California v. Continental Ins. Co., Case Number S170560, Cal. Supreme Court
(August 9, 2012)
The California Supreme Court ordered that all insurers that insured the State of California’s String fellow waste site at during its period of operation were obligated to indemnify the state for all sums associated with its loss. Moreover the court ordered that the policies were stackable, allowing the state to stack the policy limits across multiple policy periods that were issued on the site and collect up to the policy limits on each of them.
The state owned waste site was an industrial waste disposal facility that the state designed and operated from 1956-1971. Multiple insurers issued one or more excess CGL policies to the state between 1964 and 1976 for the site. The site contained 30 million gallons of industrial waste. The waste leaked into the groundwater and also escaped during heavy rains where the waste extended for miles. The state eventually closed the site down, and a federal court ordered that the state was liable for cleanup costs which could amount to $700 million.
The state sought indemnity from multiple insurance companies. All of the insurance companies stipulated that the property damage took place continuously throughout the defendant insurers’ multiple consecutive policy periods from 1964-1976, but argued on how indemnity obligations were to be allocated.
Because the policies had “all sums” language, the trial court held that each insurer was liable for damages subject to its particular policy limits for the total amount of the loss. The trial court held that the state could not “stack” insurance policies and could recover only up to the specific single policy limit in effect at the time the loss occurred.
The Court of Appeals affirmed in part and reversed in part, reversing the trial court’s ruling that prohibited the state from stacking the total policy limits in effect for any one policy period.
In this decision, the Supreme Court of California affirmed the Court of Appeals’ ruling. This court noted that this is a complex “long-tail” claim, where it is virtually impossible for the insured to prove which specific damages occurred during each of the multiple consecutive policy periods.
One issue was whether coverage was owed by an insured on the tail end of the continuous occurrence when the initial trigger occurred prior to the start of that policy period. Another issue was whether an insured’s duty to indemnify persisted past the policy period until the loss was complete. The insurers suggested adopting a pro-rata approach where the insurers pay an amount proportionate to the damage suffered during that policy’s term, arguing that this approach attempts to produce equity across time.
The court stated that while the pro rata apportionment method is appropriate in some cases, the court was constrained by the “all sums” language in the insurance policies which contained a promise to pay all sums of the policyholder’s liability solely to sums or damage during the policy period. While the insurers stated that it would be unreasonable to hold insurers liable for losses that occurred before or after their respective policy periods, the “during the policy period” language did not appear in the insuring agreement sections of these policies. Therefore the court held that as long as the insurers insured the subject property at some point in time during the loss they are liable up to the policy limits for the entire loss.
The court next looked to the stacking issue and affirmed the court of Appeals’ decision to allow stacking. The court noted that allowing stacking would allow the insured to stack policy limits across multiple policy periods that were issued on a particular risk. The court found that there was no anti-stacking provision here and that stacking resolves the immeasurable aspects of long tail injuries and comports with the insured’s expectations. The court stated that the all sums with stacking principle incorporates the continuous trigger of coverage rule with the all sums rule and effectively stacks coverage to form one giant “uber policy.” This gives immediate access to all insurance purchased and incorporates the unique nature of long tail injuries.
The court concluded by noting that this is not unfair or unexpected in continuous long tail claims and that insurers can write whatever language they would like into policies including language that limits liabilities or prohibits stacking.
For a copy of this decision, click here.
Jeffrey L. Kingsley and Clayton D. Waterman