On August 9, 2012, the California Supreme Court issued its decision in State of California v. Continental Ins. Co., finding that in continuous injury, or “long-tail,” claims, an insurer must indemnify its insured up to its policy limits if any part of the loss occurred during the policy period, and that stacking successive policies is generally allowed.
In this case, it was alleged that contamination at an industrial waste disposal site (the “Stringfellow site”) continuously caused damage to surrounding land and water supply from 1964 to 1976. Because multiple consecutive insurance policies were in effect over this time period, the Court had to address questions commonly raised in continuous injury claims involving successive insurance policies. First, when does continuous damage trigger coverage under any one policy? Second, how should coverage be apportioned among successive insurers? And third, is stacking permitted?
To answer the first two questions, the Court relied on two cases which dealt primarily with an insurer’s duty to defend: Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645 and Aerojet-General Corp. v. Transport Indemnity Co. (1997) 17 Cal.4th 38.
The Court approved of Montrose’s holding that continuous damage may trigger all policies in effect during the continuous damage period. As in the case before the Court, the policy at issue in Montrose defined a coverage-triggering “occurrence” to include “continuous or repeated exposure” to events resulting in property damage.
The Court then adopted the “all sums” approach articulated in Aerojet to reject the insurers’ arguments for a “pro rata” apportionment scheme – whereby an insurer is only responsible for a coverage amount proportionate to the length of its policy period. There, the court interpreted Montrose to hold that as long as an insurance policy is in effect at some point during the continuing damage, an insurer’s duty to indemnify persists until the loss terminates, up to the policy’s limits. In other words, according to the “all sums” approach, an insurer can be found on the hook for “all sums” incurred by the continuous damage, up to its policy limits, even if some of the ongoing damage occurred outside of the insurer’s policy period, and even if a claim was filed after the continuous damage was complete. The Court noted that the policies at issue contained no language which supported the insurers’ insistence that their indemnity obligations were limited to only “all sums” accrued during the policy period.
Lastly, the Court addressed the permissibility of stacking, or calling upon the limits of every triggered insurance policy to respond to a claim. In essence, stacking combines triggered policies from different periods into one “uber-policy” that has a coverage limit equal to the sum of all purchased policies. The Court held that in the absence of anti-stacking provisions in a policy or statute, insurance policy stacking is permitted. As such, rather than treating Stringfellow’s continuous damage as though it occurred in a single policy period, the Court held that the State was entitled to indemnification from multiple insurers up to their limits.
Because the Court relied heavily on the language of the policies at issue, it will be important for insurers to consider drafting policy language that prohibits stacking and/or curbs the sweeping span of Aerojet’s “all sums” approach, perhaps with an explicit directive for pro rata apportionment. Likewise, insureds will have to pay careful attention to their individual policies and how they overlap so as to avoid leaving themselves unprotected for any period of time.
