A recent California Supreme Court decision allows corporate policyholders with California-related liability insurance claims spanning multiple policies and years to now tap any policy within that time span for full policy limits. Policyholders can also tap multiple consecutive policies to maximize recovery. 

In State of California v. Continental Insurance Company et al. (No. S170560 California Supreme Court, August 9, 2012), the State of California sued a number of its historic excess general liability insurance companies to recover federal court-ordered cleanup costs that it paid or will pay arising out of the state’s Stringfellow Acid Pits waste site in Riverside County.

The site was an industrial waste disposal facility that California designed and operated from 1956 to 1972. These types of environmental claims are called “long-tail” claims, in which injury (in this case, damage to the environment) often is characterized as continuing events producing progressive damage taking place slowly over a number of years. In addition to environmental claims, so-called “toxic tort” claims, such as asbestos and silica claims, as well as some product liability and construction defect claims, also are considered long-tail claims. Policyholders may make these claims against historic insurance carriers years and even decades after the injury has ceased and the policies have expired.

The defendant insurance companies sold policies to California between 1964 and 1976. California was uninsured before 1963 and after 1978. Even though a portion of the contamination occurred before and after the insured periods, the Supreme Court found that if damage continues though several policy periods, then each carrier, severally, is obligated to pay for the entirety of the loss, up to policy limits, under any policies in effect during those periods. The court was persuaded by the language in the policies providing that the insurers, severally, will pay “all sums” not just some sums, when it rejected the pro rata allocation approach urged by the carriers. The court found that the insured was not limited to one carrier, one policy or one year, but instead may “stack” policy limits, thereby providing the insured access to all policy limits for a particular loss. In adopting this “all sums with stacking” approach, the result is that the policyholder now has “one giant ‘uber-policy’” with a coverage limit equal to all purchased coverage.

One caveat to the decision is that the court noted that the insurers could add anti-stacking and pro-rata allocation provisions to their policy forms to prevent this result in the future. Of course, there is nothing the insurers can do to add such provisions to policies which expired decades ago. However, policyholders should be aware of attempts to circumvent this “all sums with stacking” decision in future liability policies.