Weekly Law Resume - April 26, 2013: Insurance Coverage – Excess v Primary Carriers and Horizontal Exhaustion


Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania
Court of Appeal, Second District (April 8, 2013)

Last year, in State of California v. Continental Insurance Company (2012) 55 Cal.4th 186, the California Supreme Court ruled that absent language in a liability policy to the contrary, the limits of successive years’ policies were available to “stack” together on continuous longer term losses. Following that decision, the Court of Appeal was asked to reconsider its ruling on this case involving primary vs. excess liability for claims where one of several underlying policies was exhausted. (The horizontal exhaustion rule).

Kaiser Cement and Gypsum Corporation manufactured a variety of asbestos-containing products from 1944 through the 1970's. Truck Insurance provided primary insurance to Kaiser from 1964 to 1983. The policy in effect from 1974 to 1981 contained a $500,000 "per occurrence" liability limit. There were three other carriers who provided primary policies during this time, including Fireman's Fund, Home Indemnity and National Union Fire Insurance Company of Pittsburg. The various primary carriers entered into an agreement to share defense and indemnity costs.

Truck’s primary policy for 1974 (the one chosen by Kaiser for defense of the claims) stated that the "per occurrence" limit was "the limit of the company's liability for each such occurrence." According to Truck, by April of 2004, this had been exhausted. Insurance Company of Pennsylvania ("ICSOP") had issued a first layer excess policy to Kaiser from 1974 to 1977, providing coverage for its "ultimate net loss" in excess of its retained limit up to the policy limit of $5,000,000 per occurrence. "Retained limit" was defined as the scheduled primary policy plus "the limits of any other underlying insurance collectible by the insured." Truck filed suit against Kaiser seeking a declaration that its primary policies had been exhausted and it owed no further obligation to defend or indemnify Kaiser. Kaiser cross-complained against its excess carriers, including ICSOP, seeking a declaration that they were obligated to defend and indemnify once a primary policy (such as Truck's) was exhausted.

Pursuant to a stipulated order, the trial court had ruled that all non-Truck primary policies had been exhausted. Kaiser then brought a motion for summary adjudication against ICSOP, based on the fact that Truck had paid its 1974 policy limits on particular claims, and that ICSOP, the 1974 excess carrier, owed a duty to pay all amounts for the claim in excess of Truck's $500,000 occurrence limits. The trial court granted the motion. ICSOP appealed, and contended that because there was continuous loss of each of the "occurrences," all 19 of Truck's policies had to be exhausted before its duties as excess carrier required it to defend or indemnify Kaiser. The Court of Appeal initially disagreed. It held that ICSOP's own policy language held that it was excess to "collectible" insurance. In turn, Truck's policy language setting "the limit of the company's liability" at the "per occurrence" limit of $500,000 meant that no matter how many years of coverage "the company" (i.e., Truck) had written, there could be no "stacking" of Truck's annual "per occurrence" limits to require payment on any claim above the $500,000 limits. Once Truck paid $500,000 on a single claim, there was thus no further "collectible" insurance from Truck, no matter how many policies there were. Thus, for purposes of horizontal exhaustion, once Truck paid $500,000, all Truck's "collectible" insurance was "exhausted" for purposes of ICSOP's exposure.

The Court of Appeal originally refused to grant summary judgment, since there was no information before it to confirm that the other underlying primary carriers had exhausted their policy limits. ICSOP again appealed, and because of the anti-stacking implications, the Supreme Court took up the case, subsequently vacating the Court of Appeal’s ruling, and asking it to reconsider the decision in light of the Supreme Court’s ruling permitting stacking of policy limits.

Upon further review after the State of California decision, the Court of Appeal repeated its earlier ruling. It noted that the Supreme Court’s recent decision called for stacking of policy limits across successive years for continuous long term losses, unless there was language in the policy or policies against stacking. Here, the Court of Appeal found that the language in the Truck policy setting the limits of its exposure to $500,000 no matter how many years of coverage Truck had was an effective anti-stacking provision.

The Court of Appeal thus held that Truck’s other policies were not “valid and collectible” insurance that had to be paid before ICSOP’s excess policy came into play. However, even though there was now a stipulated order at the trial court level that the other three primary carriers’ policies had been exhausted, the Court of Appeal again reversed the granting of summary judgment in favor of Kaiser and against ICSOP, since it felt that the trial court was “in a far better position than we are to determine in the first instance the effect of its stipulated order in light of our conclusion that Truck’s primary policies may not be stacked.”


This case continues to illustrate an exception to rule of horizontal exhaustion. When one carrier has successive policies but has a "per occurrence," rather than simply a "per occurrence per year" limit, not all of its policies need to be exhausted prior to the excess carrier having a duty to defend.

For a copy of the complete decision see:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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