What you need to know:
The California Supreme Court applied all sums allocation with stacking of limits in the context of progressive environmental property damage, where the CGL policies at issue required the insurers to pay “all sums” that the insureds became obligated to pay.
What you need to do:
Companies should weigh the impact of the California Supreme Court’s decision in considering exposures under progressive damage claims and in determining whether to include anti-stacking provisions in their policies.
The State of California sought insurance coverage for continuous environmental contamination spanning several years. The CGL policies at issue:
- Required the insurers to pay “all sums” that the insureds became obligated to pay;
- Defined “occurrence” as an accident or exposure to conditions that results in property damage “during the policy period;” and
- Did not include “anti-stacking” language.
The parties stipulated that property damage took place continuously throughout the insurers’ consecutive policy periods. See California v. Cont’l Ins. Co., No. S170560, 2012 Cal. LEXIS 7324 (Aug. 9, 2012).
The Court’s Ruling
The California Supreme Court unanimously held that:
- All Sums Allocation. The “all sums” language of the policies requires an insurer to pay all of an insured’s liability up to its policy limit, if any part of the damage occurs during the policy period. The court rejected the insurers’ argument that they should not be held liable for losses that occurred outside their policy periods. The Court held that the language “during the policy period” did not appear in the insuring agreement where the “all sums” language appeared, and therefore did not limit the “all sums” language.
- Stacking of Limits. An insured may collect the combined limits of all successive years of insurance policies in effect during the period of damage. The Court noted that all-sums-with-stacking allocation prevents the situation, present in pro rata allocation, where a policyholder bears the liability for portions when it was uninsured. The Court concluded that this method of allocation “means that the insured has immediate access to the insurance it purchased. It does not put the insured in the position of receiving less coverage than it bought.” The Court rejected a contrary California Court of Appeals decision, FMC Corp. v. Plaisted & Cos., 61 Cal.App.4th 1132 (Cal. Ct. App. 1998).
- Anti-Stacking Provisions. The Court noted the “significant caveat” that “an insurer may avoid stacking by specifically including an ‘antistacking’ provision in its policy.”
In light of the California Supreme Court’s application of all sums allocation with stacking of limits, insurers should re-examine their exposures under progressive damage claims and consider the benefits of using anti-stacking provisions.