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The California Supreme Court affirmed a Court of Appeal decision holding insurers liable for “all sums” – meaning, the full amount of a loss up to an insurer’s policy limit – for continuous injury claims.  The Supreme Court also approved stacking.  The Court concluded standard policies do not prohibit stacking, but noted insurers are free to include “antistacking” language.

The State of California designed a waste disposal site in a Riverside County quarry which came to be known as the Stringfellow Acid Pits.  With the addition of a concrete dam, the State determined the location’s natural features made it a suitable site.  But, in fact, there were major flaws.  The State discovered groundwater contamination and closed the facility in 1972.  A federal court subsequently held the State liable for past and future cleanup costs which could reach $700 million.

The State filed suit against its insurers, seeking indemnification for its liability for the site.  The critical wording of the State’s insurance policies was essentially the same.  In addition to other relevant provisions, the insurers promised to pay “all sums which the Insured shall become obligated to pay by reason of liability … for damages … because of injury to or destruction of property….”  The parties stipulated that damage at the site took place continuously over multiple policy periods.  

The trial court held, based on the “all sums” wording in the policies’ insuring agreements, that any one insurer was liable for the full amount of the loss, subject to its particular limit of insurance.  The court also held the State could not “stack,” or combine, the policies to recover the limits of every triggered policy.  Rather, the State could choose one policy period and recover only that limit.  The court based this ruling on FMC Corp. v. Plaisted & Cos.¹  (“FMC”). 

The State appealed, and most of the insurers filed cross-appeals.  The Court of Appeal affirmed the trial court’s ruling relating to “all sums,” and rejected the insurers’ argument they could not be liable for property damage outside their respective policy periods.  The Court of Appeal however reversed the trial court’s ruling prohibiting stacking.  The Court of Appeal refused to follow FMC, concluding its analysis was “flawed and unconvincing.”  The insurers petitioned for review by the California Supreme Court.

The Supreme Court described the unique features of “long tail” injury claims.  Such claims are common in toxic exposure and environmental damage cases, since they often involve a series of indivisible injuries taking place over years or decades.  The Supreme Court noted suits involving such claims can be complex, and an insured often cannot prove the increment of damage during any one policy period.  Older policies typically do not state explicitly how coverage for long-tail claims should apply.

“All Sums”

The Supreme Court concluded its earlier decisions in Montrose Chemical Corp. v. Admiral Ins. Co.²  and Aerojet-General Corp. v. Transport Indemnity Co.³ control interpretation of the policies’ “all sums” wording.  In Montrose, the Court held continuous or progressive damage during multiple policy periods is potentially covered under all liability policies in effect during that time.  The limitation on indemnity is that damage must take place during the policy period and result from an “occurrence.”  In Aerojet, the Court held an insurer on the risk when some damage takes place is obligated to indemnify the insured for the full amount of the ensuing damage. 

Although both decisions principally involve the duty to defend, Aerojet interpreted Montrose as extending an insurer’s duty to indemnify for damage outside its policy period where the insured is liable for continuous injury.  As long as covered damage exists during a particular policy period, that insurer is obligated to indemnify the insured for the duration of the loss, subject to the policy limit. 

In a footnote in Montrose, the Court stated it would not endorse imposing joint and several liability on insurers for all damages in a long-tail claim.  The insurers argued this compelled a narrow interpretation of the “all sums” wording.  The Supreme Court disagreed concluding each insurer is severally, not jointly, liable, up to its limit.  

The insurers advocated a pro rata allocation, which would spread a loss among all triggered policies and to an insured for uninsured periods.  The Court concluded the policy language is similar to the Montrose and Aerojet policies and did not support a pro rata allocation.

The insurers also argued it was not objectively reasonable to hold them liable for damage outside their policy periods.  However, the insuring agreement does not restrict an insurer’s promise to pay “all sums” only to the insured’s liability for damage “during the policy period.”  The two phrases are not logically or grammatically related, and the Supreme Court declined to limit the scope of the “all sums” wording.  Thus, the Supreme Court held the insurers’ policies obligated them to cover all sums for ensuing property damage at the site, up to their respective limits, provided some damage took place during the particular insurer’s policy period.  

Stacking

Where a loss is within a single limit, the insured can recover from that insurer, and the insurer then may seek contribution from other insurers on the risk.  But where a single limit is insufficient, the Supreme Court held stacking of limits would apply.  It noted this “all-sums-with-stacking” approach effectively treats all triggered policies as one coverage, with a limit equal to the sum of the individual policy limits. 

The Supreme Court expressly disapproved FMC.  It held that, absent an antistacking provision, a statute prohibiting stacking or judicial intervention, standard policy wording permits stacking.  It stated there is nothing unfair where an insured recovers multiple limits after it has paid premium for multiple years of coverage. 

Please click here for the opinion.

This opinion is not final.  It may be withdrawn from publication or modified on rehearing.  These events would render the opinion unavailable for use as legal authority in California state courts.

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