[author: David Blinn]
Insurance Coverage – Stacking of Policy Limits on Progressive & Continuous Loss
California Supreme Court (August 9, 2012)
In this decision, the California Supreme Court has ruled for the first time that in a progressive and continuous loss claim, the limits of all insurance policies issued may be stacked together and are available to pay on the loss. In so holding, the Supreme Court disapproved of FMC Corp. v. Plaisted & Companies (1998) 61 Cal.App.4th 1132, which had previously ruled that stacking would not be allowed.
The State of California sought to recover from its liability insurers the amount a federal court had ordered it to pay for the clean-up of the Stringfellow hazardous waste site. The trial involved six insurers who had issued an Excess Corporate General Liability Policy to the State, covering a two or three-year policy period. The trial court ruled that every policy in effect for any policy period during which the loss was occurring covered the entire loss. However, it also ruled the State could not recover more than the total policy limits for any one policy period. It further ruled that the insurers were entitled to a set-off for settlement amounts previously made by other insurers. Because the State had already recovered more in settlements than the coverage for any one policy year, a zero judgment was entered against the insurers.
The State appealed. The Court of Appeal reversed. The Court of Appeal stated that in a continuous loss case, every insurer that issued a liability policy for any period during which a continuous loss occurred was liable for the full extent of the loss up to its policy limits. The Court felt if an occurrence was continuous over multiple policy periods and the insured paid multiple premiums, it should be allowed to recover up to the combined total of the triggered limits. Otherwise, an anti-stacking rule would result in a windfall to the insurers. (See our Weekly Law Resume of February 5, 2009).
The case went up on appeal to the Supreme Court in early 2009. Oral arguments were heard on May 30, 2012, and the Court published its opinion affirming the appellate court decision on August 9, 2012.
The Court first noted that disputes like this commonly occur in the context of environmental damage and toxic exposure litigation, which involve property damage that is often termed a “long-tail” injury. This is characterized by a series of indivisible injuries attributed to continuing events without a single unambiguous cause. Significantly, the Court noted that it is often “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. Further, until recently, traditional Commercial General Liability (“CGL”) insurance policies have been silent as to how to deal with this type of injury.
The Court next noted that neither the State nor the insurers disputed that progressive damage to property at the Stringfellow site “occurred” during numerous policy periods. Additionally, the carriers had conceded that it was impossible in cases such as this to prove precisely what property damage occurred during any specific policy period. Hence, the fact that all policies were covering the risk at some point during the policy loss was enough to trigger the insurers’ indemnity obligations.
The Court thus concluded that the policies at issue obligated the insurers to pay all sums for property damage attributable to the Stringfellow site, up to their policy limits, if applicable, as long as some of the continuous property damage occurred while each policy was “on the loss.”
After determining that all policies were triggered, the Court addressed the stacking issue. It agreed with the Court of Appeal's criticism of FMC Corp. v. Plaisted & Companies (1998) 61 Cal.App.4th 1132. There, as here, the policies did not include anti-stacking provisions, so the FMC court resorted to “judicial intervention” in order to avoid stacking. The Supreme Court felt this was inappropriate, pointing out that where there is no language in the policy against stacking, and where (as here) there are no statutes against it, standard CGL policies such as these permit stacking. In so holding, the Supreme Court disapproved the FMC decision.
The Court reasoned that there was nothing unfair or unexpected in allowing stacking in a continuous long-tail loss. The “all-sums-with-stacking” rule meant that the insured had immediate access to the insurance it purchased. It did not put the insured in the position of receiving less coverage than it bought. It thus comported with the parties’ reasonable expectations, in that the insurer reasonably expects to pay for property damage occurring during a long-tail loss it covered, but only up to its policy limits; while the insured reasonably expects indemnification for the time periods in which it purchased insurance coverage.
This decision has large ramifications for insureds and insurers. Whereas previously an insured was entitled to one policy limit allocated amongst several insurers for a continuous and progressive loss, now the entire limits of each carrier are available to satisfy such a claim.
The Court did note that an insurer may avoid stacking by specifically including an “anti-stacking” provision in its policy, stating that “contracting parties can write into their policies whatever language they agree upon, including limitations on indemnity, equitable pro rata coverage allocation rules, and prohibitions on stacking.” Presumably, any policies that have not already been so revised will be revised in light of this decision. As to policies which do not have anti-stacking provisions, they are ultimately exposed in their entirety in long-tail claims such as these. .
For the complete decision see: