California Supreme Court Adopts All-Sums-With-Stacking Approach in Major Policyholder Victory

State of California v. Continental Ins. Co.
(Cal. Aug. 9, 2012)

In a much-anticipated decision, the Supreme Court of California ruled last week that several excess insurers were obligated to indemnify the State of California for all sums relating to the clean-up of the Stringfellow Acid Pits waste site, regardless of whether the damage occurred during the insurers’ policy periods. The court also held that the State could stack its policies from multiple years to maximize recovery.

The State sought indemnity from several insurers that issued excess CGL policies to it between 1964 and 1978 in connection with a federal court-ordered clean-up of its Stringfellow Acid Pits waste site. The State claimed that costs associated with the site’s remediation could reach $700 million. The insurers stipulated that the State was liable for at least $50 million of that amount.

The trial court held that the State could not recover the policy limits in effect for every policy period, and could not “stack,” or combine, policy periods to recover more than one policy’s limits for covered occurrences. The Court of Appeal affirmed in part and reversed in part the trial court’s ruling. The Court of Appeal, like the trial court, rejected the insurers’ contention that they could not be liable for property damage occurring outside their respective policy periods. It reversed the trial court’s ruling that prohibited the State from stacking the total policy limits in effect for any one policy period.

The Supreme Court of California affirmed the Court of Appeal’s ruling, finding that the “all sums” language in the excess policies’ insuring agreements meant that the insurers had to cover all damage up to their policy limits, even damage that occurred before or after their policy was in effect. In so ruling, the court held that the “during the policy period” language that the insurers relied on to limit coverage does not appear in the insuring agreement section of the policies and, therefore, is neither “logically [n]or grammatically related to the ‘all sums’ language in the insuring agreement.”

The court next found that the State could stack the coverage limits of all policies in the absence of any anti-stacking provisions. The court noted that “all-sums-with-stacking coverage allocation ascertains each insurer’s liability with a comparatively uncomplicated calculation that looks at the long-tail injury as a whole rather than artificially breaking it into distinct period of injury.” “There is nothing unfair or unexpected in allowing stacking in a continuous long-tail loss,” the court stated.

For a copy of the decision, click here.

Daniel W. Gerber and Carrie P. Appler

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