Why it matters: This decision appears to reach the opposite result of last year's California Supreme Court ruling in State of California v. Continental Ins. Co. (all-sums-with-stacking coverage). But the two opinions have one thing in common: the results maximize coverage for policyholders facing long-tail liabilities.
In Kaiser Cement and Gypsum Corp. v. Insurance Company of the State of Pennsylvania, _ Cal. App. 4th _ (April 8, 2013), the insured (Kaiser) had manufactured a variety of asbestos-containing products and now faces tens of thousands of bodily injury claims for alleged exposure to those products over the course of many decades. Truck Insurance Exchange issued four primary policies to Kaiser in effect from 1964 to 1983. Following earlier rulings made in the case, Kaiser had selected Truck's 1974 policy to respond to each of the asbestos claims alleging bodily injury during that year.
The appellate opinion discussed here arose out of the following salient facts: (1) the 1974 policy had a $5,000 per occurrence deductible and a $500,000 per occurrence limit; (2) the policy contained no annual aggregate limit; (3) Kaiser's other primary carriers had fully exhausted their policies; and (4) by October 2004, Truck's indemnity payments totaled in excess of $50 million.
In addition, earlier proceedings in this case had led to an appellate court ruling that each claim for bodily injury caused by asbestos was a separate occurrence (i.e., the injurious exposure to asbestos products).
In 2008 Kaiser moved for an order that the first-layer excess policy in 1974 – issued by Insurance Company of the State of Pennsylvania – was liable for a claim once Kaiser had satisfied its deductible and Truck had paid its $500,000 per occurrence limit. Because deductibles make strange bedfellows, Kaiser, the policyholder, argued that California law was not clear as to whether it was entitled to stack multiple policy periods for continuous-loss claims. It also urged that the better rule was that stacking was not appropriate. Truck, not surprisingly, joined in many of Kaiser's arguments. The trial court agreed with Kaiser, and the following year Kaiser successfully moved for summary adjudication, reiterating many of the same arguments previously raised, and ICSOP appealed.
ICSOP argued on appeal that under the language of its 1974 excess policy as well as California's principle of horizontal exhaustion, it had no obligation to indemnify Kaiser until all primary policies had been exhausted (a problem for Truck and Kaiser, because Truck's 1974 policy contained no aggregate limit). Rejecting Kaiser's arguments, the appellate court reviewed ICSOP's policy, which clearly applied in excess of "any other underlying insurance collectible by the Insured," and agreed with ICSOP that California's well-established rule of horizontal exhaustion applied.
The court then had to determine, however, what underlying insurance was "collectible." After an extensive review of California's "all sums" and stacking case law, culminating with an analysis of last year's Supreme Court decision in Continental (which had adopted an all-sums-with-stacking approach to continuous injury claims), the Court of Appeal held that Truck's 1974 policy language was different, and therefore the rule in Continental did not apply. The 1974 Truck policy, the court held, clearly limited Truck's liability to the per occurrence limit of $500,000: "We do not know what more Truck could have said when the policy was drafted in 1974 to make clear that its policy's limitation-of-liability terms was an absolute cap on its per occurrence exposure – and, as such, it is fundamentally inconsistent with 'stacking' the liability limits of several Truck policies." Because stacking was not permitted, the remaining Truck policies were not "collectible" and therefore Kaiser was entitled to recover from ICSOP to the extent any one claim exceeded the $500,000 per occurrence limit of the 1974 Truck policy. (In relying heavily on language limiting the company's liability, the court left the door open: Had Kaiser's policies been issued by different carriers, stacking, presumably, would have been permitted.)
Further bolstering this result, the court held that its ruling satisfied the Supreme Court's articulated goal in Continental. "In Continental, stacking policies increased the insured's coverage because it 'effectively stack[ed] the insurance coverage from different policy periods to form one giant "uber-policy" with a coverage limit equal to the sum of all purchased insurance policies.' So, too, here the court noted that application of an anti-stacking rule in the context of deductibles likewise increased coverage because stacking would have rendered the policyholder liable for multiple deductibles.
The court then remanded the case for a determination of whether the policies issued by three other insurers to Kaiser during the relevant time period had been exhausted or whether ICSOP's obligation had attached upon the exhaustion of Truck's policies.