Aug
10
CALIFORNIA SUPREME COURT ADOPTS STACKING
Posted by Claudia J. Serviss | Leave a Comment
In an important ruling issued yesterday, the California Supreme Court adopted an “all-sums-with-stacking indemnity principle.” This principle incorporates the Montrose continuous injury trigger of coverage rule and the Aerojet all sums rule, and effectively stacks the insurance coverage from different policy periods to form one giant “uber-policy” with a coverage limit equal to the sum of all purchased insurance policies on the loss.
The Court was dealing with the continuing saga of insurance coverage for the cleanup of the Stringfellow Acid Pits. (State of California v. Continental Insurance Co., et al., S170560). This site was an industrial waste disposal facility that the State designed and operated from 1956 to 1972. In 1998, a federal court found the State liable for, among other things, negligence in investigating, choosing and designing the site, overseeing its construction, failing to correct conditions at it, and delaying its remediation. The State was held liable for all past and future cleanup costs, estimated to be as high as $700 million. The State turned to six insurers which had issued one or more excess commercial general liability (CGL) insurance policies to the State between 1964 and 1976.
All insurance policies contained essentially the same promise in the Insuring Agreement: “to pay on behalf of the Insured all sums which the Insured shall became obligated to pay by reason of liability imposed by law . . . for damages . . . because of injury to or destruction of property, including loss of use thereof.”
All parties stipulated that the property damage that the Stringfellow site’s selection, design, and construction caused took place continuously throughout the defendant insurers’ multiple consecutive policy periods from 1964 to 1976. The Court observed this type of property damage, often termed a “long-tail” injury, “is characterized as a series of indivisible injuries attributable to continuing events without a single unambiguous `cause.’” (p. 7.) The damage takes place slowly over years or decades, making it “virtually impossible” for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods in a progressive property damage case. (p. 8.) The Court reasoned that if such evidence were required, an insured who had procured insurance coverage for each year during which a long-tail injury occurred likely would be unable to recover.
The Court applied the reasoning of the well-known duty of defense cases Montrose and Aerojet to the current duty to indemnify question. Because it is impossible to prove precisely what property damage occurred during any specific policy period, the fact that all policies were covering the risk at some point during the property loss is enough to trigger the insurers’ indemnity obligation. The Court emphasized the “pay . . . all sums” language in the Insuring Agreement against the insurers’ argument that they should only have to pay for damages during their respective policy periods. Each insurer must pay up to the limit of each policy, “as long as some of the continuous property damage occurred while each policy was `on the loss.’” (p. 14.)
Finally, the Court addressed the issue of “stacking.” “Stacking policy limits means that when more than one policy is triggered by an occurrence, each policy can be called upon to respond to the claim up to the full limits of the policy.” (p. 15.)
The Court disapproved those court of appeal cases which had held that even without a contractual provision in the policy, policies could not be stacked. The rule was now that policies could be stacked unless the insurer and insured had contracted to the contrary. This, the Court explained, comports with the reasonable expectations of the insured – that it would receive the benefits of the policies it purchased.
Caution: The insurance policies at issue here were from the 1960’s and ‘70’s. Many recent policies contain specific anti-stacking language in the policy, which will control.
