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SAN DIEGO-A self-insurer cannot be treated as an insurer when it comes to contributing to defense costs,a California appellate court ruled in an environmental case.

The state appellate court in San Diego ruled in Pacific Indemnity Co. vs. County of San Bernardino that while the county was self-insured for much of the relevant period, it was "not an insurer for purposes of allocation of costs of defense of the underlying actions."

Los Angeles-based Pacific Indemnity Co., a Chubb Corp. unit, plans to appeal the decision to the California Supreme Court, said Kenneth E. Goates, an attorney with Lewis, D'Amato, Brisbois & Bisgaard in San Diego, which represents the insurer in the litigation.

According to the decision, which was issued July 8 and certified for publication July 21, Pacific Indemnity had provided the county with primary comprehensive general liability insurance for more than 25 years, until it became self-insured in 1973. The county operated a landfill beginning while Pacific's policies were in effect and continuing after their expiration.

More than a decade after Pacific's policies expired, owners of adjacent land filed two lawsuits against the county for property damage caused by toxic gases emitted from the landfill.

Pacific provided a defense under reservation of rights, but demanded that the county as a self-insured entity pay a portion of its defense costs.

Under a stipulated judgment, both sides agreed Pacific would pay half of reasonable defense costs. Pacific then appealed the portion of the judgment declaring it had a duty to provide the county with a defense, while the county appealed the portion that said it was responsible for half the defense costs.

Ruling in the county's favor, the appellate court said while defense costs may be allocated among insurers, this "does not apply to deny a policyholder its contractual right to a complete defense where the policyholder was not insured at all times."

And although the county was self-insured, it was not an insurer for purposes of allocating defense costs, the court decided. As a result, "Pacific remains contractually obligated to provide the county with a complete defense of those underlying actions, not simply a 'share' of such defense."

Commenting on the decision, Mr. Goates said if a self-insured entity "acts like an insurance company" and "walks like an insurance company," especially if it is a government entity that has set up its own claims-handling facility, "it should have a reasonable expectation to defend claims that occur during the time it has no insurance."

However, the county's attorney, Barry J. Shotts of Lathem & Watkins in San Diego, said Pacific Indemnity's policy "clearly obligates them to defend the entire suit against them. That's in the contract." Nothing the county did once the contract expired changed that, said Mr. Shotts.

While there is a clause in the standard CGL policy that calls for allocating defense costs among multiple insurers, the fact that the county decided not to renew its policy is "not insurance. It's the opposite of insurance because it does not involve transfer of risk from one entity to another," said Mr. Shotts.

Mr. Shotts said the case is significant because though it "simply extends" long-standing principles of insurance law, "it's one of the very few cases that actually deals with this particular argument, that a county somehow becomes an insurance company by not buying a policy."

Pacific Indemnity Co., defendant/appellant/cross-respondent, vs. County of San Bernardino, plaintiff/respondent/cross-appellant, Court of Appeal fourth appellate district, division one, state of California, D020939.