The issue of whether it is legal in California to “stack” policy limits to determine the amount of recovery to which an insured is entitled in a continuous and progressive property damage claim scenario is once again the million dollar question of unsettled California insurance coverage law. The California Supreme Court has previously defined “stacking” as “the ability of the insured, when covered by more than one policy, to obtain benefits from a second policy on the same claim when recovery from the first policy would alone be inadequate to compensate for the actual damages suffered.” The question of whether the “stacking” of policy limits would be allowed in California had been settled it seemed, until recent events have proven otherwise.
Last year, when the Fourth District of California Court of Appeals allowed the “stacking” of the limits of all applicable policies across all applicable policy periods in a continuous and progressive property damage case styled State v. Continental Casualty Insurance Company, 170 Cal. App. 4th 160, it determined that the Sixth District’s FMC v. Plaisted & Companies, 61 Cal. App. 4th 1132 had been wrongly decided. The Fourth District attacked the reasoning behind FMC’s long-standing “no-stacking” ruling and set the stage for a show down in the California Supreme Court.
Both the Sixth and Fourth District cases had involved the contamination of soil and groundwater and the denial of coverage by insurance companies, who had resisted policyholder arguments that California law enabled recovery up to the limits of all general liability insurance policies in effect during the period of the continuous and progressive property damage. The insurers had insisted that recovery should be limited to policies in effect during a single policy period. FMC v. Plaisted & Companies had supplied the “no-stacking” rule that has been followed by California courts since 1998. The “stacking of policy limits,” the FMC opinion concluded, would be unfair to insurers in that it would force them to take up the unexpected burden of covering across policy periods, often providing a windfall to policyholders, who would be receiving benefits beyond those bargained for. The Fourth District’s 2009 decision in the case styled State v. Continental Casualty Insurance Company has now provides the countervailing rule that the “stacking” of policy limits is allowed across all applicable policy periods. The Fourth District’s rationale in rejecting FMC was that the Sixth District’s decision had been reached by the wrongful distinguishing of good precedent. That precedent had been the Second District’s 1996 ruling in Stonewall Insurance Company v. City of Palos Verdes Estates, 46 Cal. App. 4th 1810, that had previously provided the California rule allowing “stacking” of policy limits in these types of cases.
Within the next few months, the California Supreme Court will be making the final determination on whether or not “stacking” of policy limits will be allowed in these cases that feature property damage over time and trigger coverage under primary and excess insurance policies spread over more than one policy period. Attorneys representing policyholders and insurance defense counsel alike will be awaiting the California Supreme Court’s decision with keen interest.