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By David A. O’Neill, JD, Director of Investigations

In a long-awaited opinion, the Court found that insurers that had issued a series of excess liability insurance policies to the State of California for its operation of the Stringfellow Acid Pits were responsible to indemnify the State of California for all sums in connection with the clean-up of the site.  The Supreme Court of California filed its decision in the civil case styled State of California v. Continental Insurance Company on Thursday, August 9, 2012.   Further, in allocating the indemnity among insurers, the Court found that coverage limits from these policies could be “stacked” so that more than one policy could be triggered by an occurrence that was continuous over the period of loss.

Relying on its earlier opinions in Montrose Chemical Corp. V. Admiral Ins. Co. (1995) and Aerojet-General Corp. v. Transport Indem. Co. (1997), the Court explained that as in this case, those decisions had addressed situations involving progressive or continuous property damage over several policy periods.  The Court stated that its rule in Montrose had been that as long as there was any damage during the policy period, then each of the insurers indemnity obligation persisted until the loss was completed.  In Aerojet, it said, it had decided that any insurer on the risk at the time of a continuous loss was potentially responsible for the entire loss up to the policy limits.  In applying the Montrose and Aerojet case law to the State of California facts, the Court employed what it called the “all-sums-with-stacking indemnity principle” to effectively stack insurance coverage in periods from 1964 to 1976 to form “one giant ‘uber policy’ with a coverage limit equal to the sum of all purchased insurance policies.”

Approving the Court of Appeal’s rejection of the anti-stacking rule established in FMC Corp. v. Plaisted & Companies (1998), the Supreme Court reasoned that the FMC Court had employed judicial intervention to insert anti-stacking language into policies that had none.  It approved the Court of Appeal’s position that “standard policy language permits stacking.”

Policyholders with continuous long-tail claims involving several years of insurance coverage will benefit from this ruling in that they can reasonably expect California courts to treat all triggered insurance as if it were purchased in one policy period, giving them access to all the policies they paid premiums for within the extended period of loss.

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