The 4th District of the California Court of Appeals has reversed a lower court decision in a pollution liability case, State of California v. Continental Insurance Co. et al. The decision is likely to influence courts around the country, and “potentially multiplies the amount of insurance that policyholders can use to pay for claims under standard general liability policies,” Reynold “Rene” Siemens, a Los Angeles-based partner in the Insurance Coverage group of the law firm Proskauer Rose LLP, said in a statement. “It is especially significant for policyholders (such as manufacturing, chemical, pharmaceutical, construction and waste disposal companies) that routinely face claims for progressive property damage or personal injuries that might have started years ago.”
Policyholders are entitled to the full policy limits of all policies triggered — “When there is a continuous loss spanning multiple policy periods, any insurer that covered any policy period is liable for the entire loss, up to the limits of the policy,” the Court of Appeals ruled.
According to court documents, the state of California sought to recover from its liability insurers the amounts that a federal court had ordered it to pay for the cleanup of the Stringfellow hazardous waste site that had contaminated the surrounding areas. In September 1998, the federal court found the state liable for, among other things, “negligence in the site, choosing the site, designing the site, supervising construction of the site, failing to remedy conditions on the site, and delaying cleanup of the site. The state was held liable for all past and future remediation costs, which the state claimed could be as much as $700 million.”
Some of the state’s insurers were granted summary judgment; the propriety of that ruling is before the California Supreme Court in State of California v. Underwriters at Lloyd’s London. Other insurers settled with the state. The remaining six insurers each had issued an excess corporate general liability policy covering a two- or three-year period.
The trial court ruled that “every policy in effect for any policy period during which the loss was occurring covered the entire loss — which was at least $50 million, and could be as much as $700 million — subject to the policy limits. The court also ruled that the state could not recover more than the total policy limits for any one policy period, effectively limiting the state’s recovery to $48 million. Finally, it ruled that the insurers were entitled to a setoff for settlement amounts previously paid by other insurers.
Because the state had already recovered approximately $120 million in settlements, the trial court entered judgment awarding the state $0 against the insurers.”
The Court of Appeal, however, noted that policyholder recoveries are not limited by the amount of property damage taking place in a particular policy period. “Each of the insurers covered the total amount of the state’s liability for property damage (subject to their respective policy limits), including property damage that actually occurred before and after their policy periods,” the Appeals Court said.
Thus, in overturning the trial court’s decision, the Court of Appeals ruled that policyholders are allowed to “stack” coverage, that is, access all coverage under all policies in all years triggered. Policyholders are not limited to recovering under only one policy period selected as another appellate district court had ruled in an earlier case used by the insurance industry to limit coverage.
Rejecting that earlier case decision, the Appeals court said, “Based on the policy language, and also based on a consistent line of authority in California that allows stacking in other multiple coverage situations, we conclude that the state was entitled to stack the policy limits of all applicable policies across all applicable policy periods. The trial court’s non-stacking ruling was therefore erroneous.”
Furthermore, the Appeals Court noted that policyholders are under no duty to liability insurance companies to mitigate their losses. “The California Supreme Court has refused to recognize a duty to mitigate the loss under a third-party liability policy … The state had no duty to the insurers to mitigate the loss, by undertaking remediation measures or otherwise,” the court wrote.
“This decision is a tremendous victory for the state of California and a great step forward for all policyholders in California,” said Robert Horkovich, a partner at Anderson Kill & Olick in a statement. Anderson Kill represented California in the case.
“Noting that the standard language in each of the state’s liability policies promised to pay ‘all sums’ for any ‘occurrence’ that caused property damage or bodily injury during the policy period, the court held that each policy had an independent contractual liability to pay — regardless of whether the state had purchased similar policies in other years that might also be obligated to pay,” Siemens explained. “In so holding, the court disapproved of an earlier Court of Appeal decision in FMC Corp. v. Plaisted & Cos. and other ‘anti-stacking’ cases, in which courts have ignored the literal language of the standard liability policies and tried to impose limits on the number of policies under which an insured can collect.”
The Appeals Court reversed the trial court decision and remanded the case for further proceedings.
Proskauer’s Siemens had intervened as an amicus curiae (friend of the court) when the state appealed its case.
Topics California Carriers Property Pollution
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