Stacking Policy Limits in Continuous Injury Losses in CA

In 1997, the California court ruled that the multiple insurers were severally liable for “all-sums,” but until recently the appellate level courts were split on the issue of whether stacking was allowed. Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal. 4th 38, 57 n.10 (1997). California's recent State of California decision adopts an “all-sums-with-stacking” rule, which has the effect of maximizing the coverage available to an insured for a continuous injury loss. State of California, 55 Cal. 4th at 202.

This article discusses the meaning of California's stacking rule stated in State of California, in the context of how other jurisdictions have treated the issue and in the historical context of prior California case law.

'All Sums' and Limits of Insurance Provisions, and Issues of Allocation,
Stacking and Horizontal Exhaustion

A standard general liability policy form, promulgated by the Insurance Services Organization, includes the following Insuring Agreement language:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. '

b. This insurance applies to “bodily injury” and “property damage” only if:

'

2. The “bodily injury” or “property damage” occurs during the policy period.

Based on cases construing previous versions of the policy language stating that “the company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury [or property damage],” the extent of the coverage under the Insuring Agreement language is often referred to, in shorthand, as “all sums.” Armstrong World Indus. Inc. v. Aetna Cas. & Sur. Co., 45 Cal. App. 4th 1, 39 (1996); State of California, 55 Cal. 4th at 193.

A standard general liability policy form also includes the following limits provisions:

1. The Limits of Insurance shown in the Declarations and the rules below fix the most we will pay regardless of the number of:

a. Insureds;

b. Claims made or “suits” brought; or

c. Persons or organizations making claims or bringing “suits.”

'

5. ' the Each Occurrence Limit is the most we will pay for the sum of:

a. Damages under Coverage A; and

b. Medical expenses under Coverage C

because of all “bodily injury” and “property damage” arising out of any one “occurrence.”

'

The Limits of Insurance of this Coverage Part apply separately to each consecutive annual period and to any remaining period of less than 12 months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than 12 months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limits of Insurance.

While courts agree that the issues of stacking and allocation among multiple insurers should be decided by policy language, there has been wide variation in how courts have interpreted the policy language. While a large number of jurisdictions have held that each insurer is only liable for that portion of injury or damage during the policy period, the so-called “pro rata” approach, California courts, among others, have rejected pro rata allocation. Instead, California courts have construed the Insuring Agreement language calling for payment of “all sums” or “those sums” to require that, once a policy has been triggered by bodily injury or property damage during the policy period, the insurer is responsible for the full extent of the insured's liability, not just for that part of the injury or damage that occurred during the policy period. State of California, 55 Cal. 4th at 198, 200. In State of California, the court explicitly rejects a pro rata allocation scheme, because the policy language stating that coverage applies to injury or damage “during the policy period,” is not located in the Insuring Agreement section stating that the insurer will pay all sums. The “during the policy period” language “is neither 'logically [n]or grammatically related to the “all sums” language in the insuring agreement.'” Id. at 199.

On the issue of stacking, courts have also differed in how they interpret the policy language. Along with California, jurisdictions such as Louisiana, Maryland and Wisconsin permit stacking. See, e.g., Society Ins. v. Town of Franklin, 607 N.W.2d 342, 346 (Wis. Ct. App. 2000); Cole v. Celotex Corp., 599 So.2d 1058, 1061 n.5, 1078-1080 (La. 1992); Riley v. United Serv. Auto Ass'n, 899 A.2d 819 (Md. Ct. App. 2006). Alternatively, some cases state that enforcement of policy language prohibiting stacking, an “antistacking” provision, is incompatible with a pro rata allocation approach. See, e.g., Spaulding Composites Co. v. Aetna Cas. & Sur. Co., 819 A.2d 410, 421 (N.J. 2003).

In contrast, courts in several jurisdictions have interpreted the policy language to prohibit the stacking of policy limits of successive periods. For example, in Insurance Company of North America v. Forty-Eight Insulations, 633 F.2d 1212 (6th Cir. 1980), the court held, “[i]n any event, no insurer should be held liable in any one case to indemnify Forty-Eight for judgment liability for more than the highest single yearly limit in a policy that existed during the period of the claimant's exposure for which judgment was obtained. ' The initial exposure to asbestos fibers in any given year triggers coverage. However, under the terms of the policies, additional exposure to asbestos fibers is treated as arising out of the same occurrence. Thus, on its face, the liability of each insurer is limited to maximum amount 'per occurrence' provided by each policy. We have no problem with the district court's extending the policy language so that each insurer would face no more liability per claim than the maximum limit it wrote during any applicable year of coverage.” Forty-Eight Insulations, 633 F.2d at 1226 n.28.

Other courts that reject an interpretation allowing stacking of policy limits include the District of Columbia Circuit Court in Keene Corporation v. Insurance Company of North America, 667 F.2d 1034, 1049 (D.C. Cir. 1981) and the District Court for the Eastern District of New York in Uniroyal Inc. v. Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y. 1988). These courts reason that stacking ignores the fact that the policy limit applies to one “occurrence” regardless of when the damage or injury occurs and that it expands the insured's coverage to the sum of all policy limits, disregarding each policy's separately negotiated premium.

State of California

in the Context of CA Case Law

The California Supreme Court's decision in State of California comes after a split in the state's appellate courts. The first California case to address the issue in the commercial general liability context was Stonewall Ins. Co. v. City of Palos Verdes Estates, 46 Cal. App. 4th 1810 (1996). Faced with continuing damage spanning multiple policy periods and triggering multiple, successive policies, the court allowed for stacking, holding that a primary carrier owed multiple limits before an excess carrier had any obligation. Stonewall Insurance Company was an excess carrier that sought recovery from primary carriers Jefferson and Admiral for the $950,000 that Stonewall had paid in settling property damage claims against the city. The Jefferson policy provided three years of coverage, and the insurers disputed whether Jefferson owed one or three per-occurrence limits. While Jefferson had asserted that its policies should pay a total of no more than one per-occurrence limit, the court found two points controlling: “(1) the policy covers liability for occurrences within a policy period; and (2) the Jefferson policy covers three separate periods.” Stonewall reasoned that the policy language upon which Jefferson had relied, “must be construed as referring to a single occurrence in a policy period,” meaning that the limit per occurrence served as a limit per occurrence, per policy. The influence of the Stonewall case is limited, however, by the fact that the insurers had stipulated that the policies provided coverage of $300,000 per occurrence per year.

Two years after Stonewall, in FMC Corp. v. Plaisted and Companies, 61 Cal.App.4th 1132 (1998), the California court went in the other direction. In FMC, the court held that a policyholder was not entitled to “stack” overlapping policy limits when more than one policy is triggered by a single occurrence. FMC involved the extent of coverage available under several umbrella and excess policies issued for consecutive policy periods by certain underwriters at Lloyd's of London and London insurance companies. The court rejected FMC's argument that it was entitled to stack the policy limits of the consecutive policies to recover more than one per occurrence limit. “This kind of 'stacking' of the limits of an insurer's policies for consecutive policy periods has been criticized as affording the insured substantially more coverage, for liability attributable to any particular single occurrence, than the insured bargained or paid for.” Id. at 1189. Where there is a single occurrence, the liability of each insurer is limited to the maximum amount of the per occurrence limit on a single policy, even in the absence of explicit antistacking language in the policies. Under FMC 's rationale, rules regarding trigger and horizontal exhaustion were not controlling on the issue of stacking.

Conflicting with FMC was the Court of Appeal's 2009 decision in State of California, 170 Cal. App. 4th 160, 182 (Cal. Ct. App. 2009). The appellate court held that stacking of limits was permissible, expressly rejecting the reasoning and holding of FMC. The State of California action involved coverage for groundwater contamination at the Stringfellow landfill, in which the insurers stipulated that the state was liable for at least $50 million. The insurers had each issued one or more excess policies for periods spanning 1964 to 1976. At the appellate level, State of California held that the policy does not plainly forbid stacking and that the Limits of Insurance provisions of the policy only serve “to limit each particular insurer's liability under each particular policy.” The appeals court found that the language of a standard liability policy is, at best, ambiguous, not speaking directly to the issue of stacking. Therefore, the language was to be broadly construed in favor of the insured ' which meant permitting the stacking of policy limits. The appellate court rejected the FMC court's view of “fair,” reasoning that where the injury continues across multiple policy periods, the insured has paid more than one premium and should be entitled to recover more than one policy limit. Also, because each insurer whose policy is triggered by the loss owes for “all sums,” including for damage that occurred before, during and after the policy period, it would be the insurers who would receive a windfall if each policy only had to pay a single per occurrence limit due to the insured's prudence in having purchased multiple consecutive policies.

In its August 2012 decision, the California Supreme Court affirms the Court of Appeals and resolves the split in appellate authority, finding that allocation among the multiple insurers should be on the basis of all-sums-with-stacking. It found that a rule allowing stacking acknowledges the “uniquely progressive nature of long-tail injuries that cause progressive damage throughout multiple policy periods.” Stacking provides the insured with “immediate access to the insurance it purchased. It does not put the insured in the position of receiving less coverage than it bought.” State of California, supra, 55 Cal. 4th at 201. The Supreme Court agrees with the appellate court's criticism of FMC for departing from the policy language and engaging in “judicial intervention” to reach the court's desired result. Holding that the policy language, absent an antistacking provision, allows for stacking, the Supreme Court writes: “if an occurrence is continuous across two or more policy periods, the insured has paid two or more premiums and can recover up to the combined total of the policy limits. There is nothing unfair or unexpected in allowing stacking in a continuous long-tail loss.” Id. at 202.

Thus, the rule is now clearly stated in California that absent a specific antistacking provision in the policy, the standard general liability policy allows for stacking of policy limits across multiple, successive policy periods in cases of continuous or progressive injury. The Supreme Court explicitly states, however, that the contracting parties are free to draft antistacking language or other limitations on coverage, to contract out of the all-sums-with-stacking rule.

Antistacking Provisions Approved in Dicta

In State of California, the California Supreme Court states:

The most significant caveat to all-sums-with-stacking indemnity allocation is that it contemplates that an insurer may avoid stacking by specifically including an “antistacking” provision in its policy. Of course, in the future, contracting parties can write into their policies whatever language they agree upon, including limitations on indemnity, equitable pro rata coverage allocation rules, and prohibitions on stacking. Ibid.

Because none of the policies in State of California contained any antistacking language, its approval of antistacking language is dicta. The case provides no example of what language may be found to be an effective provision to prohibit stacking. However, recently, there was a case before the California Supreme Court, Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania, 196 Cal.App.4th 140 (2011), rev. granted, 133 Cal. Rptr. 3d 390 (2011), which may provide an answer shortly. In Kaiser Cement, the second appellate court held that antistacking language in the policy meant that coverage for a single occurrence was limited to the policy limit for a single policy period. Between 1947 and 1987, Kaiser Cement purchased primary insurance from four different insurers, including Truck. Kaiser Cement selected the 1974 Truck primary policy, which has a $500,000 per occurrence limit, to respond to all claims alleging asbestos exposure in that year. While Kaiser Cement and Truck argue that the excess carrier for the 1974 period, ICSOP, was responsible to indemnify Kaiser Cement for asbestos claims in excess of Truck's $500,000 per occurrence limit, ICSOP argued that primary insurance limits must be stacked and horizontal exhaustion applied before coverage under the excess policy applies. The court rejected ICSOP's argument. Kaiser Cement reasoned that policy language dictated that policy limits could not be stacked.

The policies at issue included the following provision regarding the application of limits:

The limit of liability stated in this policy as applicable per occurrence is the limit of the company's liability for each occurrence.

There is no limit to the number of occurrences for which claims may be made hereunder, however, the limit of the Company's liability as respects any occurrence involving one or any combination of the hazards or perils insured against shall not exceed the per occurrence limit designated in the Declarations. Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania, 196 Cal. App. 4th 140, 162 (Cal. Ct. App. 2011), rev. granted, 133 Cal. Rptr. 3d 390 (2011).

According to the court, the language created a per occurrence limit, not a “per occurrence per policy” or “per occurrence per year” limit. The appellate court wrote: “Notably, the policy does not say that the per occurrence limit is the limit of the company's annual liability for any occurrence, or that the per occurrence limit is the limit of the company's liability under the policy. Rather, it says that the per occurrence limit is the limit of the Company's liability. We presume, as we must, that the parties intended to mean what it plainly says ' that for any single occurrence, Truck is liable up to the per occurrence limit, and no more.” Ibid.

Kaiser Cement held that Truck, the primary carrier defendant, owed only a single per occurrence limit, based on Truck's particular policy language. It did not hold that ICSOP's policy had attached because it noted that there was no information presented regarding whether other primary carriers had exhausted their limits. Accordingly, the court's ruling regarding stacking did not apply across companies, but rather suggests that stacking limits is only improper with regard to successive policies issued by the same company.

Notably, in Kaiser Cement, the insured was on the same side of the argument as Truck, the primary carrier, arguing against the stacking of limits. The Truck policies included a per occurrence deductible. Because the insured did not want to pay multiple deductibles (one for each of the primary policies) for claims which could instead be paid by the excess layer if only a single primary policy applied, the insured argued against stacking. While Kaiser Cement held strongly that policy limits could not be stacked, it may be one of many examples where the court's reasoning seems end-driven to give the best position to the insured.

On Oct. 31, 2012, the Supreme Court of California transferred the Kaiser case to the Court of Appeal, Second Appellate District, Division Four, with directions to vacate its decision and to reconsider it in light of State of California v. Continental Ins. Co., 55 Cal.4th 186, 145 Cal. Rptr. 3d 1, 281 P.3d 1000 (2012). The Court of Appeal has not yet ruled.

Ramiro Moralesis the founding member of Morales Feirro & Reeves, a firm with offices in Nevada, California and Arizona. The firm specializes in insurance coverage and bad faith litigation. Morales' coverage practice includes all facets of commercial liability, professional liability, and life and health insurance coverage matters. He is a Fellow of the American Bar, a member of the Federation of Corporate Counsel, and a Northern California Super Lawyer. He has also lectured on behalf of the Nevada State Bar, the Federation of Corporate Counsel, the Construction Claims Managers Association, trade associations, and he has provided specialized corporate training for his clients.

Absent policy language stating otherwise, “stacking” of policy limits is now the rule in California. In an August 2012 decision, State of California v. Continental Insurance Company , 55 Cal. 4th 186 (2012), the California Supreme Court held that the policy limits of multiple liability insurance policies for the periods in which a continuous injury loss has occurred are to be “stacked,” allowing the insured to recover up to the sum of the policy limits of the multiple policies applicable to the loss. “Stacking” is “the ability of the insured, when covered by more than one insurance policy, to obtain benefits from a second policy on the same claim when recovery from the first policy would alone be inadequate to compensate for the actual damages suffered.” Wagner v. State Farm Mutual Auto Insurance Co. , 40 Cal.3d 460, 463 (1985). “In other words, 'Stacking policy limits means that when more than one policy is triggered by an occurrence, each policy can be called upon to respond to the claim up to the full limits of the policy.'” State of California , 55 Cal. 4th at 200.

The dispute over whether policy limits may be stacked derives from a tension in the language of the Insuring Agreement clause and the policy limits language in the standard form general liability insurance policy. On the one hand, the Insuring Agreement affords coverage for “all sums” that the insured becomes obligated to pay as damages if there has been bodily injury or property damage during the policy period, while on the other hand, the Limits of Insurance clause of the policy limits the amount the insurer will pay because of all bodily injury and property damage arising out of any one occurrence. The issue of whether policy limits of multiple policies were to be stacked came to the fore in the mid-1990s, when the California Supreme Court in Montrose held that multiple policies, issued in seriatim, could be triggered by a continuing occurrence or continuing damage. Montrose Chemical Corp. v. Admiral Ins. Corp. , 10 Cal. 4th 645 (1995).

In the wake of Montrose, courts then addressed the question of how the continuous loss was to be allocated among each of the multiple policies triggered by the loss. Courts in different jurisdictions reached different answers, including cases holding that each policy only provides coverage to the extent of the damage or injury that occurred during the policy period (sometimes called the “pro rata” approach, see, e.g. , INA v. Forty-Eight Insulations , 633 F.2d 1212, 1224-25 (6th Cir. 1980) and cases which have held that each triggered policy is liable for the entire loss and the insured may select only a single policy to respond to the loss. See, e.g., Keene Corp. v. INA , 667 F.2d 1034, 1049-1050 (D.C. Cir. 1981).

In 1997, the California court ruled that the multiple insurers were severally liable for “all-sums,” but until recently the appellate level courts were split on the issue of whether stacking was allowed. Aerojet-General Corp. v. Transport Indemnity Co. , 17 Cal. 4th 38, 57 n.10 (1997). California's recent State of California decision adopts an “all-sums-with-stacking” rule, which has the effect of maximizing the coverage available to an insured for a continuous injury loss. State of California, 55 Cal. 4th at 202.

This article discusses the meaning of California's stacking rule stated in State of California, in the context of how other jurisdictions have treated the issue and in the historical context of prior California case law.

'All Sums' and Limits of Insurance Provisions, and Issues of Allocation,
Stacking and Horizontal Exhaustion

A standard general liability policy form, promulgated by the Insurance Services Organization, includes the following Insuring Agreement language:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. '

b. This insurance applies to “bodily injury” and “property damage” only if:

'

2. The “bodily injury” or “property damage” occurs during the policy period.

Based on cases construing previous versions of the policy language stating that “the company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury [or property damage],” the extent of the coverage under the Insuring Agreement language is often referred to, in shorthand, as “all sums.” Armstrong World Indus. Inc. v. Aetna Cas. & Sur. Co. , 45 Cal. App. 4th 1, 39 (1996); State of California, 55 Cal. 4th at 193.

A standard general liability policy form also includes the following limits provisions:

1. The Limits of Insurance shown in the Declarations and the rules below fix the most we will pay regardless of the number of:

a. Insureds;

b. Claims made or “suits” brought; or

c. Persons or organizations making claims or bringing “suits.”

'

5. ' the Each Occurrence Limit is the most we will pay for the sum of:

a. Damages under Coverage A; and

b. Medical expenses under Coverage C

because of all “bodily injury” and “property damage” arising out of any one “occurrence.”

'

The Limits of Insurance of this Coverage Part apply separately to each consecutive annual period and to any remaining period of less than 12 months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than 12 months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limits of Insurance.

While courts agree that the issues of stacking and allocation among multiple insurers should be decided by policy language, there has been wide variation in how courts have interpreted the policy language. While a large number of jurisdictions have held that each insurer is only liable for that portion of injury or damage during the policy period, the so-called “pro rata” approach, California courts, among others, have rejected pro rata allocation. Instead, California courts have construed the Insuring Agreement language calling for payment of “all sums” or “those sums” to require that, once a policy has been triggered by bodily injury or property damage during the policy period, the insurer is responsible for the full extent of the insured's liability, not just for that part of the injury or damage that occurred during the policy period. State of California, 55 Cal. 4th at 198, 200. In State of California, the court explicitly rejects a pro rata allocation scheme, because the policy language stating that coverage applies to injury or damage “during the policy period,” is not located in the Insuring Agreement section stating that the insurer will pay all sums. The “during the policy period” language “is neither 'logically [n]or grammatically related to the “all sums” language in the insuring agreement.'” Id. at 199.

On the issue of stacking, courts have also differed in how they interpret the policy language. Along with California, jurisdictions such as Louisiana, Maryland and Wisconsin permit stacking. See, e.g. , Society Ins. v. Town of Franklin , 607 N.W.2d 342, 346 (Wis. Ct. App. 2000); Cole v. Celotex Corp. , 599 So.2d 1058, 1061 n.5, 1078-1080 (La. 1992); Riley v. United Serv. Auto Ass'n , 899 A.2d 819 (Md. Ct. App. 2006). Alternatively, some cases state that enforcement of policy language prohibiting stacking, an “antistacking” provision, is incompatible with a pro rata allocation approach. See, e.g. , Spaulding Composites Co. v. Aetna Cas. & Sur. Co. , 819 A.2d 410, 421 (N.J. 2003).

In contrast, courts in several jurisdictions have interpreted the policy language to prohibit the stacking of policy limits of successive periods. For example, in Insurance Company of North America v. Forty-Eight Insulations , 633 F.2d 1212 (6th Cir. 1980), the court held, “[i]n any event, no insurer should be held liable in any one case to indemnify Forty-Eight for judgment liability for more than the highest single yearly limit in a policy that existed during the period of the claimant's exposure for which judgment was obtained. ' The initial exposure to asbestos fibers in any given year triggers coverage. However, under the terms of the policies, additional exposure to asbestos fibers is treated as arising out of the same occurrence. Thus, on its face, the liability of each insurer is limited to maximum amount 'per occurrence' provided by each policy. We have no problem with the district court's extending the policy language so that each insurer would face no more liability per claim than the maximum limit it wrote during any applicable year of coverage.” Forty-Eight Insulations, 633 F.2d at 1226 n.28.

Other courts that reject an interpretation allowing stacking of policy limits include the District of Columbia Circuit Court in Keene Corporation v. Insurance Company of North America , 667 F.2d 1034, 1049 (D.C. Cir. 1981) and the District Court for the Eastern District of New York in Uniroyal Inc. v. Home Ins. Co. , 707 F.Supp. 1368 (E.D.N.Y. 1988). These courts reason that stacking ignores the fact that the policy limit applies to one “occurrence” regardless of when the damage or injury occurs and that it expands the insured's coverage to the sum of all policy limits, disregarding each policy's separately negotiated premium.

State of California

in the Context of CA Case Law

The California Supreme Court's decision in State of California comes after a split in the state's appellate courts. The first California case to address the issue in the commercial general liability context was Stonewall Ins. Co. v. City of Palos Verdes Estates , 46 Cal. App. 4th 1810 (1996). Faced with continuing damage spanning multiple policy periods and triggering multiple, successive policies, the court allowed for stacking, holding that a primary carrier owed multiple limits before an excess carrier had any obligation. Stonewall Insurance Company was an excess carrier that sought recovery from primary carriers Jefferson and Admiral for the $950,000 that Stonewall had paid in settling property damage claims against the city. The Jefferson policy provided three years of coverage, and the insurers disputed whether Jefferson owed one or three per-occurrence limits. While Jefferson had asserted that its policies should pay a total of no more than one per-occurrence limit, the court found two points controlling: “(1) the policy covers liability for occurrences within a policy period; and (2) the Jefferson policy covers three separate periods.” Stonewall reasoned that the policy language upon which Jefferson had relied, “must be construed as referring to a single occurrence in a policy period,” meaning that the limit per occurrence served as a limit per occurrence, per policy. The influence of the Stonewall case is limited, however, by the fact that the insurers had stipulated that the policies provided coverage of $300,000 per occurrence per year.

Two years after Stonewall , in FMC Corp. v. Plaisted and Companies , 61 Cal.App.4th 1132 (1998), the California court went in the other direction. In FMC, the court held that a policyholder was not entitled to “stack” overlapping policy limits when more than one policy is triggered by a single occurrence. FMC involved the extent of coverage available under several umbrella and excess policies issued for consecutive policy periods by certain underwriters at Lloyd's of London and London insurance companies. The court rejected FMC's argument that it was entitled to stack the policy limits of the consecutive policies to recover more than one per occurrence limit. “This kind of 'stacking' of the limits of an insurer's policies for consecutive policy periods has been criticized as affording the insured substantially more coverage, for liability attributable to any particular single occurrence, than the insured bargained or paid for.” Id. at 1189. Where there is a single occurrence, the liability of each insurer is limited to the maximum amount of the per occurrence limit on a single policy, even in the absence of explicit antistacking language in the policies. Under FMC 's rationale, rules regarding trigger and horizontal exhaustion were not controlling on the issue of stacking.

Conflicting with FMC was the Court of Appeal's 2009 decision in State of California, 170 Cal. App. 4th 160, 182 (Cal. Ct. App. 2009). The appellate court held that stacking of limits was permissible, expressly rejecting the reasoning and holding of FMC. The State of California action involved coverage for groundwater contamination at the Stringfellow landfill, in which the insurers stipulated that the state was liable for at least $50 million. The insurers had each issued one or more excess policies for periods spanning 1964 to 1976. At the appellate level, State of California held that the policy does not plainly forbid stacking and that the Limits of Insurance provisions of the policy only serve “to limit each particular insurer's liability under each particular policy.” The appeals court found that the language of a standard liability policy is, at best, ambiguous, not speaking directly to the issue of stacking. Therefore, the language was to be broadly construed in favor of the insured ' which meant permitting the stacking of policy limits. The appellate court rejected the FMC court's view of “fair,” reasoning that where the injury continues across multiple policy periods, the insured has paid more than one premium and should be entitled to recover more than one policy limit. Also, because each insurer whose policy is triggered by the loss owes for “all sums,” including for damage that occurred before, during and after the policy period, it would be the insurers who would receive a windfall if each policy only had to pay a single per occurrence limit due to the insured's prudence in having purchased multiple consecutive policies.

In its August 2012 decision, the California Supreme Court affirms the Court of Appeals and resolves the split in appellate authority, finding that allocation among the multiple insurers should be on the basis of all-sums-with-stacking. It found that a rule allowing stacking acknowledges the “uniquely progressive nature of long-tail injuries that cause progressive damage throughout multiple policy periods.” Stacking provides the insured with “immediate access to the insurance it purchased. It does not put the insured in the position of receiving less coverage than it bought.” State of California, supra, 55 Cal. 4th at 201. The Supreme Court agrees with the appellate court's criticism of FMC for departing from the policy language and engaging in “judicial intervention” to reach the court's desired result. Holding that the policy language, absent an antistacking provision, allows for stacking, the Supreme Court writes: “if an occurrence is continuous across two or more policy periods, the insured has paid two or more premiums and can recover up to the combined total of the policy limits. There is nothing unfair or unexpected in allowing stacking in a continuous long-tail loss.” Id. at 202.

Thus, the rule is now clearly stated in California that absent a specific antistacking provision in the policy, the standard general liability policy allows for stacking of policy limits across multiple, successive policy periods in cases of continuous or progressive injury. The Supreme Court explicitly states, however, that the contracting parties are free to draft antistacking language or other limitations on coverage, to contract out of the all-sums-with-stacking rule.

Antistacking Provisions Approved in Dicta

In State of California, the California Supreme Court states:

The most significant caveat to all-sums-with-stacking indemnity allocation is that it contemplates that an insurer may avoid stacking by specifically including an “antistacking” provision in its policy. Of course, in the future, contracting parties can write into their policies whatever language they agree upon, including limitations on indemnity, equitable pro rata coverage allocation rules, and prohibitions on stacking. Ibid.

Because none of the policies in State of California contained any antistacking language, its approval of antistacking language is dicta. The case provides no example of what language may be found to be an effective provision to prohibit stacking. However, recently, there was a case before the California Supreme Court, Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania , 196 Cal.App.4th 140 (2011), rev. granted , 133 Cal. Rptr. 3d 390 (2011), which may provide an answer shortly. In Kaiser Cement, the second appellate court held that antistacking language in the policy meant that coverage for a single occurrence was limited to the policy limit for a single policy period. Between 1947 and 1987, Kaiser Cement purchased primary insurance from four different insurers, including Truck. Kaiser Cement selected the 1974 Truck primary policy, which has a $500,000 per occurrence limit, to respond to all claims alleging asbestos exposure in that year. While Kaiser Cement and Truck argue that the excess carrier for the 1974 period, ICSOP, was responsible to indemnify Kaiser Cement for asbestos claims in excess of Truck's $500,000 per occurrence limit, ICSOP argued that primary insurance limits must be stacked and horizontal exhaustion applied before coverage under the excess policy applies. The court rejected ICSOP's argument. Kaiser Cement reasoned that policy language dictated that policy limits could not be stacked.

The policies at issue included the following provision regarding the application of limits:

The limit of liability stated in this policy as applicable per occurrence is the limit of the company's liability for each occurrence.

There is no limit to the number of occurrences for which claims may be made hereunder, however, the limit of the Company's liability as respects any occurrence involving one or any combination of the hazards or perils insured against shall not exceed the per occurrence limit designated in the Declarations. Kaiser Cement & Gypsum Corp. v. Insurance Company of the State of Pennsylvania , 196 Cal. App. 4th 140, 162 (Cal. Ct. App. 2011), rev. granted, 133 Cal. Rptr. 3d 390 (2011).

According to the court, the language created a per occurrence limit, not a “per occurrence per policy” or “per occurrence per year” limit. The appellate court wrote: “Notably, the policy does not say that the per occurrence limit is the limit of the company's annual liability for any occurrence, or that the per occurrence limit is the limit of the company's liability under the policy. Rather, it says that the per occurrence limit is the limit of the Company's liability. We presume, as we must, that the parties intended to mean what it plainly says ' that for any single occurrence, Truck is liable up to the per occurrence limit, and no more.” Ibid.

Kaiser Cement held that Truck, the primary carrier defendant, owed only a single per occurrence limit, based on Truck's particular policy language. It did not hold that ICSOP's policy had attached because it noted that there was no information presented regarding whether other primary carriers had exhausted their limits. Accordingly, the court's ruling regarding stacking did not apply across companies, but rather suggests that stacking limits is only improper with regard to successive policies issued by the same company.

Notably, in Kaiser Cement, the insured was on the same side of the argument as Truck, the primary carrier, arguing against the stacking of limits. The Truck policies included a per occurrence deductible. Because the insured did not want to pay multiple deductibles (one for each of the primary policies) for claims which could instead be paid by the excess layer if only a single primary policy applied, the insured argued against stacking. While Kaiser Cement held strongly that policy limits could not be stacked, it may be one of many examples where the court's reasoning seems end-driven to give the best position to the insured.

On Oct. 31, 2012, the Supreme Court of California transferred the Kaiser case to the Court of Appeal, Second Appellate District, Division Four, with directions to vacate its decision and to reconsider it in light of State of California v. Continental Ins. Co. , 55 Cal.4th 186, 145 Cal. Rptr. 3d 1, 281 P.3d 1000 (2012). The Court of Appeal has not yet ruled.

Ramiro Moralesis the founding member of Morales Feirro & Reeves, a firm with offices in Nevada, California and Arizona. The firm specializes in insurance coverage and bad faith litigation. Morales' coverage practice includes all facets of commercial liability, professional liability, and life and health insurance coverage matters. He is a Fellow of the American Bar, a member of the Federation of Corporate Counsel, and a Northern California Super Lawyer. He has also lectured on behalf of the Nevada State Bar, the Federation of Corporate Counsel, the Construction Claims Managers Association, trade associations, and he has provided specialized corporate training for his clients.