the funding
           7
agreement. Paragraph 5 provided in part, “[T]he Rockwell Entities acknowledge and
agree that Continental’s agreement to make the payment set forth in paragraph 4.0, is
subject to a full and complete reservation of the CNA Companies’ rights under the CNA
policies. The Rockwell Entities acknowledge and agree that this Agreement is not, and
shall not be deemed to be an admission of any kind by any of the CNA Companies, and
that the CNA Companies reserve their rights to assert that the claims asserted against the
Rockwell Entities in the Underlying Action are outside of the coverage of the CNA
                             8
Policies in whole or in part.” Paragraph 5.1 stated, “Specifically, the CNA Companies
reserve their rights to assert the following defenses to coverage,” and subparagraphs A
through N then enumerate the defenses described in the July 7, 2003 letter. Paragraph 5.3
set forth Continental’s reservation of rights to deny coverage under the missing policies
unless and until evidence of the terms and conditions of the policies were provided.
Paragraph 5.5 stated, in part, “To the extent the refiled action merely realleges the claims
presently alleged in the Underlying Action, the CNA Companies also agree that they will
assert no defenses to coverage other than those reflected in paragraphs 5.0 through 5.3
above. The CNA Companies, however, reserve the right to reevaluate coverage to the
extent the refiled action alleges new or different claims or causes of action.” The



7      The parties designated the document “Non-Waiver Agreement,” presumably
because its initial purpose was to establish that Continental’s agreement to pay the cost of
the additional site investigation was not a waiver of its argument the payment was for
indemnity, not defense costs.
8     The CNA Companies include Continental and The Fidelity and Casualty Company
of New York, which merged with Continental.

                                             7
agreement further provided it “fully reflects the entire agreement entered into between the
Parties concerning the subject matter hereof” and may only be amended in writing.
       4. Settlement of the Grove Investment Litigation; Assertion of the Named
          Insured/Lack of Consent Defense
       In November 2005, after additional investigation of the Santa Ana property failed
to result in settlement, Grove Investment refiled its fifth amended complaint without
adding any new allegations. Trial was set for October 2006, and discovery resumed.
During expert discovery and court proceedings in which the Rockwell entities’ motions
for summary judgments were denied, it became apparent there was a strong possibility
Collins Radio would be found liable for the majority of the contamination. In September
2006 Grove Investment made a written settlement demand of $4.85 million. The
Rockwell entities recommended to Continental that the offer be accepted. According to
Benshoof, Continental’s coverage counsel and claims analyst said they had recommended
the settlement demand be accepted but requested that Benshoof provide information on
the corporate history of the Rockwell entities as part of the approval process.
       Within a week of providing the information, Benshoof was informed for the first
time in a telephone conversation that Continental had concluded Rockwell Collins was
not entitled to the benefits of the Collins Radio policies. In an October 23, 2006 letter
Continental stated, “As you know, CNA has been defending the Rockwell Defendants
under a full reservation of rights, as communicated . . . in correspondence dated July 9,
2002 and July 7, 2003. In each of these letters, CNA explained that depending upon
further investigation into the circumstances surrounding the Underlying Grove Action,
CNA could ultimately determine no coverage existed for the Underlying Grove
Action. . . . This is of particular significance now because it has become apparent from
the information you have provided to CNA in the last few weeks that ‘Rockwell Collins,
Inc.’ and the other Rockwell Defendants who are parties to the Underlying Grove Action
are not in fact ‘insureds’ under CNA’s policies at issue in this matter.” Continental
explained the information demonstrated Rockwell Collins was not in existence when the
policies had been issued, and “[i]t is without doubt that Rockwell Collins, Inc. was


                                             8
created from whole cloth and is not the result of a merger. It is likewise without question
that CNA did not consent to an assignment of its policies to Rockwell Collins, Inc. or any
other of the other Rockwell Defendants.”
       On October 25, 2006 Continental agreed to fund a $3.7 million settlement on
behalf of the Rockwell entities subject to a full and complete reservation of its rights.
The amount of defense costs Continental paid for the Rockwell entities was $2.3 million.
       5. The Instant Action; the Motion for Summary Adjudication Regarding Rockwell
          Collins’s Entitlement to Defense and Indemnity Under the Continental Policies
       On August 25, 2006 Continental filed its initial complaint for declaratory relief
and contribution, naming Travelers, which had issued primary liability policies to
Rockwell International from 1975 through 1985, and other insurers. On May 15, 2007,
after the Grove Investment action was settled, Continental filed a first amended
complaint adding Rockwell Collins and seeking a declaration Continental had no duty to
defend or indemnify Rockwell Collins and was entitled to reimbursement of defense
costs and the sum paid to fund the settlement. Thereafter, Rockwell Collins (and related
entities) filed a cross-complaint, and both sides filed several amended pleadings.
       In February 2008 Continental moved for summary adjudication, contending it had
no duty to defend or indemnify Rockwell Collins because it was not the named insured
on the Collins Radio policies and had not succeeded to them as a matter of law and
Continental had not consented to their assignment. In its opposition Rockwell Collins
contended, among other arguments, Continental had waived the defense because it was
not enumerated in the parties’ funding agreement. In support of its opposition Rockwell
Collins submitted Benshoof’s declaration describing, among other things, the events
leading to execution of the funding agreement. Continental objected to these portions of
Benshoof’s declaration on the grounds the evidence was inadmissible extrinsic evidence
and violated the mediation privilege.
       In May 2008 the trial court denied Continental’s motion for summary
adjudication, finding Rockwell Collins was entitled to coverage under the Collins Radio
policies both by operation of law and under a de facto merger theory. With respect to


                                              9
Rockwell Collins’s argument Continental had waived its right to present its defense on
these grounds, the court found the funding agreement was “ambiguous as to which
defenses [Continental] actually intended to preserve” because, notwithstanding the
language providing Continental would not assert any new coverage defenses unless
Grove Investment refiled an action alleging new or different claims, the agreement also
included broad language that Continental’s agreement to fund the $95,000 additional
investigation was “subject to a full and complete reservation” of Continental’s rights.
Although it ruled the agreement was ambiguous, the court sustained Continental’s
objections to Benshoof’s declaration, finding it violated the parol evidence rule.
       6. The Court’s Determination Continental Was Not Entitled to Equitable
          Contribution Under the Travelers Policies
       In February 2006 Rockwell Collins and Continental each moved for a
determination whether Continental was entitled to equitable contribution from Travelers
for defense costs Continental had paid in connection with the Grove Investments
          9
litigation. Rockwell Collins contended, as successor to the rights and liabilities of
Rockwell International under the Travelers policies, it was essentially self-insured during
the years covered by the policies as a result of (1) the formula used to calculate the policy
premiums, which included prior year defense costs, (2) the reinsurance agreements with
                                            10
Rockwell International’s “captive insurer” Constantine, and (3) the 1994 settlement

9      Rockwell Collins and Continental have stipulated the Grove Investments litigation
is an environmental damages suit as that term is defined in the 1994 settlement agreement
between Rockwell International and Travelers.
10      “[C]aptive insurers are either insurance companies which are owned by another
organization and whose exclusive purpose is to insure risks of the parent organization and
affiliated companies, or in the case of groups and associations, insurance organizations
which are owned by the insureds and whose exclusive purpose is to insure risks of
member organizations and group or association members and their affiliates.” (Ins.
Code, § 1216.1, subd. (e)(3).) In light of our holding Continental is entitled to equitable
contribution from Travelers for at least the policy years predating execution of the
reinsurance agreement, we need not determine whether Constantine was in fact a true
captive insurer. This question of fact may well need to be resolved by the trial court
following our remand.

                                             10
agreement between Travelers and Rockwell International. Accordingly, Rockwell
Collins argued, it could not be compelled to pay for any part of its own defense. (See
Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38, 72 (Aerojet)
[equitable contribution “has no place between insurer and insured, which have contracted
the one with the other”; “[n]either does it have any place between an insurer and an
uninsured or ‘self-insured’” party].) For its part, Continental argued the Travelers
policies included an express duty to defend and any “side agreements” to which
Continental was not a party, such as the reinsurance agreements, premium computation
endorsements based in part on prior year losses and the 1994 settlement agreement, could
not negate Continental’s right to equitable contribution from Travelers, which was a
coinsurer covering the same risk. (See Fireman’s Fund Ins. Co. v. Maryland Casualty
Co. (1998) 65 Cal.App.4th 1279, 1289 (Fireman’s Fund) [“one insurer’s settlement with
the insured is not a bar to a separate action against that insurer by the other insurer or
insurers for equitable contribution or indemnity”]; Employers Ins. Co. of Wausau v.
Travelers Indemnity Co. (2006) 141 Cal.App.4th 398, 405 (Wausau) [same].)
       The trial court accepted Rockwell Collins’s analysis, finding Continental did not
have a right of equitable contribution pursuant to Aerojet, supra, 17 Cal.4th 38 because
the reinsurance agreements, 1990 commutation agreement between Travelers and
Constantine and “most critically” the 1994 settlement agreement, “when read together,
effectively made Rockwell a self-insured entity for the entire period during which the
Travelers policies were in effect.” The court explained, “The Travelers policies
effectively became ‘fronting’ policies, once the May 1994 Settlement was entered into.
The parties have stipulated that pursuant to the May 1994 Settlement Agreement,
Rockwell Collins is obligated to reimburse Travelers for 100% of any defense and
indemnity payments made by Travelers for ‘Environmental Damage Suits’ under the
primary Travelers policies for the policy periods April 1, 1975 through October 10, 1983.
Pursuant to the terms and conditions of the 1994 Settlement Agreement, Rockwell
Collins is also obligated to pay any judgments or settlements against Travelers with
respect to equitable contribution Claims regarding the Travelers policies and concerning

                                              11
‘Environmental Damage Suits.’ (Footnote omitted.) [¶] Given the Court’s
determination that the 1994 Settlement Agreement operated to transform Rockwell
International (and subsequently, Rockwell Collins) into a totally ‘self-insured’ entity, the
Court finds that Aerojet is controlling.”
                                      DISCUSSION
       1. Continental Has Waived Its Named Insured/Lack-of-Consent Defense
              a. Rockwell Collins was not required to raise this issue by cross-appeal
       As a threshold matter, Continental argues Rockwell Collins is foreclosed from
arguing Continental waived its named insured/lack-of-consent defense because Rockwell
Collins only raises the argument in opposition to Continental’s opening brief on appeal,
not in its cross-appeal. Although “it is the general rule that a respondent who has not
appealed from the judgment may not urge error on appeal,” Code of Civil Procedure
section 906 “allow[s] a respondent to assert a legal theory which may result in affirmance
of the judgment.” (California State Employees’ Assn. v. State Personnel Bd. (1986)
178 Cal.App.3d 372, 382, fn. 7; see Code Civ. Proc., § 906 [“respondent, or party in
whose favor the judgment was given, may, without appealing from such judgment,
request the reviewing court to and it may review any of the foregoing matters for the
purpose of determining whether or not appellant was prejudiced by the error or errors
upon which he relies for reversal or modification of the judgment from which the appeal
is taken”]; Mayer v. C.W. Driver (2002) 98 Cal.App.4th 48, 57 [respondent permitted to
raise argument without cross-appeal that trial court reached right result “even if on the
wrong theory”].) Here, Rockwell Collins is not seeking any affirmative relief by way of
appeal; it simply seeks to preserve the trial court’s judgment in its favor. A respondent’s
brief is the proper vehicle to present such an argument. (See Platypus Wear, Inc. v.
Goldberg (2008) 166 Cal.App.4th 772, 781.)
       There is no reason for a different conclusion merely because Rockwell Collins
unnecessarily filed a cross-appeal challenging the trial court’s adverse ruling on yet




                                             12
                                                                                    11
another theory that could serve as a basis for affirming the judgment in its favor.
Continental’s citation to Gonzales v. R.J. Novick Constr. Co., Inc. (1978) 20 Cal.3d 798,
804 to 805 as support for its argument underscores its apparent misunderstanding of these
principles of appellate review. Gonzales involved a lawsuit by an injured construction
worker against a general contractor. The contractor sued the worker’s employer for
indemnity. After a judgment in favor of the worker on liability and in favor on the
contractor on its indemnity claim, the employer appealed, but limited that appeal to the
indemnity issue in the cross-complaint. The contractor filed a protective cross-appeal on
liability, which it announced it would abandon if the judgment as to indemnity was
affirmed. Insofar as it relates to the issue before us, the Supreme Court held only that the
employer, having deliberately appealed only a portion of the adverse judgment, could not
seek appellate review of the liability issue raised in the contractor’s protective cross-
appeal. (Id. at pp. 804-805.) It did not address, let alone modify, the well-established
rule permitting a respondent to assert under Code of Civil Procedure section 906 grounds
rejected by the trial court that compel affirmance of a judgment in its favor.
              b. Principles of contract interpretation; standard of review
       The fundamental goal of contract interpretation is to give effect to the mutual
intention of the parties as it existed at the time they entered into the contract. (Bank of
the West v. Superior Court (1992) 2 Cal.4th 1254, 1264; Parsons v. Bristol Development


11     Although the trial court found the Collins Radio policies had transferred to
Rockwell Collins by operation of law and de facto merger, Rockwell Collins nevertheless
subsequently sought a ruling on whether Continental’s refusal to consent to assignment
under all circumstances (as the evidence suggested) would have been arbitrary action
proscribed by University of Judaism v. Transamerica Ins. Co. (1976) 61 Cal.App.3d 937,
942 (arbitrary refusal to consent to assignment “would be inconsistent with the insurer’s
duty of good faith”). After a bifurcated trial the court held Continental’s refusal to
consent to assignment did not constitute arbitrary action. This issue could have been
raised without a cross-appeal. (See Hermosa Beach Stop Oil Coalition v. City of
Hermosa Beach (2001) 86 Cal.App.4th 534, 548, fn. 8.)
      Because we hold Continental waived its right to assert this defense, we need not
address this or any other ground for affirming this portion of the trial court’s judgment.

                                              13
Co. (1965) 62 Cal.2d 861, 865; see also Civ. Code, § 1636.) That intent is interpreted
according to objective, rather than subjective, criteria. (Wolf v. Walt Disney Pictures &
Television (2008) 162 Cal.App.4th 1107, 1126 (Wolf).) When the contract is clear and
explicit, the parties’ intent is determined solely by reference to the language of the
agreement. (Civ. Code, §§ 1638 [“language of a contract is to govern its interpretation, if
the language is clear and explicit, and does not involve an absurdity”]; 1639 [“[w]hen a
contract is reduced to writing, the intention of the parties is to be ascertained from the
writing alone, if possible”].) The words are to be understood “in their ordinary and
popular sense” (Civ. Code, § 1644) and the “whole of [the] contract is to be taken
together, so as to give effect to every part, if reasonably practicable, each clause helping
to interpret the other.” (Civ. Code, § 1641.)
       Although parol evidence is inadmissible to vary or contradict the clear and
unambiguous terms of a written, integrated contract (Code Civ. Proc., § 1856, subd. (a);
Wolf, supra, 162 Cal.App.4th at p. 1126), extrinsic evidence is admissible to interpret the
agreement when a material term is ambiguous. (City of Hope Nat. Medical Center v.
Genentech, Inc. (2008) 43 Cal.4th 375, 395; see Pacific Gas & E. Co. v. G.W. Thomas
Drayage etc. Co. (1968) 69 Cal.2d 33, 39-40 (Pacific Gas & E. Co.) [if extrinsic
evidence reveals that apparently clear language in the contract is, in fact, susceptible to
more than one reasonable interpretation, it may be used to determine contracting parties’
intent]; Code Civ. Proc., § 1856, subd. (g) [extrinsic evidence admissible to interpret
terms of ambiguous agreement].)
       As we explained in Wolf, supra, 162 Cal.App.4th 1107, when the meaning of
words used in a contract is disputed, the trial court engages in a three-step process:
“First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a
                                                                              [12]
meaning to which the language of the instrument is reasonably susceptible.
[Citations.] If, in light of the extrinsic evidence, the language is reasonably susceptible to


12     The trial court’s threshold determination of ambiguity is a question of law subject
to independent review. (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.)

                                             14
the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role
in interpreting the contract. [Citations.] When there is no material conflict in the
extrinsic evidence, the trial court interprets the contract as a matter of law. [Citations.]
This is true even when conflicting inferences may be drawn from the undisputed extrinsic
evidence [citations] or [when] extrinsic evidence renders the contract terms susceptible to
more than one reasonable interpretation. [Citations.] If, however, there is a conflict in
the extrinsic evidence, the factual conflict is to be resolved by the jury.” (Wolf, at
pp. 1126-1127, fn. omitted.)
       Waiver is generally a question of fact, and the trial court’s findings are reviewed
for substantial evidence. (See St. Agnes Medical Center v. PacifiCare of California
(2003) 31 Cal.4th 1187, 1196.) However, the question of waiver in the instant case is a
question of contract interpretation turning on undisputed extrinsic evidence—Continental
does not dispute the substance of Benshoof’s declaration explaining the parties’ intent
with respect to the waiver of defenses that were not enumerated in the funding
agreement—and thus a question of law. Moreover, even if not a question of contract
interpretation, “‘[w]hen . . . the facts are undisputed and only one inference may
reasonably be drawn, the issue is one of law and the reviewing court is not bound by the
trial court’s ruling.’” (Ibid.)
               c. The funding agreement is clear; specific language controls over general
       Paragraph 5.5 of the July 16, 2003 funding agreement is clear: Continental agreed
it would not assert any defenses to coverage other than those specified in the agreement
unless Grove Investment filed an amended complaint with new allegations or claims or
certain missing policies were discovered. The named insured/lack-of-consent-to-
assignment defense was not identified in the funding agreement. Thus, Continental was
barred from asserting that defense because neither condition for expanding its bases for
denying coverage occurred. (Grove Investment refiled the identical complaint after
additional investigation of the Santa Ana property did not yield a settlement; the missing
policies were never located.)



                                              15
       As Continental asserts, paragraph 5.0 broadly states Continental’s agreement to
make the $95,000 payment for additional site investigation “is subject to a full and
complete reservation of the CNA Companies’ rights under the CNA Policies.” But that
“full and complete” reservation of rights is then expressly limited by paragraph 5.1,
which “[s]pecifically” identifies the defenses to coverage Continental has reserved;
paragraphs 5.2 and 5.3, which discuss in more detail the right to deny coverage under the
missing policies and the dispute over whether the $95,000 is a defense or indemnity cost;
and paragraph 5.5, which removes any doubt about the parties’ intentions: “To the extent
the refiled action merely alleges the claims presently alleged in the Underlying Action,
the CNA Companies also agree that they will assert no defenses to coverage other than
those reflected in paragraphs 5.0 through 5.3 above. The CNA Companies, however,
reserve the right to reevaluate coverage to the extent the refiled action alleges new or
different claims or causes of action.”
       Even if we were to agree the general language in paragraph 5.0 is inconsistent
with paragraph 5.5, the specific language limiting the reservation of rights governs. (See
Code Civ. Proc., § 1859 [“when a general and particular provision are inconsistent, the
latter is paramount to the former”]; Civ. Code, § 3534 [“[p]articular expressions qualify
those which are general”]; cf. National Ins. Underwriters v. Carter (1976) 17 Cal.3d 380,
386 [“specific language of the pilot exclusion clause overrides the general coverage
provisions of the insuring clause”].) Moreover, reviewing the contract in its entirety,
giving effect to every part as we must, Continental’s proposed interpretation is simply not
plausible. It would render meaningless its agreement in paragraph 5.5 not to assert any
defenses to coverage other than those reflected in paragraphs 5.0 through 5.3 above
unless Grove Investment filed an amended action with new or different claims or causes
of action or the missing policies were located. (See Zalkind v. Ceradyne, Inc. (2011)
194 Cal.App.4th 1010, 1027 [“meaning of a contract must be derived from reading the
whole of the contract, with individual provisions interpreted together, in order to give
effect to all provisions and to avoid rendering some meaningless”].)



                                             16
              d. Extrinsic evidence confirms the parties’ intent regarding waiver of
                 additional coverage defenses
       The trial court found the “meaning of the [funding agreement was] ambiguous as
to whether [Continental] waived its right to assert additional defenses to coverage outside
of those set forth in Paragraph 5.1.” Yet the court inexplicably sustained Continental’s
objections to the portions of Benshoof’s declaration describing the parties’ negotiation of
this language and explaining their express intent on the ground the evidence violated the
parol evidence rule. That was error. The court should have admitted the declaration,
which was undisputed, and considered it to interpret the contract as a matter of law. (See
Pacific Gas & E. Co., supra, 69 Cal.3d at pp. 39-40; Wolf, supra, 162 Cal.App.4th at
                 13
pp. 1126-1127.)
       Benshoof’s declaration reinforces our conclusion that Continental waived its right
to assert any new coverage defenses in the funding agreement unless Grove Investments
filed an amended complaint with new claims or the missing policies were located.
Benshoof explained, and a June 9, 2003 email attached to his declaration as an exhibit
confirmed, Rockwell Collins objected to Continental’s inclusion in the funding
agreement of an expanded list of reserved rights. The email stated, “Attached please find
the [funding agreement], revised to incorporate our changes. The most substantial
change we made was to delete Section 5.2. That looked an awful lot like making a new
record. [Continental’s] reservation of rights are whatever was set forth in its original
reservation of rights letter. This Agreement needs to make it clear (as it does) that any
funding of [Continental] of the interim settlement is without prejudice to those asserted
rights. It should not be used as an occasion to attempt to augment whatever reservations
were originally declared. Since that is what Section 5.2 appeared to be doing, it[’]s not
something we could agree to.” Benshoof further explained, after several conversations
with Continental’s counsel and receipt of the July 7, 2003 letter “wherein [Continental]
not only attempted to assert a long list of additional ‘reserved rights,’ but concluded . . .

13      Rockwell Collins’s opening brief unmistakably argues the trial court erred in
failing to consider the Benshoof declaration.

                                              17
with a statement, in the penultimate paragraph, that they would continue to assert new
coverage defenses in the future ‘which may become apparent on further analysis[,]’ I
advised [Continental’s counsel] that we would insist that [Continental] give us assurance
that it had in fact done all the analysis that was necessary, and that it would not continue
to assert new coverage defenses into the indefinite future . . . .” After additional
conversations in which Continental asked for the two exceptions to the blanket
prohibition (if the missing policies were found or an amended complaint filed with new
or different claims or causes of action), the funding agreement was signed. In the
absence of any extrinsic evidence disputing Benshoof’s explanation of the parties’ intent,
there is simply no basis upon which to find Rockwell Collins’s interpretation of the
agreement is incorrect.
       2. Continental Is Entitled to Equitable Contribution from Travelers
              a. Governing law
       “Equitable contribution . . . applies to apportion costs among insurers that share
the same level of liability on the same risk as to the same insured. [Citation.] It ‘arises
when several insurers are obligated to indemnify or defend the same loss or claim, and
one insurer has paid more than its share of the loss or defended the action without any
participation by the others.’ [Citation.] ‘The purpose of this rule of equity is to
accomplish substantial justice by equalizing the common burden shared by coinsurers,
and to prevent one insurer from profiting at the expense of others.’” (Maryland Casualty
Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1089; accord, St. Paul
Mercury Ins. Co. v. Mountain West Farm Bureau Mutual Ins. Co. (2012)
210 Cal.App.4th 645, 653; see Fireman’s Fund, supra, 65 Cal.App.4th at p. 1295
[equitable contribution “is predicated on the commonsense principle that where multiple
insurers or indemnitors share equal contractual liability for the primary indemnification
of a loss or the discharge of an obligation, the selection of which indemnitor is to bear the
loss should not be left to the often arbitrary choice of the loss claimant, and no




                                             18
indemnitor should have any incentive to avoid paying a just claim in the hope the
                                                                   14
claimant will obtain full payment from another coindemnitor”].)
       “Equitable contribution applies only between insurers [citation] . . . . It therefore
has no place between insurer and insured, which have contracted the one with the other.
[Citation.] Neither does it have any place between the insurer and an uninsured or ‘self-
insured’ party.” (Aerojet, supra, 17 Cal.4th at p. 72.) As the Court explained in Aerojet,
self-insurance “‘is equivalent to no insurance . . . .’ [Citation.] As such, it is ‘repugnant
to the [very] concept of insurance . . . .’ If insurance requires an undertaking by one to
indemnify another, it cannot be satisfied by a self-contradictory undertaking by one to
indemnify oneself.” (Id. at p. 72, fn. 20.) In Aerojet various insurers had issued Aerojet
“typical comprehensive general liability insurance policies” from 1956 to 1975 covering
property damage. From 1976 to 1984 Insurance Company of North America (INA) had
issued policies that “essentially took a form similar to that of a so-called ‘fronting’
policy,” which “has been described as one ‘which does not indemnify’ or, apparently,
defend ‘the insured but which is issued to satisfy financial responsibility laws of various’
jurisdictions ‘by guaranteeing to third persons who are injured that their claims against’
the insured ‘will be paid.’” (Id. at p. 49 & fn. 3.) The body of the INA policies stated
INA had a duty to indemnify and defend Aerojet, but “by endorsement it was provided
that (1) INA had a duty to make payments only beyond stated deductible amounts, which
matched or approached indemnification limits, and (2) in case of Aerojet’s default, INA


14      Coinsurers can be, as in the instant case, successive insurers on continuous or
progressively deteriorating property damage. “[W]here successive . . . policies have been
purchased, bodily injury and property damage that is continuing or progressively
deteriorating throughout more than one policy period is potentially covered by all policies
in effect during those periods.” (Montrose Chemical Corp. v. Admiral Ins. Co. (1995)
10 Cal.4th 645, 686-687.) The successive insurers are not jointly and severally liable, but
are “separately and independently ‘obligated to indemnify the insured.’” (Aerojet, supra,
17 Cal.4th at p. 57, fn.10.) “‘[A]llocation of the cost of indemnification’ among such
insurers ‘requires application of principles of contract law to the express terms and
limitations of the various policies’ [citation] and, in their absence, ‘equitable
considerations’ [citation].” (Ibid.)

                                              19
had a duty to make payments within stated deductible amounts and a corresponding right
to obtain reimbursement therefor; and . . . Aerojet should pay its own defense costs—
under which provision it was understood by Aerojet that it should defend itself.” (Id. at
pp. 49-50, fn. omitted.) Thus, as essentially self-insured under the fronting policies,
Aerojet could not be compelled to contribute to its own defense costs. (Id. at p. 72.)
       Although equitable contribution is not available from an uninsured or self-insured
party, a party that later essentially becomes self-insured for a previously covered period
to settle a coverage dispute with coinsurers on the same risk cannot vitiate the non-
settling insurers’ right of contribution from the settling insurers. “[T]he well-settled rule
is that an insurer’s obligation to contribute to another insurer’s defense or indemnification
of a common insured arises independently and is separate from any contractual obligation
owed to their insured.” (Wausau, supra, 141 Cal.App.4th at p. 404; see Fireman’s Fund,
supra, 65 Cal.App.4th at p. 1295.) Thus, in Wausau the court held coinsurers that had
“bought back their coverage from [the insured] for $24 million” to settle a dispute over
coverage of environmental claims were nevertheless required to contribute to the cost
incurred by nonsettling coinsurers to defend environmental tort suits filed after the
              15
settlement:        “[D]efendants’ obligation to their insured arose long ago; long before the
Jensen-Kelly releases and the Avila and Arlich actions were filed. [Citations.] At the
time of loss, each insurer had a potential obligation to defend and indemnify [the insured]
against claims that might arise from a toxic discharge. We are not persuaded that
defendants’ equitable obligation to share the cost of that defense depends on whether they




15     The insured “released the defendant insurers from any obligation to defend or
indemnify it against past, present and future environmental actions and agreed to
indemnify the settling carriers against any claims under their policies, including other
insurers’ claims for contribution.” (Wausau, supra, 141 Cal.App.4th at p. 401.)

                                                 20
settled with their insured before, or after, the Avila and Arlich suits were filed.”
                     16
(Wausau, at p. 405.)
       A trial court evaluating claims for equitable contribution “exercises its discretion
and weighs the equities seeking to attain distributive justice and equity among the
mutually liable insurers. [Citation.] The court may consider numerous factors in making
its determination, including the nature of the underlying claim, the relationship of the
insured to the various insurers, the particulars of each policy, and any other equitable
considerations.” (Axis Surplus Ins. Co. v. Glencoe Ins. Ltd. (2012) 204 Cal.App.4th
1214, 1231-1232; see Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359,
369 [“[w]e expressly decline to formulate a definitive rule applicable in every case in
light of varying equitable considerations which may arise”].)
              b. The 1994 settlement agreement does not vitiate Continental’s
                 entitlement to equitable contribution
       Rockwell Collins contends, and the trial court found, Continental is not entitled to
equitable contribution from Travelers pursuant to Aerojet because Rockwell International
was self-insured during the years covered by the Travelers policies. Central to the court’s
conclusion was the 1994 settlement agreement: “The Travelers policies effectively
became ‘fronting’ policies[] once the May 1994 Settlement was entered into.”
       The court’s reliance on the effect of the settlement agreement was improper.
Although Aerojet holds uninsured and self-insured parties are not required to make an
equitable contribution to defense costs, an insured cannot eliminate a coinsurer’s right to
contribution by an after-the-fact arrangement with one of its insurers. The policies in
Aerojet were clearly fronting policies ab initio. There were no settlement agreements,
policy modifications or reinsurance agreements made during the ensuing years that, when
considered together, rendered Aerojet effectively self-insured. As the Aerojet Court
explained, “At the outset, Aerojet was in fact issued ‘fronting’ policies by INA. Had the

16    Wausau was the primary general liability insurer for three years. The defendant
coinsurers had also provided primary general liability insurance during the years the
contamination allegedly occurred. (Wausau, supra, 141 Cal.App.4th at p. 402.)

                                              21
situation been different, it might have led to different consequences. But it was not.”
(Aerojet, supra, 17 Cal.4th at p. 72; cf. Union Oil Co. v. International Ins. Co. (1995)
37 Cal.App.4th 930, 933, fn. 2 [“Continental policy was considered a ‘fronting policy’
because, through an agreement reached between Continental and Union Oil [its insured],
Union Oil’s deductible was equal to the limits of liability of the Continental policy”].)
       Rockwell Collins contends, without citation to authority, “for purposes of the
doctrine of equitable contribution, the timing of when an insured became completely self-
insured makes no difference.” To the contrary, when the uninsured period arose—
whether the insured elected to forego any insurance (self-insure) or obtained a fronting
policy at the outset of the coverage period, as in Aerojet, or subsequently converted a
policy of insurance that actually provided for indemnification into some form of self-
insurance, as here—determines the availability of equitable contribution. As the Wausau
court explained, at the time of loss an insurer has a potential obligation to defend and
indemnify its insured against claims that might arise from a toxic discharge. (Wausau,
supra, 141 Cal.App.4th at p. 405.) The right of coinsurers of that same risk to
contribution arose at that time based on “‘“equitable principles designed to accomplish
ultimate justice in the bearing of a specific burden.”’” (Ibid.) Accordingly, post hoc
modification of the contractual obligations owed to an insured cannot eliminate the right
to equitable contribution among insurers. (Id. at pp. 404-405; see Fireman’s Fund,
supra, 65 Cal.App.4th at pp. 1294-1295; see also Centennial Ins. Co. v. United States
Fire Ins. Co. (2001) 88 Cal.App.4th 105, 115 [insurers’ “obligations for contribution to
other insurers for the costs of defense are entirely separate from their obligations to their
insured and are adjusted equitably on the basis of all the circumstances of the case”].) In
sum, although the 1994 settlement agreement may have transferred all risk to Rockwell
Collins for the period covered by the Travelers policies, it simply cannot negate the
coinsurers’ right to contribution that existed if the Travelers policies were not fronting
policies ab initio.




                                             22
              c. The Travelers policies were not fronting policies
       Rockwell Collins asserts the Travelers policies met the classic definition of
“‘fronting’ policies” from their inception—and thus Aerojet is controlling—because the
combination of premium computation endorsements, deductibles and the complex
reinsurance agreement required it to reimburse Travelers for 95 percent of any payments
Travelers made. This 95 percent risk shifting increased to 100 percent after the revised
premium computation endorsements were issued in 1990 in connection with the parties’
commutation agreement.
       We certainly agree with Rockwell Collins’s characterization of the risk shifting
mechanism as a “complex arrangement,” but disagree it converted the Travelers policies
into fronting policies from their inception. As Rockwell Collins explains, the
fundamental issue whether a party is uninsured or self-insured—either through the use of
a fronting policy or some other mechanism or circumstance (see generally Croskey et al.,
Cal. Practice Guide: Insurance Litigation (The Rutter Group 2013) ¶ 8:151, pp. 8-46.8 to
8-46.9 (rev. #1 2013))—largely depends on whether the party is responsible for payment
of the claim and defense costs, not, as Continental contends, whether there is a policy
somewhere in the labyrinth of insurance coverage documents that states the insurer has a
duty to defend. We see no reason why a reinsurance agreement with a party’s captive
insurance company cannot accomplish this in the same way an indemnification provision
                                                         17
in the underlying policy or a separate agreement would; it creates no more of a fiction

17     “Reinsurance is ‘“a special form of insurance obtained by insurance companies to
help spread the burden of indemnification. A reinsurance company typically contracts
with an insurance company to cover a specified portion of the insurance company's
obligation to indemnify a policyholder. . . . This excess insurance . . . enables the
insurance companies to write more policies than their reserves would otherwise sustain
since [it] guarantees the ability to pay a part of all claims. The reinsurance contract is
not with the insured/policyholder. When a valid claim is made, the insurance company
pays the first level insured, and the reinsurance company pays the insurance company.
The reinsurance company’s obligation is to the insurance company, and the insurance
company vis-a-vis the reinsurer is thus the insured, or more appropriately, the
‘reinsured.’”’” (Catholic Mutual Relief Society v. Superior Court (2007) 42 Cal.4th
358, 368.)

                                            23
than the fronting policy itself. (Cf. Internat. Risk Mgt. Institute, Inc., Glossary of
Insurance & Risk Management Terms http://www.irmi.com/online/insurance-
glossary/terms/f/fronting.aspx (as of Oct. 16, 2013) [defining fronting as “use of a
licensed, admitted insurer to issue an insurance policy on behalf of a self-insured
organization or captive insurer without the intention of transferring any of the risk. The
risk of loss is retained by the self-insured or captive insurer with an indemnity or
reinsurance agreement.”]; Corwin v. DaimlerChrysler Ins. Co. (Mich. 2012) 819 N.W.2d
68, 72, fn. 3.) Nevertheless, the problem once again is one of timing. Unlike in Aerojet,
in which the insured’s obligation to pay for its own defense costs began from the
policies’ inception, the initial reinsurance agreement between Constantine and Travelers
was executed by Travelers in March 1978 and by Constantine in November 1978.
Consequently, at least for the policy years from April 1, 1975 through April 1, 1978
Travelers bore the risk of loss. For the same reasons a party’s settlement with its insured
does not destroy a coinsurer’s right to equitable contribution, neither does an after-the-
fact reinsurance agreement between a party’s captive insurance company and an insurer.
       As to the formula for calculating the Travelers policy premiums, although it
apparently included a provision for reimbursement of defense costs, there was a cap on
the premium, which was not eliminated until sometime before the commutation
agreement was executed in 1990. Accordingly, Travelers remained responsible for costs
in excess of that maximum; to that extent Rockwell Collins was not self-insured.
       Moreover, even for those years when the primary policies and reinsurance
agreements were entered into contemporaneously, Travelers apparently retained five
percent of the risk (at least for most of the coverage years). Five percent may be small,
but it is not zero. In light of our conclusion Travelers retained significant risk during the
early years based upon the policies’ provisions at their inception and at least a small
portion of risk during later years under the contemporaneous reinsurance agreements, we
remand the matter to the trial court for further proceedings to determine the appropriate
equitable allocation. (See Centennial Ins. Co. v. United States Fire Ins. Co., supra,
88 Cal.App.4th at p. 111 [“In choosing the appropriate method of allocating defense costs

                                              24
among multiple liability insurance carriers, each insuring the same insured, a trial court
must determine which method of allocation will most equitably distribute the obligation
among the insurers ‘pro rata in proportion to their respective coverage of the risk,’ as ‘a
matter of distributive justice and equity.’”].)
                                       DISPOSITION
       The judgment is affirmed in part and reversed in part, and the matter remanded for
further proceedings not inconsistent with this opinion. Each party is to bear its own costs
on appeal.




                                                   PERLUSS, P. J.


       We concur:




                      WOODS, J.




                      ZELON, J.




                                              25
