Montrose Chemical Corp. Of California v. Superior Court

(December 2025) - In Montrose Chemical Corporation of California v. Superior Court, 114 Cal. App. 5th 889 (Sept. 30, 2025), the California Second District Court of Appeal held that extrinsic evidence proffered to show a latent ambiguity in exceptions to exclusions of liability coverage for "sudden and accidental" or "sudden, unintended and unexpected" pollution was inadmissible because the term "sudden" could not reasonably be construed to mean "gradual" in the exceptions.

In this case, Montrose Chemical Corporation of California ("Montrose") filed a lawsuit against its liability insurers seeking a declaratory judgment for coverage related to environmental damage from operating a DDT plant. The insurers denied coverage based on a "qualified pollution exclusion" (the "QPE") in the comprehensive general liability policies, which excluded coverage for pollution unless it was "sudden and accidental" or "sudden, unintended and unexpected." Montrose attempted to introduce extrinsic evidence to show that the QPEs were ambiguous and could cover gradual pollution events, but the trial court excluded this evidence, citing prior appellate decisions that interpreted "sudden" as not including gradual events. Montrose petitioned for a writ of mandate to overturn the trial court's evidentiary ruling.

At the Supreme Court's direction, the Court of Appeal issued an order to show cause instructing the parties to address whether "the extrinsic evidence of a prior judicial construction of an insurance policy's form exclusion that found it to be unambiguous precludes a trial court from considering extrinsic evidence in determining whether the exclusion is ambiguous." The Court of Appeal concluded that "the general answer to that question is 'no,' because a court may preliminarily consider all credible evidence offered to prove the intention of the parties to a contract, even if a disputed term appears to the court to be unambiguous on the face of the instrument." Specifically, the Court of Appeal noted that extrinsic evidence may be used to expose latent ambiguities in a contract, even if the contract appears unambiguous on its face. The admissibility of such evidence, however, depends on whether it is relevant to prove a meaning to which the language of the contract is reasonably susceptible. The Court of Appeal also held that the prior judicial construction doctrine does not preclude the consideration of extrinsic evidence to reveal a latent ambiguity, but rather recognizes that a prior judicial construction "should be read into the policy unless the parties express a contrary intent."

In this case, however, the Court of Appeal held that the trial court properly excluded Montrose's extrinsic evidence "because the disputed policy language is not reasonably susceptible of Montrose's proposed interpretation." Specifically, the Court of Appeal found that the term "sudden" in the QPEs could not reasonably be interpreted to mean gradual, as previous appellate decisions had consistently rejected such an interpretation. The Court of Appeal emphasized that "sudden" inherently includes "a temporal element and is not reasonably susceptible of an interpretation that covers gradual pollution." The Court of Appeal also noted that while extrinsic evidence can sometimes be considered to reveal latent ambiguities, even where a term has previously been judicially construed, it is only admissible if it tends to prove a meaning to which the policy language is reasonably susceptible, which the Court found was not the case here:

As a result, the Court of Appeal denied Montrose's petition for a writ of mandate and upheld the trial court's evidentiary ruling that excluded Montrose's proffered extrinsic evidence.

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