California Supreme Court to Review Pollution Liability Insurance Case

March 20, 2009

The California Supreme Court has granted review of State of California v. Continental Ins. Co. (2009) 170 Cal.App.4th 160 [Fourth Dist., Div. Two].

In a prior proceeding in federal court, the State of California was ordered to pay for the cleanup of a hazardous waste site. In this action, the state sought to recover the cost of that cleanup from its insurers. Over several years, the insurers had issued the State excess general liability policies for two- or three-year policy periods, renewing the policies when they expired. The continuing loss the State suffered spanned multiple policy periods. The trial court ruled that every policy in effect for any period during which the loss was occurring covered the entire loss, subject to policy limits. It also ruled, however, that the State could not recover more than the total policy limit for any one policy period from each insurer.

The Court of Appeal affirmed in part and reversed in part. It affirmed the trial court’s holding that every policy in effect for any period during which the loss was occurring covered the entire loss up to the policy limit. But it reversed the trial court’s holding that the State could not recover more than the total policy limit for any one policy period from each insurer, explaining that “[i]f an occurrence happens entirely within one policy period, the insured has paid one premium and can recover up to one policy limit; however, if an occurrence is continuous across two policy periods, the insured has paid two premiums, and can recover up to the combined total of two policy limits.”

The defendant insurance companies filed a petition for review, raising the following two issues:

1. Where gradual harm triggers several insurance policies, each of which covers property damage during the policy period, does it impermissibly rewrite the policies to hold that each insurer must pay for all property damage both during and outside the policy period?

2. Did the Court of Appeal improperly allow the insured to “stack” the limits of all policies triggered by a single occurrence, directly conflicting with the Sixth District’s decision in FMC Corporation v. Plaisted & Company, 61 Cal.App.4th 1132, 1188 (1998)?
On March 18, 2009, the California Supreme Court granted the insurers’ petition for review.

This digest was printed with permition from Horvitz & Levy LLP. For additional information, e0mail: pabrahams@horvitzlevy.com.

Source: Horvitz & Levy

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