National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

Rather, the court found that under the language of the 1974 primary policy, Truck is responsible to pay policy limits only once per occurrence, not once per occurrence per year or once per occurrence per policy. In that regard, the “limit of liability” portion of the policy limits Truck’s liability for personal injury or property damage to $500,000 “Per Occurrence.” It further provides (part IV, “Policy Period, Territory, Limits”):

“The limit of liability stated in this policy as applicable ‘per occurrence’ is the limit of the company’s liability for each occurrence. …
There is no limit to the number of occurrences for which claims may be made hereunder, however, the limit of the Company’s liability as respects any occurrence involving one or any combination of the hazards or perils insured against shall not exceed the per occurrence limit designated in the Declarations.” (Italics added.)

The court indicated its ruling was consistent with the 9th Circuit’s ruling in Employers Ins. of Wausau v. Granite State Ins. Co. (9th Cir. 2003) 330 F.3d 1214, 1221, albeit that it was also distinguishable because of the different policy language at issue. “Here, the 1974 primary policy contains a “per occurrence” limit that is “the limit of the company’s liability for each occurrence,” while in Wausau the liability limits of the primary policies were expressly “per occurrence per year.” (Italics added.) The Court concluded: “ having chosen the 1974 primary policy to respond to any claims triggered by that policy, Kaiser may recover from ICSOP to the extent that a claim exceeds that $500,000 per occurrence limit specified in the 1974 primary policy.”

Notably, while the Court found that the Truck policies were exhausted, it was unable to determine whether ICSOP’s obligation to indemnify Kaiser had attached or whether ICSOP has breached its insurance contracts with Kaiser. This was because the record did not contain any information as to whether the other primary policies issued to Kaiser by Fireman’s Fund, Home Indemnity and National Union were exhausted. The court observed that these policies were potentially triggered by the asbestos bodily injury claims at issue in this case. In addition, it could not make any determination of the issue of the stacking of those policy limits. The Court noted that its decision that Truck’s primary policy limits cannot be “stacked” was based on the language of the Truck’s 1974 primary policy, not on a generalized “anti-stacking” rule.  

On the most recent decision (State of Calif. v. Continental Ins. Co.), we reported in October that the California appellate court had issued a tentative decision prior to oral arguments. The court’s final decision is consistent with the indication of its leanings. The lengthy decision contains the following rulings:

• "All sums" rule applies - In a continuous loss situation, each insurer that covers any part of the claim has an obligation to pay the entire claim, and then seek reimbursement from other insurers.  This was suggested by earlier cases and is the approach taken by many courts around the country.
• The insured can stack policy limits across policy periods (absent policy language on the issues) - There was nothing in the policies or law that precluded stacking of policies across applicable policy periods. This is a rejection of FMC Corp. v. Plaisted & Cos. (1998) 61 Cal.App.4^th 1132.  
• Self-insured retentions (“SIRs”) must be paid under each excess policy (dicta) - If multiple policies each with an SIR are implicated, the court should require each SIR to be paid prior to coverage being available under the excess policy.
• Distinction between deductibles and SIRs (dicta) - Deductibles are typically found in personal liability policies whereas SIRs are found in commercial policies. In policies with SIRs, limits are paid after payment of SIR but deductibles reduce policy limits.
• Only a single occurrence was at issue – There were not four occurrences (i.e., (1) escape of contaminants through fractures in the rocks; (2) escape through the barrier; (3) escape through the underground streambed; and (4) an overflow from the pit).  The single occurrence was the continuing exposure to the conditions (plural) at the site which combined to cause on-going contamination when the waste was put into the site.  The court likened the site to a sieve with multiple holes; each hole is not a separate occurrence.  The overflow from the pit did not constitute a separate occurrence because the State failed to show it resulted in separate damage.
• No annualization of limits - There was no language in the multi-year policies indicating the limits were intended to apply annually.
• The trial court's "set off" ruling is moot in light of the reversal of the trial court's no-stacking ruling and the size of the total loss.
• Mitigation of damages doctrine did not apply - This defense is not available to insurers who claim the insured failed to take steps which would have reduced its damages (and inured to the insurer's benefit).
• The trial court did not abuse its discretion in declining to apply the ancient documents or business records exceptions to the hearsay rule. Documents located in the excess insurers underwriting file could not be properly authenticated and presented in order to meet the requirements of those evidentiary rules.

According to the tentative, the court is leaning towards confirming California follows an “all sums” approach to an individual insurer’s liability (once its policy is proven to provide cover) for property damage that continues over many years. The court is also inclined to rule the insured can “stack” the insurance policies. That is, the insured is permitted to stack policies across policy periods. The appellate court opined that FMC Corp. v. Plaisted & Cos. (1998) 61 Cal.App.4^th 1132(which held multiple policies’ occurrence limits could not be stacked) was not well-reasoned. While not criticizing the trial court for feeling it was bound by the FMC decision, the appellate court intends (unless persuaded otherwise) to hold FMC was wrong.

On other issues, the appellate court appears inclined to rule for the insurers. The court’s tentative indicates it agrees with the trial court’s finding of only one occurrence and that policy limits for multi-year policies were per occurrence not annual.

Meanwhile, briefing has been completed on other important pollution-coverage issues pending before the California Supreme Court in the Stringfellow case. Before the Supremes are the following issues: (1) Does application of the pollution exclusion clause turn on when waste material was discharged from the Stringfellow Acid Pits waste disposal site or when the waste was initially deposited into the site? (2) If pollution is caused by both uncovered intentional actions and covered accidents, does the insured have the burden at trial to prove that all of the damages it seeks to recover were caused by a covered event, or is there a duty to indemnify when two concurrent causes are responsible for an injury even if one of the causes is an uncovered act?

The Court of Appeal had rejected the insurers' contention, based on Standun, Inc. v. Fireman's Fund Ins. Co. (1998) 62 Cal.App.4th 882, that the relevant release for purposes of applying the "sudden and accidental" pollution exclusion was the deposit of waste into the site. The Court distinguished Standun because the insured in Standun was held strictly liable as a waste generator that purposefully and regularly disposed of waste at the site.  Here, the court held, the State's liability for the negligent design, construction and operation of the Stringfellow Site shifted the focus from the initial deposit to subsequent releases from the site.

The Court of Appeal also concluded Golden Eagle Refinery Co. v. Associated Internat. Ins. Co. (2001) 85 Cal.App.4th 1300 and Lockheed Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 184 are incompatible with the California Supreme Court's decision in State Farm Mut. Auto. Ins. Co. v. Partridge (1973) 10 Cal.3d 94. The court held, applying Partridge, that the State would be entitled to full coverage even if damage was partially caused by an excluded event and the damage was indivisible.

We will report further as these courts issue final rulings on the various aspects of the case.